www.pwc.com/india
`
`India Pharma
`Inc.: Capitalising
`on India’s
`Growth Potential
`
`Exhibit 1135
`IPR2017-00807
`ARGENTUM
`
`000001
`
`

`

`000002
`
`000002
`
`

`

`Foreword
`
`Sujay Shetty
`Director
`India Pharmaceuticals &
`Life sciences leader, PwC
`
`Jai Hiremath
`Chairman,
`CII Pharma Summit 2010 &
`Vice Chairman & Managing
`Director, Hikal Ltd.
`
`The global Pharma industry is under serious pressure from a large number of innovator molecules facing patent expiration,
`a thin pipeline of new drugs, regulatory challenges and pricing pressures. This has led to a directional shift towards the
`emerging markets of Asia, Australia, Africa and Latin America, which are growing three times faster than the current
`growth rates experienced in the industry’s leading markets of North America, Japan and Europe. We expect over 40% of
`the global Pharma industry’s incremental growth over the next decade to come from the emerging markets.
`The Indian Pharma industry is on the threshold of becoming a major global market by 2020. Many experts believe that
`the Industry has the potential to grow at an accelerated 15 to 20% CAGR for the next 10 years to reach between US$49
`billion to US$74 billion in 2020.
`The Indian pharmaceuticals market is witnessing dynamic changing trends such as large acquisitions by multinational
`companies in India, increasing investment by domestic and international players in India, deeper penetration into the rural
`markets, growth and availability of healthcare and incentives for setting up special economic zones (SEZ’s). We believe
`these trends combined with increased purchasing power and access to good quality medical care will continue to propel
`the domestic pharmaceutical industry to new heights.
`Indian Pharma companies are already major outsourcing partners of global Pharma companies. Research & Development
`in India is getting more innovative. Domestic companies have strengthened their position in the world for supplying
`solutions across the pharmaceutical value chain. They are likely to become a competitor of global Pharma in the areas
`of manufacturing and R&D, and a potential partner in others.
`In this report, we look at developments in the branded generics market, over-the-counter products (OTC), vaccines and
`rural markets, and analyse what lies ahead for the industry as it aims to capitalise on the promise of the domestic market
`place. We believe that the domestic Indian pharmaceutical market has a positive growth trajectory but will also face major
`transformational challenges in the next decade. We address some of these challenges and identify key imperatives to
`accelerate the domestic market’s growth.
`
`000003
`
`

`

`Contents
`
`Background
`
`The Indian Domestic Pharma Market
`
`Indian Pharma Market Segments
`
`Rural markets
`
`Vaccines
`
`Changing Tax Environment
`
`Challenges
`
`The Road Ahead - Imperatives for Growth
`
`Profiles
`
`References
`
`About Confederation of Indian Industry
`
`About PricewaterhouseCoopers
`
`Contacts
`
`6
`
`14
`
`18
`
`28
`
`34
`
`38
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`44
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`48
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`52
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`60
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`62
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`63
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`Executive Summary
`
`The global pharmaceutical market is
`undergoing rapid transformation. As
`blockbuster drugs come off patent, there
`are fewer new products in the pipeline to
`replace them. This is due to declining
`R&D productivity and rising regulatory
`costs. In PwC Pharma 2020 series of
`reports, we have examined in detail the
`challenges faced by Big Pharma in this
`regard. There has been a dramatic shift
`towards emerging markets as western
`markets slow down. Global Pharma
`multinational corporations are looking
`at new growth drivers such as the Indian
`domestic market to capitalise on the
`growing opportunity.
`The paradigm faced by the leading
`economies of the US, Europe and Japan
`are significantly different from those in
`the emerging markets of India, China,
`South America and Russia. According
`to IMS Health, the emerging markets
`of Asia/Africa/Australia grew at a rate
`of 15.9% in 2009, as compared to much
`slower growth rates in North America
`(5.5%), Japan (7.6%) and Europe
`(4.8%).(1) Emerging markets will be the
`next major growth drivers for the global
`Pharma industry, with more than 40%
`of incremental growth of the industry
`coming from emerging economies in
`the next decade.(2)
`In our report, “Capitalising on India’s
`growth potential”, we analyse the
`immense potential of India’s domestic
`Pharma market, which was valued at
`approximately US$12 billion in 2010,
`and showed a strong growth of 21.3%
`for the twelve months ending September
`2010.(3) PwC estimates that over the next
`10 years, the domestic market will grow
`to US$49 billion - a compounded annual
`growth rate (CAGR) of 15%, with the
`potential to reach US$74 billion – a
`CAGR of 20%, if aggressive growth
`drivers kick in.
`One of the reasons behind this expected
`growth rate is that India’s pharmaceutical
`
`industry has a favourable macro-
`environment to grow in. The Indian
`economy has rebounded from the global
`economic downturn, with real gross
`domestic product (GDP) growth reaching
`9.66% in 2010.(4) The Indian middle
`class is also expanding rapidly, with
`affordability of medicines increasing,
`and an increased percentage of
`disposable income being spent on
`healthcare. The government has made
`public healthcare one of its top priorities
`by launching policies and programmes
`that are aimed at making healthcare
`more affordable and accessible, especially
`in rural markets.
`The industry is witnessing trends
`such as acquisition activity, increasing
`investment, deeper penetration into
`the tier I to tier VI and rural markets,
`growth in insurance coverage and
`innovation in healthcare delivery.
`Taken together, these trends are leading
`to increased affordability of services
`to patients and access to quality medical
`care. We believe these trends, along
`with the favourable macro environment
`will propel the industry to the next level
`of growth.
`At the moment, approximately 90% of
`India’s pharmaceutical market is made
`up of branded generics.(5) We estimate
`that this segment will grow at a CAGR
`of 15% - 20% for the next five years.(5)
`Generic generics’ and patented products’
`contributions to the market as a whole is
`currently very low. Although this is the
`expected model of the future, we do not
`foresee a significant increase in the next
`five years; the market is expected to
`remain comprised predominantly of
`branded generics. By 2020 though,
`patented drug sales are expected to
`increase, owing to an improvement in
`the implementation of patent laws and
`spread of health insurance. We also
`expect the OTC segment to be a strong
`growth driver for the industry.
`
`Currently, around 67% of India’s
`population, or 742 million people live
`in rural areas (6), but rural markets
`contribute to only 17% (7) of the overall
`market’s sales. This represents a huge
`opportunity for pharmaceutical
`companies, as we expect these markets
`to be the future growth drivers for the
`industry. The rural market has several
`challenges, and in order to tap the full
`potential of this opportunity, companies
`should:
`• create demand by increasing
`awareness and education;
`• work with the government through
`public-private partnerships (PPP),
`in order to improve hygiene and
`infrastructure conditions;
`• mobilise primary care givers and
`paramedics through health and
`diagnostic camps;
`• bring specific product solutions to
`the market and use local languages;
`• improve accessibility of medicines
`by innovative distribution channels
`and
`• make products affordable, through
`appropriate pricing and packaging.
`Top Indian and foreign companies will
`look to increase their market share by
`entering into strategic alliances,
`strengthening their sales forces and
`increasing penetration into newer
`markets.
`The potential that the Indian Pharma
`industry holds is unquestionable. India
`is home to approximately 1/6th of the
`world’s population, and is expected to
`become the most populous nation in the
`world by 2050.(8) Demand for
`pharmaceuticals will grow decidedly.
`Government must continue to invest in
`healthcare and medical infrastructure in
`rural markets, raise healthcare spending,
`encourage innovation, contain healthcare
`costs and work with private players to
`take the market to the next level.
`
`000005
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`

`

`Background
`Strong macroeconomics
`over the next decade
`
`The Growing Indian Economy
`
`Growing Middle Class With Higher Purchasing Power
`
`Changing Disease Profile
`
`Government Policies
`
`Healthcare Insurance
`
`000006
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`

`

`Figure 1: Emerging markets (Asia/Australia/Africa & Latin
`America) growing faster than developed markets
`
`15.90%
`
`10.60%
`
`7.60%
`
`5.50%
`
`4.80%
`
`North America
`1
`
`Europe
`
`2
`
`3
`
`Japan
`
`4
`
`Asia/Australia/
`5
`Africa
`
`Latin
`America
`
`18.00%
`
`16.00%
`
`14.00%
`
`12.00%
`
`10.00%
`
`8.00%
`
`6.00%
`
`4.00%
`
`2.00%
`
`0.00%
`
`Growth Rate (%)
`
`Source: IMS Health market prognosis, March 2010
`
`Figure 2: Emerging markets drive industry growth
`
`100%
`
`90%
`
`80%
`
`70%
`
`60%
`
`50%
`
`40%
`
`30%
`
`20%
`
`10%
`
`0%
`
`2
`
`32
`
`9
`
`10
`
`37
`
`9
`
`3
`
`35
`
`9
`
`42
`
`12
`
`2
`
`22
`
`9
`
`10
`
`44
`
`12
`
`1
`3
`
`7
`
`11
`
`63
`
`15
`
`2
`
`22
`
`9
`7
`
`48
`
`11
`
`2
`
`23
`
`9
`6
`
`46
`
`12
`
`2009 (f)
`
`2010 (f)
`
`2011 (f)
`
`2012 (f)
`
`2013 (f)
`
`2008-2013 (f)
`
`Rest of World
`
`Emerging markets
`
`South Korea, Canada
`
`Japan
`
`EU
`
`US
`
`Source: IMS Health, Market Prognosis, October 2009
`
`
`
`PwC
`
`7
`
`Large numbers of forthcoming patent
`expiries, a dry pipeline of new drugs,
`regulatory challenges and pricing
`restrictions have collectively contributed
`to low growth rates for prominent global
`pharmaceutical markets. As global
`markets such as North America, Europe
`and Japan continue to slow down (See
`figure 1), pharmaceutical companies are
`scanning markets for new growth
`opportunities to boost drug discovery
`potential, reduce time to market and
`squeeze costs along the value chain. The
`Industry is beginning to realize that some
`of the most promising opportunities will
`come from emerging markets (Asia/
`Australia/Africa & Latin America).
`IMS Health and other sources suggest
`that emerging markets (China, India,
`Brazil, Russia, Turkey, Mexico and South
`Korea) will contribute to over 40% of the
`incremental growth of the global
`Pharmaceutical industry over the next
`decade.(2) In this report, we will look at
`the domestic Indian Pharma market, and
`the opportunities it holds.
`The huge potential of the Indian
`pharmaceutical industry is impossible for
`global Pharma companies to ignore,
`given that India will be one of the top 10
`sales markets in the world by 2020.
`Some of the largest Pharma companies in
`the world have been in the Indian market
`since the 1970s, and 5 out of the top 10
`domestic Pharma companies are already
`foreign owned, with a consolidated share
`of 22 – 23%.
`India’s domestic pharmaceutical market
`has recorded a CAGR of 13.5% over the
`past five years.(5) With considerable
`expertise in manufacturing of generics
`and vaccines, Indian companies have
`now also started significant research
`and development (R&D). India has the
`world’s second biggest pool of English
`speakers and a strong system of higher
`education, all this has well-positioned
`
`000007
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`

`

`India to become an outsourcing partner
`in manufacturing and R&D, and as a
`location for clinical trials.
`The Indian economy is growing strongly
`and healthcare is expanding to meet the
`needs of a growing population with a
`
`changing disease profile. Increase in
`insurance coverage, aggressive market
`creation, growth in the income of the
`Indian population and steady
`government investment into medical
`infrastructure has further propelled the
`
`growth of the industry, such that it is on
`the threshold of becoming a competitor
`of global Pharma companies in some key
`areas, and a potential partner in others.
`
`Macro factors pushing the industry
`
`Figure 3: India’s strong GDP growth rate
`
`12
`
`10
`
`02468
`
`GDP growth (%)
`
`2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
`GDP growth % 9.167 9.658 9.886 6.396 5.678 9.668 8.373 7.976 8.174 8.148 8.128
`
`The Growing Indian Economy
`The Indian economy is growing fast,
`and is valued at US$1.430 trillion in
`2010.(4) GDP growth, calculated on
`a Purchasing Power Parity basis has
`reached 9.66% in the year 2010, and
`the International Monetary Fund (IMF)
`expects it to remain consistently above
`8% till 2015. Furthermore, India’s share
`in the world GDP has been steadily
`increasing, and is expected to reach
`6.28% in 2015, up from 4.17% in 2005.(4)
`
`Source: International Monetary Fund, World Economic Outlook, (October 2010)
`
`Figure 4: Growing global share of India’s GDP (%)
`
`4.74
`
`5.276
`
`5.677
`
`5.486
`
`6.074
`
`5.873
`
`6.28
`
`4.544
`
`5.051
`
`4.365
`
`4.173
`
`01234567
`
`India’s share of the World’s GDP (%)
`
`2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
`
`Source: International Monetary Fund, World Economic Outlook, (October 2010)
`
`8
`
`India Pharma Inc.: Capitalising on India’s Growth Potential
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
` 2010
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`

`Growing middle class with higher purchasing power
`India’s population is currently just
`at 2001-02 prices), which has grown
`over 1.1 billion and is projected to
`rapidly, from 25 million people in 1996
`rise to 1.6 billion by 2050 – a 45.5%
`to 153 million people in 2010.(11) If the
`increase that will see it outstrip China
`economy continues to grow fast and
`as the world’s most populous state.(9)
`literacy rates keep rising, around a third
`Besides, India has a huge middle class
`of the population (34%) is expected
`population (households with annual
`to join the middle class in the near
`incomes of US$4762 to US$23,810
`future. The middle class population
`
`is rapidly acquiring the purchasing
`power necessary to afford quality
`western medicine due to an increase
`in disposable income. The Indian
`population spent 7% of its disposable
`income on healthcare in 2005; this
`number is expected to nearly double, to
`13%, by 2025.(12)
`
`Figure 5: Population growth projections
`
`Figure 6: Ascent of the Indian Middle Class -
`Percentage of the population
`
`13%
`
`• 2009-10
`
`34%
`
`• 2020
`(Forecast)
`
`11.7%
`
`• 2007-08
`
`6%
`• 2001-02
`
`1326.1
`
`1311.6
`
`1296.8
`
`1281.9
`
`1266.9
`
`1251.7
`
`1236.3
`
`1220.8
`
`1205.1
`
`1189.2
`
`Million Persons
`
`2019/20
`
`2018/19
`
`2017/18
`
`2016/17
`
`2015/16
`
`2014/15
`
`2013/14
`
`2012/13
`
`2011/12
`
`2010/11
`
`Source: ISI analytics (2010)
`
`Source: Economic Times (April 2009), PwC analysis
`
`Figure 7: Indian population’s expenditure break up as a % of overall disposable income
`
`4%
`
`100%
`
`7%
`
`9%
`
`13%
`
`Healthcare
`
`Education &
`Recreation
`
`Communication
`
`Tranportation
`
`Personal products
`and services
`
`Household
`products
`
`Housing & utilities
`
`Apparel
`
`Food, beverages
`and tobacco
`
`90%
`
`80%
`
`70%
`
`60%
`
`50%
`
`40%
`
`30%
`
`20%
`
`10%
`
`0%
`
`Percentage spend
`
`1995
`
`2005
`
`2015F
`
`2025F
`
`Year
`Source: IDFC Institutional Securities, Indian Pharma (June 2010)
`
`
`
`PwC
`
`9
`
`000009
`
`

`

`Along with chronic, in the last year there
`has been a rebound in sales in the acute
`diseases segment. This trend is likely to
`continue over the next few years, as we
`see companies widening their reach into
`newer markets, which have a relatively
`higher number of treatment naïve
`patients requiring basic treatment, thus,
`creating new demand for drugs of the
`acute therapies segment.
`
`Changing Disease Profile
`The Indian population is experiencing
`a shift in disease profiles (Figure 8).
`Traditionally, the acute disease segment
`held a significant share of the Indian
`pharmaceutical market. This segment
`will continue to grow at a steady rate,
`due to issues relating to public hygiene
`and sanitation. But, with increase in
`affluence, rise in life expectancy and
`the onset of lifestyle related conditions,
`the disease profile is gradually shifting
`towards a growth in the chronic diseases
`segment. India has the largest pool of
`diabetic patients in the world, with more
`than 41 million people suffering from the
`disease; this is projected to reach 73.5
`million in 2025.(10)
`
`IMS Health indicates that some of the
`fastest growing therapeutic segments
`in the Indian Pharma space today are
`chronic disease-related therapeutic
`segments. The anti-diabetic segment
`grew 29% in the 12 months ending July
`2010. Cardio-vascular medication and
`nervous system disorder medication
`grew at 22% for the same period of time,
`indicating rapid growth.(13)
`The growing size of the Indian geriatric
`population will be a key factor in
`influencing the growth of the chronic
`segment. By 2028, an estimated 199
`million Indians will be age 60 or older,
`up from about 91 million in 2008.(9)
`
`Figure 8: Shift in Disease Profile toward Chronics
`
`Cancer
`
`Heart disease
`
`Other circulatory
`
`CNS Disorders
`
`Diabetes
`
`Asthma
`
`Others
`
`Sense organs
`
`Muscoloskeletal
`
`Accidents
`
`Acute Infections
`
`622542
`
`12
`
`8
`
`21
`
`2
`
`41
`
`1522331
`
`2751
`
`57
`
`100%
`
`90%
`
`80%
`
`70%
`
`60%
`
`50%
`
`40%
`
`30%
`
`20%
`
`10%
`
`0%
`
`Disease Prevalence (%)
`
`2001
`
`2012
`
`Source: IDFC Institutional Securities, Indian Pharma (June 2010)
`
`000010
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`

`

`Government policies
`The Indian government has been
`making efforts to improve nationwide
`provision of healthcare. It has launched
`policies that are aimed at:
`• building more hospitals,
`• boosting local access to healthcare,
`• improving the quality of medical
`training,
`• increasing public expenditure on
`healthcare to 2-3% of GDP, up from a
`current low of 1%.(14)
`Some of the significant government
`allocations on healthcare spend include
`a five year tax break for opening
`hospitals anywhere in India, with
`an added focus on tier II and tier III
`markets, both in the 2008-09 Union
`Budget.
`
`plans to spend US$293 million on
`the promotion of healthcare through
`programmes for the prevention and
`cure of diseases such as cancer, diabetes,
`heart ailments and stroke in 2011-12.
`Diabetes, hypertension and non-
`communicable disease patients will be
`screened under the National Programme
`for Prevention and Control of Cancer,
`Diabetes, Cardiovascular Diseases and
`Stroke (NPCDCS). The programme is
`likely to cover more than 70 million
`adults across 100 districts in 15 states
`and union territories of the country.(15)
`Healthcare Insurance
`India’s healthcare insurance industry
`is currently very small and limited,
`but is expected to grow at a CAGR of
`15% till 2015. Around 80% of
`
`India’s healthcare expenditure is
`financed out of pocket. This limits
`the propensity of Indians to spend on
`healthcare, particularly in lower and
`middle income groups which comprise
`around 95% of population.(8)
`The small percentage of Indians who
`do have some insurance, the main
`provider is the Government-run
`General Insurance Company (GIC).
`Private insurance only came into the
`market post 2007, when the Insurance
`Regulatory and Development
`Authority (IRDA) eliminated tariffs
`on general insurance. Apollo was
`the first private healthcare insurance
`provider in the country; other private
`entrants are ICICI Lombard, Tata AIG,
`Royal Sundaram, Star Allied Health
`Insurance, Cholamandalam DBS and
`Bajaj Allianz Apollo.
`
`Going forward, the Indian government
`
`000011
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`

`

`Figure 9: Healthcare expenditure break up 2009
`
`Local
`
`Social Insurance
`
`11%
`
`6%
`
`State
`
`71%
`
`12%
`
`Centre
`
`Government
`
`17%
`
`3%
`
`Insurance
`
`Out of Pocket
`
`80%
`
`Source: ISI Analytics, Healthcare Industry (2010)
`
`Figure 10: Increase in penetration of Healthcare Insurance
`
`No. of People
`covered by
`Health Insurance
`(Million)
`
`70
`
`60
`
`50
`
`40
`
`30
`
`20
`
`10
`
`0
`
`Million Persons
`
`Size of the Healthcare
`Insurance Industry
`
`81000
`
`66000
`
`32090
`
`22220
`
`17320
`
`13540
`
`10040
`
`7610
`
`90000
`
`80000
`
`70000
`
`60000
`
`50000
`
`40000
`
`30000
`
`20000
`
`10000
`
`0
`
`INR Million
`
`2002
`
`2003
`
`2004
`
`2005
`
`2006
`
`2007
`
`2008
`
`2009
`
`2006
`
`2015
`
`Source: ISI Analytics, Healthcare Industry (2010), General Insurance Council of India (2010)
`
`12
`
`India Pharma Inc.: Capitalising on India’s Growth Potential
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
` 2010
`
`000012
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`

`“In terms of factors that could drive the market up,
`I think insurance would be a major factor. Insurance
`penetration numbers should go up dramatically,
`because out of pocket payment for medications is not a
`model anywhere in the world, as it cannot drive a large
`part of the market. A lot of countries have gone through
`this change; it is imperative to take us to the next level.”
`
`– Achin Gupta , Sr. V.P, Corporate Strategy, Glenmark
`
`The government runs a programme
`called the National Rural Health
`Mission (NRHM), for the development
`of the poor, allocating US$2920 million
`in the 2008-09 budget, under the
`NRHM.(16) A health insurance scheme
`called Rashtriya Swasthya Bima Yojna
`(RSBY) that provided US$745 worth
`of cover for every worker was also
`included. The total allocation of this
`inclusion was US$51 million(17), which
`was then increased in the subsequent
`budgets. The latest budget, 2010-11,
`incorporated a further 20% of the
`population covered under the NREGA
`(National Rural employment Guarantee
`Act).(18)
`
`The government, along with many
`in the industry believes that increase in
`insurance coverage is essential
`to take the market forward. But,
`other experts believe that the spread
`of health insurance could lead to
`a market wherein there is minimal
`differentiation between branded
`generics. An important success factor
`for generic makers is differentiation of
`their products. While increased health
`insurance coverage may benefit generic
`drug manufacturers by increasing the
`market’s affordability for medicines,
`it may, in combination with increased
`institutional sales cause a reduction in
`prices, owing to the rising influence of
`insurance companies.
`
`Overall, lack of insurance coverage still
`remains a challenge. Widespread use
`of health insurance could take many
`years, not least because insurance
`companies lack the data they require
`to assess health risks accurately and
`the only products they sell work on
`an indemnity basis – that is, they
`reimburse the patient after he or she
`has paid the healthcare provider’s bill,
`making such policies
`less attractive.
`
`Key takeaways
`
`1. The Indian economy is growing strongly, and will continue
`to provide a conducive macro-environment for the industry
`to grow in.
`
`2. The government is increasing spend on healthcare; and the
`Indian population is spending an increased amount of money
`on healthcare as a percentage of disposable income.
`
`3. The disease profile is changing with an increase in acute
`diseases along side growth of chronics.
`
`4. Health insurance is growing.
`
`
`
`PwC
`
`13
`
`000013
`
`

`

`The Indian Domestic
`Pharma market
`Set for robust growth
`
`Key Players
`
`Industry SWOT
`
`Key Recent Trends
`
`Investment Scenario
`
`000014
`
`

`

`According to IMS Health, in
`September 2010, on a Moving annual
`total (MAT) basis, the Indian Pharma
`market grew at 21.3%, reaching
`a size of US$10.9 billion.(3) Taking
`into account generic medicines sold
`directly to institutions and OTC drugs
`sold through non-pharmacy retailers,
`PwC and IMS Health estimate the
`
`domestic market size to be US$12
`billion. We estimate that by 2020,
`it will grow to US$49 billion - a
`conservative CAGR of 15%, with
`the potential to reach US$74 billion –
`at an aggressive CAGR of 20%, if
`growth drivers kick in.
`
`Key Players
`
`There is a high level of market
`fragmentation. As of 2009, there
`were more than 10,000 firms in the
`market, of which, around 200 of them
`collectively controlled about 70% of
`the market share.(19)
`Most of the top 10 players in the
`market had growth rates of over 18%
`for the 12 months ending July 2010.
`Of these, Cipla continued to have the
`largest market share of 5.2%, followed
`by Ranbaxy (now a subsidiary of
`Daiichi-Sankyo), with a 4.7% share.(13)
`
`Figure 11: India Pharma top 10 players: 12 month growth
`rate ending July 2010 (09/10 Revenues in US$ millions)
`
`Cipla
`
`Ranbaxy
`
`GSK India
`
`Piramal Healthcare
`
`Sun Pharma
`
`Zydus cadila
`
`Alkem Labs
`
`Pfizer India
`
`Mankind Pharma
`
`Abbott
`
`19%
`
`(1276.1)
`
`15.5%
`
`(1125.45)
`
`19%
`
`(445.87)
`
`18.6%
`
`(631.18)
`
`25.7%
`
`(600.65)
`
`24.1%
`
`(436.40)
`
`23.3%
`
`(276.49)
`
`23.6%
`
`(192.59)
`
`37.20%
`(200.06)
`
`25%
`
`(189.07)
`
`Source: Business Standard (October 2010), IMS Health, Capitaline
`
`
`
`PwC
`
`15
`
`000015
`
`

`

`Industry SWOT
`
`Figure 12: Indian Pharma Industry SWOT analysis
`
`Strengths
`• Higher GDP growth leading to increased disposable
` income in the hands of general public and their
` positive attitude towards spending on healthcare
`• Cost Competitiveness
`• Low-cost, highly skilled set of English speaking
` labour force
`• Growing treatment naive patient population
`
`Weaknesses
`• Poor all-round infrastructure is a major challenge
`• Stringent price controls
`• Lack of data protection
`• Poor health insuracnce coverage
`
`Threats
`• Labour shortage
`• Wage inflation
`• Government expanding the umbrella of the Drugs
` Price Control Order (DPCO)
`• Considerable counterfeiting threat
`• Competition from other emerging economies
`
`Opportunities
`• Global demand for generics rising
`• Rapid OTC and generic market growth
`• Increased penetration in the non - metro markets
`• Large demand for quality diagnostic services
`• Increase in healthcare insurance coverage
`• Significant investment from MNCs
`• Public-Private Partnerships for strengthning
` infrastructure
`
`
`
`Source: PwC analysis, Industry & Company interviews
`
`Key Recent Trends
`
`Figure 13: Industry trends and implications
`
`Increase
`Investments
`& MNC
`activity
`
`Shift towards a
`Networked
`business model
`Increasing M&A
`and aliiances
`Consolidation
`in the market
`
`Increasing
`reach in
`Non-Metro
`markets
`
`Seen as the
`next volume
`driver, though
`costs of
`operation is
`high due to
`poor health
`infrastructure
`
`Goods &
`Services Tax
`(GST)
`
`Though
`delayed from
`its April 2010
`implementation
`date, GST will
`add significant
`efficiencies to
`economy and
`lead to an
`overhaul of
`supply chain
`
`Growing
`Insurance
`
`Changing
`disease profile
`
`Healthcare
`innovation
`
`More numbers
`of patients will
`be coming in
`for treatment.
`
`• Use of
`technology &
`IT for innovation
`in healthcare
`delivery
`• e.g. Mobile
` clinics
`
`• Shift towards
`biotech &
`speciality
`therapies,
`• increased
`investment
`in R&D and
` acute disease
`segment will
`sustain strong
`growth
`
`Source: PwC analysis, Industry & Company interviews
`
`16
`
`India Pharma Inc.: Capitalising on India’s Growth Potential
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
` 2010
`
`000016
`
`

`

`Investment Scenario
`
`The Indian Pharma industry has
`attracted US$1707.52 million worth
`of foreign direct investment (FDI) in
`the period between April 2000 and
`April 2010.(20) This FDI is exclusive of
`investments in shares of Indian firms.
`Acquisitions of local players by large
`MNCs illustrate the increasing level
`of interest that they have shown in
`the Indian market.
`MNC acquisitions in the Indian
`Pharma space took off in 2008 with
`the acquisition of Ranbaxy by Japanese
`drug maker, Daiichi Sankyo for US$4.6
`billion.(21) This deal was valued at
`five times Ranbaxy’s sales.(12) Since
`
`then, there has been a trend of higher
`valuations of Indian Pharma companies,
`culminating with a new benchmark: in
`2010, Abbott bought Piramal Healthcare
`in a deal worth US$3.7 billion(22), a
`valuation that was nine times the value
`of Piramal’s sales revenue.(12)
`Partnerships and
`Licensing deals
`Although long-term supply deals
`between innovators and generic-
`producers have been taking place for a
`while now, the frequency of these deals
`has been growing at an increasingly
`
`rapid rate in the recent past. Deals
`between Pfizer and Aurobindo, and
`GlaxoSmithKline and Dr. Reddy’s Labs
`are recent examples of out-licensing
`deals where generic makers are signing
`distribution and marketing contracts,
`so their products reach foreign regulated
`and developing markets. Due to the
`large number of drugs going off-patent
`in the next few years, this trend is
`expected to increase even further.
`
`Table 1: Key recent mergers & acquisitions
`
`Year
`
`2010
`
`Indian Player MNC
`
`Nature of deal
`
`Details
`
`Piramal
`Healthcare
`
`Abbott
`
`Sale of domestic
`branded
`formulations
`
`Abbott acquired Piramal's domestic branded
`formulations division, along with its 350 brands,
`Baddi facility and about 5,200-strong sales force
`for US$3.72 billion
`
`2010
`
`Strides
`Acrolabs
`
`Pfizer
`
`2009
`
`Shantha
`Biotech
`
`Sanofi-
`Aventis
`
`2009 Aurobindo
`
`Pfizer
`
`2009
`
`Biocon
`
`Mylan
`
`Licensing
`and supply
`arrangement
`
`Acquisition
`
`Dossier
`licensing &
`supply contract
`
`Development &
`supply contract
`
`2009 Dr. Reddy’s
`Labs
`
`GSK
`Pharma
`
`Supply contract
`
`2008
`
`Strides-Aspen
`JV
`
`GSK
`Pharma
`
`2008 Ranbaxy
`
`Daiichi
`Sankyo
`
`Upfront
`milestone &
`supply contract
`
`Acquisition
`
`To supply 40 off patent products, mainly oncology
`ingestables that would be commercialised by Pfizer
`
`Acquired for about US$820mn and got access to
`Shantha's vaccines pipeline and access to emerging
`markets
`
`Formulations and injectables for US,EU and ROW
`markets on exclusive and co-exclusive basis
`
`To develop, manufacture, supply and commercialise
`many high-value generic biologic compounds for the
`global markets.
`
`To develop and market more than 100 branded
`products on an exclusive basis across an extensive
`number of emerging markets, excluding India.
`
`To manufacture and supply branded generics to GSK
`which would be marketed in about 80 emerging
`markets.
`
`Daiichi acquired Ranbaxy and got access to Ranbaxy's
`diversified product portfolio and vast geographical
`presence.
`
`Source: Centrum. Pharmaceuticals update, (June 2010).
`
`India’s domestic
`market is poised for
`strong growth on the
`back of increased
`foreign investment
`in the region, an
`increased reach in
`non-metro markets,
`the implementation of
`GST, growing insurance
`coverage, a change in
`the population’s disease
`profile and increase in
`healthcare innovation,
`in combination with
`growth of key segments
`– branded generics,
`OTC, rural markets
`and vaccines.
`
`
`
`PwC
`
`17
`
`000017
`
`

`

`Indian Pharma
`Market Segments
`A market dominated
`by branded generics
`
`Branded Generics
`
`Generic Generics
`
`Over-The-Counter Products
`
`Patented Products
`
`Retail vs. Institutional sales
`
`Road ahead
`
`000018
`
`

`

`It is difficult to track and estimate the
`exact composition of India’s domestic
`Pharma market; but industry experts
`believe that this market is largely
`dominated by branded generics.
`This segment contributes around 90%
`
`of total sales, and represents one
`of the key strengths of the market,
`encompassing the OTC segment as
`well. Only about 10% of the market
`constitutes commodity generics sold
`through institutional sales and innovator
`
`products.(5) The branded generics
`segment is expected to grow at a CAGR
`of 15% - 20% for the next decade.(5)
`
`Figure 14: Indian Pharma market is predominantly a branded generics market
`
`10%
`
`90%
`
`Other drugs: 10%
`
`Branded Generics: 90%
`
`Source: Industry & Company interviews
`
`Branded generics
`
`In the global context, IMS Health,
`which began tracking and reporting
`on branded generics in 2002, defines
`the category as including “prescription
`products that are either novel dosage
`forms of off-patent products produced by
`a manufacturer that is not the originator
`of the molecule, or a molecule copy
`of an off-patent product with a trade
`name.” This definition is used by both
`the United States of America’s Food
`and Drug Administration (FDA) and
`the United Kingdom’s National Health
`Service (NHS). It does not include
`authorized generics, which are drugs
`
`made by or under license from the
`innovator company and sold without a
`brand name.
`In India, any non patented molecule
`with a brand name other than the
`innovator’s name is termed as a
`branded generic. Chemically, branded
`generics are identical, or bioequivalent
`to innovator drugs. It is the share of
`voice the brand commands by getting
`repeatedly prescribed by the physicians,
`due to some degree of recall and
`preference over the other brands. In
`the global context, substitution – when
`
`an innovator product goes off-patent -
`is the key driver for generics. In India,
`it’s about driving a difference using
`the core equity of a brand, over a
`competitor’s product.
`
`Any non patented molecule
`with brand name, which is
`other than the innovator’s
`name, is termed as a
`branded generic.
`
`
`
`PwC
`
`19
`
`000019
`
`

`

`“India has a very large acute
`segment growing at strong double
`digits, which is expected to
`continue. While the chronic market
`is relatively small, it is on a rapid
`growth path due to an ageing
`population and changing lifestyles.
`Therefore, both markets will be
`attractive.”
`- Vivek Mohan, MD, Abbott India
`
`Top Brands
`Table 2 gives the top 20 brands in the
`Indian market, as track