1. www.pwc.com/india
India Pharma
Inc.: Capitalising
on India’s
Growth Potential

3. Foreword
Sujay Shetty Jai Hiremath
Director Chairman,
India Pharmaceuticals & CII Pharma Summit 2010 &
Life sciences leader, PwC Vice Chairman & Managing
Director, Hikal Ltd.
The global Pharma industry is under serious pressure from a large number of innovator molecules facing patent expiration,
a thin pipeline of new drugs, regulatory challenges and pricing pressures. This has led to a directional shift towards the
emerging markets of Asia, Australia, Africa and Latin America, which are growing three times faster than the current
growth rates experienced in the industry’s leading markets of North America, Japan and Europe. We expect over 40% of
the global Pharma industry’s incremental growth over the next decade to come from the emerging markets.
The Indian Pharma industry is on the threshold of becoming a major global market by 2020. Many experts believe that
the Industry has the potential to grow at an accelerated 15 to 20% CAGR for the next 10 years to reach between US$49
billion to US$74 billion in 2020.
The Indian pharmaceuticals market is witnessing dynamic changing trends such as large acquisitions by multinational
companies in India, increasing investment by domestic and international players in India, deeper penetration into the rural
markets, growth and availability of healthcare and incentives for setting up special economic zones (SEZ’s). We believe
these trends combined with increased purchasing power and access to good quality medical care will continue to propel
the domestic pharmaceutical industry to new heights.
Indian Pharma companies are already major outsourcing partners of global Pharma companies. Research & Development
in India is getting more innovative. Domestic companies have strengthened their position in the world for supplying
solutions across the pharmaceutical value chain. They are likely to become a competitor of global Pharma in the areas
of manufacturing and R&D, and a potential partner in others.
In this report, we look at developments in the branded generics market, over-the-counter products (OTC), vaccines and
rural markets, and analyse what lies ahead for the industry as it aims to capitalise on the promise of the domestic market
place. We believe that the domestic Indian pharmaceutical market has a positive growth trajectory but will also face major
transformational challenges in the next decade. We address some of these challenges and identify key imperatives to
accelerate the domestic market’s growth.

4. Contents
Background 6
The Indian Domestic Pharma Market 14
Indian Pharma Market Segments 18
Rural markets 28
Vaccines 34
Changing Tax Environment 38
Challenges 44
The Road Ahead - Imperatives for Growth 48
Profiles 52
References 60
About Confederation of Indian Industry 62
About PricewaterhouseCoopers 63
Contacts

5. Executive Summary
The global pharmaceutical market is industry has a favourable macro- Currently, around 67% of India’s
undergoing rapid transformation. As environment to grow in. The Indian population, or 742 million people live
blockbuster drugs come off patent, there economy has rebounded from the global in rural areas (6), but rural markets
are fewer new products in the pipeline to economic downturn, with real gross contribute to only 17% (7) of the overall
replace them. This is due to declining domestic product (GDP) growth reaching market’s sales. This represents a huge
R&D productivity and rising regulatory 9.66% in 2010.(4) The Indian middle opportunity for pharmaceutical
costs. In PwC Pharma 2020 series of class is also expanding rapidly, with companies, as we expect these markets
reports, we have examined in detail the affordability of medicines increasing, to be the future growth drivers for the
challenges faced by Big Pharma in this and an increased percentage of industry. The rural market has several
regard. There has been a dramatic shift disposable income being spent on challenges, and in order to tap the full
towards emerging markets as western healthcare. The government has made potential of this opportunity, companies
markets slow down. Global Pharma public healthcare one of its top priorities should:
multinational corporations are looking by launching policies and programmes • create demand by increasing
at new growth drivers such as the Indian that are aimed at making healthcare awareness and education;
domestic market to capitalise on the more affordable and accessible, especially • work with the government through
growing opportunity. in rural markets. public-private partnerships (PPP),
The paradigm faced by the leading The industry is witnessing trends in order to improve hygiene and
economies of the US, Europe and Japan such as acquisition activity, increasing infrastructure conditions;
are significantly different from those in investment, deeper penetration into • mobilise primary care givers and
the emerging markets of India, China, the tier I to tier VI and rural markets, paramedics through health and
South America and Russia. According growth in insurance coverage and diagnostic camps;
to IMS Health, the emerging markets innovation in healthcare delivery. • bring specific product solutions to
of Asia/Africa/Australia grew at a rate Taken together, these trends are leading the market and use local languages;
of 15.9% in 2009, as compared to much to increased affordability of services • improve accessibility of medicines
slower growth rates in North America to patients and access to quality medical by innovative distribution channels
(5.5%), Japan (7.6%) and Europe care. We believe these trends, along and
(4.8%).(1) Emerging markets will be the with the favourable macro environment • make products affordable, through
next major growth drivers for the global will propel the industry to the next level appropriate pricing and packaging.
Pharma industry, with more than 40% of growth.
Top Indian and foreign companies will
of incremental growth of the industry At the moment, approximately 90% of look to increase their market share by
coming from emerging economies in India’s pharmaceutical market is made entering into strategic alliances,
the next decade.(2) up of branded generics.(5) We estimate strengthening their sales forces and
In our report, “Capitalising on India’s that this segment will grow at a CAGR increasing penetration into newer
growth potential”, we analyse the of 15% - 20% for the next five years.(5) markets.
immense potential of India’s domestic Generic generics’ and patented products’
The potential that the Indian Pharma
Pharma market, which was valued at contributions to the market as a whole is
industry holds is unquestionable. India
approximately US$12 billion in 2010, currently very low. Although this is the
is home to approximately 1/6th of the
and showed a strong growth of 21.3% expected model of the future, we do not
world’s population, and is expected to
for the twelve months ending September foresee a significant increase in the next
become the most populous nation in the
2010.(3) PwC estimates that over the next five years; the market is expected to
world by 2050.(8) Demand for
10 years, the domestic market will grow remain comprised predominantly of
pharmaceuticals will grow decidedly.
to US$49 billion - a compounded annual branded generics. By 2020 though,
Government must continue to invest in
growth rate (CAGR) of 15%, with the patented drug sales are expected to
healthcare and medical infrastructure in
potential to reach US$74 billion – a increase, owing to an improvement in
rural markets, raise healthcare spending,
CAGR of 20%, if aggressive growth the implementation of patent laws and
encourage innovation, contain healthcare
drivers kick in. spread of health insurance. We also
costs and work with private players to
One of the reasons behind this expected expect the OTC segment to be a strong
take the market to the next level.
growth rate is that India’s pharmaceutical growth driver for the industry.

6. Background
Strong macroeconomics
over the next decade
The Growing Indian Economy
Growing Middle Class With Higher Purchasing Power
Changing Disease Profile
Government Policies
Healthcare Insurance

7. Large numbers of forthcoming patent
expiries, a dry pipeline of new drugs, Figure 1: Emerging markets (Asia/Australia/Africa & Latin
regulatory challenges and pricing America) growing faster than developed markets
restrictions have collectively contributed
to low growth rates for prominent global 15.90%
pharmaceutical markets. As global 18.00%
markets such as North America, Europe 16.00%
and Japan continue to slow down (See 14.00%
figure 1), pharmaceutical companies are 10.60%
Growth Rate (%)
12.00%
scanning markets for new growth
opportunities to boost drug discovery 10.00%
7.60%
potential, reduce time to market and 8.00%
5.50%
squeeze costs along the value chain. The 6.00% 4.80%
Industry is beginning to realize that some
4.00%
of the most promising opportunities will
2.00%
come from emerging markets (Asia/
Australia/Africa & Latin America). 0.00%
North America Europe Japan Asia/Australia/ Latin
1 2 3 4 5
IMS Health and other sources suggest Africa America
that emerging markets (China, India,
Brazil, Russia, Turkey, Mexico and South Source: IMS Health market prognosis, March 2010
Korea) will contribute to over 40% of the
incremental growth of the global
Pharmaceutical industry over the next
decade.(2) In this report, we will look at Figure 2: Emerging markets drive industry growth
the domestic Indian Pharma market, and
the opportunities it holds.
100%
The huge potential of the Indian 7
pharmaceutical industry is impossible for 90% 22 11 22 23
32
global Pharma companies to ignore, 80%
35 1
given that India will be one of the top 10 9 3 9
70% 9
sales markets in the world by 2020. 9 10 7 6
60% 9 2 2
Some of the largest Pharma companies in 3
2
10
the world have been in the Indian market 50%
2 63
since the 1970s, and 5 out of the top 10 40%
domestic Pharma companies are already 42 44 48 46
30%
foreign owned, with a consolidated share 37
of 22 – 23%. 20%
India’s domestic pharmaceutical market 10%
12 12 15 11 12
9
has recorded a CAGR of 13.5% over the 0%
past five years.(5) With considerable 2009 (f) 2010 (f) 2011 (f) 2012 (f) 2013 (f) 2008-2013 (f)
expertise in manufacturing of generics
and vaccines, Indian companies have Rest of World Emerging markets South Korea, Canada Japan EU US
now also started significant research
and development (R&D). India has the
Source: IMS Health, Market Prognosis, October 2009
world’s second biggest pool of English
speakers and a strong system of higher
education, all this has well-positioned
PwC 7

8. India to become an outsourcing partner changing disease profile. Increase in growth of the industry, such that it is on
in manufacturing and R&D, and as a insurance coverage, aggressive market the threshold of becoming a competitor
location for clinical trials. creation, growth in the income of the of global Pharma companies in some key
The Indian economy is growing strongly Indian population and steady areas, and a potential partner in others.
and healthcare is expanding to meet the government investment into medical
needs of a growing population with a infrastructure has further propelled the
Macro factors pushing the industry
The Growing Indian Economy Figure 3: India’s strong GDP growth rate
The Indian economy is growing fast, 12
and is valued at US$1.430 trillion in
10
2010.(4) GDP growth, calculated on
GDP growth (%)
a Purchasing Power Parity basis has 8
reached 9.66% in the year 2010, and
6
the International Monetary Fund (IMF)
expects it to remain consistently above 4
8% till 2015. Furthermore, India’s share
2
in the world GDP has been steadily
increasing, and is expected to reach 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
6.28% in 2015, up from 4.17% in 2005.(4) GDP growth % 9.167 9.658 9.886 6.396 5.678 9.668 8.373 7.976 8.174 8.148 8.128
Source: International Monetary Fund, World Economic Outlook, (October 2010)
Figure 4: Growing global share of India’s GDP (%)
7
India’s share of the World’s GDP (%)
6.074
6 5.677
5.276 5.873 6.28
5 4.74 5.486
4.365
5.051
4 4.544
4.173
3
2
1
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: International Monetary Fund, World Economic Outlook, (October 2010)
8 India Pharma Inc.: Capitalising on India’s Growth Potential 2010

9. Growing middle class with higher purchasing power
India’s population is currently just at 2001-02 prices), which has grown is rapidly acquiring the purchasing
over 1.1 billion and is projected to rapidly, from 25 million people in 1996 power necessary to afford quality
rise to 1.6 billion by 2050 – a 45.5% to 153 million people in 2010.(11) If the western medicine due to an increase
increase that will see it outstrip China economy continues to grow fast and in disposable income. The Indian
as the world’s most populous state.(9) literacy rates keep rising, around a third population spent 7% of its disposable
Besides, India has a huge middle class of the population (34%) is expected income on healthcare in 2005; this
population (households with annual to join the middle class in the near number is expected to nearly double, to
incomes of US$4762 to US$23,810 future. The middle class population 13%, by 2025.(12)
Figure 5: Population growth projections Figure 6: Ascent of the Indian Middle Class -
Percentage of the population
1326.1
1311.6
1296.8
1281.9
Million Persons
1266.9
1251.7
1236.3 34%
1220.8
13%
1205.1 • 2020
1189.2 • 2009-10
(Forecast)
11.7%
• 2007-08
6%
• 2001-02
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
Source: ISI analytics (2010) Source: Economic Times (April 2009), PwC analysis
Figure 7: Indian population’s expenditure break up as a % of overall disposable income
4%
100%
7% 9% 13%
90% Healthcare
Education &
80%
Recreation
Communication
70%
Tranportation
Percentage spend
60%
Personal products
50% and services
Household
products
40%
Housing & utilities
30%
Apparel
20%
Food, beverages
and tobacco
10%
0%
1995 2005 2015F 2025F
Year
Source: IDFC Institutional Securities, Indian Pharma (June 2010)
PwC 9

10. Changing Disease Profile
The Indian population is experiencing IMS Health indicates that some of the Along with chronic, in the last year there
a shift in disease profiles (Figure 8). fastest growing therapeutic segments has been a rebound in sales in the acute
Traditionally, the acute disease segment in the Indian Pharma space today are diseases segment. This trend is likely to
held a significant share of the Indian chronic disease-related therapeutic continue over the next few years, as we
pharmaceutical market. This segment segments. The anti-diabetic segment see companies widening their reach into
will continue to grow at a steady rate, grew 29% in the 12 months ending July newer markets, which have a relatively
due to issues relating to public hygiene 2010. Cardio-vascular medication and higher number of treatment naïve
and sanitation. But, with increase in nervous system disorder medication patients requiring basic treatment, thus,
affluence, rise in life expectancy and grew at 22% for the same period of time, creating new demand for drugs of the
the onset of lifestyle related conditions, indicating rapid growth.(13) acute therapies segment.
the disease profile is gradually shifting The growing size of the Indian geriatric
towards a growth in the chronic diseases population will be a key factor in
segment. India has the largest pool of influencing the growth of the chronic
diabetic patients in the world, with more segment. By 2028, an estimated 199
than 41 million people suffering from the million Indians will be age 60 or older,
disease; this is projected to reach 73.5 up from about 91 million in 2008.(9)
million in 2025.(10)
Figure 8: Shift in Disease Profile toward Chronics
100% 1 2
3
4
3
2 5
90% 2
2
5 2
80% 6
11
Cancer
70% 5 12
Heart disease
Disease Prevalence (%)
7 Other circulatory
60% 2 8
CNS Disorders
Diabetes
50% 12
Asthma
2
40% Others
Sense organs
30% 57 Muscoloskeletal
Accidents
20% 41
Acute Infections
10%
0%
2001 2012
Source: IDFC Institutional Securities, Indian Pharma (June 2010)

11. Government policies
The Indian government has been plans to spend US$293 million on India’s healthcare expenditure is
making efforts to improve nationwide the promotion of healthcare through financed out of pocket. This limits
provision of healthcare. It has launched programmes for the prevention and the propensity of Indians to spend on
policies that are aimed at: cure of diseases such as cancer, diabetes, healthcare, particularly in lower and
• building more hospitals, heart ailments and stroke in 2011-12. middle income groups which comprise
• boosting local access to healthcare, Diabetes, hypertension and non- around 95% of population.(8)
• improving the quality of medical communicable disease patients will be The small percentage of Indians who
training, screened under the National Programme do have some insurance, the main
• increasing public expenditure on for Prevention and Control of Cancer, provider is the Government-run
healthcare to 2-3% of GDP, up from a Diabetes, Cardiovascular Diseases and General Insurance Company (GIC).
current low of 1%.(14) Stroke (NPCDCS). The programme is Private insurance only came into the
Some of the significant government likely to cover more than 70 million market post 2007, when the Insurance
allocations on healthcare spend include adults across 100 districts in 15 states Regulatory and Development
a five year tax break for opening and union territories of the country.(15) Authority (IRDA) eliminated tariffs
hospitals anywhere in India, with on general insurance. Apollo was
an added focus on tier II and tier III
Healthcare Insurance the first private healthcare insurance
markets, both in the 2008-09 Union India’s healthcare insurance industry provider in the country; other private
Budget. is currently very small and limited, entrants are ICICI Lombard, Tata AIG,
but is expected to grow at a CAGR of Royal Sundaram, Star Allied Health
15% till 2015. Around 80% of Insurance, Cholamandalam DBS and
Bajaj Allianz Apollo.
Going forward, the Indian government

12. Figure 9: Healthcare expenditure break up 2009
Local
11%
Social Insurance
6%
State 71% 12% Centre
Government
17%
3% Insurance
Out of Pocket 80%
Source: ISI Analytics, Healthcare Industry (2010)
Figure 10: Increase in penetration of Healthcare Insurance
90000
81000
80000 Size of the Healthcare
Insurance Industry
70000 66000 70
60000 60
INR Million
Million Persons
50000 50
40000 32090 40 No. of People
30000 30 covered by
22220 Health Insurance
20000 17320 20 (Million)
13540
10040
10000 7610 10
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2006 2015
Source: ISI Analytics, Healthcare Industry (2010), General Insurance Council of India (2010)
12 India Pharma Inc.: Capitalising on India’s Growth Potential 2010

13. “In terms of factors that could drive the market up,
I think insurance would be a major factor. Insurance
penetration numbers should go up dramatically,
because out of pocket payment for medications is not a
model anywhere in the world, as it cannot drive a large
part of the market. A lot of countries have gone through
this change; it is imperative to take us to the next level.”
– Achin Gupta , Sr. V.P, Corporate Strategy, Glenmark
The government runs a programme The government, along with many Overall, lack of insurance coverage still
called the National Rural Health in the industry believes that increase in remains a challenge. Widespread use
Mission (NRHM), for the development insurance coverage is essential of health insurance could take many
of the poor, allocating US$2920 million to take the market forward. But, years, not least because insurance
in the 2008-09 budget, under the other experts believe that the spread companies lack the data they require
NRHM.(16) A health insurance scheme of health insurance could lead to to assess health risks accurately and
called Rashtriya Swasthya Bima Yojna a market wherein there is minimal the only products they sell work on
(RSBY) that provided US$745 worth differentiation between branded an indemnity basis – that is, they
of cover for every worker was also generics. An important success factor reimburse the patient after he or she
included. The total allocation of this for generic makers is differentiation of has paid the healthcare provider’s bill,
inclusion was US$51 million(17), which their products. While increased health making such policies
was then increased in the subsequent insurance coverage may benefit generic less attractive.
budgets. The latest budget, 2010-11, drug manufacturers by increasing the
incorporated a further 20% of the market’s affordability for medicines,
population covered under the NREGA it may, in combination with increased
(National Rural employment Guarantee institutional sales cause a reduction in
Act).(18) prices, owing to the rising influence of
insurance companies.
Key takeaways
1. The Indian economy is growing strongly, and will continue
to provide a conducive macro-environment for the industry
to grow in.
2. The government is increasing spend on healthcare; and the
Indian population is spending an increased amount of money
on healthcare as a percentage of disposable income.
3. The disease profile is changing with an increase in acute
diseases along side growth of chronics.
4. Health insurance is growing.
PwC 13

14. The Indian Domestic
Pharma market
Set for robust growth
Key Players
Industry SWOT
Key Recent Trends
Investment Scenario

15. According to IMS Health, in domestic market size to be US$12
September 2010, on a Moving annual billion. We estimate that by 2020,
total (MAT) basis, the Indian Pharma it will grow to US$49 billion - a
market grew at 21.3%, reaching conservative CAGR of 15%, with
a size of US$10.9 billion.(3) Taking the potential to reach US$74 billion –
into account generic medicines sold at an aggressive CAGR of 20%, if
directly to institutions and OTC drugs growth drivers kick in.
sold through non-pharmacy retailers,
PwC and IMS Health estimate the
Key Players
There is a high level of market Figure 11: India Pharma top 10 players: 12 month growth
fragmentation. As of 2009, there rate ending July 2010 (09/10 Revenues in US$ millions)
were more than 10,000 firms in the
market, of which, around 200 of them
collectively controlled about 70% of
Cipla 19% (1276.1)
the market share.(19)
Most of the top 10 players in the Ranbaxy 15.5% (1125.45)
market had growth rates of over 18% GSK India 19% (445.87)
for the 12 months ending July 2010.
Piramal Healthcare 18.6% (631.18)
Of these, Cipla continued to have the
largest market share of 5.2%, followed Sun Pharma 25.7% (600.65)
by Ranbaxy (now a subsidiary of
Zydus cadila 24.1% (436.40)
Daiichi-Sankyo), with a 4.7% share.(13)
Alkem Labs 23.3% (276.49)
Pfizer India 23.6% (192.59)
Mankind Pharma 37.20%
(200.06)
Abbott 25% (189.07)
Source: Business Standard (October 2010), IMS Health, Capitaline
PwC 15

16. Industry SWOT
Figure 12: Indian Pharma Industry SWOT analysis
Strengths Weaknesses
• Higher GDP growth leading to increased disposable • Poor all-round infrastructure is a major challenge
income in the hands of general public and their • Stringent price controls
positive attitude towards spending on healthcare
• Lack of data protection
• Cost Competitiveness
• Poor health insuracnce coverage
• Low-cost, highly skilled set of English speaking
labour force
• Growing treatment naive patient population
Opportunities Threats
• Global demand for generics rising • Labour shortage
• Rapid OTC and generic market growth • Wage inflation
• Increased penetration in the non - metro markets • Government expanding the umbrella of the Drugs
• Large demand for quality diagnostic services Price Control Order (DPCO)
• Increase in healthcare insurance coverage • Considerable counterfeiting threat
• Significant investment from MNCs • Competition from other emerging economies
• Public-Private Partnerships for strengthning
infrastructure
Source: PwC analysis, Industry & Company interviews
Key Recent Trends
Figure 13: Industry trends and implications
Increase Increasing
Goods &
Investments reach in Growing Changing Healthcare
Services Tax
& MNC Non-Metro Insurance disease profile innovation
(GST)
activity markets
Shift towards a Seen as the Though More numbers • Shift towards • Use of
Networked next volume delayed from of patients will biotech & technology &
business model driver, though its April 2010 be coming in speciality IT for innovation
Increasing M&A costs of implementation for treatment. therapies, in healthcare
and aliiances operation is date, GST will • increased delivery
high due to add significant investment • e.g. Mobile
Consolidation poor health efficiencies to in R&D and clinics
in the market infrastructure economy and acute disease
lead to an segment will
overhaul of sustain strong
supply chain growth
Source: PwC analysis, Industry & Company interviews
16 India Pharma Inc.: Capitalising on India’s Growth Potential 2010

17. Investment Scenario
The Indian Pharma industry has then, there has been a trend of higher rapid rate in the recent past. Deals
attracted US$1707.52 million worth valuations of Indian Pharma companies, between Pfizer and Aurobindo, and
of foreign direct investment (FDI) in culminating with a new benchmark: in GlaxoSmithKline and Dr. Reddy’s Labs
the period between April 2000 and 2010, Abbott bought Piramal Healthcare are recent examples of out-licensing
April 2010.(20) This FDI is exclusive of in a deal worth US$3.7 billion(22), a deals where generic makers are signing
investments in shares of Indian firms. valuation that was nine times the value distribution and marketing contracts,
Acquisitions of local players by large of Piramal’s sales revenue.(12) so their products reach foreign regulated
MNCs illustrate the increasing level and developing markets. Due to the
of interest that they have shown in Partnerships and large number of drugs going off-patent
the Indian market. Licensing deals in the next few years, this trend is
MNC acquisitions in the Indian expected to increase even further.
Pharma space took off in 2008 with Although long-term supply deals
the acquisition of Ranbaxy by Japanese between innovators and generic-
drug maker, Daiichi Sankyo for US$4.6 producers have been taking place for a
billion.(21) This deal was valued at while now, the frequency of these deals
five times Ranbaxy’s sales.(12) Since has been growing at an increasingly
Table 1: Key recent mergers & acquisitions
Year Indian Player MNC Nature of deal Details
2010 Piramal Abbott Sale of domestic Abbott acquired Piramal's domestic branded
Healthcare branded formulations division, along with its 350 brands,
formulations Baddi facility and about 5,200-strong sales force
for US$3.72 billion
2010 Strides Pfizer Licensing To supply 40 off patent products, mainly oncology
Acrolabs and supply ingestables that would be commercialised by Pfizer
arrangement
2009 Shantha Sanofi- Acquisition Acquired for about US$820mn and got access to
Biotech Aventis Shantha's vaccines pipeline and access to emerging India’s domestic
markets market is poised for
2009 Aurobindo Pfizer Dossier Formulations and injectables for US,EU and ROW strong growth on the
licensing & markets on exclusive and co-exclusive basis back of increased
supply contract foreign investment
2009 Biocon Mylan Development & To develop, manufacture, supply and commercialise in the region, an
supply contract many high-value generic biologic compounds for the increased reach in
global markets. non-metro markets,
the implementation of
2009 Dr. Reddy’s GSK Supply contract To develop and market more than 100 branded
GST, growing insurance
Labs Pharma products on an exclusive basis across an extensive
number of emerging markets, excluding India. coverage, a change in
the population’s disease
2008 Strides-Aspen GSK Upfront To manufacture and supply branded generics to GSK profile and increase in
JV Pharma milestone & which would be marketed in about 80 emerging healthcare innovation,
supply contract markets.
in combination with
2008 Ranbaxy Daiichi Acquisition Daiichi acquired Ranbaxy and got access to Ranbaxy's growth of key segments
Sankyo diversified product portfolio and vast geographical – branded generics,
presence. OTC, rural markets
and vaccines.
Source: Centrum. Pharmaceuticals update, (June 2010).
PwC 17

18. Indian Pharma
Market Segments
A market dominated
by branded generics
Branded Generics
Generic Generics
Over-The-Counter Products
Patented Products
Retail vs. Institutional sales
Road ahead

19. It is difficult to track and estimate the of total sales, and represents one products.(5) The branded generics
exact composition of India’s domestic of the key strengths of the market, segment is expected to grow at a CAGR
Pharma market; but industry experts encompassing the OTC segment as of 15% - 20% for the next decade.(5)
believe that this market is largely well. Only about 10% of the market
dominated by branded generics. constitutes commodity generics sold
This segment contributes around 90% through institutional sales and innovator
Figure 14: Indian Pharma market is predominantly a branded generics market
Other drugs: 10%
10%
Branded Generics: 90%
90%
Source: Industry & Company interviews
Branded generics
In the global context, IMS Health, made by or under license from the an innovator product goes off-patent -
which began tracking and reporting innovator company and sold without a is the key driver for generics. In India,
on branded generics in 2002, defines brand name. it’s about driving a difference using
the category as including “prescription In India, any non patented molecule the core equity of a brand, over a
products that are either novel dosage with a brand name other than the competitor’s product.
forms of off-patent products produced by innovator’s name is termed as a
a manufacturer that is not the originator branded generic. Chemically, branded
of the molecule, or a molecule copy generics are identical, or bioequivalent
of an off-patent product with a trade to innovator drugs. It is the share of
name.” This definition is used by both Any non patented molecule
voice the brand commands by getting with brand name, which is
the United States of America’s Food repeatedly prescribed by the physicians,
and Drug Administration (FDA) and other than the innovator’s
due to some degree of recall and name, is termed as a
the United Kingdom’s National Health preference over the other brands. In
Service (NHS). It does not include branded generic.
the global context, substitution – when
authorized generics, which are drugs
PwC 19

20. “India has a very large acute
segment growing at strong double
digits, which is expected to
continue. While the chronic market
is relatively small, it is on a rapid
growth path due to an ageing
population and changing lifestyles.
Therefore, both markets will be
attractive.”
- Vivek Mohan, MD, Abbott India
Top Brands
Table 2 gives the top 20 brands in the The last few years has seen aggressive increasing level of awareness is
Indian market, as tracked by IMS Health. new brand launches. However, not many leading to a greater propensity to self
The leading brand, according to of these have made it to the top 20 medicate, thus further increasing the
September 2010 sales (MAT) is Corex®, ranking, indicating that some of the older uptake of these brands. Finally, many
followed by Phensedyl® both of which are brands have created a strong equity, of the classic chronic brands are finding
cough preparations.(23) Figure 15 shows a enabling them to maintain market share. a wider prescription base from general
direct correlation between the age of a Older brands have been creating newer physicians.
brand and its ranking - 19 of the top 20 opportunities in the tier II to tier VI and An example of this is pain management
brands are over a decade old. rural markets, where demand is mainly brand Aspirin, which is over a 100
for acute therapies. In addition, an years-old and still enjoys strong sales.
Table 2: Top 20 Brands
Rank Top Brands MAT 2010 Company Year of Market
launch Share (%)
1 COREX (CRX) Pfizer 1993 0.5
2 PHENSEDYL COUGH Piramal 1996 0.4
(PHNSL) Healthcare
3 VOVERAN (VVR) Novartis 1986 0.4
4 HUMAN MIXTARD (HMIX) Abbott 1994 0.4
5 AUGMENTIN (AUG) GlaxoSmithKline 1992 0.4
6 REVITAL (REV) Ranbaxy 1989 0.4
7 ZIFI FDC 1999 0.3
8 MONOCEF (MCF) Aristo Pharma 2001 0.3
9 DEXORANGE (DEX) Franco Indian 1990 0.3
10 TAXIM (TAX) Alkem 1990 0.3
11 BECOSULES (BEC) Pfizer 1989 0.3
12 LIV-52 (LIV) Himalaya 1989 0.3
13 MOX Ranbaxy 1997 0.3
14 ASTHALIN (ASN) Cipla 1993 0.3
15 BETADINE (BET) Win Medicare 1990 0.3
16 TAXIM-O (TAX-O) Alkem 1998 0.3
17 AZITHRAL (AZL) Alembic 1994 0.2
18 CALPOL (CAL) GlaxoSmithKline 1995 0.2
19 ZINETAC (ZNC) GlaxoSmithKline 1986 0.2
20 STORVAS (SVS) Ranbaxy-Stancare 1999 0.2
Source: IMS Health, MAT, (August, September 2010)
20 India Pharma Inc.: Capitalising on India’s Growth Potential 2010

21. Figure 15: Older brands are higher ranked
25
20 SVS
ZNC
CAL
AZL
TAX-O
15 BET
Brand Rank
ASN
MOX
LIV
Series1
BEC
10 Linear (Series1)
TAX
DEX
MCF
ZIFI
REV
5 AUG
HMIX
VVR
PHNSL
CRX
0
0 5 10 15 20 25 30
Brand Age
Source: PwC Analysis.
Brand Premium
Brands have always been synonymous over the next-in-line brand, Moxikind-
with quality. This often makes leading CV, and 101% over the third ranked “Brand premium differs from
brands command a price remium brand, Clavam A.K. But, in the case therapeutic area to therapeutic
over the next ranked brands in their of the molecule Cefixime, the leading area. There are instances where the
categories. This premium can be brand, Zifi, commands a price premium price of the brand leader is 3 times
negligible or as high as 300%.(5) For of just 2% over the second ranked, and the price of the cheapest brand,
example, in figure 16, the number 24% over the third-ranked brand. and others where there is a 30%
1 ranked brand for the molecule increase.”
Amoxicillin clavulanate, Augmentin,
commands a premium as high as 260% – Dr. Hasit Joshipura, MD, GSK
PwC 21

22. Figure 16: Leading brands command a price premium
Amoxicillin clavulanate Cefixime
Price of 200 mg, 10 tablets (Rs.)
300
Price of 625 mg, 10 tablets (Rs.)
120
250 Rs. 241 Rs. 99 2% premium Rs. 97
100 24% premium
101% Rs. 80
200 80
premium
150 260% Rs. 119.7 60
premium
100 Rs. 67 40
50 20
0 0
Augmentin (1) Moxikind-CV (2) Clavam (3) Zifi (1) Cefolac (2) Mahacef (3)
Brands (2010 ranking based on revenue) Brands (2010 ranking according to revenue)
Atorvastatin
100
Rs. 96 0.1% premium Rs. 95.9
Price of 10 mg, 10 tablets (Rs.)
95
90
16% premium
85 Rs. 83
80
75
Storvas (1) Atorva (2) Aztor (3)
Brands (2010 ranking according to revenue)
Source: IMS Health, MAT, (August 2010)
Premium charged by innovator brands
Innovator brands can command high premiums over branded generics. For example, in table 3, Risperdal, an innovator
brand, commands a 1048% premium over Risdone (generic brand).
22 India Pharma Inc.: Capitalising on India’s Growth Potential 2010

23. Table 3: Innovator brands command a large price premium
Drug Brand Manufacturer Quantity Price (US$)
Risperidone Risperdal Johnson & Johnson (Innovator) 2 mg, 10 tablets 6.54
Risdone Intas Pharma 2 mg, 10 tablets 0.57
Risedronate Actonel Sanofi Aventis (Innovator) 35 mg, 4 tablets 50.28
Risofos Cipla 35 mg, 4 tablets 2.97
Clopidogrel Plavix Sanofi Aventis (Innovator) 75 mg, 10 tablets 38.45
Noklot Zydus 75 mg, 10 tablets 2
Pregabalin Lyrica Pfizer (Innovator) 75 mg, 10 tablets 18.28
Pregabit Intas Pharma 75 mg, 10 tablets 1.76
Levofloxicin Tavanic Sanofi Aventis (Innovator) 500 mg, 5 tablets 11.48
Leevoflox Cipla 500 mg, 5 tablets 2.07
Source: PwC Analysis, Primary Research
Brand premium is dependent on
1. First mover advantage representative quality by improving
First mover brands always have an their interpersonal skills for customer 4. Appropriate pricing strategy
advantage over late entrants. If a brand targeting and maintaining a strong India is a price sensitive market. Pricing
is built over 3 to 5 years before doctor-rep relationship, strategies for both the rural and tier II
competition intensifies, it can command • strong life-cycle management to tier VI markets, should be based on
a price premium of close to 100% over programme by launching line market affordability.
the later entrants.(5) Once competition extensions,
increases, it will have to cut prices to i. For drugs that are not under the
• quality of formulation,
sustain market share. government’s price control
• attractive packaging, mechanism, companies can charge
2. Creating a value proposition • cost competitiveness, any amount as base price, and can
Creating a value proposition can help • company name and reputation. increase it annually by up to 10%.(24)
build brand names, thus increasing the ii. For drugs covered by the Drugs Price
brand’s longevity. This value proposition 3. Being the innovator drug
Control Order (DPCO), National
is created by: Industry experts believe that if a
Pharmaceutical Pricing Authority
company launches an innovator drug in
• offering value added services, such (NPPA) norms must be adhered to.
the market late, it can still enjoy a price
as backing up the brand with scientific premium, and it will not lose out to the iii. Another pricing strategy is the
data, continuous medical education first mover brand. The reason being differential pricing of Merck’s
and a strong portfolio of products, there will always be a certain percentage diabetes drug Januvia, which is priced
• doctor – representative relationship: of the population that would be willing at approximately US$1 per dose in
continuous improvement in sales to pay a premium for innovator drugs. India – a fifth of its price in the US.(25)
PwC 23

24. Maximising the focus on branded generics - For example: Abbott-
Piramal deal for branded generics
An excellent example of a deal that was carried out on the back of
the value of branded generics is the Abbott acquisition of Piramal
Healthcare. Abbott was looking to increase its stake in the Indian
branded generics sector, and agreed to pay US$3.72 billion,
a valuation that was 9-times that of Piramal’s sales. The deal
included Piramal’s domestic formulations business, including its
branded formulations business and its manufacturing facility at
Baddi. The valuation of the deal was unprecedented in the Indian
Pharma market, and is a signal of interest that large Pharma
companies have in the Indian branded generics market.
Maximising focus on branded generics
Both multinational companies and for its strong sales force and branded leading pharmaceutical companies
domestic firms are taking steps generics portfolio (Refer pull out). adding to their sales forces by nearly
towards maximising potential returns Domestic firms are also looking to 50% in 2010 (Figure 17).(26)
from branded generics. For example, increase their share of the branded
Abbott acquired Piramal Healthcare generics market, with some of the
Figure 17: Leading Indian firms are ramping up sales forces
Sales forces numbers 2010 (% increase from 2009)
6000 (28.6%)
Sales force numbers
5000
Sales for numbers
(17.6%) (60%) (52%)
4000 (22.7%)
(47.8%)
(50%)
3000 (0%) (20%) (25%)
2000
1000
0
Cadila
DRL
Cipla
Ranbaxy
Sun
Lupin
Torrent
Glenmark
Ipca
Unichem
Source: Emkay research (August, 2010)
Generic generics
Currently, the market share of generic (ANDA) guidelines that exist run ‘Jan Aushadi’. This programme
generics is very low. We see two main in the U.S. provides no-name generic drugs at
hurdles to pure genericisation of the 2. Doctor comfort derived from subsidized prices in 24-hour pharmacies
Indian market: prescribing medications on the that are located all over the country.
1. Lack of generic generics regulations basis of brand name.
and guidelines for the establishment A good example of a generic generics
of bio-equivalence, for example the programme in India is the government-
Abbreviated New Drug Application
24 India Pharma Inc.: Capitalising on India’s Growth Potential 2010

25. Over-the-counter products
The OTC segment has been identified as grow to US$11 billion - a CAGR of 18%, Although the phrase ‘OTC’ has no legal
one of the potential growth drivers for with the potential to reach US$13 billion recognition in India, all the drugs not
the Indian Pharma industry, as the sale of – at an aggressive CAGR of 20%. included in the list of ‘prescription-only
OTC drugs in India has been increasing ‘OTC Drugs’ means drugs legally allowed drugs’ are considered to be non-
over the years. The OTC market was to be sold ‘Over The Counter’ by prescription drugs (or OTC drugs).
worth about US$1.8 billion in 2009(27), pharmacists, i.e. without the prescription
and PwC estimates that by 2020, it will of a Registered Medical Practitioner.
“The OTC segment is going to grow
faster. We are looking at a growth rate
of around 25%, more than that of the
overall market growth of around 15%.”
– Sanjeev I. Dani, Sr. V.P.& Regional
Director (Asia, CIS & Africa), Ranbaxy
PwC 25

26. Key drivers behind the growth of the OTC segment:
Figure 18: OTC segment growth drivers
Wider Direct to Increased Low
distribution consumer consumer price
channel advertisements awareness controls
Companies can sell their The government allows There is an increased Other than acetylsalicylic
products outside of public advertising of these reliance on self-medication acid and ephedrine and
pharmacies, for example in products, giving drug as public awareness of its salts, very few of the
post-offices and makers greater freedom to common ailments goes up. OTC active ingredients fall
department stores use more creative methods under the current DPCO
while marketing their price controls.
products.
Magic Remedies
(Objectionable Advertise-
ments) act prescribes a
negative list of diseases for
which medication cannot
be publicly advertised.
The above factors have meant that there examples of Indian companies that have Pfizer and Johnson & Johnson are
are a large number of Indian companies done well in the OTC segment. The examples of MNCs that have a strong
that manufacture and sell OTC products. attractiveness of the Indian OTC market presence in the Indian OTC segment.
Cipla, Ranbaxy and Zydus Cadila are has extended to MNCs as well. Novartis,
Patented Products
The market size for patented drugs impact on the industry. Industry In the future, with growing
as of today is very small. Only about experts believe that the current size of affordability, deepening of health
1-2% of the market is made up of the patented drug market is estimated insurance and steady improvement
patented drugs, which are being sold at US$120-130 million.(5) in Intellectual Property Rights (IPR),
by multinational innovators. There are Due to weak patent laws in the past, patented product launches should
multiple Indian companies that have and multiple, cheap generic versions increase.
drugs in the pipeline, with a greater of drugs present in the market,
focus on R&D, but estimates suggest multinational players were hesitant
that it would be at least 7 to 10 years to introduce their patented products.
before these begin to have a serious
26 India Pharma Inc.: Capitalising on India’s Growth Potential 2010

27. Retail vs. Institutional sales
Currently, majority (91%) of drug sales institutional sales will be marginal in be driven by the increase in the
is through the retail markets, while the next 5 years, and will only show penetration of insurance, and the
institutional sales are very low (9%).(5) significant impact between 2015 and growing number of government and
We believe that the increase in 2020. Increased institutional sales will private hospitals.
Figure 19: Institutional sales increase marginally over the next 5 years
91% 88%
Retail
Retail 12%
9% Institutional
Institutional
Road ahead
The branded generics segment has Generic generics’ and patented affluence, decreasing generic launches,
been the key driving force behind the products’ contributions to the increasing number of patented product
growth of the pharmaceutical market. market as a whole is expected to rise. launches from foreign companies, and
In the next 5-10 years, the market Although this is the expected model potential releases of novel drugs will
is expected to remain comprised of the future, we do not foresee impact the share of branded generics
predominantly of branded generics. a significant challenge to the significantly.
We also expect the OTC segment domination of branded generics in the
to be a strong volume driver for next 5 years. By 2020, improvement
pharmaceutical companies. in the implementation of patent laws,
spread of health insurance, rising
PwC 27

28. Rural Markets
The next frontier
Market Sizing
Key Challenges
The Government’s Role
Pharmaceutical companies entering rural markets
Novartis Arogya Parivar Case Study
Road ahead

29. Figure 20: Geographical split of the Indian population
27 Cities
(11%)
33% of Market
(cities & towns) 398 Towns (9%)
4,738 Periurban (13%)
Bottom of
600,000 Villages (67%)
the Pyramid
Source: Novartis, Arogya Parivar: Health for the poor (April 2010)
Market Sizing
Majority of the Pharma market’s PwC estimates that over the next ten in villages that require treatment, and
growth is driven by the urban markets, years, rural markets will grow at a quality treatment and medicines
that is, areas that are classified as CAGR ranging from a conservative reaching these villages. Accessibility of
metros or tier I cities (Refer figure 20). 15% to an aggressive 20%, reaching medication in rural areas is very poor,
Tier II to tier VI is classified as peri an expected valuation of between with less than 20% of the population
urban, while rural is the bottom of the US$8 billion and US$12 billion, having access.(6) This gap represents a
pyramid, which constitutes 67% of depending on the implementation huge opportunity for pharmaceutical
India’s population (600,000 villages). of growth drivers. companies to expand, and we believe
As per IMS Health, peri-urban markets that these markets will be the future
account for 38% of total industry sales, The opportunity volume drivers of the industry.
being valued at US$3.4 billion(28),
while, rural markets account for 17% Around 742 million people reside in
of total industry sales, being valued at rural areas.(6) There is a significant gap
US$2 billion, in 2010.(7) between the number of people residing
PwC 29

30. Key challenges of the market
Low government spend on healthcare
India has a low level of government significantly low levels of public increase from US$49.7 billion to
spending on healthcare, at 1% of spending to health.(14) Business US$86.9 billion between 2009
the GDP, putting the country in the Monitor International forecasts that and 2014, a rise of 75%.(29)
lowest 20% of those that contribute healthcare expenditure in India will
Poor Infrastructure
Healthcare infrastructure is poor, norm].(6) Doctors are not qualified, as counterfeiting and spurious drugs
compared to urban areas. The doctor most of them in villages have Bachelor of that have been exposed. Majority of
patient ratio in rural areas is 1:20,000, Health Sciences (BHS) & Bachelor of the patients earn a basic daily wage,
versus the urban ratio of 1:2000 [India Ayurvedic Medicine and Surgery and affordability is very low.
requires 600,000 doctors in order to (BAMS) degrees. The quality and
meet the statutory 1:250 ratio that is a availability of medicines in rural areas is
World Health Organisation (WHO) dubious, as there are many cases of
Table 4: Healthcare penetration in rural areas is significantly lower than in urban areas
Population Rural (72%) 742 Million Population Urban (28%) 285 Million Population
Hospital % 31 69
Hospital Bed % 20 80
Doctors % 08 92
Doctors/100,000 people 05 50
Spurious Pharma sales % 75-80 20-25
Source: Novartis, Arogya Parivar: Health for the poor (April 2010)
30 India Pharma Inc.: Capitalising on India’s Growth Potential 2010

31. Limited affordability
Healthcare is a low priority when it comes
to income allocation, with average consumer
expenditure on healthcare at just 7%.(6) 80%
of the rural population is on a daily wage,
income levels are as low as <US$1.78 per day.(6)
Low awareness of diseases
and possible treatment
People here have lower literacy levels and
lack awareness about various diseases &
their treatment option. They rely mainly on
alternative forms of treatment such as Ayurvedic
medicine, Unani and Acupuncture.
Poor basic hygiene and
living conditions
33% of the diseases in rural areas are related to
unsafe drinking water & poor sanitation. This is
because 80% of rural inhabitants lack adequate
sanitation, and 70% don’t have safe drinking
water.(6) This has led to a market dominated by
acute illnesses.
The Government’s role
• Providing universal access to the country, especially in the 18 Standards (IPHS), integration of
health including water, sanitation, special focused states, which have vertical Health & Family Welfare
nutrition, primary education, weak public health indicators Programmes, optimal utilization
communication and employment or weak infrastructure (details of funds and infrastructure and
are essential to balanced discussed in chapter 1). strengthening the delivery of
development. • Further, the NRHM emphasizes primary healthcare. It also targets
• Incentives for setting up hospitals on provision of a female to improve access of rural people,
anywhere in India, especially in health activist in each village, especially poor women and
tier II and tier III towns. strengthening of rural hospitals children, to equitable, affordable,
for effective curative care and accountable and effective primary
• The NRHM 2005 - 2012 aims healthcare.
to provide effective healthcare making this measurable and
to rural population throughout accountable to the community
through Indian Public Health
PwC 31