IHS Global Insight Perspective | |
Significance | Major pharma has increased its market share in the domestic Indian market from below 15% in 2005 to 25.4% in 2010, following changes to the Patent Act and acquisitions. In other news, the Indian government has started the probe into merger and acquisition activity by foreign firms in India and how it will affect drug prices and market competition. |
Implications | Major pharma's growing presence in India is part of revenue diversification strategies due to pricing pressures and drives to increase generic drug use in developed markets. The government probe will re-raise issues such as capping pharmaceutical foreign direct investment (FDI) at 49%, compulsory licensing, changing the investment from the automatic route to the government route, and capping drug profit margins, all of which are supported by small to medium-sized domestic firms. |
Outlook | With the domestic market showing revenue growth of around 19%, compared with 14% in 2009, foreign pharmaceutical companies will continue to eye the lucrative Indian market with a two-pronged approach to boost its revenues, which could see them gain 35% of the Indian market by 2015. With continued pressure from domestic firms, it is likely the Indian government will have to make concessions and implement changes to drug pricing and FDI. However, it will be careful not to damage innovative pharma investment interests in India as it looks to remain competitive against other emerging markets such as Brazil and China. |
Major Pharma Increases Indian Market Share by 10% in 2010
Over the last five years, multinational firms have boosted their presence in the Indian market from less than 15% market share in 2005 to 25.4% in 2010, according to Business Standard, citing IMS data. This is reversing the trend of domestic firms holding the majority of the market since the 1972 Patent Act; this law protected the process by which a patented drug is manufactured, but in essence allowed local manufacturers to produce patented pharmaceuticals as long as they were created through innovative processes. The trend is now back at pre-1970 levels, where major pharma held the majority of the market. Some 10 major pharma companies—Japanese Daiichi Sankyo-controlled Ranbaxy (India), GlaxoSmithKline (GSK; United Kingdom), Abbott (United States)-controlled Piramal's (India) domestic formulation business, Pfizer (US), Abbott-Solvay (US/Belgium), Sanofi-Aventis (France), Novartis (Switzerland), Merck & Co/ Merck Sharp & Dohme (MSD; US), and AstraZeneca (UK)—controlled 25.4% (118.4 billion rupees; USD2.6 billion) of the INR476.9-billion domestic market in 2010. Most of these were experiencing an above-average industry growth rate of 16.5% per annum; for example, Abbott grew 25.8% in 2010, while Sanofi-Aventis grew 20.4%, and Pfizer, Merck &Co, and Novartis grew 20.7%, 20% ,and 17.7% respectively, driven by acquisitions, better intellectual property rights through the amended Indian Patent Act, and patient programmes extending their reach to semi-urban and rural areas.
In 2010, the top five bestselling drug brands were major pharma products, led by Pfizer's cough and cold drug Corex (chlorpheniramine maleate + dextromethorphan hydrobromide), which had revenues of INR2.05 billion and a growth rate of 11.7%. Other leading brands included Abbot's insulin Huminsulin, Novartis's analgesic Voveran (diclofenac), and Abbot's cough and cold drug Phensedyl (promethazine).
Top Five drug brands in India 2010 | ||||
Rank | Company | Brand | Sales (mil. rupees) | Growth (%) |
1 | Pfizer | Corex | 2,050 | 11.7 |
2 | Abbott | Huminsulin | 1,840 | 37.8 |
3 | Novartis | Voveran | 1,820 | 6.4 |
4 | Abbott | Phensedyl | 1,730 | -8.5 |
5 | GSK | Augmentin | 1,710 | 23.4 |
Source: IMS India (January-December 2010) | ||||
Acquisitions of suitable targets have propelled major pharma's position in India, such as Abbott's acquisition of Piramal's generic business, which increased the former's market share from under 3% to over 7%, making it the largest player in the Indian market. Over the last five years, major pharma firms have made acquisitions worth USD352.76 billion, snapping up some of the largest generic players in the market. This merger and acquisition (M&A) activity has been spurred by changes in foreign direct investment (FDI) regulations that saw the Indian government eradicate limits on FDI in 2002. In addition to these high-profile acquisitions, there have been several strategic alliances between foreign firms and Indian companies, including Pfizer with Aurobindo, and AstraZeneca and Intas. Both the acquisitions and the alliances are based on gaining access to the highly skilled and relatively affordable scientific and technological human capital of India, and gaining access to the large and growing Indian consumer market.
Major Acquisitions by Major Pharma in India, 2007–11 | |||
Year | Acquiring Firm | Acquisition Target | Price (mil. rupees) |
2007 | Mylan (US) | Matrix | 736 |
2008 | Fresenius Kabi (Germany) | Dabur Pharma | 3,426 |
2008 | Daiichi Sankyo (Japan) | Ranbaxy | 4,600 |
2009 | Sanofi Aventis | Shantha Biotech | 786 |
2009 | Hospira (US) | Orchid's Injectable business | 400 |
2010 | Abbott | Piramal Health formulation business | 3,700 |
2011 | Reckitt Benckiser (UK) | Paras Pharma | 724 |
Source: IHS Global Insight | |||
Government Probes M&A Activity
On 23 February, the Indian government started its inter-departmental consultations into concerns raised on the M&A activity of major pharma and its impact on drug prices, Indian Express reports. Domestic firms, led by the Indian Drug Manufacturers Association and Indian Pharmaceutical Alliance, have raised concerns that the takeover of Indian firms by foreign firms would lead to overpriced drugs and marginalisation of local firms. These concerns were supported by India's Ministry of Health and Family Welfare. The Department of Industrial Policy and Promotion (DIPP) is also worried about the growing dominance of multinationals in the pharma sector.
Outlook and Implications
Multinationals' interest in India has grown as the country's economic growth has rapidly sprouted, with real GDP increasing from 5.1% in 2008 to 8.5% in 2010 (IHS data). Major pharma's growing presence in India is part of revenue diversification strategies due to pricing pressures and drives to increase generic drug use in developed markets. Previously, major pharma had low M&A activity in the Indian market, as valuations for domestic firms were extremely high, but as competition has grown and revenues are affected by severe foreign-exchange fluctuation due to the rupee's volatility against the major currencies such as the dollar, these have come down, allowing pharma to make its move. However, this may change towards more upward valuations such as eight to nine times their revenues (Bombay Stock Exchange analysis), as Indian companies realise the potential they offer major pharma in terms of low-cost production and research and development (R&D), large generic product portfolios, and market networks in other emerging markets. With the domestic market showing revenue growth of around 19% compared with 14% in 2009, the foreign pharmaceutical companies are eyeing the lucrative Indian market to boost its revenues, which could see them gain 35% of the Indian market by 2015 (source: IMS). The growth of major pharma in India will allow Indian patients to access the latest innovative products, although the affordability of this will still raise questions. The government's probe into M&A will re-raise issues such as capping pharmaceutical FDI at 49%, compulsory licensing, changing investment from the automatic route to the government route, and capping drug profit margins, all of which are supported by small to medium-sized domestic firms (see India: 21 December 2010: Indian Government Gains Support to Cap Drug Profit Margins from Small Pharma Units; India: 27 August 2010: India's DIPP in Compulsory Licensing Discussion for Pharmaceutical Sector; and India: 7 September 2010: Foreign M&As Prompt Indian Government Into Considering 49% Cap on FDI). Major pharma will still have major hurdles to overcome in the Indian market if it is to increase its market share beyond 35%, such as the government's protectionist and public health view of its policies, and decisions that favour generic firms. The Patent Act and its interpretation will continue to plague major pharma, with most decisions going in favour of generic versions and public interest, impeding them from realising the full 20-year patent-term potential of their innovative products. With continued pressure from the domestic firms, it is likely the Indian government will have to make concessions and implement changes to drug pricing and FDI. However, it will be careful not to damage the innovative pharma investment interests in India, as it looks to remain competitive against other emerging markets such as Brazil and China. With a two-pronged market approach, pharma should be able to navigate round such issues; an example of this is Daiichi Sankyo, which launched both generic and innovative versions of its cardiovascular drug prasugrel. With a growing population, increasing income levels, and a changing disease profile from infectious diseases to chronic disease, multinationals are expected to exceed 35% market share by 2015, with acquisition of brands and companies to boost their revenues and market reach, which is achievable given their large cash bases.