Indian Pharma Industry Product Lines

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There are two key characteristics that make Indian pharmaceutical sector unique in nature – Highly fragmented, yet highly saturated in specific domain. That is precisely why it is difficult to horizontally see through entire pharma value chain of Indian Pharma Industry. It is essential to understand product lines before you make a decision to buy underlying stock for the investment. So read through these 5 major Indian Pharma Industry Product Lines.

The branded generics market makes up for more than 70% of the retail & OTC market. However, the entire pharmaceutical industry is highly coupled with acute & chronic disease therapies. While majority of the players focus on cough, cold, pain killers, anti-inflammatory & anti allergic products, chronic segment is equally growing with lifestyle related changes leading to diabetes, blood pressure & cardiovascular disorders, obesity, and then leading to oncology products that are highly priced in the market.

Indian pharmaceutical industry is made up of companies that are into generic drug manufacturing, API development, Formulations, Vaccines, and intermediaries. However, with rise in outsourcing, a number of segments opened up for Indian pharmaceutical companies – Clinical Trials & CRAMS.

However, there is yet another new, yet transforming sector opened up for Indian pharmaceutical industry, and that is biosimilars. With over $50-60bn worth drugs going off patent in the US market alone, this opportunity itself provides a new, life changing opportunity for Indian pharmaceutical companies. Let us understand the different segment discussed above in brief.

  1. Branded generic – Branded generic means a molecular level replica of the off-patent drug. Indian pharmaceutical industry produced over 20% of world’s generic drugs with over 600 finished products & 400 formulations. Cost effective manufacturing provided by Indian companies lead the growth of this sector. Recent outlook as per IBEF stands at $25bn market size for generic drugs. However, 2016 witnessed a massive rise in FDA regulation alerts being issued to a number of companies. Meeting FDA regulations and observations remain one of the prominent challenges faced by Indian bulk manufactures. In addition, political changes in the US signal change of focus from outsourcing to producing locally. Change in the dynamics of outsourcing & US Imports too pose a threat to Indian bulk manufacturers.
  2. Intermediaries Intermediaries are closest to APIs. The chemical reactions involving the API of the drug consists of series of steps. Once the entire chain of the reaction completes, it achieves effect the final API. Intermediaries are just a few steps away from main API. However, Intermediaries is one of India’s scattered and largest unorganized sectors when it comes to manufacturing intermediary molecules. That said, recent rise in imports from China pose a major thread to intermediary companies. The cost effective intermediaries available from Chinese market has made competition further steep, while Chinese market not reciprocating the liberalization that Indian market extends to its Indian counter parts, sustaining competition remains a major concerns
  3. Formulations Formulation is the final product that is consumed by the customer. The API & Excipient makes the finished product. Usually, API manufacturing companies have contracts with big pharmaceutical companies. Large pharmaceutical companies buy APIs and then produce a formulation or final product. In addition API manufacturers to o outsource intermediaries in order to reduce time to market.
  4. CRAMS – Contract Research and Manufacturing services is one of the leading growth sectors in Indian pharmaceutical industry. With rising demand for outsourcing to increase profitability, CRAMS has provided a new avenue to Indian pharmaceutical industry. The CRAMS sector is made up of two segments. One is Contracts Research and the other is Contract Management. Contract research is primarily has to do with research & discovery of the drug. It involves clinical research that leads to discovery of the drug. Contract Management is logical successor of the contract research. Once the drug is ideated, clinical trials validates, the further formulation development, structure development, and process development are done.

Among Indian pharmaceutical companies, there are certain niche players that combine API & CRAMS together to act as a strategic partner to large pharmaceutical companies. This combination provides decisive edge in highly competitive markets, and allows such companies to command higher margins than their competitors.

With cost of production almost 60% lower to what US pharmaceutical companies incur, CRAMS remain lucrative business and India has a clear advantage.

  1. Biosimilars – Biosimilars is India’s opportunity to use its strong manufacturing prowess, combine it with CRAMS, and actively utilize the opportunity presented by drugs going off-patent. Biosimilars are drugs that have active properties similar to the drug that is previously patented. Biosimilars are cost effective alternatives to original drug that costs huge sums of money to customer. Biosimialrs are almost 70-80% cheaper while potency remains similar to original drug.

A lot of Indian pharmaceutical companies have already started the ground work with Biocon, Cadila, and Intas leading the industry.

One of the main reasons Biosimilars will provide huge growth opportunities is Indian bulk drug manufacturers are already equipped to produce cost effective products. CRAMS, the contract manufacturing especially provides research oriented organizations take up further work and start accepting outsourcing work of US & EU pharmaceutical companies.

With more Indian players trying to position themselves are one stop shop to entire outsourcing need of the pharmaceutical segment, growth in CRAMS will also lead to growth in opportunities offered by Biosimilar drugs. For e.g. Biocon, one of India’s leading pharamaceutical companies claims to have $400mn revenue from Biosimilar segment as of 2017. However, it is expected to clock over $1.6bn revenue from the same segment by 2026 with just 8 Biosimilar products. With Biocon increasing research facilities & adding further Biosimilar products in offering, the topline will witness immense growth.

Aurobindo Pharma too has been working on over 12 Biosimilar products. With 70% of the clinical trials associated with these products expected to be done in India, inter sector growth is indirect benefit for CRAMS players.

However, the cost of research is one of the major hurdles that make the entire segment capital intensive, and only large pharmaceutical companies can afford getting into Biosimilars. One of the alternative ways taken by other Indian companies is to acquire research units and increase the research facilities to support Biosimilars. However, the cost of Biosimilar research in US is expected to be 10 fold to that of Indian companies. Hence, Biosimilar is not only growth opportunity, but also a revival opportunity to transform business offerings.

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