Patent expiries present a US$ 212 bn opportunity for Indian pharma

Sanjay Singh, Partner – Deal Advisory, Head of Lifesciences, KPMG in India, identifies new generics opportunities, established manufacturing ecosystem, growing penetration of health insurance and talent pool as some of the key growth drivers for the Indian pharmaceutical industry over the next decade.

IBT: The government is planning to come up with an exclusive R&D policy to incentivise innovation in the pharmaceutical industry. Why has this become necessary and what should be the major policy interventions required in your view?

Sanjay Singh: With ongoing developments, India has started focusing on self-reliance at a large scale. Total sales potential from expiry of drug patents between 2019-24 is estimated at ~US$ 212 billion. This presents a large opportunity for Indian generic companies. However, as opposed to international markets, R&D spending in India is limited. Overall world-wide R&D pharma spends was US$ 180 billion in 2019 (20% of pharmaceutical revenues). In India, on an average, R&D spends were between 8-10% of sales.

New policy initiatives will aid the research field in further developments and discoveries. Recently the government has announced its plans on setting up three National Centres of Excellences (CoE) for drugs, medical devices in the country while the National Institute of Pharmaceutical Education and Research (NIPER) here will house one CoE for drug discovery.

The new pharma policy also provides incentives for APIs that will bring a huge change in the long run. It also provides incentivisation to scientists, which is being done in other countries as well and will bring us on par. The bulk drug parks along with R&D centres and the PLI scheme will help India gain the advantage to lower their cost of production.

IBT: While India has emerged as a generics leader in the pharmaceutical space, it is not known for innovation in terms of new drug development. What are the key constraints that the industry faces in this regard?

Sanjay Singh: The pharmaceutical industry in India is the world’s third largest in terms of volume. However, in terms of innovation, the industry has a long way to go.

• High investments, long timeline & low probability of success – Developing innovator drugs cost ~US$ 1.5-2 billion. The development timeline is long (~10-12 years) with the probability of success rate of ~1 out of 5,000 drugs evaluated. Comparatively, generics take ~2-3 years to be developed with a higher success rate at much lower investments.
• Low healthcare coverage in India – In India, healthcare insurance only covers hospitalisation-related expenses, whereas general consultation and related medical expenses are not covered as a part of healthcare plans. ~70% population pays out of their own pocket for medical expenses, which makes generic drugs more preferable.
• Product Patent – In India, although process-patents were available, pharma products became patentable only in 2005, which is a key reason for a slow-pick up in R&D for innovation drugs.
• Government regulations–
  • The Indian government’s initiatives on drug price-control make it less attractive to invest in R&D for developing drugs for chronic & rare diseases.
  • Generic-prescriptions and ban on Fixed Dose Combinations (FDCs)
• However, India’s growing demography and intellectual capital make it a potential powerhouse of R&D in pharma.
  Some of the leading domestic companies are emerging as innovators. An example is the recent innovation by a leading Indian pharma company of oral insulin tablets that relieved diabetics worldwide from insulin injections.

IBT: India has a relatively smaller talent pool, with about 2,000 PhDs in pharmacy institutes compared to 15,000 for the US? How can the education system expand capacity and be made more attractive for both domestic and global talent?

Sanjay Singh: The Government of India has launched several upskilling initiatives to make the labour market ready to undertake professional challenges. There are training programs & workshops conducted regularly under these schemes. For instance on ‘pharmacovigilance’, ‘apprenticeship in pharma sector’ are being set up throughout the country.

India, by virtue of cost-effective skilled manpower and cheaper currency, offers direct operational cost advantage in the setting up of new pharma & chemicals divisions. Skilled talent in the R&D sector is also available at a much lower cost in India than most countries.

Currently there are more than a million active pharmacists in India, with around 55% in community, 20% in hospital, 10% in industry and 2% in academia. However, with respect to India’s population, we need more healthcare professionals than present for it to make progress. Some of the possible interventions that could help expand the current talent pool include:

1. Collaborations or partnerships with the industry and leading pharma companies to facilitate better teaching
2. Latest technologies implemented into the syllabi, abundance of industrial exposure, which will ensure that students have practical knowledge as well as theoretical knowledge to understand the strengths and gaps in the pharmaceutical sector.
3. Grant of fellowships and providing targeted training programs to talented researchers and students from leading academic institutes.
4. Establish training infrastructure and institutes, offering industry-specific training at the pharma parks and ensure more funding to institutes.

IBT: In the coming decade, what are the major growth opportunities/drivers that you envision for the Indian pharma industry in the global market – new therapeutic areas/markets/drugs going off the patent cliff, etc? What new opportunities could emerge in the domestic and global market in the post-COVID era?

Sanjay Singh: Total sales potential from expiry of drug patents between 2019-24 is estimated at ~US$ 212 billion. India should see tailwinds of these opportunities in terms of more complex and niche products. Increase in exports to regulated markets of US and Europe

The Indian pharma market is USD 50 bn and is projected to grow at 12% over the next 5 years.

Key growth drivers for the India market will be:

1. Established ecosystem to support pharma manufacturing: Indian manufacturing infrastructure has evolved from export of simple APIs to India becoming the largest generic drug exporter to the global markets.
2. Increasing share of exports: India’s exports were driven by strong growth in generics, India has also emerged as a key supplier of API/bulk drugs to LATAM region as India’s low-cost inputs enabled pharma manufacturers in the region to reduce cost of production.
3. Growth in contract manufacturing: Global companies are increasingly outsourcing pharma manufacturing to Indian players due to lower costs and strong capability in generics whose global market is growing.
4. Growing penetration of health insurance: With increased group insurance schemes, health insurance penetration has increased from ~2% in 2014 to ~5.4% in 2019.
5. Lower manufacturing cost: Lower manufacturing cost (around 33%) than the US enables India to manufacture high quality medicines at competitive prices
6. Government Initiatives: The government has launched several new initiatives like New Drugs and Clinical Act, 2019, easing of FDI norms and Make in India to support local manufacturing.
7. Increasing focus on complex generics: Indian players have taken the acquisition route to gain access to manufacturing facilities and niche proprietary therapies, to help them expand their global footprint.
8. Large pool of qualified personnel: India has a large trained & skilled workforce to support establishment of largescale pharmaceutical manufacturing projects.
9. Several Government Initiatives – National Health policy, 2015 focused on increasing public healthcare expenditure, Jan Aushadhi scheme to supply medicines at low cost, increase of ~160,000 beds p.a – have resulted in strong domestic growth.

IBT: How have global supply chain disruptions and raw material (API) dependence impacted the Indian pharma industry? What other major challenges have they faced and what are the major lessons?

Sanjay Singh: The industry faced several challenges during the pandemic. Some of these are as indicated below:

• Price variations of key/imported raw materials: API imports from China have seen 40-50% increase in prices for specific cases
• Production shutdown: Regional lockdowns have resulted in production shutdowns due to non-availability of labor.
• Cash flow constraints: Large organisations can manage, while others are impacted.
• Supply Chain Disruption: Supply disruptions due to RM shortages, price increases, factory and freight shutdowns – have impacted access to medicines in certain cases
• Labor Force: While pharma manufacturing has been exempted from lockdown, non-availability of labour has resulted in production shutdowns. Shipments from factories are affected.
• Imports (if applicable): Factory closures (esp. China) and limited (~30-60 day) RM inventory result in high impact.
• Exports (if applicable): Increase in exports as developed countries stock-up on essential medicines, testing kits etc.

Some key learnings for Indian companies have been:

• Design contracts that protect them from downside risks
• FG inventory policy with business strategy and increased requirement of warehousing space in US and other foreign markets
• API companies have realised the importance of backward integration and this would lead to significant investments and job creation
• Increased focus on automation and continuous manufacturing to manage the impact of lesser manpower

(Sources: KPMG reports, Annual reports of companies, Evaluate Pharma World preview 2019; IBEF, IQVIA reports, Analyst reports, IPA annual report, API report)

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