growing interest in low-cost healthcare options, the US pharma market could be a more lucrative opportunity than their domestic markets for Indian generic drug makers.
Even though the Indian generic drugs industry is third-largest in terms of volume and 14th largest in terms of value globally, its long-term profitability and sustainability remains questionable due to low entry barriers that lead to fierce competition and slim margins in the industry. Additionally, the Drug Price Control Order (DPCO) issued by the Indian government in 2013 put a ceiling on the price levied by the companies in order to provide medicines to consumers at reasonable prices. This move has affected around 40% of the domestic pharmaceutical industry and is expected to erode margins significantly in the near future.
As competition in the Indian generics market intensifies, many Indian drug makers see the US generics market as a lucrative alternative.
India’s Pharma Companies are Growing Beyond Generics
Indian pharma companies currently supply 40% of generic drugs in the US. However, there’s been a pragmatic shift in the focus of these players from developing ‘me too’ generic drugs to specialized complex generics such as oncology injectables, nasal sprays, vaccines and transdermal patches. This is largely because these product segments have comparatively lower competitive intensity as well as offer long-term revenue streams and higher profitability.
Indian companies are trying to penetrate these niche segments by tweaking popular drugs that have gone off patent. In order to take advantage of this opportunity, companies are aggressively filling for approvals with the US FDA.
The US generics market, currently valued at $35 billion, is expected to double to $71.9 billion by 2018.
About one-third of all the applications filed during the first three quarters of 2015 were by Indian pharmaceutical companies, a 19% year-on-year increase. In addition, Indian firms accounted for 20–25% of the first ANDA-approvals for a specific drug over the last few years, a definite indicator of their strong R&D capabilities. This is a key statistic, as first ANDA-approval gives them the exclusive rights to sell a generic version of patented drugs for the first 180 days after the patent’s expiry, a significant advantage in the generics industry. With a current backlog of 3,000 pending ANDA applications and the FDA’s intent to clear 90% of these by 2018, India’s generic players may see strong pipeline growth in the next few years.
Leading Indian Pharma Companies Have Ramped Up their R&D Expenses by 4x Within Five Years
R&D has been a key focus area for the Indian generic manufacturers as they continue to move further up the value chain and become more competitive globally. Total R&D investments from leading Indian generic companies has witnessed an expansion to around 7% of sales in 2015 as compared to 4% in 2010; total R&D investment has more than quadrupled to $1.2 billion in 2015 from $0.25 billion in 2010.