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APPLYING FOR BUSINESS ANALYST TRAINEE-ASSIGNMENT 2(MARKET ANALYSIS REPORT FOR MEDICINE SEGMENT OF HEALTHCARE INDUSTRY)

HEALTHCARE AND PHARMACEUTICALS INDUSTRY-INDIA

HEALTHCARE HAS BECOME ONE OF INDIA'S LARGEST SECTORS - BOTH IN TERMS OF REVENUE AND EMPLOYMENT. THE INDUSTRY COMPRISES HOSPITALS, MEDICAL DEVICES, CLINICAL TRIALS, OUTSOURCING, TELEMEDICINE, MEDICAL TOURISM, HEALTH INSURANCE AND MEDICAL EQUIPMENT. THE INDIAN HEALTHCARE INDUSTRY IS GROWING AT A TREMENDOUS PACE DUE TO ITS STRENGTHENING COVERAGE, SERVICES AND INCREASING EXPENDITURE BY PUBLIC AS WELL PRIVATE PLAYERS.THE INDIAN HEALTHCARE DELIVERY SYSTEM IS CATEGORIZED INTO TWO MAJOR COMPONENTS –- PUBLIC - PRIVATE. THE GOVERNMENT, I.E. PUBLIC HEALTHCARE SYSTEM COMPRISES LIMITED SECONDARY AND TERTIARY CARE INSTITUTIONS IN KEY CITIES AND FOCUSES ON PROVIDING BASIC HEALTHCARE FACILITIES IN THE FORM OF PRIMARY HEALTHCARE CENTERS (PHCS) IN RURAL AREAS. THE PRIVATE SECTOR PROVIDES MAJORITY OF SECONDARY, TERTIARY AND QUATERNARY CARE INSTITUTIONS WITH A MAJOR CONCENTRATION IN METROS, TIER I AND TIER II CITIES.

INDIAN HEALTHCARE INDUSTRY ANALYSIS

THE HEALTHCARE SECTOR IS EXPECTED TO GROW AT A RATE OF 17 %( COMPOUNDED ANNUALLY). BY 2020, IT IS ESTIMATED TO HAVE A SIZE OF 280 USD BILLION.


THE PER CAPITA EXPENDITURE GROWTH RATE BETWEEN 2008 AND 2015 IS 11.3 %. ECONOMIC PROSPERITY IS DRIVING THE IMPROVEMENT IN AFFORDABILITY FOR GENERIC DRUGS IN THE MARKET.

GOVERNMENT INITIATIVES

Major initiatives taken by the Government of India to promote Indian healthcare industry are as follows:

The Competition Commission of India (CCI) in its meeting has approved the proposed merger between Sun Pharma and Ranbaxy, subject to the parties inter alia carrying out the divestiture of their products relating to seven relevant markets for formulations.

India and Sweden celebrated five years of memorandum of understanding (MoU). The cooperation in healthcare between India and Sweden will help in filling gaps in research and innovative technology to aid provisioning of quality healthcare.

Generic drug maker Mylan Inc. and the US-based Abbott Industries have received the CCI’s nod to proceed with their merger.

Mr J P Nadda, Union Minister for Health & Family Welfare, Government of India has launched the National Deworming initiative aimed to protect more than 24 crore children in the ages of 1-19 years from intestinal worms, on the eve of the National Deworming Day.

Under the National Health Assurance Mission, Prime Minister Mr. Narendra Modi's government would provide all citizens with free drugs and diagnostic treatment, as well as insurance cover to treat serious ailments.


All the government hospitals in Andhra Pradesh would get a facelift with a cost of Rs 45 crore (US$ 7.23 million), besides the establishment of 1,000 generic medical shops across the State in the next few months.

PHARMA SECTOR

- HOW DOES IT WORK?

THE PHARMACEUTICAL INDUSTRY IS DIVIDED INTO TWO SEGMENTS, BASED ON THE THERAPEUTIC AREAS:

1. ACUTE- IT INCLUDES DISEASES THAT USUALLY LAST FOR A SHORT DURATION AND INCLUDES THERAPIES LIKE ANTI-INVECTIVES, PAIN-KILLERS OR ANALGESICS ETC.

2. CHRONIC- IT INCLUDES DISEASES THAT ARE RECURRING IN NATURE AND INCLUDE LIFESTYLE DISEASES. THIS INCLUDES THERAPIES LIKE ANTI-DIABETICS, CARDIOVASCULAR (CVS), CANCER ETC.

IN MOST CASES, AILMENTS IN THE CHRONIC SEGMENT ENSURE REGULAR CONSUMPTION OF MEDICINES FOR THE LIFETIME OF THE PATIENT. THUS, CHRONIC SEGMENT IS EXPECTED TO GROW MUCH FASTER THAN THE ACUTE SEGMENT. CURRENTLY, THE INDIAN PHARMACEUTICAL MARKET IS MORE THAN 60% ACUTE WITH THE REST BEING CHRONIC. THE SHARE OF CHRONIC IS EXPECTED TO INCREASE.


USERS

Pharmaceutical products reach the end users through different mechanisms. There have emerged 2 different types of markets globally:

1. Branded Markets: Countries like India, Brazil, Russia, Mexico, etc. are branded in nature. Consider the mechanism in India. In India, our doctor prescribes us the medicine for a particular disease. The prescription is usually a brand name of a drug for that disease. We also tend to purchase the exact brand prescribed by the doctor even if the chemist offers a different/generic version available at a low cost.

2. Unbranded Markets: Developed countries like US, UK and some European countries are known as unbranded markets. Here, instead of prescribing the brand, the doctors prescribe the molecule or API (with the dosage) for a particular disease. In these countries, a large percentage of the population (~95%) has medical insurance. Hence, the insurance companies decide which generic drugs will be covered by the insurance; understandably these will be the ones which are sold at the lowest costs. When consumers approach the chemist, they are given the drug as per the prescription and their insurer.

PHARMA COMPANIES PERFORMANCE

1. AS SEEN IN THE ABOVE TABLE, DR. REDDY’S LABORATORIES LTD. HAS CLOCKED THE HIGHEST NET SALES CAGR OF ~31% OVER THE LAST 6 YEARS. ITS NET PROFIT HAS ALSO GROWN STRONGLY WITH A 5 YEAR CAGR OF CLOSE TO 84%. HOWEVER, ITS NET PROFIT MARGIN IS QUITE LOW AT 7%. IN TERMS OF VOLUME, CIPLA IS THE MARKET LEADER WITH A 5.3% MARKET SHARE IN INDIA.


2. SUN PHARMA ENJOYS THE HIGHEST NET PROFIT MARGINS WITH A 6 YEAR AVERAGE OF 36.5%. THIS IS BECAUSE OF THE STRONG BRAND IT HAS CREATED AND ITS STRONG PRESENCE ESPECIALLY IN THE CNS THERAPY AREA.

GROWTH DRIVERS OF PHARMA SECTOR

1) Increasing incomes & healthcare spends to spur domestic growthWith increasing affordability, shifting disease patterns and healthcare reforms, the total consumer spending on healthcare products and services in India has grown at a CAGR of more than 14% since 2000. According to a research report by the Mckinsey Global Institute, spending on healthcare in India will witness the highest growth rate among all spending categories over the next two decades.

2)Significant patent expiries in developed markets present good growth opportunities for Indian generic companies:A slew of patents will expire in the US and EU over 2011-15, including top-selling brands Lipitor, Nexium, Zyprexa and Plavix. Over this period, products with estimated annual sales of ~US$ 80 bn in the US alone will lose patent exclusivity, and this will translate into an estimated incremental generic sales opportunity of US$ 18 billion.

3) Emerging markets to become the next destinations for pharma companies“Pharmerging” markets, including the BRIC countries, South Africa, Mexico, Turkey, Poland, Indonesia and Romania, are growing faster than developed markets.

4) M&A a potential catalystWith higher growth prospects in emerging markets, many multinational branded drug companies are trying to expand their presence in generic pharmaceuticals. This has increased their interest in generic companies with an established product portfolio and sales/distribution network in emerging countries including India. The acquisitions of Ranbaxy (by Daiichi Sankyo) and Piramal (by Abbott) are a case in point. This is expected to continue.

FUTURE SCOPE

THE PHARMA SECTOR IN INDIA IS EXPECTED TO SHOW ROBUST GROWTH IN THE NEXT FEW YEARS DRIVEN BY GROWTH IN ALL 3 SEGMENTS VIZ.

1. DOMESTIC FORMULATIONS WHICH ARE EXPECTED TO GROW AT ~15%


2. EXPORTS WHICH WILL SEE HUGE GROWTH DUE TO THE PATENT CLIFF IN 2012 AND EMERGING MARKETS LIKE BRAZIL, MEXICO, SOUTH AFRICA DRIVING GROWTH

3. CRAMS WHICH IS EXPECTED TO GROW AT A RATE OF AROUND 13% GLOBALLY.INDIAN COMPANIES HAVE THE LARGEST NUMBER OF US FDA (FOOD AND DRUG ADMINISTRATION) APPROVED FACILITIES OUTSIDE US. THEY HAVE MADE REGULATORY FILINGS FOR AROUND 70% OF THE DRUGS THAT ARE GOING OFF PATENT IN 2012. BESIDES MANY COMPANIES HAVE SIZABLE US EXPOSURE IN THEIR OVERALL REVENUE. THE BIG PHARMA COMPANIES ALSO SEEM TO HAVE ACKNOWLEDGED CAPABILITY OF INDIAN COMPANIES WITH MANY TIE-UPS, ACQUISITIONS AND PRODUCT SPECIFIC DEALS HAPPENING OVER THE LAST 2 YEARS.

THE COMPANIES THAT WILL BENEFIT THE MOST ARE THOSE WHICH HAVE A ROBUST PIPELINE OF PRODUCTS IN THE REGULATED MARKETS, A FAVOURABLE GEOGRAPHIC MIX (STRONG PRESENCE IN INDIA AND US WITH SOME PRESENCE IN EMERGING MARKETS) AND POTENTIAL IN BIOSIMILARS/NICHE PRODUCTS. THESE COMPANIES WILL BE BEST POSITIONED FOR SUSTAINABLE GROWTH.THUS, CONSIDERING ALL THESE FACTORS, WE CAN SAY THAT IN THE LONG TERM THE INDIAN PHARMA SECTOR IS POISED FOR ROBUST GROWTH AND IS SHIFTING FROM A DEFENSIVE TO A GROWTH SECTOR.

ONLINE SALE OF DRUGS

THE ‘SALE’ OF DRUGS ON INTERNET HAS A LARGE SCOPE FOR IT SAVES TIME AND MONEY. VARIOUS E-COMMERCE PORTALS SUCH AS SNAPDEAL HAVE RECENTLY STARTED SELLING

DRUGS ONLINE. THE EASY AVAILABILITY OF DRUGS(WITH PRESCRIPTION AS SECURITY) MAKES THE LIFE EASIER FOR THE DISEASED AND HANDICAPPED.


CONCLUSION

INDIAN PHARMACEUTICALS MARKET HAS GROWN IN CONFIDENCE AND FIRMLY MOVED ON TO AN ACCELERATED GROWTH PATH. THE CENTRAL

QUESTION NOW RESTS AROUND THE TRUE NATUREAND THE FULL EXTENT OF THIS MARKET’S POTENTIAL

REPORT BY:DIVYANSHU SHARMA B.TECH(IIIRD YR)DEPARTMENT OF ELECTRICAL ENGINEERINGIIT-ROORKEE

SOURCE: ibef.org FOR GRAPHS AND DATA.

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