Indian Pharma 2020

July 2020
Asia Pacific/India

Sectoral Research

Pharmaceuticals and Healthcare

India Pharma 2020 Global positioning, future demand and the pandemic

Executive summary

Leading pharma producer	Indian pharmaceutical industry supplies over 50% of global demand for various vaccines and 20% of global demand for generics
'Pharmacy of the world'	India services over 40% of US demand for generics and 25% of UK demand for all medicines. India’s pharmaceutical exports stood at US$13.69 billion in FY20 (up to January 2020).
One of the fastest growing industries in India	Indian pharmaceutical sector is expected to grow at a CAGR of 22.4% in the near future
Generics market dominance	Over the years, India has emerged and has established itself as the world leaders in the generic drug manufacturing.
Growing biosimilar and specialty sectors	The domestic sales for biosimilars in India are close to US$250 million and growing at a compound annual growth rate of 14%. Specialty sector is seeing growing investments by major pharma companies like Lupin, Sun pharmaceuticals etc.

The Indian pharmaceutical industry has 3 major sectors

·         Generic drugs - A generic drug is a pharmaceutical drug that contains the same chemical substance as a drug that was originally protected by chemical patents.

·         Biosimilar - A biosimilar is a biologic medical product highly similar to another already approved biological medicine, which is approved according to the same standards of pharmaceutical quality, safety and efficacy that apply to all biological medicines.

·         Specialty drugs - Specialty drugs or specialty pharmaceuticals are a recent designation of pharmaceuticals that are classified as high-cost, high complexity and/or high touch.

Generic Drugs Market

·         India has emerged as the world leaders in the generic drug manufacturing.

·         Accounts for 20% of global exports in generics. India’s pharmaceutical exports stood at US$ 13.69 billion in FY20 (up to January 2020).

·         Generic drugs market holds 70% market share in India’s pharmaceutical industry in terms of revenue.

·         The share of generic drugs is expected to continue increasing to reach US$ 27.9 billion in 2020.

·         

       Largest export markets – North America and Europe

·         India’s export growth for FY18-19 was one of its highest growth rates in the last decade.

·        

       Q4 of FY19-20 and Q1 of FY20-21 saw the peak of lockdown, which lead to pharmaceutical exports growth falling drastically in the month of March and April.

·         Disruption of operations and bulk drug imports from China led to this slowdown.

·         Exports were quickly resurrected by increased demand of pharmaceuticals from foreign countries amidst the Covid-19 crisis.

·         Export demand seen in May largely driven by Paracetamol and Hydroxychloroquine (HCQ).

·         Both these drugs were being used heavily in an attempt to combat the virus. These exports were also helped by an ease in lockdown in the month of May. Trend is likely to continue owing to global demand for affordable generics.

·          

 India - a major player in the world’s battle against Covid-19

       Amidst the current crisis, India emerges as a strong supplier of cheap generic drugs that help  recovery of patients suffering from Covid-19. Indian pharmaceutical industry have started ramping up production of Covid-19 treatment drugs.

      On 7^th July 2020, The Union health ministry revised its clinical management protocol and asked doctors to treat COVID-19 patients with investigational therapies that include Remdesivir, Convalescent Plasma, Tocilizumab and Hydroxychloroquine (HCQ).

      Some major drugs being used against Covid-19:

Hydroxychloroquine (HCQ)		Remdesivir
·         Leading suppliers - Teva Pharmaceutical, Zydus Cadilla, IPCA Labs and Cadila HC		·         Originally developed by Gilead Sciences ltd., a US pharma company.
·         India manufactures 70% of the world's supply		·         Licensed in India by – Cipla, Hetero, Jubilant Life Sciences, Dr.Reddy's labs, Zydus Cadila and more.
·         India sold over 22cr HCQ tablets in March, April and May (2020) against 24cr in all of 2019.		·         Distributable in 127 countries.
·         700% growth in exports between March and May (2020). HCQ exports were $25mn during April-May, 2020.		·         Approved for emergency usage in India, US, Japan and Europe.
·         UK megatrial called Recovery revealed the results of their trial in mid-June stating that HCQ did not benefit hospitalized patients.		·         US has bought all of Gilead’s Remdesivir supply for the next 3 month.
·         Post the megatrial, around June 15th, India and US FDA removed HCQ from its treatment protocol for severe patients.		·         Europe and some other regions are worried about availability of the drug which helps by diverting demand towards India.
·         The revoking of authorisations doesn’t necessarily mean further demand for HCQ is going to die out since the Indian Union health ministry has permitted investigational therapies that include Remdesivir, Convalescent Plasma, Tocilizumab and Hydroxychloroquine (HCQ).		·         Gilead is expected to make $525mn in 2020 from sales and $2.1bn in 2021, indicating growing demand for the next 18 months.
·         Indicates some support to earnings in upcoming Q1 FY20-21 results.
Favipiravir		Dexomethasone
·         Approved as an anti-Covid drug use by the DCGI.		·         UK megatrial called Recovery found dexamethasone reduced deaths by one-third in patients on a ventilator.
·         Developed and commercialized by Strides Pharma.		·         UK has started stockpiling the drug.
·         Dr.Reddy, Glenmark, Lupin and Cipla are some major players for this drug.		·         Zydus Cadila has 83% market share for the drug.
·         Not currently approved by US and Europe; still under trial.		·         Cadila Healthcare, Cipla, GLS Pharma, Wyeth Ltd., Morepan, Baroda Pharma and Wockhardt are other manufacturers of the drug.
·         Some companies exporting to UAE, where the drug is approved.		·         US Hospitals and other health-care customers had increased orders by more than 600% in June.
·         Could be a strong potential demand driver.		·         US facing a shortage of the drug due to manufacturing delays.
		·         Dexamethasone seeing an uptick in demand, judging from reports by manufacturers and hospitals.
		·         Indian pharmaceutical industry is well positioned to take advantage of this surge.

     Pricing pressures and stress on margins

  

     Given the above points, Indian pharmaceutical industry still has plenty of room to wiggle. Indian generic drugs or generic drugs in general, have huge margins which can go up to a 1000%. Indian pharma enjoys a higher margin in US (one of its biggest markets) than in India itself.

     With margin pressures arising from regulatory and competitive obstacles, Indian companies are now optimizing their R&D spends instead of ramping it up like they have in the past.

      Looking at the results of the past 3 quarters, margins still seem to be healthy despite pricing pressures on the US generics business.

   

    Given the above points, Indian pharmaceutical industry still has plenty of room to wiggle. Indian generic drugs or generic drugs in general, have huge margins which can go up to a 1000%. Indian pharma enjoys a higher margin in US (one of its biggest markets) than in India itself.

    With margin pressures arising from regulatory and competitive obstacles, Indian companies are now optimizing their R&D spends instead of ramping it up like they have in the past.

     Looking at the results of the past 3 quarters, margins still seem to be healthy despite pricing pressures on the US generics business.

   Biosimilar Drugs Market

·         India is one of the leading manufacturers of biologics.

·         India is the second largest global supplier of vaccines, most of which are biosimilars.

·         The domestic sales were close to US$250mn in 2019, growing at CAGR of 14%.

·         The export of biosimilars from India stood at US$51mn in 2019.

·         40 biosimilar products exist in the Indian domestic market.

·         Biosimilars cost significantly less than original branded biologics, but still are expensive to develop.

·         Herceptin recently got approval for the 1st biosimilar manufactured by an Indian company which is approved for marketing in the US.

·         Biosimilars market is worth $2.2bn out of the $32bn total Indian pharmaceutical market.

·         Bringing a biosimilar to the market in India can cost more than $150m, where 80% expenditure is on R&D.

·         Big expenses but has the potential to give promising returns.

       Market opportunity and room for growth

Opportunities		Growth projections
·         About 10 biologics, with a revenue market of US$60bn+, are about to expire		·         Revenue from US and Europe is expected to grow by 24% annually for 5 years to $13.3bn in 2025.
·         Unmet need in multiple therapeutic areas, particularly in oncology, nephrology, immunology, diabetes and others.		·         India is projected to be a huge domestic market for biosimilars due to its burgeoning population.
·        US market slowly picking up biosimilars. Realisations for Indian players in the US market would be much higher.		·         Price gap - between original and biosimilars - widened to over 60% - for some drugs in Europe - 20% a few years ago.
		·         Wider price difference = faster adoption of biosimilars

      

       Growth trend in Indian pharma R&D spend:

      We can see in the above picture that R&D spend was riding a strong growth wave up till 2017. As we mentioned, it is only recently that Indian pharma companies have started to optimize their R&D spends in order to remove some stress their margins are facing due to higher regulatory cost and pricing pressures.

    Active Pharmaceutical Ingredients (API)

·         These are the active ingredients present in medicines.

·         India imports most of their API requirements and China is the biggest supplier.

·         India is highly dependent on China for cheap API, even to produce medicines as basic as Crocin.

·         India imports 70% of total bulk drug (API) requirements from China.

·         Chinese APIs are 20% cheaper than domestic APIs. They are able to secure this due to lower cost of production and lower cost of finance.

·         One of the risks to this segment is the India-China conflict. However, we must realise that not only India is dependent on China but India is a lucrative market for the Chinese. We do not project this conflict to be too harmful to the Indian supply channel.

    

      Measures to increase independence in the API segment

·         Mega bulk drug parks in partnership with state governments to facilitate low cost and efficient production.

·         Government grants to states of Rs1,000 crore for each bulk drug park.

·         Production-Linked Incentive Scheme which will provide financial incentives to eligible manufacturers.

·         Domestic players are also trying to source their APIs domestically, whenever feasible.

    Macroeconomic factors

       India and its ageing population

·         With decreasing fertility rates and increasing life expectancy, India is witnessing a growing proportion of elderly population to its total population.

·         The cohort of Indians over the age of 65 is projected to increase markedly. By 2021, Oxford Economics estimates that 95m+ Indian citizens will be over the age of 65.

·         This demographic of the population usually requires more medical attention and is prone to some kind of medical condition.

·         Indian pharma industry could see a rise in demand due to increased number of such cases.

      Strong urban population growth rate

·         Urban population is responsible for majority of the pharmaceuticals demand, even though 70% population lives in the rural areas.

·         Urban population has easy access to medical facilities; hence a growth in the urban population has the capacity to spruce up future demand.

    Rural market opportunity

·         Majority of healthcare personnel and facilities are serving only 30% of the population, which is present in the urban areas.

      Measures to facilitate rural areas and capture market

·         Government recently announced that it will set up more hospitals in the country through public-private partnership (PPP) mode in Tier-II and III cities.

·         The Finance Minister allocated Rs 69,000cr, inclusive of Rs 6,400cr already directed towards the Pradhan Mantri Jan Arogya Yojana. The scheme will be implemented in 1,000 more hospitals in India.

·         Pharma companies have increased spending to tap rural markets and develop better medical infrastructure.

·         Due to the lack of penetration, this is a huge potential market for Indian pharma.

·         Latest data suggests more people in rural areas are visiting doctors than ever before at private and government clinics/hospitals.

·         Private player are funding programs, also run by PHFI, that train general practitioners to treat similar lifestyle diseases in small Indian urban centres, where there’s unlikely to be a specialist. These kind of moves help them establish brand recall and grab market share when the time comes.

·         Increase in insurance coverage in rural areas also sets up rural demand to rise in the coming future.

   Government initiatives and policies to boost healthcare

·         Pharma Vision’ 2020, which aims to make India a major hub for end-to-end drug discovery

·         Under Budget 2020-21, allocation to the Ministry of Health and Family Welfare is Rs 65,012 crore (US$9.30 bn)

·         Medicine spending in India is projected to grow 9-12% over the next five years

·         National Health Protection Scheme under Ayushman Bharat

·         Government expenditure on health increased to US$ 45.96 bn in FY20 - CAGR of 18% from FY16

·         As per Economic Survey 2019-20, Government expenditure (as a percentage of GDP) increased to 1.6 per cent in FY20 from 1.2% in FY15 for health

·         Rural initiatives like Pradhan Mantri Jan Arogya Yojana, Rashtriya Swasthya Bima Yojana, Ayushman Bharat and Sampoorna Bima Gram (SBG) Yojana.

·         Mega bulk drug parks to optimize domestic API manufacturing.

·         Government is planning to relax FDI norms in the pharmaceutical sector

·         The National Health Mission Scheme providing a cover of up to Rs. 5 lakh to 7.31mn poor families in the country.

   Health insurance coverage and the future demand being generated by it

·         The non-life insurance market in India is anticipated to expand at a CAGR of ~24% in FY 2018, to reach a value of INR 4,434 Bn by the end of FY 2023.

·         In addition to growth prospects for the general economy that are far higher than for most developed markets, India has enormous unmet needs for health care and a huge population of uninsured residents. Even among emerging markets, India is one of the least insured countries, with a health insurance penetration rate of only about 20%..

     
           

·         The health insurance, thanks to government initiatives, has seen immense growth in the rural sector.

Covid-19 has caused a stir in demand for health insurance:

·         Health insurance related queries are up by 50% since March end.

·         The COVID-19 outbreak is expected to help increase the penetration rate of the health insurance market.

·         Between March and May, number of senior citizens covering themselves under health insurance policies has increased drastically.

·         Earlier, the share of people buying health insurance plans with Rs. 20 Lacs – Rs. 1 Cr sum insured has now increased to 50% from 5% over the last 2 -3 months.

·         Rise in demand for health insurance plans not just in tier 1 and tier 2 cities, but even in tier 3 and tier 4 cities

    

    Non-communicable and chronic diseases in the country   

      According to WHO, India tops the list of countries with the highest number of diabetics

·         No. of diabetes cases in India expected to increase 100% to 79.4m by the year 2030 from 31.7m cases in 2000.

·         No. of new patients diagnosed with End Stage Kidney Disease is over 100,000 per year.

·         'Lancet Diabetes & Endocrinology' journal found that the amount of insulin needed to effectively treat type 2 diabetes will rise by more than 20% worldwide over the next 12 years.

·         Adults with type 2 diabetes (globally) expected to rise by more than a fifth from 406mn in 2018 to 511mn in 2030.

Rising propensity of developing cancer worldwide

·         Estimated number of people living with the disease: around 2.25 million

·         Every year, new cancer patients registered: Over 11,57,294

·         Risk of developing cancer before the age of 75 years - Male: 9.81% ,  Female: 9.42%

·         India, with a population of 1.35bn, witnessed as many as 1.16mn new cancer cases and 784,800 cancer deaths in 2018.

·         WHO warned that the world may witness a 60% increase in cancer cases over the next two decades if the current trend continues.

·         The global cancer diagnostics market size is estimated to be over USD 12.8 billion by 2025

·         Cancer Market value is expected to grow at a CAGR of 4.5% during the forecast period.

·         Chronic diseases like Cancer are expensive to treat and treatment durations are long. These are strong revenue sources for a lot of pharma companies

Conclusion

      The Indian pharma Industry is on the cusp of a strong growth trend. The industry was already well positioned in terms of costs and market share. With the current pandemic and increased health awareness, India finds itself positioned as one of the chief suppliers of medicine globally. As businesses are hurting due to stalled activity from the lockdown, India comes forward as a cheap and effective medical solutions provider. The Indian government is further making initiatives and pushing the industry. Other factors like health insurance coverage, population demographics and pricing points, are painting a good picture for Indian pharma demand, both in the long and short term.