India?s Rs 40,000 crore domestic pharmaceutical market is increasingly becoming the battleground between the multinational pharma majors and home-grown drug makers. For most of the past decade, Indian pharmaceutical companies have challenged the hegemony of the big pharma firms in the developed markets of the US, Canada and Europe by pursuing an aggressive generic strategy. But the pharma bigwigs are turning the tables and shifting the battle to the home turf of Indian companies.
Some of the world?s top drug firms have recently begun consolidating their Indian operations by raising stakes in their Indian arms. For instance, Swiss drug major Novartis has unveiled plans to raise share holding in its Indian subsidiary to 90%, from the current 51%. Pfizer too has set the ball rolling to increase stake in its Indian arm to 75%, from 41.23% at present. Their rationale: with majority control, decisions with regard to the launch of expensive and high-margin products or rolling out India-specific strategies will be expedited.
?In a bid to compensate for its sharp fall in revenue, the global pharma companies are looking at buying anything and everything available in sight. Recent mega deals such as Pfizer-Wyeth, Merck-Schering Plough and Roche-Genentech bear this out. Some of them intending to increase their stakes in emerging markets, specifically India, is also a reflection of this desperation,? says Uday Baldota, vice-president, investor relations, Sun Pharmaceuticals.
Given that the developed markets of the US and Europe are hardly growing and emerging markets like India, China and Brazil are showing promising growth, attractiveness of the domestic pharmaceuticals market is not hard to understand. With less than 40% of the population having access to healthcare, a vast untapped market exists in therapeutic segments like anti-diabetic, anti-infective, cardiovascular, dermatology, gastrointestinal, gynaecological, oncology to name a few.
A rapidly improving intellectual property (IP) environment and conducive economic policies too have made India an attractive destination for the global pharma companies in recent times. While the international pharma companies are aggressively evaluating various strategic options to attain high growth in the Indian market, domestic drug companies are defending their predominant position on the home turf.
After increasing their stakes in the domestic arms, multinational drug makers can go for delisting as was done by Mylan Laboratories, which acquired majority stake in Matrix Laboratories and subsequently got it delisted. Not being listed on the bourses would provide increased flexibility and freedom for the multinational drug companies from the statutory regulatory compliance and the shareholders to implement their growth strategies, according to Ajit Mahadevan, partner, health sciences practice, Ernst & Young. As they plan to introduce patented products in future in the country, delisting would assist them in avoiding the domestic shareholder anger on charging price premium on their products, he adds.
?According to McKinsey, by 2015, India will emerge as the tenth largest pharmaceutical market valued at approximately $20 billion, up from its current size of around $8 billion. This growth is indeed plausible provided our economy also grows consistently. India?s healthcare spends will be driven by its burgeoning population, rising disposable incomes, expanding medical infrastructure and greater penetration of health insurance,? says Ramesh Adige, president, Ranbaxy Laboratories.
Ranjit Shahani, vice-chairman and managing director, Novartis India says, ?The pharmaceutical market in India is primarily a ?branded generics? market with 25,000 brands. Global companies account for around 20% market share. It also presents an opportunity for global pharmaceutical companies to bring their newer patented molecules in to the country and this could lead to an increase in their market share.?
With increased investments, global pharmaceutical companies have managed to increase their share in the domestic market from 8-10% in 2005. Considering the bullish intent and aggressive plans of MNC companies for Indian market, this scale is likely to tilt in their favour in the long run, possibly by 10%, informs Ritha Chandrachud, vice-president and head of India marketing, Dr Reddy?s Laboratories. But for this to happen, subsidiaries of global pharma companies will have to grow at a rate faster than the market. Looking at the past, these have been growing at roughly half (or even lesser) the rate of growth of the Indian pharma market.
In recent months, GlaxoSmithKline (GSK), Pfizer and Merck have launched products from their global portfolio in India. Additionally, to ward off competition from Indian generic players, MNC companies have been periodically reshuffling their product portfolio by launching products in the difficult-to-manufacture specialist therapies such as oncology, vaccines, monoclonal antibodies etc. Further, MNCs are adopting differential pricing policy to keep the prices of their products in the competitive range in India.
?Indian vaccine market is one segment which MNC companies are eyeing with great interest. MSD Pharmaceuticals, the local affiliate of Merck, has launched its potential block-buster Gardasil?a vaccine against cervical cancer, while GSK has launched two new vaccines in India for diphtheria, tetanus and acellular pertussis (DTP), named Boostrix and Infanrix,? says Mahadevan.
Indian companies believe that their global competitors are facing a patent cliff and are beginning to explore opportunities outside of their developed markets. And India offers them long term growth prospects. Alarmed at the rapidly-advancing developments on the domestic front, Indian drug makers like Cipla, Ranbaxy, Dr Reddy?s and Sun Pharmaceuticals are taking the competition head on. One of the strategies they are adopting is a rapid rollout of medicines focused on therapeutic segments like anti-diabetic, central nervous system, cardiovascular systems and gastrointestinal on account of the changing lifestyles in the Indian society. In addition, they are expanding presence in the vastly untapped rural segment, hiring additional sales force and strengthening their distribution network.
Indian companies have used aggressive pricing in the past to increase their market share.
They are widely expected to continue with this strategy in future also as it would be tough for the MNC pharma companies to match the low production cost of Indian companies.
Moving over vanilla generics, Indian companies are also moving into value added generics such as new drug delivery systems (NDDS), combination products and specialty therapy segments such as oncology, vaccines, biogenerics, hormones etc. They are also in-licensing products from MNC pharma companies, which find it easy to use the existing distribution of an Indian player in return of sale royalties.
Going forward, big pharmaceutical companies are likely to follow a two-pronged approach of organic and inorganic growth to consolidate their position in the Indian market. Closely on the heals of mega M&As happening at the global level, Indian pharma industry is likely to see greater consolidation in future. In the current economic downturn, when the valuation is at an all time low, Indian pharma companies?with established portfolio of brands, sales, marketing and distribution network and R&D capabilities?can become easy takeover targets for cash-rich global pharma companies.
All in all, the buzz in the domestic pharmaceuticals market is far from over.