India's pharmaceutical sector will touch US$ 45 billion by 2020, according to a major study by global management and consulting firm, McKinsey & Company. The reasons for this optimism are well founded. In the period 2002-2012, the country's healthcare sector grew three times in size, touching US$ 70 billion from US$ 23 billion. India's pharmaceutical market experienced a similar boom, reaching US$ 18 billion in 2012 from US$ 6 billion in 2005. The report further states that the Indian pharmaceutical market will be the sixth largest in the world by 2020.
The rise of pharmaceutical outsourcing and investments by multinational companies (MNCs), allied with the country's growing economy, committed health insurance segment and improved healthcare facilities, is expected to drive the market's growth.
India is today one of the top emerging markets in the global pharmaceutical scene. The sector is highly knowledge-based and its steady growth is positively affecting the Indian economy. The organised nature of the Indian pharmaceutical industry is attracting several companies that are finding it viable to increase their operations in the country.
From a market size of US$ 12.6 billion in 2009, the Indian pharmaceutical market will grow to US$ 55 billion by 2020, with the potential to reach US$ 70 billion in an aggressive growth scenario. In a pessimistic scenario characterised by regulatory controls and economic slowdown, the market will be depressed but is still expected to reach US$ 35 billion.
India currently exports drug intermediates, Active Pharmaceutical Ingredients (APIs), Finished Dosage Formulations (FDFs), Bio-Pharmaceuticals, and Clinical Services across the globe. The exports of pharmaceuticals from India grew to US$ 14.6 billion in 2012-13 from US$ 6.23 billion in 2006-07, registering a compound annual growth rate (CAGR) of around 15.2 per cent.
Among the top pharma companies, Abbott with total sales of Rs 452 crore (US$ 74.76 million), Cipla with Rs 322 crore (US$ 53.26 million), Sun Pharma with Rs 313 crore (US$ 51.77 million), and Zydus Cadila with Rs 268 crore (US$ 44.32 million) were the fastest growing companies in the month of September 2013. In terms of growth, Sun Pharma (17.8 per cent) is ahead of peers such as Cadila (1.8 per cent), Cipla (0.8 per cent) and McLeod (0.7 per cent).
The allowance of foreign direct investment (FDI) in India's pharma sector has been well received by foreign investors. According to data released by the Department of Industrial Policy and Promotion (DIPP), the drugs and pharmaceutical sector attracted FDI worth Rs 60,100.91 crore (US$ 9.94 billion) between April 2000 and June 2014.
Some of the major investments in the Indian pharmaceutical sector are as follows:
As per extant policy, FDI up to 100 per cent, under the automatic route, is permitted in the pharmaceutical sector for Greenfield investment. Hundred per cent FDI is also permitted for investments in existing companies under the government approval route. Further, the Government of India has also put in place mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to address the issue of affordability and availability of medicines.
Some of the major initiatives taken by the government to promote the pharmaceutical sector in India are as follows:
The growth in Indian domestic market will be boosted by increasing consumer spending, rapid urbanisation, increasing healthcare insurance and so on. The lifestyle segments such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyle patterns. Going forward, better growth in domestic sales will depend on the ability of companies to align their product portfolio towards these chronic therapies as these diseases are on the rise.
In various global markets, governments have been taking several cost-effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies.
For the US market, Indian companies are developing niche portfolios in various segments. High margin injectables, dermatology, respiratory, biogenerics, complex generics, etc., have become areas of interest. Most of the Indian pharma companies have been working on these niche drugs in order to optimise growth and margins. Moreover, generic penetration in the US is expected to peak out at 86-87 per cent over the next couple of years from 83 per cent currently.
Exchange rate used INR 1= US$ 0.0165 as on August 26, 2014
References: Consolidated FDI Policy, Department of Industrial Policy & Promotion (DIPP), Press Information Bureau (PIB), Media Reports, Pharmaceuticals Export Promotion Council