NorthWest Healthcare Properties Real Estate Investment Trust Releases Strong First Quarter 2019 Results and Announces Institutional JV Participation in
Indian Pharmaceuticals Applications and Filtration Industry
1, The price range of cartridges price of Pall, Sartorius, millipore prices(not total range, but in cases, for example, the price range of Millipack in India.
The price range of cartridges
Price Range: Rs 500-Rs 650
The price range of Pall
Price Range: Rs 300- Rs 600
The price range of Sartorius
Price Range: Rs 12,000-25,000
The price range of millipore
Price Range: Rs 1,500- Rs 2,500
The best strategies to do business with Indians.
1. Find the right partner India is the world’s seventh largest economy in terms of GDP, and has a population of 1.3 billion people. It is a complex market for the best Indian companies, and even more so for companies from abroad. Businesses with a pre-determined mindset and less exposure to international markets might find the commerce culture in India too intimidating. Identifying the right partner goes a long way in successfully navigating the complexities of the local business environment for a new entrant into the Indian market. A local partner can provide much-needed assistance in understanding the Indian market. This partner can give you valuable market insights on competition, regulation and other important issues. They can also introduce you to the network with the reach to target prospective clients without much investment on the ground.
2. Localize your products to meet consumer needs and preferences India is a vast and diverse country encompassing many different identities, languages, cultures and religions. It is important to avoid making generalizations or assumptions, as local practices and consumer behavior may vary substantially from region to region. Since India has such a pluralistic, multilingual society, more often than not, a one solution fits all approach doesn’t work. Even a global bigwig like McDonald’s had to localize its product offerings based on the fact that half of Indians are vegetarian. They also have to leave their most popular item, beef burgers, off the shelf given the religious sensibilities of the Indian population.
3. Remember the high level of price sensitivity It is extremely important for a new entrant into the Indian market to get its price strategy right, particularly if it’s targeted towards the low and middle income populations. Even with a growing economy and a burgeoning middle class, there’s no denying the fact that India is still a low middle income economy, with a per capita income of around $2,000 and a huge population still living below the poverty line. Since the government cannot afford to provide for education and healthcare coverage, the majority of the population has to pay for these necessities from their own income. With little disposable income left after covering basic amenities, there’s not much money left in the hands of a significant portion of the population. This makes the market price sensitive as many people need to spend judiciously.
4. Enter the Indian market for long-term growth, not to make a quick buck India is certainly not a place for businesses to make quick gains – you need to be invested for the long haul. Although it’s a huge market with a population of 1.3 billion people, including 400 million middle class consumers, it has its share of challenges when it comes to market entry. Because India is such a huge and attractive opportunity, there is no dearth of competition. More often than not, you have companies looking for market share and compromising on potential short-term profitability in order to establish themselves more firmly there. Given the complexity of the market, it takes time for the companies to understand the environment and develop the right strategy.
5. Prepare to navigate a much different legal and regulatory landscape The Indian judicial system follows “common law”, and the constitution has provided for a single integrated system of courts to administer both union and state laws. Due attention should be paid, including seeking professional advice, before entering into a formal agreement. Court judgements are often delayed because of the huge backlog of cases, so any agreement should provide the scope for alternate dispute resolution mechanisms.
The Indian economy has long been an attractive investment destination for multinational corporations. Already a large domestic market, Frontier Strategy Group’s estimates suggest the country will average growth rates between 7.4% and 7.6% over the next three years.
However, India remains a difficult market for multinational firms to enter. My conversations with executives, particularly those from western multinationals, often focus on the high cost and difficulty of doing business in India as one of the biggest disincentives for them to invest in the country.
In one illustration of these difficulties, consider that India currently ranks 100 out of 190 countries in the World Bank’s Ease of Doing Business rankings, 22 places behind China, 39 places behind Indonesia, and just nine places above Papua New Guinea. The country’s ranking in dealing with construction permits (181) and enforcing contracts (164) is particularly bad.
The main reason for the poor performance is a complex and unpredictable regulatory landscape. Inconsistent policymaking and subjective interpretations of legislation on the ground are major obstacles to business. Moreover, regulations can change from state to state, just as they do in other large nations.
If multinationals want to succeed in India, they need to understand the country’s individual states and their business environments in a lot more detail. Most companies, including the ones mentioned above, approach India as one market when they should be thinking of the different states as individual markets. After all, what works in Gujarat will not necessarily work in West Bengal.
India is a large, fragmented, and heterogeneous market. Within the country, there are large — and often underestimated — regional differences in language, culture, talent, infrastructure, and wealth, all of which lead to wide variations in business landscapes.
Indian states are often compared to individual countries. For instance, India’s most populous state, Uttar Pradesh, has a population equal to that of Brazil, and India’s most prosperous state, Maharashtra, has an economy roughly the size of Iraq’s.
Cultural variations are important. Other than the well-documented differences in language and development, demographic differences are also significant. For instance, South India is older, with higher spending capabilities and a more skilled population, while North India is younger and relatively poor. North Indians prefer speaking in Hindi, while South Indians prefer communicating in English or their respective state language. These cultural differences have a significant impact on multinationals’ talent and organizational decisions.
India’s federal structure also leaves certain key policy decisions to the states. Policies relating to infrastructure development, land and labor, healthcare, and transport fall under the purview of the states—as do most licensing and permitting.
This decentralized policymaking, as well as differing priorities among state governments—from rural development to improving infrastructure to attracting investment—have resulted in wide variations in the business landscape across Indian states.
For instance, a recent survey of more than 3,000 Indian companies, by government think tank NITI Aayog, reports that it takes an average of 156 days to get land allotted from the government in India. However, companies in Himachal Pradesh report that it takes 28 days for them, while those in Chhattisgarh take 213 days. Similarly, the time it takes to get an electricity connection varies. Firms across the country report it takes 52 days on average to get an electricity connection; but if you break it down by state, it takes 31 days in Karnataka, 32 days in Gujarat, and 95 days in Odisha.
We expect state policy to become even more prominent in determining the overall investment potential of the country. Competitive federalism—an approach used by the central government to encourage states to compete for investments based on economic policy and ease of procedures—is fast gaining traction. The central government is devolving power to state governments, encouraging them to make their own economic policies.
Aside from understanding how India’s states differ, companies must also create a well-thought-out plan for allocating resources across states. Most firms find it difficult to effectively compare markets and develop a structured prioritization process. Based on our experience of working with numerous companies operating in India across different industries, we find that a simple yet powerful four-step framework helps companies effectively prioritize markets in the country:
Step 1: Measure risk-adjusted opportunity
We recommend companies first measure the risk-adjusted opportunity in each state by analyzing leading indicators of the market’s size, growth, industry clusters, and stability. (Industry cluster metrics measure the size of the pool of potential customers for B2B or B2C companies, and market stability metrics measure institutional, business, and social stability.) Example indicators include size (population, for instance, or state gross domestic product), expected growth, industry clusters, and market stability (including factors from workplace injury rates to crime).
This first step allows companies to measure not only the potential in a market (size, growth, and industry clusters) but also the associated risk (market stability). This is important to get an assessment of the realistic potential of a state.
Step 2: Measure operating environment
Companies should measure the operating environment of each state by analyzing indicators related to infrastructure, talent, finance, and the business and tax environment. This data is publicly available on each state’s website. Example indicators include infrastructure (such as the number of major ports), access to talent (the number of people enrolled in higher education), access to finance, and the business and tax environment and the ease of doing business.
The business and operating environment varies remarkably across states. Focusing on those that have a strong operating environment — for instance, a high ease of doing business score (Andhra Pradesh) or well-developed infrastructure (Gujarat) — can help multinationals lower the cost of doing business in the country.
Step 3: Evaluate results
If you plot the risk-adjusted opportunity and operating environment of the different states on a graph, you can clearly see which states offer the highest return on investment and represent the greatest opportunity for business. States in the top right corner represent the largest opportunity and the strongest operating environment, while those in lower left corner represent small opportunity and a weak operating environment. Companies should focus on states in the top right corner. These provide the largest opportunity and the strongest operating environment, increasing the return on companies’ investment.
Here is an example of how this graph might look, based on the analysis done by our company using the measures above to determine each Indian state’s opportunity and operating environment. While this may vary according to what individual companies are most interested in measuring, this is how we have categorized the states, and this is what most companies would likely find.
Step 4: Prioritize states
Multinationals need to align their India focus and strategy to the outcome. Companies can do this by categorizing the states into four groups in order of priority.
The first group of states—those with high opportunity and a strong operating environment—are category 1 states where multinationals should focus on enhancing performance. Most MNCs already have a presence in these states and executives should undertake a strategic approach to improving operations and capturing opportunity in these high performing states. For many companies, category 1 states include Maharashtra, Gujarat, Delhi, Tamil Nadu, and Karnataka. We recommend examining areas of geographical expansion within the states and conducting internal reviews to identify areas of operational inefficiencies.
The second category of states – those with moderate opportunity and a good regulatory environment – are states in which companies should consider expanding their presence.There are benefits in expanding to states that are geographically close to category 1 states, so we suggest a ‘hubbing’ strategy for expansion, i.e. executives should prioritize expanding to category 2 states that are relatively close to the high performing states to capitalize on cultural similarities and capture economies of scale.
The third category of states – those with moderate opportunity but a weak regulatory environment – are those where executives should monitor growth rates and explore potential as the state governments continue to improve the regulatory environment by implementing reform. Examining details of various policy initiatives aimed at attracting investment is critical for companies to determine the right time to enter these markets. Several central and eastern states fall into this category.
And finally, the fourth category – those with small risk-adjusted opportunity and a weak operating environment – are likely to be costly investment destinations for multinationals with low returns. Executives should deprioritize these states.
Often considered a country of countries, India can be a difficult yet rewarding market for multinationals. Companies that have a structured approach to prioritize India’s states can navigate the complex market effectively and make strategic decisions backed by quantitative insights. This approach also helps executives prioritize those states that are business-friendly, thereby lowering their operating costs and helping them get the highest return on their investment. Adopting a state-wise approach is key to getting it right in India.
3, Some Non-FDA India pharmacy companies in Hyderabad, and Banglore, and Ahmedabad in these three cities.
Pegasus Farmaco India Pvt. Ltd.
Tusker Pharma India Pvt Limited
Rakshit Drugs Private Limited
Vance & Health Pharmaceutical Pvt. Ltd.
Eli Lilly and Company India Private Limited
Jubilant Biosys Limited
ALLERGAN INDIA PRIVATE LIMITED
Lexus India Organics
4, How did other multinational companies succeed in India, and how could we
Over the past 20 years, multinational companies have made considerable inroads into the Indian market. But many have failed to realize their potential: some have succeeded only in niches and not achieved large-scale market leadership, while others haven’t maximized economies of scale or tapped into the country’s breadth of talent. The experience of a leading multinational consumer goods company illustrates the challenge: its revenue in India has grown by 7 percent compounded annually in the past seven years—almost twice the rate of the parent company in the same period. Nevertheless, the company’s growth rate in India is only about half that of the sector.
For multinationals, the key to reaching the next level will be learning to do business the Indian way, rather than simply imposing global business models and practices on the local market. It’s a lesson many companies have already learned in China, which more multinationals are treating as a second home market.1In India, this trend has been slower to pick up steam, although best-practice examples are emerging:
• A leading beverage company entered India with a typical global business model—sole ownership of distribution, an approach that raised costs and dampened market penetration. The company’s managers quickly identified two other big challenges: India’s fragmented market demanded multiple-channel handoffs, and labor laws made organized distribution operations very expensive. In response, the company contracted out distribution to entrepreneurs, cutting costs and raising market penetration.
• A big global automobile company has become the one of the largest manufacturers in India, growing at a rate of more than 40 percent a year over the last decade, by building a local plant, setting up an R&D facility to help itself better understand what appeals to Indian customers, and hiring a well-known Indian figure as its brand ambassador.
To realize India’s potential, multinationals must show a strong and visible commitment to the country, empower their local operations, and invest in local talent. They must pay closer attention to the needs of Indian consumers by offering the customization the local market requires. And multinational executives must think hard about the best way to enter the market. More and more, that will mean moving beyond the joint-venture approach that so many have adopted and learning to go it alone. (For a localization-assessment tool, see exhibit, “Winning in India: An illustrative scorecard.”)
It’s essential that multinationals raise their game in India: the country’s economy is expected to grow by upward of 6 percent annually in the next few years, among the highest rates of any big emerging economy. In several product and market categories—mobile handsets, for example—India could account for more than 20 percent of global revenue growth in the next decade. In other words, the future of many multinationals depends on their ability to succeed in India.
India – Market Entry Strategy (How You Can Succeed)
Strategic planning, due diligence, consistent follow-up, and perhaps most importantly, patience and commitment are all prerequisites to successful business in India. This market necessitates multiple marketing efforts that address differing regional opportunities, standards, languages, cultural differences, and levels of economic development. Gaining access to India’s markets requires careful analysis of consumer preferences, existing sales channels, and changes in distribution and marketing practices, all of which are continually evolving.
Finding Partners and Agents:
New-to-market businesses must address issues of sales channels, distribution and marketing practices, pricing and labeling, and protection of intellectual property. These issues are best addressed through and with an Indian partner or agent. Relationships and personal meetings with potential agents are extremely important. Due diligence is strongly recommended to ensure that partners are credible and reliable.
Market Entry Options
There are many foreign companies eyeing opportunities in India. For entry into the Indian market, it is essential to identify the target market and find good partners who know the local market well and are completely acquainted with procedural issues. Foreign investors should also explore various market options in India that could include forming subsidiary relationships or joint ventures with an India-based company.
Some of the important points for market entry in India are: the ability to understand the diverse market and strategies towards specific regions and income groups (target segment); crafting offerings according to the target group in order to gain early acceptance; integration of the informal sector into the core business model by gaining access to relevant networks; consistency in approaching the market; obtaining mandatory licenses and approvals; understanding the import procedures is one of the key issues for first time export to India. Proper documentation and understanding of the Indian import procedure will ensure smooth entry of products into the Indian market.
According to International Monetary Fund World Economic Outlook (October-2016), GDP (nominal) of India in 2016 at current prices is $2,251 billion. India contributes 2.99% of total world’s GDP in exchange rate basis. India shares 17.5 percent of the total world population and 2.4% of the world surface area. India is now 7th largest economy of the world. The growth rate of the industrial sector is estimated to be down to 5.2% for the fiscal year ending March 2017 from 7.4% last fiscal year ending March 2016. This is primarily due to the demonetization drive in November 2016. India has also firmly established itself as a lucrative foreign investment destination. Foreign Direct Investment (FDI) inflows into India in 2016 calendar year jumped 18% to a record $46.4 billion at a time when global FDI inflows fell. This is higher than the $31 billion inflow in 2015. Data from the Department of Industrial Policy and Promotion (DIPP) showed FDI inflows in 2016 were strongest in October with $6.2 billion inflows followed by $5.1 billion in September 2016.
As stated, U.S. companies, particularly small and medium-sized enterprises, should consider approaching India’s markets on a regional level. Good localized information is a key to success in such a large and diverse country. The U.S. Commercial Service offices in New Delhi, Mumbai, Chennai, Ahmedabad, Bengaluru, Hyderabad, and Kolkata provide valuable local information and advice and are well connected with local business and economic leaders. Multiple agents are often required to serve the various geographic markets in the country.
The country can be broadly divided into four economic regions:
North India, with a population of nearly 370 million, is home to 30% of India’s total population and comprises the second largest consular district in the world. The region includes the states of Haryana, Himachal Pradesh, Jammu & Kashmir, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand, the Union Territory (UT) of Chandigarh (which is the capital of both Punjab and Haryana states), as well as Delhi/National Capital Region (NCR). Northern India’s per capita incomes vary greatly, with several states including Delhi, Haryana, and Punjab well above India’s average per capita income of $1539, and others like Jammu & Kashmir and Uttar Pradesh significantly below. Outside of the National Capital Region, which includes the business centers of Gurgaon and Noida, North India, in general, is not as economically and commercially developed as Southern or Western India, although certain sectors including agribusiness, renewable energy (especially solar), machine tools, automotive and medical/consumer goods are well represented. Education, travel & tourism, and trade and investment promotion are particularly strong opportunities given North India’s significant population and wealth. Punjab, in particular, has very strong ties to the United States, with an estimated 350,000 Punjabis living in the U.S. Punjab also has a strong consumer culture, and is one of India’s top markets for luxury goods.
One of the Modi administration’s top priorities is Smart Cities. The United States is supporting Smart City engagement in three Indian cities, with two of them – Ajmer, Rajasthan and Allahabad, Uttar Pradesh – falling in North India. With significant infrastructure needs across the regions, this activity will focus primarily on integrated urban development. Another economic growth priority is to increase states’ competitiveness and improve the overall business climate. Since September 2015, India’s Department of Industrial Policy and Promotion (DIPP), in conjunction with the World Bank, has done an annual Ease of Doing Business (EODB) assessment and ranking of India’s 36 states and UTs under the Government of India’s Business Reform Action Plan. For 2016, Haryana was the highest ranked North Indian state at #6, followed by Rajasthan at #8 and Uttarakhand at #9. In the middle of the pack are Punjab, Uttar Pradesh, Himachal Pradesh, and Delhi, at #12, 14, 17, and 19 respectively. Jammu & Kashmir ranked #32, followed by Chandigarh at #33.
In February/March 2017, the Bharatiya Janata Party (BJP), Prime Minister Modi’s party, won legislative assembly elections by an overwhelming majority. Uttar Pradesh (UP) is the largest state in India with a population exceeding 200 million. The BJP’s victory in UP, along with simultaneous victories in three other states, is testament to the strength of the BJP and led to a majority for the party in Parliament’s Rajya Sabha (Upper House) and Lok Sabha (Lower House), giving Prime Minister Modi a mandate to legislate at the national level.
The U.S. Commercial Service (CS) in New Delhi oversees North India.
The Western India Region comprises five states: Maharashtra, Gujarat, Madhya Pradesh, Chhattisgarh, and Goa. The region is highly industrialized, with a large urban population, a land area of 951,488 square kilometers, and a regional population exceeding 279 million. The region is anchored by Mumbai, the financial, business and entertainment capital of the country. Other major cities include: Pune, Nagpur, and Aurangabad in Maharashtra; Ahmedabad, Surat, Vadodara, and Rajkot in Gujarat; Indore, Bhopal, and Gwalior in Madhya Pradesh; Panaji in Goa; and Raipur in Chhattisgarh.
The Western Region is an economic powerhouse in a wide range of sectors: conventional and renewable energy, chemical and allied products, electrical and non-electrical machinery, textiles, petroleum and allied products, wine, jewelry, pharmaceuticals, engineering goods, machine tools, steel and iron castings, and plastic wares. The Western Region leads in the production of petrochemicals, textiles, diamonds, and pharmaceutical products and is home to some of India’s – and the worlds – best known corporations, such as Reliance, Tata, Aditya Birla Group, Godrej, and Mahindra & Mahindra. Most major American companies are head quartered in Mumbai.
In addition to this manufacturing might, the Western Region is recognized as the hub of the growing services sector in India. Several large, global banks and financial institutions are located in Mumbai, including the Reserve Bank of India (central bank), the two largest life and general insurance companies (LIC & GIC), and the two largest Stock Exchanges (BSE & NSE.)
CS offices in Mumbai and Ahmedabad oversee Western India.
The South India commercial district covers six states: Tamil Nadu, Karnataka, Kerala, Telangana, Andhra Pradesh, and Odisha; and the Union Territories of Puducherry (Pondicherry), Lakshadweep Islands, and Andaman & Nicobar Islands. The region has a collective population of 290 million and an area covering 791,457 square kilometers. Per India’s DIPP and the World Bank’s Ease of Doing Business assessment and rankings of India states, Andhra Pradesh and Telangana were the top ranked states (tied for #1), followed by Odisha at #11, Karnataka at #13, Tamil Nadu at #18 and Kerala at #20.
Tamil Nadu has four major and 44 minor ports, and serves as an important gateway to Southeast Asia. The state is an important manufacturing center and the capital Chennai is home to many Indian companies, mostly engaged in the automotive, healthcare, information technology (IT) and financial services sectors. The state is considered as an educational hub for India as well. In addition to the United States, countries such as Japan, Korea, Germany, and France have invested largely in Tamil Nadu. Investments are mostly in automotive, consumer electronics, and heavy machinery sectors from companies such as Ford, Caterpillar, Dell, Hyundai, Saint Gobain, Renault, Nissan, BMW, Visteon, Toshiba, Hewlett Packard, and Mitsubishi. The other two major cities in Tamil Nadu are Coimbatore and Madurai. A large number of textile mills and engineering units are located in these two cities.
Bengaluru (Bangalore), the capital of Karnataka, is the hi-tech hub of India and one of the principal commercial and industrial centers in South India. Home to numerous high-tech companies, including domestic giants like Wipro and Infosys Technologies, Bengaluru is popularly known as the ‘Silicon Valley’ of India. The clustering of aerospace, defense, machine tools, electronics-related industries, and biotech companies in Bengaluru has also made it the aerospace and bio-tech center of the country. The city has a booming retail market and is the first destination of many global consumer brands, especially luxury labels. Increasingly, the city is also seeing high growth in the healthcare, textiles/apparel, automotive, and construction industries. The other major cities of Karnataka are Mangaluru and Mysore.
Major business sectors in Kerala include construction, shipbuilding, transportation, shipping, seafood and spices, chemical industries, IT, tourism, health services, and banking. Kochi (Cochin) is widely referred to as the commercial capital of Kerala. The availability of electricity, fresh water, a long coastline, backwaters, good banking facilities, presence of a major port, container trans-shipment terminal, harbor terminal, and an international air terminal are some of the factors that have accelerated the industrial growth in the city and its adjoining districts. In recent years the city has witnessed heavy investment, thus making it one of the fastest-growing tier 2 cities in India. Thiruvananthapuram (Trivandrum) is the state capital.
Telangana is India’s newest state, created in 2014 after Parliament voted to bifurcate the state of Andhra Pradesh. Hyderabad, its capital, is known as a center for IT and other industries such as biotechnology, pharmaceuticals, aerospace, and defense manufacturing.
After the bifurcation, the residual coastal area and inland region retained the state name Andhra Pradesh. The capital of Andhra Pradesh, Amaravati, is under construction. In the interim, government functions take place in Amaravati’s neighboring city, Vijayawada, an hour flight from Hyderabad. The coastal region is historically known as “The Rice Bowl of India,” and contains India’s second largest source of minerals. The state’s largest industrial hub is around Visakhapatnam (Vizag). The city’s natural deep water ports, proximity between Chennai and Kolkata, and access to highways and rail networks have allowed heavy industries in the areas of petroleum, steel and fertilizers to flourish.
Odisha (Orissa) was once the poorest state in India but rapid economic growth during the past decade has greatly reduced poverty. Still, there are many economically depressed regions in the state. Driven by political stability and investments in the mining, power, steel and port sectors, major industries related to steel, aluminum, coal, and other minerals are present in Odisha. Recent developments in the IT industry have led to the development of IT Parks. Bhubaneswar is the capital.
CS South India has offices in Chennai, Bengaluru, and Hyderabad. CS Chennai in collaboration with the U.S. Embassy in Colombo also oversees Sri Lanka.
The states covered under the Eastern India commercial district include West Bengal, Bihar, Jharkhand, Sikkim, Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Tripura, and Manipur. The total land area of Eastern India is 524,866.27 square kilometers with a population of approximately 270 million.
Mining, metals and minerals, agriculture and agro based industries, service sector, oil & gas, petrochemical, paper, power generation are the major sectors in this region. Among the states of Eastern India, West Bengal and Jharkhand are the most industrialized. West Bengal is the fifth largest economy in the country and the main economic engine of Eastern India. It has fertile land, good reserves of coal, iron ore, limestone, and other minerals. It is India’s largest producer of rice and jute fiber and second largest producer of tea after Assam. Key industries include engineering, chemicals and petrochemicals, coal, iron and steel, tea processing, jute products, and finished leather goods. IT, construction and real estate, hospitality, healthcare, food processing are growing sectors. Jharkhand is the largest producer of coal, copper and mica in the country and also has considerable iron ore, bauxite, and uranium reserves. Steel making, automobile manufacturing and ancillary industries, and other engineering units are some of the leading industrial activities of the state.
Major festivals of this region include Durga Puja, Diwali, Bihu, Hornbill festival. Chhau dance is performed during spring festival of Chaitra Parva. The region has good tourism potential with attractive destinations located on the sea coast, in the mountains, national parks and heritage places. The region is the only place in the world to have one-horned rhinos and also features a variety of flora and fauna.
What makes this area unique from a business perspective is that it is a developing region with ample natural resources and well trained manpower to serve industrial needs. The region borders Bangladesh, Nepal, Bhutan, Burma, and China.
CS Kolkata covers the Eastern India region and also oversees the partnership post in Bangladesh.
American Business Corners (ABCs)
To expand the reach of the U.S. Commercial Service in India, we have built partnerships with key Indian chambers of commerce in 13 Tier 2 cities across India, by establishing American Business Corners (ABCs). The ABC program is a major initiative in support of advancing business and trade cooperation between U.S. and Indian companies and aims to increase U.S. commercial engagement in tier 2 cities where the U.S. government does not have a physical presence.
ABCs provide a focused point of engagement for U.S. trade promotion in India’s up and coming tier 2 cities and offer opportunities to Indian importers in these cities to learn about our services and programs and make connecting with American businesses as easy as A.B.C.
These centers provide resources to assist Indian companies with doing business with the United States and inform them of upcoming business opportunities. For U.S. companies, the ABCs enable structured outreach to untapped markets with potential outside of the bigger metropolitan cities.
Currently, ABCs have been launched in the cities of Madurai, Coimbatore, Salem, Vizag, Kochi, Mangaluru, Guwahati, Patna, Ranchi, Bhubaneswar, Surat, Pune and Jaipur. For more information on how the American Business Corners can help your firm, please go online.
India shares borders to the northwest with Pakistan, to the north with China, Nepal, and Bhutan, and to the east with Bangladesh and Myanmar. To the west lies the Arabian Sea, to the east the Bay of Bengal, and to the south the Indian Ocean. Sri Lanka lies off the southeast coast, and the Maldives off the southwest coast.
Indian Pharmaceutical Application and Filtration Industry
Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK. India contributes the second largest share of pharmaceutical and biotech workforce in the world. The pharmaceutical sector in India was valued at US$ 33 billion in 2017. In May 2018, the Indian pharmaceutical market grew at 10.8 per cent year-on-year.
With 71 per cent market share, generic drugs form the largest segment of the Indian pharmaceutical sector. Domestic API consumption is expected to reach US$ 18.8 billion by FY22. The country accounts for the second largest number of Abbreviated New Drug Applications (ANDAs) and is the world’s leader in Drug Master Files (DMFs) applications with the US Indian Drugs & Pharmaceuticals sector has received cumulative FDI worth US$ 15.59 billion during April 2000 – December 2017.
Indian drugs are exported to more than 200 countries in the world, with the US as the key market. Generic drugs account for 20 per cent of global exports in terms of volume, making the country the largest provider of generic medicines globally and expected to expand even further in coming years. India’s pharmaceutical exports stood at US$ 17.27 billion in 2017-18.
The Government of India plans to set up a US$ 640 million venture capital fund to boost drug discovery and strengthen pharmaceutical infrastructure. The ‘Pharma Vision 2020’ by the government’s Department of Pharmaceuticals aims to make India a major hub for end-to-end drug discovery.
Indian pharmaceutical industry, with current market size of $27.57 billion (last reported in 2016) is expected to reach a mark of $55 billion by 2020 at a CAGR of 15.92%, according to a report by the Indian Brand Equity Foundation (IBEF). In the next three years, India is projected to be among the top three pharmaceutical markets in terms of growth rate and the sixth largest market globally in absolute size.
“Currently the industry is growing at a rate of 9-10% year-on-year, which is a healthy growth because this is largely a volume led business. This is a fundamental advantage of an emerging market economy like India; given the large base, double digit growth numbers are not observed in developed countries like United States,” said Kedar Upadhye, Global Chief Financial Officer, Cipla Ltd.
Pharmaceutical Export Trend
India accounts for 20% of global exports in generics. In FY16, India exported pharmaceutical products worth $16.89 billion, with the number expected to reach $40 billion by 2020. Pharma exports in India grew at 9.44% in FY16 and are expected to register double digit growth in FY17.
Talking about Cipla, Upadhye said, “We have a very strong presence in South Africa’s private as well as tender market. Cipla is the 4th largest company in the private pharma market and 3rd overall, including tender business. United States is also our priority market and our focus will be to grow our US franchise disproportionately.”
More Interest in Bio-Technology
Many Indian companies are now in the race to create generic versions of biologic drugs or biosimilars as stated by Kiran Mazumdar-Shaw, chairman and managing director, Biocon. She added, “Biosimilars are far more complex to make but offer a large global opportunity. Since 2008, the Indian biosimilar industry has been growing at a CAGR of 30%. There are around 25 Indian companies operating in the biosimilar space, marketing close to 50 products in the Indian market. Today, Indian patients have access to some of the biosimilars like Insulins, Insulin analogues, Filgrastim, Trastuzumab, Rituximab, Adalimumab etc. This early experience with developing biosimilars is paving the way for Indian players to capitalize on the unfolding global opportunity.”
The global biosimilars market in 2020 is projected to be between $25 billion and $35 billion.
India has more US FDA-approved manufacturing plants than any country except the US
Biosimilars are very heavy resource intensive investment business. “Given the level of investments and long gestation period, we have decided to reposition our Biotech business and shift focus towards business development and licensing based model, rather than organic manufacturing and development model. This will also help us in reallocating capital towards Specialty in US and other strategic priorities,” said Upadhye.
Shift from Infectious Diseases to NCDs
“As a dynamic sector, there are both interesting and challenging times for the pharmaceutical industry. There has been a shift from infectious diseases to non-communicable diseases (NCDs) as populations are aging and lifestyles and habits are changing. Companies will need to align their product portfolio in this direction,” according to a spokesperson of Abbott India.
Upadhye stated, “We are implementing a number of patient education and market shaping initiatives. For example, we are trying to combat the stigma attached with inhalation problems, for which we develop respiratory devices and oral products. Cancer and diabetes are spoken about a lot but not respiratory ailments.”
Recently, the union government implemented the Goods and Services Tax (GST), which had a major effect on the pharmaceutical industry in the first quarter of the current financial year. “After the announcement of GST, the stockists withheld the purchasing for May and June, which resulted in lower sales in the first quarter of FY 2017-18. However, we expect the market to stabilize in the near term,” said Upadhye.
Talking about another challenge, Upadhye said, “At times, US FDA takes longer to visit our locations for inspection, which is challenging. A company which is trying to increase its sales in the US will find delayed visits or inspections by the FDA challenging. However, Cipla has always worked in compliance with the Current Good Manufacturing Practices (CGMPs).”
The biotech industry in India faces a gamut of challenges that include a time-consuming approval process, sub-optimal infrastructure, high regulatory barriers, lack of funding avenues, little or no incentives and a shortage of highly skilled talent, among others as shared by Kiran Mazumdar-Shaw of Biocon.
To which, Upadhye added, “There are many promises of diagnosing more patients, spreading healthcare, expanding to rural areas in terms of socio-economic classifications in Tier I, II, III towns. I think healthcare has not reached where it should have by now. Products like carbonated drinks, toothpastes and other FMCG products have penetrated these towns but not pharmacies and healthcare. We are trying to make our products available in these small towns.”
“India has made considerable progress in healthcare outcomes over the past few decades. The average life expectancy of Indians has risen from 58 years in 1990 to 66 years in 2013. However, there is much work to be done in terms of improving healthcare access to citizens. We believe this can be accomplished through an effective healthcare delivery system – one that is about creating value for people by keeping their interest at the core of everything we do,” said Abbott India’s spokesperson.
Indian pharmaceutical companies are now investing on research and development. “Historically, we used to spend less than 4% on R&D but now we spend about 8% of our sales into research and development efforts,” shared Upadhye. While Sun Pharma spent 9.1% of its total sales on research and development, Lupin’s R&D budget stood at 12-15% of its total sales value in FY 16.
“What is also important is the move from creating medicine to creating holistic healthcare solutions that address the entire continuum of care. This is where technology and digital interventions play an important role. In our country, where the doctor to patient ratio poses a challenge, in order to serve our patients better, pharma needs to collaborate with partners such as hospitals, devices and diagnostics companies so that we can integrate, optimize data and generate insights and interventions for better health outcomes for the patients,” said the spokesperson of Abbott India.
India in 2016 announced draft guidelines for “similar biologics” that will enable such drugs to be developed and brought to the market in an affordable and expeditious manner, whilst ensuring quality, safety and efficacy.
“The government’s ‘Start-Up India’ initiative is creating an enabling ecosystem through a number of policies that include seed and venture funding to support biotech entrepreneurs, incubators and accelerators. India has also recently unveiled the National Biopharma Mission, which is an industry-academia collaborative mission for accelerating discovery and early development of biopharmaceuticals,” concluded Kiran Mazumdar-Shaw.
India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK.
India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immuno Deficiency Syndrome) are supplied by Indian pharmaceutical firms.
The pharmaceutical sector was valued at US$ 33 billion in 2017. The country’s pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–20 to reach US$ 55 billion. India’s pharmaceutical exports stood at US$ 17.27 billion in 2017-18 and are expected to reach US$ 20 billion by 2020.
Indian companies received 304 Abbreviated New Drug Application (ANDA) approvals from the US Food and Drug Administration (USFDA) in 2017. The country accounts for around 30 per cent (by volume) and about 10 per cent (value) in the US$ 70-80 billion US generics market.
India’s biotechnology industry comprising bio-pharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics is expected grow at an average growth rate of around 30 per cent a year and reach US$ 100 billion by 2025. Biopharma, comprising vaccines, therapeutics and diagnostics, is the largest sub-sector contributing nearly 62 per cent of the total revenues at Rs 12,600 crore (US$ 1.89 billion).
The Union Cabinet has given its nod for the amendment of the existing Foreign Direct Investment (FDI) policy in the pharmaceutical sector in order to allow FDI up to 100 per cent under the automatic route for manufacturing of medical devices subject to certain conditions.
The drugs and pharmaceuticals sector attracted cumulative FDI inflows worth US$ 15.59 billion between April 2000 and December 2017, according to data released by the Department of Industrial Policy and Promotion (DIPP).
Some of the recent developments/investments in the Indian pharmaceutical sector are as follows:
• In 2017, Indian pharmaceutical sector witnessed 46 merger & acquisition (M&A) deals worth US$ 1.47 billion.
• The exports of Indian pharmaceutical industry to the US will get a boost, as branded drugs worth US$ 55 billion will become off-patent during 2017-2019.#
Some of the initiatives taken by the government to promote the pharmaceutical sector in India are as follows:
• The National Health Protection Scheme is largest government funded healthcare programme in the world, which is expected to benefit 100 million poor families in the country by providing a cover of up to Rs 5 lakh (US$ 7,723.2) per family per year for secondary and tertiary care hospitalisation. The programme was announced in Union Budget 2018-19.
• In March 2018, the Drug Controller General of India (DCGI) announced its plans to start a single-window facility to provide consents, approvals and other information. The move is aimed at giving a push to the Make in India initiative.
• The Government of India is planning to set up an electronic platform to regulate online pharmacies under a new policy, in order to stop any misuse due to easy availability.
• The Government of India unveiled ‘Pharma Vision 2020’ aimed at making India a global leader in end-to-end drug manufacture. Approval time for new facilities has been reduced to boost investments.
• The government introduced mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to deal with the issue of affordability and availability of medicines.
Medicine spending in India is expected to increase at 9-12 per cent CAGR between 2018-22 to US$ 26-30 billion, driven by increasing consumer spending, rapid urbanisation, and raising healthcare insurance among others.
Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are on the rise.
The Indian government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.
Trends & Opportunities for Indian Pharma
Global market dynamics & implications for India pharma
Even though companies anticipated a fair set of challenges in last few quarters, the sheer speed and impact of these has been overwhelming. Many leading generics players—in India and globally—shed up to 40 percent of their market capital in mere months due to a range of reasons8 —from regulatory sanctions to litigation, impairment charges to generics market dynamics in the US, and raw material price volatility in China to evolving regulatory landscape in India, etc.
■ Further consolidation among distributors and pharmacy chains:
This has continued to cause a steep fall in generic drug prices in the US—the largest healthcare market in the world.
Increased product approvals, and resultant competition in the generics space:
The number of filings and drug approvals is rising sharply, with an increasing number of Indian companies (e.g., accounting for around 40 percent of the ANDA approvals in 2017) vying for a share of the same pie . This will keep up the competition (and consequently, price erosion) in the coming years.
Drop in new launch sales:
The average new launch sales per year has dropped due to lower value of drugs going off patent. This trend is also likely to sustain for the next couple of years
Increasing price control and protectionism in various global markets:
Protectionism could significantly impact the value of exports, which contribute around half of India pharmaceutical industry’s value.
Driving Profitability and cost leadership through operational excellence:
Indian pharma manufacturers have been ceding ground on cost due to increasing complexity, remediation costs, additional controls, global supply market disruptions (particularly in China owing to environmental regulations), etc. To cope up with these margin pressures, the industry needs to improve manufacturing efficiencies acrossthe network and drive cost excellence initiatives acrossthe spend base. Some successful pharmaceutical companies have pruned their cost structures by approximately 10 percent in a relatively short span of time.
Focussing on strategic M&A for value buys:
The current operating environment could lead to several attractive opportunities through distressed divestitures and fewer strategic buyers with available cash at scale. Strategically pursuing and shaping deals could allow companies to make additions to the portfolio (products, business lines) that might support short‐term top line buoyancy and create platforms for future strategic expansion.
Advancing the specialty / differentiated drugs business model:
While pharmaceutical companies could optimize the core generic portfolio across dosage forms, most have begun to embrace the “next‐gen” specialty/differentiated assets portfolio. This will require purposefully reinventing the operating model for generics companies, pursuing a systematic portfolio and investment strategy (using partnership, analytics, technology, etc.), strengthening development and launch processes (efficiency in trial design,setup and execution) and building new innovator‐like functionalstrengths (pricing, launch, market access, regulatory, etc.).
Opportunities for India as a global supply destination
Generic drugs form the largest segment of the Indian pharma market. India supplies 20% of the global generic medicine market export.
· Prescription drugs worth $40 billion in the U.S. and $25 billion in Europe are due to lose patent protection in the next 36 months. Indian firms will likely take around 30 percent of the increasing global generics market.
The following pie-chart shows the revenue split between different kinds of drugs:
Indian Pharmaceutical Market Share:
Source: Department of Pharmaceuticals
· Cardiovascular drugs command the largest market share of 29%. The rise in the number of reported cardiovascular diseases in the country will increase the shares of these drugs.
· Respiratory diseases are at an all-time high. According to 2015 GBD data, PM2.5 contributed to 4.2 million deaths globally, 52% of which occurred in China and India. This will increase the share of respiratory drugs.
Export & Import in Indian Pharma:
· Indian pharma companies are capitalizing on export opportunities in regulated and semi-regulated markets.
· In FY16, India exported products worth US $16.89 Billion, with the number expected to reach US $40 Billion by 2020.
· India’s generic drugs account for 20% of the global generic drug exports, making it the world’s largest provider of generic medicines.
Factors affecting the growth of the pharmaceutical sector in India:
· Pace of Drug Approvals in the US has picked up, clearing the way for companies to launch more products in the US. Companies like Lupin, Aurobindo and Glenmark have received a series of approvals in the recent months.
· Punitive Regulatory Action by the US FDA remains a potential risk, dimming the exports prospects of the company facing the clamps. Sun Pharma and Ipca Labs continue to work towards attaining full regulatory compliance.
· Customer Consolidation in the US is changing the existing equation for Indian drug sellers. A handful of retailers control most of the purchasing of generic drugs. Companies like Dr Reddy’s and Lupin have faced price erosion in the US on this account.
· MNCs in India have become aggressive in launching products in the domestic market.
The growth of MNCs have outpaced that of the Indian companies in the last two months.
· M&As continue to be important as firms acquire targets and brands in India and outside.
· The government’s plans to develop the rural areas will boost the pharma industries.
· Hospitals and health insurance companies have increased operations which will also boost the pharmaceutical industries.
Major Companies in India:
Sun Pharma has the biggest market share with a revenue of US $4 Billion in FY16.
There is still close competition between Dr. Reddy’s, Lupin, Cipla and Aurobindo Pharma.
While these top 5 companies accounted for over 25% of market share, the top 10 companies accounted for nearly 39% of market share in 2015.
India’sstrong position as a pharma supplierrests on its ability to provide high quality medicines backed by strong innovation capabilities and a structural cost advantage. The cost of manufacturing formulations in India remains 30‐40 percent lower than other comparative manufacturing hubs such as China and Eastern Europe, notwithstanding low productivity levels15. This is driven by lower labour costs vis‐à‐vis other geographies16. Despite inflationary trends, India’s labour cost advantage will sustain in the medium to long term, especially if Indian companies can improve productivity through operational excellence and digital initiatives. The supply of local talent into the pharma industry (e.g., B.Pharm, M.Pharm,.) is stronger than in countries such as China. Indian pharma companies are foraying into complex products (e.g., microspheres, liposomes, emulsions), building capabilities in R&D and the manufacturing of these products while still ensuring the required quality.
However, the industry is also facing several challenges in supplying to export markets, which must be addressed going forward.
■ The increasing pricing pressure in the regulated market is squeezing margins and profitability. Key drivers include customer consolidation, greater competition in commoditized, easy‐to‐ manufacture products with increased ANDA approvals, and a slowdown in new launches.
■ Another key challenge stems from compliance issues affecting the reliability of supply. While many Indian companies have fared well in regulatory audits over the last year and seem to be emerging out of remediation, others continue to face challenges.
■ India continues to rely on imports of key starting materials, intermediates and API’s for, China with the share of dependence increasing over time. This potentially exposes us to raw material supply disruptions and pricing volatility.
There is an opportunity for India Pharma to drive growth by building on the cost advantage, and improving reliability of supply—major buying criteria for customers. Three priority areas thus emerge for Indian pharmaceutical companies:
■ Build stronger quality systems and achieve full compliance
■ Re‐focus efforts on operational excellence
■ Alternate sourcing and self‐sufficiency in APIs / intermediates
Global Pharma’s evolving business models and options in India
Top Players in Indian Pharma Industry and Their Situations
The Growth of the Indian Pharmaceutical Sector
Indian Pharmaceuticals Revenue:
· Indian pharma market saw a growth at a CAGR of 5.64%, between 2013 and 2016.
· By 2020, India is likely to be among the top 3 pharmaceutical markets and sixth largest globally in terms of absolute size.
· India’s cost of production is significantly lower than US & Europe.
· Increasing penetration of health insurance, hospitals and chemists, especially in rural India, will increase the demand for OTC drugs.
Embracing Digital and advanced analytics for accelerated growth: The recent technological shift has prompted the rapid rise of Advanced Analytics (AA), which is enabling companies to surface insights even with complex and unstructured data sets. Globally, in the pharma industry we have seen use cases of AA driving growth and productivity across the pharmaceuticals value chain including R&D (over 10 percent increase in clinical trial productivity), Manufacturing (more than 30 percent improvement in yields and throughput), Quality (over 15 percent reduced deviations), Supply Chain (over 20 percent increase in customer service levels), Sales (around 30 percent improvement in sales force conversion rate), etc10. In 2017, some India pharma companies experimented with AA through pilot scale test cases with promising results. We expect that they will advance the Digital and AA agenda on a larger scale in the years to come. (Exhibit 1)
Organization and linking Talent to Value:
As portfolios become more complex, competition and regulatory scrutiny intensify, and external demand and supply situations tighten, companies will need to rethink how they organize for delivery. The capabilities in the Indian pharmaceutical industry will need to be upgraded to cope with the challenges ahead. Companies will need to follow a “Talent to Value” approach, linking business value to the most critical roles and then actively managing these roles. This is the right time to take a tough look at organization hierarchies and redesign for agility by de‐layering and delegate decisions, and strengthening cross‐functional interfaces to ensure collaboration in the most important areas.
The Rise in R&D expenditure:
o In FY16, highest expenditure on R&D has been done by Sun Pharma, followed by Lupin.
o Sun Pharma’s R&D spending is 9.1% of the total sales in March quarter of FY16.
o In FY17, Lupin’s expenditure on R&D is expected to be 12-15% of sales.
Trends in the Indian Pharmaceutical Industry:
o Generic Pricing Uncertainty in US:
Profit margins of Indian companies selling generics in the US will remain under pressure in 2017 with channel consolidation and USFDA fast tracking approvals through Generic Drug User Fee Act. Despite that US still remains a lucrative market with margins upwards of 20 percent. In fact, in FY16 – Indian companies have clocked EBITDA margins of 27 percent – the highest over previous four years.
o R&D & Clinical Trials:
Indian Pharma companies spend 8-11% of their turnover on R&D. The privatisation and globalisation policy of the government of India in the mid-1990s provided incentives to R&D in the pharma sphere. Innovative products were given exemption from price control, a number of financial schemes were made available to firms for undertaking R&D, technology collaborations were brought under the automatic approval route, and patent rights were granted for a period of 20 years for products as well as processes. More than 870 multinational companies have set up their R&D operations in India since 1985.
The biggest reasons for this seismic adoption include cost effectiveness, skill, pre-established R&D centres, market access, government support, rising household incomes and biodiversity.
o Joint Ventures and M&A:
2017 is expected to be a year which will see a lot of M&A activity as Indian companies try to expand into new markets, deepen their presence in existing ones, get access to manufacturing assets and fill their portfolio and technology gaps.
MNCs are collaborating with companies to form new drugs. For example, Cipla formed an exclusive partnership with Serum Institute of India to sell vaccines in South Africa.
o Other markets:
With economic slowdown, aging population and governments encouraging generic substitution – Indian generic companies continue to expand in 2017 in geographies like Europe and Japan. 2017 is seen as a critical year for Biocon & Dr. Reddy’s as they move with their filings in highly regulated markets such as US and Europe for biosimilars.
Porter’s Five Forces Analysis
1. Threat of New Entrants:
o Strict government regulations thwart entry of new players.
o High capital expenditure on R&D, set-up costs and well-established competitions discourage new companies from entering the sector.
2. Industry Rivals:
o The pharma industry has high competition amongst the top 5 companies which accounted for 25 % of the revenue in FY2015.
o Local Indian pharma companies will face direct competition from global companies. Foreign companies are increasingly looking for joint venture opportunities. Domestic companies may compete with each other for obtaining these deals.
3. Threat of Substitutes:
o It is unlikely for customers to find ready and trusted substitutes for drugs. Ayurvedic and Homeopathic medicines do have conflicting results in some cases.
o A TOI survey in 2015 showed that 90% of Indians preferred Allopathy over Ayush (Ayurvedic, Yoga, Naturopathy, Siddha and Homeopathy).
4. Bargaining Power of Suppliers:
o Some APIs which are hard to manufacture prove to be expensive to procure. For example – steroids, peptides and sex hormones.
o Generic APIs are relatively easy to procure and don’t have that much power.
5. Bargaining Power of Consumers:
o Generic drugs & biosimilars offer a cost-effective alternative to branded medicine.
o However, some chronic diseases such as cancer have extremely over-priced medication.
Manufacturing Advantages Which Drive Growth:
o Cost effective production economics & competency increases company operations.
o Several companies have launched patented drugs after the introduction of product patents.
o Increased expenditure towards entering rural markets have opened new opportunities.
o Market size of hospitals is expected to increase by US $200 Billion by 2024.
o There is huge scope as the generics market which accounted for 70% of the Indian Pharmaceutical Industry. However, as the income of family rises, people may shift to bigger brands which market aggressively.
o With the government’s plans of urbanizing the rural sides of the country which will lead to increased penetration of chemists and hospitals, there will be more demand of OTC drugs.
o The total sales value of drugs with patents expiring in 2015 is US $66 Billion & that of patents expiring in 2014 is US $34 Billion.
There are several factors on the consumer side which will increase demand:
o The overall health budget has increased from INR 39,879 crore to INR 48,878 crore.
o The proposal to restructure medical education and add 5000 post graduate seats for specialist courses has been tabled. This improves awareness about medical prognosis and will boost sales of drugs.
o It is predicted that 73 million households will move to the middle-class bracket in the next 10 years due to rising income. Health insurance will cover over 650 million people by 2020. This will increase affordability of all kinds of drugs in the population.
o Increasing acceptability of pharmaceuticals has resulted in self-medication which has in turn lead to rise in the sales of OTC drugs.
o Patient pool is expected to increase by over 20% in the next 10 years. New diseases and lifestyle changes will also boost demand.
Impact of Government Policies & Budget 2017 on the Pharmaceutical Sector:
The Union Budget 2017 has been received with mixed reactions from the industry.
The overall health budget has increased from INR 39,879 crore to INR 48,878 crore. While the increase is welcome, most of it is concentrated towards human resources and medical education. The FM has announced plans to eliminate Kala Azar, Filariasis, Leprosy, Measles and TB by 2020. Some of these plans sound far-fetched, but if implemented with a proper strategy, it will have a positive impact on drug sales and R&D.
The government has announced to set up 1.5 lakh Health Care Centres and open 2 new AIIMS in Jharkhand & Gujarat. The government has also planned to set up 6 pharma parks at an investment of US$27 million.
In 2016, the government approved 74% FDI in brownfield pharma and 100% FDI in greenfield projects to boost the sector, in the automatic route.
The National Health Protection Scheme is expected to provide a 1 lac health insurance cover to all BPL families which will also boost the generic drug sales further.
The Government Needs to Do More:
Although there is progress, companies believe that the reform isn’t adequate for them to compete globally, with more efficiency.
According to figures, the Indian pharmaceutical sector has the potential to grow exponentially to the size of $300 billion by 2030. However, for achieving this, emphasis must be given to quality and R&D. The Finance Act, 2016 had, however, curbed this by reducing the weighted deduction from 200 percent to 150 percent from FY 2017-18 to FY 2019-20. Further, from FY 2020-2021 onwards the deduction will be further restricted to 100 percent.
The Finance Act, 2016 introduced the concept of a concessional tax rate of 10 percent for royalties derived worldwide from patents developed and registered in India. This concession should be extended to other forms of intellectual property developed and recognized in India.
Given that the pharma sector has entered the e-commerce space, the limits specified towards compliance with the Indian transfer pricing regulations, definitions of software development services, contract R&D services are ill-defined.
The tax benefits of carry-forward of losses and unabsorbed depreciation for companies undergoing amalgamation are currently restricted to certain sectors (e.g. computer software, electricity, power, telecom etc.). This benefit should be extended to pharma companies engaged in R&D as well.
Interesting Observation – Small Pharma Companies Beat the Big Ones in FY15
Outperforming the big ones, several small pharma companies have given robust returns to their investors, as high as 1550% plus. Out of nearly 135 pharma companies listed on BSE, as many as 64 small and mid-sized drug makers offered more than 20% return in FY2015. As many as 36 pharma companies have given double or more returns in the year. While, shares of around 28 pharma firms have increased between 20-99% in FY2015.
On the other hand, except Sun Pharma and Dr. Reddy’s Lab, two of India’s largest drug makers in terms of market share, 8 other top pharma companies have offered significant returns between 3-53% in CY2015.
According to market experts, small pharma companies in India, who are mainly involved in manufacturing APIs and bulk drugs, have less exposures to the US and the European drug market. Secondly, they have benefited from increasing demand of APIs and other raw materials in the bulk drug segment. Thirdly, small Indian pharma companies, which mainly cater to the domestic market, are less affected with regulatory actions taken by the overseas drug regulatory bodies such as the US Food and Drug Administration and European Medicines Agency.
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