| Supply |
Higher for traditional therapeutic segments, which is typical of a developing market. Relatively lower for lifestyle segment.
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| Demand |
Very high for certain therapeutic segments. Will change as life expectancy, literacy increases.
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| Barriers to entry |
Licensing, distribution network, patents, plant approval by regulatory authority.
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| Bargaining power of suppliers |
Distributors are increasingly pushing generic products in a bid to earn higher margins.
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| Bargaining power of customers |
High, a fragmented industry has ensured that there is widespread competition in almost all product segments. (Currently also protected by the DPCO).
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| Competition |
High. Very fragmented industry with the top 300 (of 24,000 manufacturing units) players accounting for 85% of sales value. Consolidation is likely to intensify. |
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FY08/CY07 was a mixed year for domestic pharma companies. In the US generics market, the potential of drugs going off patent (in terms of innovator sales) was high this year, though not as high as that witnessed last year. Having said that, while pricing pressure continued unabated in this market, the erosion was considerably higher in new molecules facing patent expiry with more than 10 players launching their generic versions on day 1 of patent expiry. The price erosion on the base business remained stable and volumes largely drove growth in the US generics market.
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Two important trends witnessed during the year were the hiving of the R&D business into a separate company and settlement of patent suits. As of date, companies such as Sun Pharma and Piramal Healthcare have demerged their R&D units into separate listed companies. Wockhardt has also announced its intention of following suit. Ranbaxy, however, shelved its plans in this respect after the sale of its promoter stake to the Japanese company Daiichi Sankyo. On the patent settlement front, Ranbaxy was the most active of the lot reaching agreements for a slew of blockbuster drugs such as ‘Imitrex’, ‘Valtrex, ‘Flomax’, ‘Nexium’ and ‘Lipitor’. Cadila Healthcare and Wockhardt were active on the acquisitions front acquiring companies in the semi regulated and the regulated markets respectively. On the 180-day exclusivity front, Sun Pharma emerged on top garnering the exclusivity window for three drugs.
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The European market posed a set of challenges for Indian generic companies. While the UK was bogged with severe pricing pressure, the government’s of Germany and France undertook various healthcare reforms, which impacted the revenues of companies having a presence in these countries. More importantly, companies having a foothold in the German market such as Dr.Reddy’s, Ranbaxy and Wockhardt faced a decline in revenues from this market due to pricing pressure.
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In the domestic market, FY08 was a decent year for the pharmaceutical industry with the top players clocking a healthy double-digit growth. However, it was the chronic therapy segment, which once again took centrestage relegating the acute therapy segment to the background. While the former recorded a robust 20% YoY growth, the latter grew by 11% YoY.
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Mirroring the trend witnessed last year, MNC companies performed poorly as compared to their domestic counterparts in FY08/CY07. For instance, on an average, while the domestic companies grew their topline by around 10% to 20% in FY08/CY07, MNC companies were able to clock topline growth in the range of only 2% to 5%. Various factors contributing to the lower growth were increasing competition, low number of new product launches, and trade related issues, divestment of certain businesses and the like.
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The product patents regime heralds an era of innovation and research resulting in the launch of new patented product launches. In the longer run, domestic companies would face fresh competition from MNCs, as they would make aggressive new launches. However, the latter would most likely be subject to price negotiation.
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Drugs having estimated sales of over US$ 28 bn are expected to go off patent in the US between CY08 and CY10. With the governments in the developed markets looking to cut down healthcare costs by facilitating a speedy introduction of generic drugs into the market, domestic pharma companies will stand to benefit. However, despite this huge promise, intense competition and consequent price erosion would continue to remain a cause for concern.
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The life style segments such as cardiovascular, anti-diabetes and anti-depressants will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyles. Growth in domestic sales in the future will depend on the ability of companies to align their product portfolio towards the chronic segment.
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Contract manufacturing and research (CRAMS) is expected to gain momentum going forward. India’s competitive strengths in research services include English-language competency, availability of low cost skilled doctors and scientists, large patient population with diverse disease characteristics and adherence to international quality standards. As for contract manufacturing, both global innovators and generic majors are finding it profitable to outsource production. Currently, India has the highest number of US FDA approved plants outside the US at 75.
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