With the outlook poor for growth of the generics market, Indian pharma must turn to drug discovery
A new Crisil report should make it clear how fast the Indian pharma sector needs to shift away from export-oriented manufacture of generics, towards investing in R&D to develop new molecules and biosimilars. Generics, for little over a decade now, have been the poster-drug of Indian pharma—between 2005 and 2015, their export to the US logged a 28% compound annual growth rate, while the top 30 Indian generics companies, between FY06 and FY15, saw overall revenues log a CAGR of nearly 19%, or nearly 60% of the entire Indian market. This was all on the back of many drugs going off-patent. But given the pool of drugs going off-patent has been shrinking since 2012, Crisil forecasts Indian generics’ export-growth to contract to 10-12% in the next five years, declining further post 2020.
Thus, the writing on the wall for Indian drug-makers is clear: they have to move up the value-chain, from making cheap copies of off-patent drugs to creating and owning intellectual property through new discovery and biosimilars. To be sure, they have increased R&D spending significantly over the years—at the top 30 companies, research spending was 6.5% of revenues in FY15, compared with 3.8% in FY04. However, against an average 16% of revenues spent by global majors on R&D, the Indian spending seems meager. Moreover, the Crisil report points out, much of the Indian companies’ expenditure is on further expansion in the generics space. Besides, the atmosphere of doubt over drug quality—in the wake of the FDA’s crackdown—further dampens Indian generic-makers’ export-prospects. Against this backdrop, 14 Indian drug-makers listing 39 potential drug candidates in various stages of development should be an encouraging sign for Indian pharma’s prospects. The key challenge will be to uphold drug-quality and pass the approval hurdles in well-regulated jurisdictions like the US.