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European Biopharmaceutical Review

Innovative India

The Indian pharmaceutical industry ranks among the top five globally by production volume, and currently accounts for over 10 per cent of the global drug production. The industry’s turnover has grown from a mere $300 million in 1980, to more than $22 billion in 2013. According to the Department of Pharmaceuticals, the Indian pharmaceutical industry employs around 340,000 people. However, the industry is fragmented, with more than 20,000 companies – of whom about 77 per cent produce finished formulations, while the remaining 23 per cent manufacture bulk drugs. Recent reports suggest that India's domestic pharmaceutical sector is expected to expand to $55 billion by 2020 and, as a significant exporter of high-quality generic drugs, the value of India’s drug exports is expected to double to $25 billion by the end of 2014, according to the country’s Minister of Health.

Disruptive Influences

The future direction of the Indian pharmaceutical business will be subject to a number of market influences between now and 2030. Most local companies have grown from small family-run businesses established to exploit India’s former patent stance which, until 2005, did not recognise specific product patents, only process patents. Companies expanded rapidly by developing specific expertise in process chemistry and formulation as a means to work around the process patents of multinational companies’ (MNCs') leading drugs. Culturally, the family bond in Indian companies is still considered to be strong, even though many have, in part, merged into public ownership. Significant corporate strength has been derived through loyalty to the leadership, and thus the source of company ownership – be it family or corporate – is believed to be immaterial in the short term. Indeed, there are some perceived advantages in the family corporation model, such as close-knit teams and streamlined decision-making. However, for business development in the long-term, these structures may present challenges. These could arise if families are split with different personal visions for expansion, or with the need for growth driven by investment as opposed to profit, with the traditional desire to avoid debt driving a transition to broader ownership, enabling future debt financing. The system of family control has ensured that local competition remains fierce and there are few intradomestic collaborations. Companies predominantly seek more collaborations with non-Indian partners, as this also allows them to gain leverage in international markets. Co-development and risk-sharing in partnerships, venture funding and equity investments are seen as necessary to enable further international growth. As a mechanism of corporate growth, it is not expected that we will see large domestic Indian companies merge, as there are few opportunities to derive economies of that scale with a relatively homogenous product mix between companies. When a merger and acquisition (M&A) does happen, this is expected to occur from the bottom up. There are over 20,000 pharmaceutical companies in India, but these are primarily micro companies, with only around 250 ‘organised’ companies. For MNCs without a significant presence in India, the acquisition route may provide an attractive way to gain a local operation, and those domestic companies without substantial ex-India business may be targets.

Promoting Sales Growth

The Indian domestic market is expected to remain important for both local companies and MNCs. However, the domestic market is likely to remain as present and will not offer the highest profits, as there is much small-scale competition in the niche generics sectors driving down costs. Companies must avoid continually offering simple, lower-cost generic alternatives, which propagates the downward cost spiral and potentially compromises quality. Generics, as opposed to novel drugs, can still provide growth in the future, but drug developers currently appear to offer only modest levels of innovation – new combinations or minor formulation improvements, for example. While India may have revolutionised the generics market by driving down cost, there is a strong perception that this has stifled its pursuit of more innovative development. The five leading companies in this sector spend approximately 5-10 per cent of their earnings in research and development-related activities. However, in global circles this percentage is nearer to 15-20 per cent. In order to drive faster growth, companies must now aim to create true added-value offerings (super-generics), which can deliver additional patient benefits. In that way, continued downward price pressure and the ‘commodity’ label may be avoided, as companies begin to differentiate their products through the application of technology. The continuing wealth growth and industrialisation of the population is shifting the demand from acute to chronic diseases, such as diabetes, hypertension and psychiatric disorders. Marketing the chronic disease segments allows companies to build brand loyalty among prescribers and patients: MNCs have successfully built substantial franchises on that basis. For Indian companies predominantly engaged in generics, such franchises will be increasingly difficult to access as there is currently no basis for a relationship with the stakeholders. Portfolio diversification is needed in order to stay competitive in this arena and companies may need to consider specialising in a therapeutic spectrum, rather than just molecular segments. India remains one of the largest nations without basic health insurance coverage and the need to pay ‘out of pocket’ may constrain prices and profits, and hence domestic market growth. For real growth to occur, and to out-pace simple, organic population growth, there would need to be improvements to essential national infrastructure. India is substantially under-invested in healthcare; it is inhabited by 17 per cent of the world's population, yet it only has six per cent of the hospital beds. This provides a limiting effect on the use of drugs and other healthcare products. Although private companies are building units to tap into the burgeoning Indian middle-class health market, the necessary expansion for the bulk of the population will have to be met by government or public-private enterprise. On the international stage, Indian companies have become synonymous with the provision of good-value generics. US and EU export markets deliver greater profit on volume, and the levels of major Western market penetration can be exemplified by noting that over a third of all drug master files (DMFs) filed with the Food and Drug Administration (FDA) are held by Indian companies. However, with China now already holding around 11 per cent of DMFs, Indian companies would need to continue expanding into new markets, such as Latin America, Russia and the Commonwealth of Independent States.

Regulatory and Clinical Environment

In the future, India will need improved regulatory approval processes. It either needs greater bandwidth for the approval process, or should consider restrictions on the number of generics which can be reviewed to allow drugs to be approved faster. Other countries restrict the number of filings for a specific generic, so that there are not dozens of similar generics that clog national regulators’ approvals processes. Furthermore, there are concerns that continuing to allow unrestricted regulatory access with low hurdles may be detrimental to long-term quality. India is trying to globalise its regulations to match Western countries. Such a measure could benefit the larger domestic companies and MNCs which have rigorous quality standards in place. This will ultimately restrict growth for the thousands of micro pharmaceutical companies in India focused on generics, forcing rationalisation or M&A activity. One aspect which is seen to confer a distinct advantage on companies operating in India is the opportunity to treat the country as a vast test market. The lower regulatory burden allows companies the luxury of having the domestic market as an incubator for new concepts. This is seen as hugely important as Indian companies shift their emphasis to the adoption of technologies as mechanisms of differentiation. The local, less regulated market allows technology to be real-world validated prior to entry into either the EU or US markets, where the greater clinical trial burden would add significant pre-launch cost and risk. Although the data generated has no validity for the purposes of regulatory submission, the experience is invaluable.

Technology Impact

To capitalise on the growth opportunities, technology might be adopted by Indian companies to achieve the kind of expansion expected. While consumer goods have very short life cycles, medical products have longer cycles, principally because of the high safety and efficacy burdens on drugs. However, as new generic opportunities slow (due to the fall in MNCs’ new chemical entity output), what technology might be used in drug delivery to extend life cycles, add value and, importantly, allow product differentiation in a crowded market space? Will Indian companies invest in technology to develop beyond simple generics in the international markets? Oral delivery will continue to be the gold standard for primary treatment in most countries unless user needs, clinical requirements or drug types constrain this delivery method. The choice of the oral dose form has a number of principal drivers: cost and time to launch can be minimised by the oral route, and patient compliance concerns more readily addressed than with complex delivery systems. For Indian companies competing in the crowded generics space, speed-to-market and first-to-file advantages in the US have been, and are expected to remain, important while existing legislation stays in place. A predominant strength for Indian companies has classically been in chemistry and formulation and so, by staying within their knowledge and comfort zone of oral formulation, companies have minimised their development costs and risk by not adopting innovative or higher-priced technologies. However, while modest life cycle management opportunities via formulation changes or improvements may deliver modest profitability gain, and can move companies ahead of commodity generics, more substantial success will be driven by combining drugs with devices and delivery systems, and not by drugs alone. The addition of such technology differentiators will require Indian pharmaceutical companies to increase investment and/or consider co-development and risk-sharing partnerships, while investing significantly in R&D. A growing number of Indian companies are moving into biologics, where injectable therapy necessarily predominates due to the inherent unsuitability of protein molecules for oral administration. So could injectable therapies become a mass-market solution for drug delivery? The switch to the use of injections as a principal delivery mechanism in the mass market is not a device problem. An injection needs to be both easy and painless to administer in order to become a mass market product, and also needs to be safe and sterile regardless of the local environment. Where adopted, technology must be used to remove the fear of delivery, inconsistencies in use and local injection site reactions – the products must focus on user needs. For the growth in biologics to occur, there is a need for greater product support to gain adoption by consumers. Adding additional technology which overcomes such issues will ultimately be cost-saving, and therefore this is an area where technology investment is most likely to be made. The use of India as a test market is a likely scenario for future biologics therapy. India is a large enough market that focusing drug and device development might aid both MNCs and local companies to grow globally.

Conclusion

Against the background of rising healthcare costs, how might Indian companies use technology to harvest and beneficially use data to bring benefits to healthcare providers and consumers alike? Currently, a generic device has to be an ‘acts-like, uses-like, feels-like’ system, and so embracing connected health technology would have to be part of a strategy to adopt added-value technologies. In keeping with India’s reputation of serving mass markets, there are concerns about the tipping point at which technologies will become inexpensive enough for widespread adoption, with parallels being drawn to the mobile phone and internet adoption pathways. Devices that enable improved compliance are essential, provided they can be low-cost. These could remind patients about dosage, inform physicians about patient progress through a course of treatment, and provide ongoing non-invasive monitoring of conditions. The impetus for driving that business forward is likely to come from software companies coupled with healthcare payers in Western markets. However, given India’s dominance in IT and software in places such as Bangalore, it is not beyond belief that a connection could be made between one industry and the other, placing India in a strong position to become a global player in connected health markets.


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Andrew Barrett is Associate Director of Drug Delivery in the Global Medical Technology Practice at Cambridge Consultants. He is a healthcare industry commercial specialist with over 25 years’ relevant experience covering the pharmaceutical and medical devices sectors of the healthcare market. Prior to joining Cambridge Consultants, Andrew held a variety of marketing and business development roles in Big Pharma with Abbott and Baxter. Latterly he has been instrumental in developing business in India/Pac Rim for specialty companies such as Vectura and ML Laboratories.

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