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Dun & Bradstreet - Oriental Bank of Commerce SME Cluster Series 2014 : Hyderabad



Over the years, the Indian pharmaceutical sector has emerged as one of the world’s prominent providers of affordable healthcare products. As per the Ministry of Chemicals and Fertilizers, the Indian pharmaceutical industry is the third largest producer in the world in terms of volume and the fourteenth in terms of value. During FY13, the total sales turnover of Indian pharmaceuticals products, which are largely generics, was about ` 1,200 billion. Indian pharmaceutical industry accounts for 9.3% of the global pharmaceutical production by volume and 1.5% of the global pharmaceutical production in terms of value. This industry has recorded a cumulative average growth rate of around 14% during the last 5 years. Further, the Indian pharmaceutical industry comprises around 10,500 registered manufacturing units.

Favourable demographics, rising income levels, growing health awareness, increasing incidence of lifestyle diseases, increasing penetration in rural market and insurance coverage are some of the key factors driving growth of the pharmaceutical industry in the domestic market.

With manufacturing capabilities meeting international quality standards, India has emerged as one of the prominent markets for pharmaceutical products. The country houses the highest number of US Food and Drug Administration (USFDA) approved plants outside the US, most of which also have approvals from regulatory authorities in Canada, Australia and the European Union (EU) nations. According to the Ministry of Commerce & Industry, India has more than 550 manufacturing sites registered with the USFDA, of which about 323 are USFDA approved, as on March 2013. Additionally, there are more than 350 manufacturing sites endorsed by EU for their Good Manufacturing Practices (GMP) in India as on April 30, 2013.

Exports continue to drive the Indian pharmaceutical market

During FY09 to FY13, exports of India’s pharmaceutical products registered compound annual growth rate (CAGR) of 23.7%. The strength of the Indian pharmaceutical sector in the generic drugs segment primarily drove growth in the export market. Further, with many branded drugs scheduled to go off patent through 2015, there is a growing opportunity for manufacturers of Indian generic drugs. This is also supported by increasing alliances of Indian companies with global players.

The overall exports of the Indian pharmaceutical sector stood at ` 547.7 billion during FY13, increasing at a growth rate of 34.2% (y-o-y). Similarly, during FY13, imports stood at ` 95.2 billion, increasing at 17.1% (y-o-y), as compared to a growth of 47.7% during FY12. This is likely due to the country becoming self-sufficient in production of most of formulations and thereby around 95% of the country’s demand for pharmaceuticals being met through domestic production.

India exports drugs to over 200 countries and vaccines and bio-pharma products to about 151 countries. The country is one of the largest exporters of pharmaceutical products in the US and Europe. The US and Europe accounted for 31% and 15% share respectively of pharmaceutical exports from India. Besides, exports of pharmaceutical products to the US increased by 38% during FY13, as compared to 30% during FY12. In addition, about 67% of the medicine exports from India go to developing countries and over 55% of drugs are exported to highly regulated markets. Indian generic drugs are also sourced by several international procurement agencies for their health programmes in developing countries. Indian generic drugs constitute about 50% of the essential medicines that the United Nations Children’s Fund (UNICEF) distributes in developing countries. The International Dispensary Association (IDA) sources around 75%-80% of all its medicines for distribution to developing countries from India.

Domestic companies invest more in R&D compared with their foreign counterparts

Research and Development is the backbone of the Indian pharmaceutical industry. The Indian players are increasing their R&D expenditure as they target to expand their generic portfolio, sustain in growing competition, file Abbreviated New Drug Applications (ANDA) in the US, and focus on major therapeutic segment such as cardiology, diabetes and cancer. Further, companies are gradually increasing focus towards development of new products and molecules. Several MNCs are also entering into partnerships with Indian companies due to India’s low-cost production advantage.

R&D expenditure of the domestic pharmaceutical companies stood at ` 33.4 billion as on FY10, as compared with ` 18.5 billion during FY06, increasing at a CAGR of 15.9% during this period. However, R&D expenditure of foreign companies increased from ` 8.2 billion in FY06 to ` 9.3 billion in FY10, a CAGR of 3.4% during this period.

On an average, the domestic pharmaceutical companies invest ~5% of sales on R&D, which is higher, compared with foreign companies, which spend in the range of 3% to 4% of sales on R&D. However, the R&D expenditure as a percentage of sales of domestic pharmaceutical companies has declined from 5.4% in FY06 to 4.5% in FY10, while the foreign companies have steadily increased their R&D expenditure as a percentage of sales from 2.4% in FY06 to 4% in FY10.

FDI dropped in FY13 but seems to be picking up in FY14

The pharmaceuticals sector is among the top five sectors attracting FDI in India with a 5.5% share in overall FDI inflows into the country during April 2000 to January 2014. The cumulative FDI inflows into the Indian drugs and pharmaceuticals industry from April 2000 to January 2014 stood at ` 560.1 billion. The FDI inflow into the drugs and pharmaceuticals sector has grown by 32% in Apr-Jan FY14 to around ` 71.3 billion, as compared to around ` 53.9 billion in FY13. The drugs & pharmaceuticals sector was the second largest recipient of FDI inflows during Apr-Jan FY14.

However, during FY13, the FDI inflows into the sector had dropped to ` 60.1 billion, from ` 146.1 billion in FY12, recording a y-o-y decline of 58.8%.

As per the initial FDI rules, 100% FDI was permitted in the Indian pharmaceutical sector through the automatic approval route in the new projects. However, the Government allowed foreign investment in the existing pharmaceutical companies only through FIPB’s (Foreign Investment Promotion Board) approval. The Government is reconsidering the foreign investment proposals for brownfield investments in the sector and it is under the process of reviewing the FDI policy for this sector.


A significant proportion of the Indian pharmaceutical companies derive a major chunk of their revenue from the US generic segment. According to the USFDA, about 8 in 10 prescriptions filed in the US are for generic drugs and India has a market share of 15% of US generics by volume. As several drugs are set to lose their patent holding right through 2015, it presents an opportunity for several Indian generic drug manufacturers to augment their production and market share.

However, a recent spate of quality concerns raised by the USFDA regarding drugs manufactured by Indian firms could cast a shadow over the growth prospect of Indian pharmaceutical exports. Further, the implementation of Drug Policy Control Order (DPCO) 2013 by New Pharmaceutical Pricing Authority (NPPA) with effect from 15th May 2013, which put a cap on the prices of 348 essential drugs, is likely to impact domestic revenue generation of both home grown and multinational drug manufacturers.

Nevertheless, there are several measures taken by the US government to reduce the high healthcare cost of its citizens, which is expected to offer a huge potential market to the low-cost Indian drug manufacturers. The growing presence of Indian pharmaceutical firms in emerging markets is also expected to boost growth of the domestic pharmaceutical market. Lesser stringent regulatory norms and high healthcare expenditure are expected to drive growth of Indian exports to markets such as Russia, Africa and Latin American countries, which have emerged as some of the fast-growing markets for Indian Pharma companies during FY13 and FY14 (upto Dec-13). Domestically, increasing incidence of lifestyle diseases, growing health awareness and increasing insurance coverage are the key factors to drive the industry’s growth going forward. However, growing competition, prospects of growing drug price control and high research and development costs are the major challenges that will continue to grapple the players. Nevertheless, despite these challenges, the Indian pharmaceutical sector is expected to emerge strongly in the long-term, supported by robust demand, specifically in the generic segment.