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EXPORTS PERFORMANCE OFINDIAN PHARMACEUTICALS INDUSTRY

Introduction:

ThetotalpharmaceuticalmarketsizeofIndia,fortheyear2008standsatUS$11.32billiongrowingat8.4%overthepreviousyear.Thisisapproximately16.5%ofthetotalhealthcareexpenditureofthecountryestimatedatUS$68.6billionand0.8%ofthecountry’sGdP.IndiastillhasoneofthelowestpercapitaexpenditureonpharmaceuticalproductsintheworldestimatedatUS$10.Genericdrugsoccupy70-80%ofthetotalmarket.

GlobalPharmaceuticalMarkets–AnOverview

TheglobalpharmaceuticalmarketsareestimatedatUS$712bnintheyear2007growingat6.4percentoverthe2006andanestimatedcompoundedannualgrowthrate(CAGR)of10.7percentfortheperiod2002-07.(ReferChart1).

USAisthelargestmarketwithanestimatedsizeofUS$295-305bnandgrowingat4-5percentduringthelast12monthsendedMay2008. It isfollowedbyTop5europeancountriesatUS$135-145bn(4-5%),emergingmarkets(Brazil,China,India,Mexico,Russia,SouthKoreaandTurkey)atUS$85-90bn.(12-13%),JapanatUS$64-68bn(1-2%)andtherestoftheworldisestimatedatUS$125-135bnforthesameperiodwhichisexpectedtogrowat7-8percentinthecomingyears(referTable1&chart2).

Source: IMS Health

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Table 1: Sales Through Retail Pharmacies(Twelve months to May 2008*)

Sl. Region/Country MarketSize GrowthRateno. US$bn.

1. nORTHAMeRICA 223.3 2%1a. UnitedStates 206.5 4%1b. Canada 16.7 6%2. eUROPe(Top5) 114.3 4%2A. Germany 34.4 7%2b. France 30.8 4%2c. UnitedKingdom 17.1 0%2d. Italy 16.9 0%2e. Spain 14.8 7%3. JAPAn(includinghospitals) 63.2 5%4. LATInAMeRICA(Top3) 23.2 9%4a. Brazil 11.6 10%4b. Mexico 8.7 6%4c. Argentina 2.8 21%5. AUSTRALIA/neWZeALAnd 7.8 13%

Source:IMSHealth

Source: IMS

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Share of pharmaceutical products in world exports have grown from a level of 1.7%in 2000 to 2.6% in 2006. In the year 2006, world exports of pharmaceutical productsamountedtoUS$311billion.ThemajorexportingcountriesofpharmaceuticalproductsintheworldaregiveninChart3.

Leadingtherapyclassesinworldpharmaceuticalsalesin2007includeoncologics(6.2%),lipid regulators (5.1%), respiratory agents (4.3%), acid pump inhibitors (4%) and anti-diabetics(24.1%)(referchart4).

Source: IMS, *Excludes unaudited markets, and Russia, Ukraine and Belarus audited data. Sales cover direct and indirect pharmaceutical channel purchases in U.S. dollars from pharmaceutical wholesalers and manufacturers. The figures above include prescription and certain over-the-counter data and represent manufacturer prices. Totals may not add due to rounding.

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The global pharmaceutical market is highly fragmented with top 22 companiesaccountingtoonlyUS$50bnwhichis7%ofglobalpharmaceuticalsales.

Indian Pharmaceutical Market

TheIndianretailpharmaceuticalmarketsizeisestimatedatUS$7.8bnintheyear2008andisexpectedtogrowataCAGRof9.9percenttill2010andthereafterataCAGRof9.5till2015(ReferChart5).ThepharmaceuticalsectorisemergingasoneofthemajorcontributorstoIndianexportswithexportearningsrisingfromanegligibleamountinearly1990stoRs.29,139.57croresby2007-08growingby16.83%over2006-07.ThetotalsizeoftheindustryisestimatedatUS$14.2bnduringthatyear.

India is seen not only as an API and formulation manufacturing base, but also asan emerging hub for biotechnology, bioinformatics, contract research, clinical datamanagementandclinicaltrials.

Thedomesticindustryisfragmentedwithtop10companiescapturing30percent(referchart6)andtheorganizedsectorconstitutingover400companies.

Investment & R&D

Thecombinedtotalinvestment(GrossBlock)of561pharmaceuticalcompanieslistedonBombayStockexchangeasperthelatestcompanyfilingsavailableasperthelatestdataavailableattheendofJune2008stoodatRs.40,461.7crores(netfixedassetsstoodatRs.29,325crores).Further,Rs.5,903.1croresinsome550projectsunderimplementationand new investment projects announced in 637 new proposals of approx. Rs.5,861.8croresasperCentreforMonitoringIndianeconomy(CMIe)databaseCapex,resultedinthenewinvestmentofRs.11,764.9crores,whichisanincreaseof29percent overtheexistinginvestment.SuchinvestmentofclosetoUS$3bn.isbyglobalstandards.SomeofthemajorpharmaceuticalProjectsunderimplementationaregivenintable2below:

Source: EIU Report, Datamonitor, primary interviews, Deloitte Consulting LLP analysis

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Source: Pharma Outlook, Espicom, 2008

Table 2: Top 15 Pharmaceutical Projects Under Implementation in India

Sl. Company Name Project Name Project Status Project CostNo. (Rs. Crore)

1 ZydusInfrastructureLtd. PharmaSeZProject UnderImplementation 1,000

2 BioconLtd. Biopharma(Insulin)Project Announcement 700

3 WockhardtLtd. ShendrePharmaceuticals UnderImplementation 700 SeZProject

4 MeditabSpecialtiesPvt.Ltd. KeriPharmaSeZProject UnderImplementation 650

5 dishmanInfrastructureLtd. PharmaSeZProject UnderImplementation 600

6 BioconLtd. ‘Statin’drugCapacity UnderImplementation 500 expansionProject

7 eisaiPharmaceuticals VizagPharma(Api)- Announcement 500 IndiaPvt.Ltd. R&dCentreProject

8 TamilnaduIndustrial Biogenomics& UnderImplementation 450 devp.Corpn.Ltd. BioinformaticsProject

9 AndhraPradeshIndl. IndiraGandhiCentreFor Announcement 400 InfrastructureCorpn.Ltd. AdvancedResearchCentre

OnLivestockProject10 CiplaLtd. GoadrugFormulation Announcement 400 expansionProject

11 GovernmentOf JadcherlaVaccine Announcement 400 AndhraPradesh CentreProject

Source: CMIE database Capex (as on 30th June, 2008)

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datafor596Indianpharmaceuticalscompanies,whosesalesandR&dinvestmentfiguresareavailablewithCMIedatabase‘Prowess’,revealsthatatotalof151companies(28.3%)companiesinvestedinR&dactivitiesasperlatestdataavailabletilltheendofJune2008(Referchart14).ThetotalinvestmentinR&dbythepharmaceuticalcompaniesstoodatRs.2,973.2croreswhichis9.9percentofthesalesofthese151companies.TheaverageR&dexpenditurefortheleadingIndianfirmsrepresentedjust5.7percentoftheirnetsalesinfiscal2004(ReferChart7)

The largest number of US FdAapprovedfacilitiesoutsideUSarein India. IndiafilesoveronethirdofdrugmasterfilesinUSA.Thirtypercent of the approved AndAsinUSarefromIndia,rankingIndianumber2nexttoUSA,needlesstomentionscoresofapprovalsbyUKMHRAandvariousotheragencies.even in patent challenges, IndiaranksnexttoUSAwithashareof21 percent of patent challenges(ReferChart-8,9,10,11&12).

Source: CMIE database ‘Prowess’

Source: Wall Street Research, Deutsche Bank

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Export Performance of Indian Pharmaceutical Industry

P h a r m a c e u t i c a lindustry has showncommendable exportperformance, the tradebalance being positive.Over the period 2002-03 to 2007-08 thecompounded annualgrowth rate (CAGR) ofexports has been 18.5percent. (refer Chart 13&14).

Source: Thomson Scientific, New Port Horizon ‘Global

Source: CMIE trade database ‘India Trades’

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As of 2006-07 the largest markets for Indianpharmaceutical exports are presented in thechart15below:

Apart fromthese, someof the fastemergingmarkets(2005-06)arepresentedintable3:

Thecompositionofexports&importsofIndia’spharmaceutical products in terms of Basicdrugs, Formulations & Herbals and region-wiseexportshavebeenpresentedinchart16,17&18below.

Table 3: Countries of High Import Growth Rates in Pharmaceutical Products from India (2005-06) (figs. In Rs.Crores)

Country Export Value Growth%

SouthAfrica 442.18 104.0Israel 310.33 84.2Turkey 426.22 78.5Kenya 227.74 78.3Singapore 378.50 58.5UK 820.63 40.0China 762.55 40.0Russia 1,051.12 35.8Italy 411.98 35.4Vietnam 400.69 31.3

Source: CMIE, India Trades

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TheexportfiguresofIndianpharmaceuticalproductstoTop10importingcountriesaregiven inTable4. USAremains themost importantexportdestinationwithashareof24.5%inthecountry’sexports. TheexportstoUSAexperienced79.7%growthduringthequarterendeddec.07overthepreviousquarterOct.07.Germany,Russia,UK&Brazilweretheothertopimportingcountries.

Source: CMIE, India Trades

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Table 4: Quarterly Analysis of Exports of India’s Pharmaceutical Products to Top 10 Destinations (Figs. in Rs. Crores)

Sl. ImportingCountry Sep-06 dec-06 Mar-07 Jun-07 Sep-07 dec-07 %no. Share

1 USA 1,023.87 1,286.56 1,188.66 1,160.81 1,022.84 1,838.43 24.52 Germany 356.77 298.50 347.30 317.38 312.88 308.83 4.13 Russia 314.01 353.10 354.99 231.53 290.84 295.76 3.94 UK 233.88 223.91 233.59 225.92 284.63 277.33 3.75 Brazil 219.06 209.74 165.22 169.60 187.76 190.86 2.56 Canada 160.53 137.77 121.67 168.17 153.54 182.75 2.47 SouthAfrica 123.17 100.13 164.24 129.10 147.56 178.32 2.48 China 149.91 157.17 182.89 162.88 243.77 175.00 2.39 nigeria 183.95 183.59 137.76 133.34 175.47 171.18 2.310 Turkey 114.00 108.77 111.16 93.40 105.15 141.89 1.9

Generic Drugs

Thegenericpharmaceuticalsales intheworldareestimatedtobeover12%ofworldpharmaceuticalsales.This translates intoamarketsizevaluedUS$85billion in2007.Someestimateshaveputtheethicalgenericsalestohaveashareof95%oftotalgenericmarket,andtherestbeingthegenericOTC (over thecounter)market. Besides this,anumber of leading drugs go off patent every year and the generic pharmaceuticalspenetrationisincreasinginallthecountriesoftheworldfurtherrisingtheopportunityfor exports in this segment. Approximately US$123billionofgeneric products are atriskofloosingpatentsby2012(referChart19).evenataconservativeestimateof15%opportunitythistranslatesintoUS$31.2billionopportunityforIndia.

Source: IMS Health Market Prognosis Sep. 2007

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Indian Biotechnology Industry

With 200 companies,India’s biotechnologysector is growing fastand is in the early stagesof development withinitial emphasis onvaccines and bioservices.The break-up of Indiandomestic biotechnologymarket is given chart 20.This industry grew by 37percentintheyear2006-07. Biopharmaceuticals,the largest segmentexceeded US$1 billion.TotalbiotechnologyexportsstoodatUS$763millionduring2006-07with75percentofitcomingfrombiopharmaceuticals.ThecountryranksfirstinclinicalresearchvaluedatUS$100-120mnandgrowingat20-25%peryear.

IMS Health estimates that biotechnology products accounted for over 10 percent ofglobalpharmaceuticalsales.Asignificantportionofnewdrugsintherecentyearsarefrombiopharmaceuticalsarena.Therevivalofthisoncestrongsectorhasbegun.SerumInstitute,Biocon,PanaceaBiotech,VenkateswaraHatcheries,Wockhardt,ShantaBiotechandBharatBiotecharesomeoftheemergingplayers.

Contract Manufacturing

Theglobalmarketforcontractmanufacturingofprescriptiondrugsisestimatedtoincreasefrom a value of $26.2 billionto$43.9billion,althoughtheover-the-counter medicinesand nutritional productssector will show the fastestgrowth. Asia has recentlybeen challenging northAmerica&europe’straditionaldomination of the globalpharmaceutical contractmanufacturing market. India Source: Pharmexcil

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and China could potentially account for 35 percent to 40 percent of the outsourcedmarketshare foractivepharmaceutical ingredients,finisheddosage formulationsandintermediates.AcomparisonofIndia’scostadvantagevis-à-viseurope&northAmericaarepresentedinChart21below.

India’s entrepreneurial pharmaceutical manufacturers are now beginning to leveragebenefits from the introduction of the nation’s product patent system. The scientific,technical and manufacturing skills, developed under the country’s 35-year processpatentsystem,perfectlymatchestherequirementsofglobaldrugmanufacturerswhoareincreasinglyseekingtooffshoremanymanufacturingactivitiespreviouslyperformedin-house.

Contract Research

Contractresearchingenericpharmaceuticalsisalsoasignificantopportunity(referchart22).establishedgenericcompanieswouldliketooutsourceorbuyservicesinformulationdevelopment,bioequivalencetesting,stabilitystudiescenters,etc.

VarioussurveysindicatethatIndiahasquiteanumberofresourcefulfirmsinthefieldofChemistryprovidinghighqualityoutputintimelyschedules,allowingmoreleadstopursue. India is significantly ahead in chemistry services such as analog preparation,analytical chemistry, focus library, combinatorial chemistry, structural chemistry,structural drug design, computer aided drug design, high throughput screening andassaydevelopment.

Source: zinnov Analysis

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New Technologies

Biocatalysts,Organocatalysts,nanotechnologyaresomeof thenewtechnologies thatwillhavesignificantinfluenceontheindustry.developingmicroorganismswhichactasenzymecatalystsacceleratingcertainchemicalreactionswhichotherwisetakemultiplestepsorcauselotofenvironmentalissuesisanessentialtechnology.

europe,USandotherkeycountriesarefocusingonbiocatalystsforsignificantgainsinfoodprocessing,environmentmanagement,etc.Companiesworkinginbiocatalystshavesucceededsignificantly,licensingthetechnology/biocatalystswithoutincurringhugecapitalexpendituresinsettingupproductionunits.Technologiesbasedonbiocatalystshelped european and US firms to cut several steps in chemical process and competecomfortablywithlowcostcountries.

BeingoneofthelargestproducersofAPIs,thecountryispoisedtodevelopbiocatalystseithertoreduceloadonenvironmentasalsotoreducecostofmanufacturing.

Medical Tourism

ThemedicaltourismmarketinIndiawasestimatedatUS$333millionin2004,growingby about 25 percent and this is predicted to become a US$2 billion-a-year businessopportunityby2012.IndiaiswitnessingasurgeofpatientsfromdevelopedcountriesaswellasfromAfrica,South&WestAsiabecausewhilethecostofcomparabletreatmentinIndiaisabout1/8thto1/5thofthecostintheWesterncountries,thequalityofIndianhealthcaredelivery(incertaininstitutions)isworldclass.

Exports of Herbal, Ayurvedic, Siddha, Unani & Homeopathic Products

TheglobalimportsofMedicinal plants asper United nationsstatistical division(SITC Code no. 2924)stood at US$1.57billion during theyear 2007 growingat a compoundedannual growth rateof 4.85% during theyears 2003-07 (referchart23).

ChinaalongwithHongKong with exports atUS$485.45mn is the Source: Comtrade, United Nations Statistics Division

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largestexportingcountry.ItisfollowedbyUSA(US$113.95mn)andGermany(US$106.94)intheyear2007.IndiawithitsexportsofUS$85.98mnisconsideredasthemajorsourceexportingcountryforHerbalmedicines(referchart24).

USAisthelargestmarketforMedicinalplantswithimportsatUS$247.6mn,followedbyHongKong(US$179),Germany(US$154.25mn),Japan(US$117.98)andFrance(US$80mn)(referchart25).

Source: Comtrade, United Nations Statistics Division

Source: Comtrade, United Nations Statistics Division

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Indian exports of medicinal plants grew at 8% during 2006 over 2005. However, itsimportsofmedicinalplantsgrewat23.8%duringthesameperiod(referchart26).

China occupies a lion’s share of24% of global medicinal planttrade followed by USA (7%),Germany (7%), India (6%) andCanada(6%)(referchart27).

As per CMIe trade database‘Indiatrades’, India’s exports of‘Herbal plants’ identified by 28commodities by their HS Codesstood at Rs.375.46 crores during2006-07growingby5.3%overthepreviousyear.However,forthe4year period between 2003-04 to2006-07theexportsshowedadeclinewithanegativecompoundedannualgrowthrate(CAGR)of-0.1%(referchart28).

The total exports of the 152 commodities belonging to ASU, Homeopathic & HerbalproductsrevealsthatthetradeexportsoftheseproductsstoodatRs.3,223.78croresintheyear2006-07growingatacompoundedannualgrowthrate(CAGR)of5.3%duringfouryearperiod2003-04to2006-07.ImportsstoodatRs.933.58croreswithaCAGRof4.1%duringthesameperiod(referchart29).

Source: Comtrade, United Nations Statistics Division

Source: Comtrade, United Nations Statistics Division

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Source: CMIE, India Trades

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Conclusion

AftertheintroductionofTRIPscomplaint IPRregimeinIndia,pharmaceutical industryis undergone a paradigm shift. The sector has evolved from being dominated bymultinationalcompaniesinthe1950’stosomeimportsandindigenousmanufacturinginthe1970’sandthenprotectedbythelegislativeprovisionsoftheolderPatentsAct–tosignificantindigenousproductionandsubsequentexports.LeadingIndiancompanieshaveestablishedmarketingandmanufacturingactivitiesinalargenumberofcountriesincludingUSAandcountriesofWesterneuropeaswellashavebeenindulginginmergersandacquisitionsinthesecountriesinthepastfewyears.

Thenewpatentregimehasalsoledtothereturnofthepharmaceuticalmultinationals,manyofwhichhad left Indiaduringthe1970s.nowtheyarebackandare lookingatIndianotonlyforitstraditionalstrengthsincontractmanufacturingbutalsoasahighlyattractive location for researchanddevelopment (R&d),particularly in theconductofclinicaltrialsandotherservices.

Thecountryisthereforepoisedtobecomeglobalmanufacturinghubforpharmaceuticalindustry. However, to remain competitive, Indian companies will have to achieveeconomies of scale in their production. Large capacities would also attract contractmanufacturinginamajorwayintheyearstocome.Further,Indiastillhastoconsolidate/acquire distribution chains in India and abroad which would be a major challenge inthecomingyears.Ifthecountryhastoprovidehealthcareatreasonableprice,ithastoacquirestrengths inbiopharmaceuticalsandnewdrugdiscoverywhichwouldbetheforemostpriorityofthecountry.Further,India’spharmaceuticalqualityregulationwouldrequirestrengthening.