Make In India! Healthcare Redefined?

By PHARMALEADERS 57 0 0

Indian News

September 29, 2014

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Prime Minister Narendra Modi could not have asked for a better boost to his Make in India campaign than this: ratings agency Standard & Poor’s (S&P) has revised the outlook on India to “Stable” from “Negative”, while keeping the “BBB–” rating unchanged. One of the significant reasons for the upward revision according to S&P was that “the new government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential. This is exactly what Mr. Modi appears eager to convey through his Make in India campaign, launched to a packed audience in New Delhi’s Vigyan Bhavan on Thursday. The fact that the top brass of Corporate India appeared to be in full attendance at the launch showed the seriousness with which the campaign has been received. Mr. Modi struck all the right notes, pointing out how Indian companies were forced to consider investing outside the country due to policy flip-flops and delays in clearances. In that sense, his FDI — First Develop India — was a signal to companies that his government would create an enabling environment for investment, which he expected they would reciprocate by committing their energies and investments to the country. It is also significant that he thought it fit to point out India’s low ranking as regards the ease of doing business, assuring investors thereby that he was sensitising the bureaucracy to get its act together on this critical point. The jury will be out on this issue, going by the experience of the collapse of similar efforts to untangle red tape.

It is interesting to note that the Prime Minister did not dangle incentives to attract investors, a practice that has been in vogue until now. His promise to create a ‘business-friendly’ environment is probably more appropriate in today’s context of fiscal prudence. Indeed, S&P has referred to the fiscal constraints in terms of the high subsidy burden on the government, observing that successive governments have been unable to either increase the revenue base or curb expenditure. The remarkable turnaround in the external finances of the country with the current account deficit at a low of 1.8 per cent has obviously been an important factor, along with political stability, for S&P’s outlook revision. That said, it would be wrong to be complacent on this issue and assume that the job has been done. If anything, with the growth impulse returning and the prospect of investments picking up, the current account deficit could widen in the months ahead. It is indeed imperative that the government’s actions should match its words. For now, certainly, there is fresh wind in Mr. Modi’s sails as he prepares to address the CEOs of top American multinationals in New York on Monday.

MAKE IN INDIA

3rd largest pharmaceuticals market by 2020.
20% of global exports in generics.
USD 45 Billion in revenue by 2020.
USD 26.1 Billion in generics by 2016.
USD 200 Billion to be spent on infrastructure by 2024.
49% of all drug master filings registered in the USA.

REASONS TO INVEST

India is expected to rank amongst the top three pharmaceutical markets in terms of incremental growth by 2020.
India is the sixth largest market globally in terms of size.
India’s generic drugs account for 20% of global exports in terms of volume, making the country the largest provider of generic medicines globally.
India’s cost of production is significantly lower than that of the USA and almost half of that of Europe.
A skilled workforce as well as high managerial and technical competence.
Economic prosperity is likely to improve affordability for generic drugs in the market.
Approval time for new facilities has been drastically reduced.

STATISTICS

The country’s pharmaceuticals industry accounts for about 2.4% of the global pharma industry by value and 10% by volume.
Industry revenues are expected to expand at a CAGR of 12.1% during 2012-20 and reach USD 45 Billion.
The healthcare sector in India is expected to grow to USD 250 Billion by 2020 from USD 65 Billion currently.
The generics market is expected to grow to USD 26.1 Billion by 2016 from USD 11.3 Billion in 2011.

GROWTH DRIVERS

Between 2011 and 2016, patent drugs worth USD 255 Billion are estimated to go off-patent leading to a huge surge in generic product and tremendous opportunities for companies.
In 2011, India’s OTC drug market stood at USD 3 Billion and a rise to USD 6.6 Billion is forecast by 2016.
With increasing penetration of chemists, especially in rural India, OTC drugs will be readily available.
Pharma companies have increased spending to tap rural markets and develop better infrastructure. The market share of hospitals is expected to increase from 13.1% in 2009 to 26% in 2020.
Following the introduction of product patents, several multinational companies are expected to launch patented drugs in India.
The purported rise of lifestyle diseases in India is expected to boost industry sales figures.
Over USD 200 Billion is to be spent on medical infrastructure in the next decade.
Rising levels of education are set to increase the acceptability of pharmaceuticals.
India’s patient pool is expected to increase to over 20% in the next 10 years, mainly due to the rise in population.

FDI POLICY

100% FDI is allowed under the automatic route for greenfield projects.
For brownfield project investments, up to 100% FDI is permitted under the government route.
The government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approvals.
‘Non-compete’ clauses are not allowed except in special circumstances, with the approval of the Foreign Investment Promotion Board.
The FDI is subject to applicable regulations and laws.

SECTOR POLICY

The National Pharmaceutical Pricing Policy, 2012 (NPPP-2012) has been notified on December 7, 2012.

The salient features of the NPPP-2O12 are as under:

The regulation of prices of drugs on the basis of the essentiality of drugs as specified under the National List of Essential Medicines (NLEM)- 2011.
The regulation of prices of drugs on the basis of regulating the prices of formulations only.
The regulation of prices of drugs on the basis of fixing the ceiling price of formulations through Market Based Pricing (MBP).
The provision of exemptions to drugs manufactured through indigenous R&D from price control for 5 years.
A Drug Price Control Order 2013 has been notified in May 2013 to implement the provisions of NPPP-2012.

FINANCIAL SUPPORT

KEY PROVISIONS IN THE 2O14-15 UNION BUDGET:

Creation of new drug testing laboratories and further strengthening of the 31 existing state laboratories.
Full exemption from excise duty is being provided for HIV/AIDS drugs and diagnostic kits supplied under National AIDS Control Programme funded by the global fund to fight AIDS, TB and Malaria (GFATM). The customs duties on the said drugs are also being exempted.
Allocation of INR 5000 Million to set up four more institutions of the stature of AIIMS in Andhra Pradesh, West Bengal, Maharashtra and U.P.
Any of the following two deductions can be claimed:

1. Investment allowance (additional depreciation) at the rate of 15% to manufacturing companies that invest more than INR 1 Billion in plant and machinery acquired and installed between 01.04.2013 and 31.03.2015 provided the aggregate amount of investment in new plant and machinery during the said period exceeds INR 1 Billion.

2. In order to provide further fillip to companies engaged in manufacturing, the said benefit of additional deduction of 15% of cost of new plant and machinery, exceeding INR 250 Million which is acquired and installed during any previous year ending up to 31.3.2017.

EXPORT INCENTIVES HAVE BEEN ENVISAGED IN THE FOLLOWING SCHEMES:

Focus product scheme.
Special focus product scheme.
Focus market scheme.
Export promotion capital goods scheme.

AREA-BASED INCENTIVES:

Incentives for units in SEZ/NIMZ as specified in respective acts.
Setting up of projects in special areas such as the North-east, Jammu & Kashmir, Himachal Pradesh and Uttarakhand.

UNITS IN CLUSTERS:

A scheme for the development of common facilities like effluent treatment, testing centres etc.

STATE INCENTIVES:

Besides the above, each state in India offers additional incentives for industrial projects.
Incentives are in areas like subsidised land cost, relaxation in stamp duty on sale/lease of land, power tariff incentives, concessional rate of interest on loans, investment subsidies/tax incentives, backward areas subsidies, special incentive packages for mega projects etc.

R&D BENEFITS:

Industry/private sponsored research programs:

A weighted tax deduction is given under section 35 (2AA) ofthe Income Tax Act.
A weighted deduction of 200% is granted to assesses for any sum paid to a national laboratory, university or institute of technology, or specified persons with a specific direction provided that the said sum is used for scientific research within a program approved by the prescribed authority.

Companies engaged in manufacture having an in-house R&D centre:

Weighted tax deduction of 200% under section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure incurred on scientific research and development. Expenditure on land and buildings are not eligible for deduction.
A national centre to help develop bulk drugs and facilitate their research is being set up in Hyderabad.

INVESTMENT OPPORTUNITIES

India is expected to be the third largest global market for active pharmaceutical ingredients by 2016, with a 7.2% increase in market share.
Indian pharma companies registered 49% of overall Drug Master Filings (DMF) filed in the US in 2012.
The Contract Research and Manufacturing Services industry (CRAMS) – estimated at USD 8 Billion in 2015, up from USD 3.8 Billion in 2012. The market has more than1000 players.
The formulations industry – India is the largest exporter of formulations with 14% market share and ranks 12th in the world in terms of export value. Double-digit growth is expected over the next five years.

FOREIGN INVESTORS

Teva Pharmaceuticals (Israel)
Nipro Corporation (Japan)
Procter & Gamble (USA)
Pfizer (USA)
Glaxo Smith Kline (UK)
Johnson & Johnson (USA)
Otsuka Pharmaceutical (Japan)
AstraZeneca (Sweden-UK)

AGENCIES

Department of Pharmaceuticals, Ministry of Chemicals & Pharmaceuticals
Indian Drug Manufacturers Association
Bulk Drug Manufacturers Association
Pharmexcil
Federation of Pharma Entrepreneurs
Confederation of Indian Pharmaceutical Industry
Indian Pharmaceutical Alliance

Introduction

India’s pharmaceutical sector will touch US$ 45 billion by 2020, according to a major study by global management and consulting firm, McKinsey & Company. The reasons for this optimism are well founded. In the period 2002-2012, the country’s healthcare sector grew three times in size, touching US$ 70 billion from US$ 23 billion. India’s pharmaceutical market experienced a similar boom, reaching US$ 18 billion in 2012 from US$ 6 billion in 2005. The report further states that the Indian pharmaceutical market will be the sixth largest in the world by 2020.

The rise of pharmaceutical outsourcing and investments by multinational companies (MNCs), allied with the country’s growing economy, committed health insurance segment and improved healthcare facilities, is expected to drive the market’s growth.

India is today one of the top emerging markets in the global pharmaceutical scene. The sector is highly knowledge-based and its steady growth is positively affecting the Indian economy. The organised nature of the Indian pharmaceutical industry is attracting several companies that are finding it viable to increase their operations in the country.

Market size

From a market size of US$ 12.6 billion in 2009, the Indian pharmaceutical market will grow to US$ 55 billion by 2020, with the potential to reach US$ 70 billion in an aggressive growth scenario. In a pessimistic scenario characterised by regulatory controls and economic slowdown, the market will be depressed but is still expected to reach US$ 35 billion.

India currently exports drug intermediates, Active Pharmaceutical Ingredients (APIs), Finished Dosage Formulations (FDFs), Bio-Pharmaceuticals, and Clinical Services across the globe. The exports of pharmaceuticals from India grew to US$ 14.6 billion in 2012-13 from US$ 6.23 billion in 2006-07, registering a compound annual growth rate (CAGR) of around 15.2 per cent.

Among the top pharma companies, Abbott with total sales of Rs 452 crore (US$ 74.76 million), Cipla with Rs 322 crore (US$ 53.26 million), Sun Pharma with Rs 313 crore (US$ 51.77 million), and Zydus Cadila with Rs 268 crore (US$ 44.32 million) were the fastest growing companies in the month of September 2013. In terms of growth, Sun Pharma (17.8 per cent) is ahead of peers such as Cadila (1.8 per cent), Cipla (0.8 per cent) and McLeod (0.7 per cent).

Investments

The allowance of foreign direct investment (FDI) in India’s pharma sector has been well received by foreign investors. According to data released by the Department of Industrial Policy and Promotion (DIPP), the drugs and pharmaceutical sector attracted FDI worth Rs 60,100.91 crore (US$ 9.94 billion) between April 2000 and June 2014.

Some of the major investments in the Indian pharmaceutical sector are as follows:

Cipla has planned to invest £ 100 million (US$ 165.74 million) in its British subsidiary. This investment will fund the launch of a range of drugs in the areas of respiratory, oncology and antiretroviral medicines, as well as research and development (R&D), clinical trials and further expansion internationally and in the UK.
GeneOmbio Technologies and Resilient Cosmeceuticals have launched the country’s first comprehensive nutrigenomics support lab in collaboration with DNA LIFE under the GeneSupport brand.
Cipla announced its fifth global acquisition deal, within a span of a year, by picking up a 51 per cent stake for US$ 21 million in a pharmaceuticals manufacturing and distribution business in Yemen.
Meiji Holdings has acquired Medreich for Rs 1,720 crore (US$ 284.51 million). Temasek had earlier in 2005 invested Rs 109 crore (US$ 18.03 million) for a 25 per cent stake in Medreich, which manufactures therapeutic generic and branded drugs.
Glenmark Pharmaceuticals has opened its new monoclonal antibody manufacturing facility in La Chaux-de-Fonds, Switzerland. The facility supplements Glenmark’s existing in-house discovery and development capabilities and will supply material for clinical development.
Arvind Remedies has obtained the rights from SRM University to access patented technology for the commercial manufacture of drugs to combat Type II diabetes and cardiovascular diseases.

Government Initiatives

As per extant policy, FDI up to 100 per cent, under the automatic route, is permitted in the pharmaceutical sector for Greenfield investment. Hundred per cent FDI is also permitted for investments in existing companies under the government approval route. Further, the Government of India has also put in place mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to address the issue of affordability and availability of medicines.

Some of the major initiatives taken by the government to promote the pharmaceutical sector in India are as follows:

India plans to set up industrial parks in the pharmaceutical and information technology (IT) sectors in China to strengthen India-China trade and investment ties.
The Union Cabinet of India has cleared foreign investment proposal worth US$ 400 million by KKR to acquire stakes in two pharmaceutical companies, Gland Pharma and Gland Celsus Bio Chemicals.
Mr Ghulam Nabi Azad, Union Minister for Health and Family Welfare, Government of India, met Ms Margaret Hamburg, MD, Commissioner of Food and Drugs, USA. A Statement of Intent on cooperation in the field of medical products was signed between the US Food and Drugs Administration (USFDA) and the Ministry of Health and Family Welfare, India.

Road Ahead

The growth in Indian domestic market will be boosted by increasing consumer spending, rapid urbanisation, increasing healthcare insurance and so on. The lifestyle segments such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyle patterns. Going forward, better growth in domestic sales will depend on the ability of companies to align their product portfolio towards these chronic therapies as these diseases are on the rise.

In various global markets, governments have been taking several cost-effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies.

For the US market, Indian companies are developing niche portfolios in various segments. High margin injectables, dermatology, respiratory, biogenerics, complex generics, etc., have become areas of interest. Most of the Indian pharma companies have been working on these niche drugs in order to optimise growth and margins. Moreover, generic penetration in the US is expected to peak out at 86-87 per cent over the next couple of years from 83 per cent currently.

Exchange rate used INR 1= US$ 0.0165 as on August 26, 2014

References: Consolidated FDI Policy, Department of Industrial Policy & Promotion (DIPP), Press Information Bureau (PIB), Media Reports, Pharmaceuticals Export Promotion Council