These days, economists across the globe are busy predicting the duration of the current global economic downturn. It is certain that India too will be impacted. The country’s sterling economic growth has slipped, but is still holding strong.
Almost all sectors — automobiles, banking, real estate, aviation are anxiously waiting for the demand to pick up. All are marketing sectors are optimistic that 2009 will bring back some cheer and normalcy will return soon.
In these turbulent times, the pharma sector has shown comparative resilience and has been relatively less impacted. There are two reasons for this: the domestic pharma market continues to experience healthy growth and the demand for generic medicines is on the rise in international markets.
Pharma is not completely immune to the slowdown and global economic crisis, but the impact is less severe. Over the past two years, the $8 billion domestic pharma industry has grown at a rate of more than 12%.
It is likely to see high single digit growth in 2009. The growing incidence of lifestyle diseases, rising disposable incomes, greater penetration of health insurance and expanding medical infrastructure will continue to foster growth in the domestic market. The fact is that however bad the economic environment, demand for medicines is relatively inelastic.
We are fortunate that prices of medicines in India are extremely low compared to other nations whose governments are clamoring to bring down their healthcare costs. They are encouraging the use of quality, affordable medicines from India. The need for medication is also growing with the ageing world population and changing disease patterns.
The US, the world’s largest pharma market, with a generic penetration of over 60% (by volume), is a huge market for Indian pharma companies. It should continue to grow as the new government is expected to have a pro-generic healthcare agenda.
Japan the world’s second largest pharma market, has a low penetration of generic medicines and Indian companies are looking to make the most of this opportunity as the Japanese market for generics opens up. Emerging markets like Romania, Brazil, Russia, China, South Africa, Central & Eastern European nations are also expected to attract a lot of attention. These fast growing branded generics markets offer higher profit margins and sustainable earnings.
They will remain a hot centre for opportunity. There is also growing excitement as drugs worth $60 billion are expected to come off patent in the US in next few years. These positive trends signal a huge market opportunity for Indian pharma companies, who have over the years carved a niche for themselves, in most global markets.
The year 2009 should witness consolidation globally as companies will be forced to look at innovative models to increase productivity and demand.
Big pharma and large generic companies will look at strategic partnerships across the value chain, encompassing tie-ups in marketing, R&D, manufacturing and intellectual property as tremendous benefits and synergies can be derived from such alliances.
Consolidation of the fragmented Indian pharma industry has been long due and it seems likely that we will see some M&A activity. Companies will however exercise extreme caution and much will depend on their balance sheet.
Besides, India is increasingly attracting investments in the area of innovation and if all goes well could become a significant innovation hub in the future. Today pharma companies across the world are beginning to consider India as a partner of choice for outsourcing.
The global market for Contract Manufacturing and Clinical Research (CRAMS), currently estimated over $ 35 billion, is witnessing a gradual shift from the West to destinations like India. Currently India has a minuscule share of less than 2% in global outsourcing and given our strong science and chemistry skills India should be able to capitalize on this big opportunity.
So far, the pharma industry has largely withstood the impact of the global economic crisis but there will be challenges ahead. There is a need to improve productivity in the area of R&D, Cost containment, coupled with prudent management of resources and reserves is essential. The industry also faces the challenges of unprecedented forex fluctuations.
While India’s fundamentals remain strong, it would be prudent for the government to continue to play a guiding role in order to keep the country’s growth story ticking. This can be achieved if the government continues to provide adequate measures that focus on economic and structural reforms aimed at giving a boost to the overall investment being channelled into the pharmaceutical industry.