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Indian Pharmaceuticals

& Healthcare Sector

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TABLE OF CONTENTS

i. Introduction

ii. Indian Pharma Market

iii. Composition of Indian Pharm Market

iv. R&D in Indian Pharma & Healthcare Sector

v. Future Prospects of Pharma Sector

vi. Foreign Linkups

vii. Growth Drivers

viii. Opportunities and Challenges

ix. Advantage India

x. Conclusion

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INTRODUCTION

India is the world’s biggest generic drug supplier and the Indian Industry provides more than

50% of worldwide demand of medicines, 40% of US generic demand and 25% of the total

medicines demanded by United Kingdom.

India plays a very significant role in the pharmaceuticals industry worldwide with a domestic

turnover of Rs 129,015 (US$ 18.12 billion) in 2018 increasing by Rs 116,389 (US$ 17.87

billion) year on year basic. The pharmaceutical companies of India currently supply over 80%

of the antiretroviral medicines used worldwide to fight AIDS (Acquired Immune

Deficiency Syndrome).

There are around 330 players in the organized industry, the IPM is extremely fragmented. One

third of the market is made up of the top ten companies including domestic and MNC

companies. Branded generics dominate the market, making up almost 70 percent of the general

market. Medicines and patented drugs represent 21% and 9% respectively over the counter

(OTC).

STRUCTURE OF PHARMA SECTOR IN INDIA

Pharmaceuticals

Active Pharmaceutical Ingredients/ Bulk drugs Formulations

Branded Generics Branded Generics

• Anti- Infective

• Respiratory

• Pain

• Gynecology

• Cardiovascular

• Anti-Diabetes

• Gastro-

Intestinal

• Neurological

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INDIAN PHARMA MARKET

GRAPH

• The Indian pharmaceutical industry rose by 10% year-on-year in 2019.

• Over the next five years, medicine expenditure in India is expected to exp

and by 12%, making India one of the top 10 medicine expenditure

nations.

• India's manufacturing costs are substantially lesser than the US and

nearly half the European price. It provides India with a competitive edge

over others.

• The Ayurveda industry in India is anticipated to achieve US$ 4.4 billion

and expand by CAGR 16% by 2025.

15.53

16.41

17.8718.12

14

14.5

15

15.5

16

16.5

17

17.5

18

18.5

2015 2016 2017 2018

Annual Turnover (US$ Billion)

8.9

7.4

1.4

7.8

9.2 9.39.7 9.5

7.9

0

2

4

6

8

10

12

Mar

-17

May

-17

Jul-

17

Sep

-17

No

v-17

Jan

-18

Mar

-18

May

-18

Jul-

18

Sep

-18

No

v-18

Jan

-19

Mar

-19

Quarterly Growth (%)

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COMPOSITION OF INDIAN

PHARMACEUTICALS MARKET

• The largest segment of the Indian pharmaceutical sector is “Generic

Drugs”, which accounts for 70% of the market share in terms of

revenues. Patented drugs and Medicines account for 9% and 21%

respectively.

• The share of generic drugs is anticipated to increase further, and the

national generic drug market will achieve US$ 27.9 billion in 2020.

• India’s expertise in the generic drugs gives the industry a wonderful chance

of growth in future.

• Anti-Infective (13.6%), Cardiac (12.4%), Gastro Intestinals (11.5%) had

the largest market share in the Indian Pharmaceutical Industry based on

shifting annual sales.

2.58

2.34

2.17

1.78

1.61

1.43

1.29

1.27

1.14

0.95

0.41

0.35

0.34

0.31

0.91

0 0.5 1 1.5 2 2.5 3

Anti Infective

Cardiac

Gastro intestinal

Anti Diabetic

Vitamins/Minerals

Respiatory

Pain/Analgesics

Derma

Neuro/Cns

Gynaecological

Anti-Neoplastics

Ophthal

Hormones

Vaccines

Others

Annual Turnover- Segment Wise 2018 (US$ Billion)

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R&D IN THE INDIAN PHARMACEUTICALS

SECTOR

• The Indian pharmaceuticals firms has made an investment

(as a % of revenues) in Research & Development which rose from 5.3%

in FY12 to 8.5% in FY18.

• Ministry of Health and Family Welfare were assigned Rs 62,659 crore

(US$ 8.86 billion) in the Union Budget 2019, out of which Rs 1900 crore

has been kept aside for Research.

• Dr Reddy’s Laboratories which is also one of the big players in the Indian

Pharmaceuticals Sector plans to spend up to US$ 300 million in R&D in

FY21.

5.35.8

6.67

7.98.7 8.5 8.6 8.4

0

1

2

3

4

5

6

7

8

9

10

FY 12 Fy 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 (E) FY 20 (E)

R&D Investment by Indian Companies (% of sales)

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FUTURE PROSPECTS OF PHARMA

SECTOR

Its powerful export potential is one of the industry's main strengths, with Indian

Pharma businesses making their presence felt around the globe. The country's

powerful drug-manufacturing infrastructure is meeting the high demand for

generic medicines in India. Several variables including competitive land prices,

skilled labour, low resource costs such as water and electricity led to low

manufacturing expenses in India. Furthermore, the industry's focus on

innovation, research and development (R&D) and product diversity makes it a

leader in the development league.

The Union Budget 2017-18 indicates a 23 % rise in health spending which is

likely to give the pharmaceutical industry further impetus. The government has

suggested changes to the Drugs and Cosmetics Rules as part of the budget to

guarantee the accessibility of generic drugs at reasonable rates and to encourage

the use of generic drugs. The government has also implemented a variety of fiscal

incentives to support national manufacturing, including reducing the inverted

duty system and fundamental customs duties.

Increasing demand for healthcare and advanced devices has brought to the

forefront the "Medical Devices" industry. More than 14,000 product kinds are

available in the sector. The 2017 Medical Devices Rules, framed in accordance

with the structure of the Global Harmonization Task Force, were notified. These

rules are intended to alleviate regulatory standards for medical devices and

equipment manufacturing. The government also corrected the industry's duty

anomalies. The industry is increasing at a 15% annual Compound Growth

Rate (CAGR), which is much greater than the 12% growth in the healthcare

sector.

The focus of the Department of Pharmaceuticals, the Ministry of Chemicals and

Fertilizers is the provision of essential drugs and medicines at cost-effective

rates. The National Pharmaceutical Pricing Authority controls the prices of

essential drugs under the National Pharmaceutical Pricing Policy (NPPP).

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FOREIGN LINKUPS

Foreign direct investment

India's present foreign direct investment (FDI) strategy enables 100 % FDI on

automatic path of green field pharmaceutical projects and up to 100% FDI

on the government's approval of brownfield projects. *

*(PS: Under the Green Field category, businesses set up their own subsidiary and

begin their own manufacturing by building new crops or installations from the

ground up. Whereas, in the context of brownfield investment, businesses

purchase or lease current equipment in order to start fresh manufacturing

activities.)

Export trends

Reckoned as a world-wide high-quality generic supplier, India exports half of

its complete pharmaceutical manufacturing to more than 200 nations

worldwide.

The US is the most profitable generic market for India's pharmaceutical

industry. It is valued at around $60 billion and accounts for about 25% of India's

total shipment. Last year, India exported US$ 3.21 billion worth of generic drugs

to the US, despite the country's hard legislative setting.

With branded drugs going off patents, study organizations estimate that exports

of generic drugs to the US will increase by approximately US$ 55 billion.India's

other major export destination includes:

• UK ($383.3 million),

• South Africa ($367.35 million)

• Russia ($283.33 million)

• Nigeria ($255.89 million).

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GROWTH DRIVERS

SUPPLY SIDE DRIVERS OF THE SECTOR

Launch of Patented Drug

• Following the implementation of product patents, several multinational

firms are anticipated to launch patented medicines in India.

• Growth in the amount of lifestyle illnesses in India could increase drug

sales in this segment.

Scope of generic Market

Pharmaceuticals companies have increased expenditure on developing

better medical infrastructure to tap the rural market. The market size of

hospitals is anticipated to rise by US$ 200 billion by 2024. In India, the

medical devices sector grew by 17% annually and was estimated at

US$ 4.9 billion in 2017.

Over-The-Counter Drugs

The Indian market for OTC medicines is estimated to have grown from

CAGR 16.3% to US$ 6.6 billion over 2008-16 and is anticipated to

continue to expand as a result of enhanced chemicals penetration,

particularly in rural areas. The Indian OTC market is anticipated to expand

to Rs 44,115 crore (US$ 6.81 billion) at a CAGR of 9% from 2016-26.

Medical Infrastructure

The pharmaceuticals companies have increased expenditure on developing

better medical infrastructure to tap rural markets and the market size of

hospitals is anticipated to rise by US$ 200 billion by 2024.

Patent Expiry

In the next 10 years, it is anticipated that approximately 120 drugs will

go off patent; with expected worldwide revenue between US$ 80 to 250

billion.

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DEMAND SIDE DRIVERS OF THE SECTOR

Acceptability

• Higher education levels to boost pharmaceutical acceptability. ·

• Patients are more inclined to self-medicate, boosting the OTC market

• Acceptance of biological and preventive drugs to increase

• Surge in medical tourism owing to enhanced inflows of patients from oth

er nations

Affordability

• Increasing revenue could drive 73 million middle-class homes over the

next 10 years.

• More than 650 million individuals are anticipated to receive health

insurance coverage by 2020.

• The government plans to provide half of the population with free generic

medicines at an estimated price of US$ 5.4 billion.

• In FY19 (up to October 2018), affordable medications under Pradhan

Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) saved Indian people Rs

600 crore (USD 85.49 million).

Accessibility

• It is anticipated that new company models will penetrate Tier 2 and 3

towns.

• More than 160,000 hospital beds in the next decade are expected to be

added each year.

• India's generic drugs account for 20% of worldwide exports in terms of

quantity, making it the world's biggest generic drug supplier.

Epidemiological factors

• Patient pool expected to raise by more than 20% over the next 10

years, primarily owing to demographic growth, new illnesses and lifestyle

demand-enhancing changes/ Increasing lifestyle disease incidence

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OPPORTUNITIES AND CHALLENGES

Despite low productivity rates, the price of production formulations in India

continues 30-40% lesser than other relative production hubs such as China

and Eastern Europe.

This is motivated by reduced labour expenses compared to other geographies. Despite

inflationary trends, the labour cost benefit of India will be sustained in the medium to

long term, particularly if Indian firms can enhance productivity through operational

excellence and digital projects.

The pharmaceutical industry's supply of local talent (e.g., B.Pharm, M.Pharm,

B.Sc.) is greater than in nations like China. Indian pharmaceutical firms are engaged

in complicated products (e.g., microspheres, liposomes, emulsions), building R&D

capacities and production these goods while maintaining the quality needed.

Challenges faced by the industry in supplying to export markets:

• The profitability and margins are being squeezed in the regulated market because

of the increasing pricing pressure, which is because of customer consolidation,

greater competition in commoditized, easy to manufacture products with

increased ANDA approvals, and a slowdown in new launches.

• Another major challenge is compliance problems that affect supply reliability.

While many Indian firms have made good progress in regulatory audits over the

past year and appear to be emerging from remediation, others are still facing

difficulties.

India Pharma has a chance to drive development by building on the price benefit and

enhancing supply reliability — major customer purchasing criteria. Three priority

regions for Indian pharmaceutical companies are thus emerging:

• Build greater quality systems and comply fully.

• Focus on operational excellence.

• Alternative procurement and autonomy in APIs / intermediates.

The companies in the pharmaceuticals sector are investing more and more in the R&D

to develop new technology so that they can provide the drugs at a very low cost which

can be afforded by all the people in the country and so that the companies can increase

their market share in the foreign market.

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ADVANTAGE INDIA

Economic Drivers

• Increasing health insurance penetration to drive medicine spending.

• OTC drugs will be easily accessible with growing penetration of

pharmacies, particularly in rural India.

• Economic prosperity will improve drug affordability.

Cost efficiency

• Low manufacturing and R&D costs boost Indian pharmaceutical

companies ' effectiveness, resulting in competitive exports. Indian

pharmaceutical exports in FY20 (up to July 2019) exceeded US$ 3.2

billion.

• The price of manufacturing in India is about 33% lesser than in the

US.

• The capacity of India to produce high-quality, low-priced medications

offers the national sector an enormous edge.

Increasing Investments

• Increasing investment by the private sector in R&D and acquisitions is

driving development in the industry.

• Indian pharmaceutical businesses spent ~8.8% of their revenues in

R&D.

Policy Support

• The objective of Pharma Vision 2020 was to make India a worldwide

leader in the production of end-to-end drugs.

• According to the 2019-20 budget, the allocation to the Ministry of Health

and Family Welfare is Rs 62,659 crore (USD 8,86 billion) [ 100% of FDI

is permitted under automatic route in this sector.

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CONCLUSION

• The pharmaceutical industry in India is on tune to grow. The industry's

annual income can amplify to about USD eighty to 90 billion by means of

2030, even at present costs of seven to eight percent CAGR. It could,

however, also set daring ambitions of eleven to twelve percentage CAGR

and enlarge to annual income of approximately USD sixty-five billion by

2024 and about USD a hundred and twenty to 130 billion by using 2030.

• Indian pharmaceutical enterprise can embark on an imaginative and

prescient of building India's world management in lifestyles sciences while

driving larger access and affordability to the home. This can be achieved

by working on four essential goals

• Accelerate the objective of accepted health care at some stage in India and

the world by way of providing access to inexpensive drug treatments of

excessive quality.

• Building a globally recognized role for India as an innovation leader.

• Become the most credible and largest drug provider in the world and

achieve ~120-130 billion USD with the aid of 2030.

• Contribute drastically to the growth of the Indian economy.

• The first quarter of financial year 2020 shows that the market growth of

the Indian Pharmaceuticals Sector stood at 7.9% which is the slowest in

the past seven quarters and one of the lowest in past five years.

• The deepening slowdown in the domestic drug market will intensify

profitability challenges for pharmaceutical companies. The slowdown

intensified from May, when the market decelerated to a growth of 7% from

an average of 10% in the preceding five months.

• In June, the market grew 6.6%. Most drugs have seen moderation and are

increasing in single numbers now.

• Volumes fell in June for the second consecutive month and increased in

the June quarter by just 0.7 percent. "Most companies witnessed a year-on-

year decline in volumes, as did 12 of the 20 therapies," Jefferies India

analyst Piyush Nahar wrote in a note. A sanguine view is that product

offtake figures will normalize as the industry adjusts to GST and

normalizes inventory levels. It is also expected that the impact of the

delayed monsoon will be transient.

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• While analysing the companies operating in the pharmaceuticals sector we

can see that the companies are increasing their R&D expenditure on year-

on-year basis to develop new and better drug and also so that they can build

high class infrastructure which will make Indian Pharmaceuticals sector

export more in the coming years making the sector one of the main

contributors of GDP.

• The investment from government in the sector is also quite good which is

helping the industry grow, like in the union budget announced on 5th July

2019 the current finance minister Nirmala Sitharaman allocated a total of

Rs 62,659 crore to the Ministry of Health and Family Welfare and allowed

100% FDI under automatic route in the sector.