In the past year, CPhI Worldwide (a division of UBM EMEA) has released reports on both the Indian and Chinese pharmaceutical markets, findings of which were presented at CPhI India in Mumbai in early December 2014 and shortly after CPhI China in August 2015.
India Looking Outward to Innovate
The Indian report, CPhI India Pharmaceuticals 2015: Industry Explorations, was developed by CPhI in partnership with Global Business Reports (GBR) to provide a comprehensive analysis of the country’s pharmaceutical market. Overall, Indian companies are confident about near- and medium-term growth potential, as outsourcing and exports push ahead with growth at a double- digit pace. Small and medium-sized enterprises (SMEs) that have traditionally relied on their domestic market are expanding and emerging as multinational corporations (MNCs) based on export-led growth strategies.
One key region to emerge for Indian exports is Japan, a country that is now opening its doors to overseas penetration. Another key area will be South and Latin America, where a number of Indian exporters are targeting their efforts. With SMEs expanding into international markets, the next few years promise to see a more mature and globally dominant Indian drug industry.
That industry has increased its capabilities in recent years, expanding from active pharmaceutical ingredient (API) manufacturing to finished dosages. India’s API producers are shifting toward high-value, low-volume work with complex biochemistry and intellectual property (IP) challenges. Some of the biggest companies are investing in R&D programs in drug-delivery, formulations, and manufacturing technology, particularly regarding biosimilars. Some of those R&D programs are located in Western countries, where Indian companies feel that technology and expertise can compensate for higher costs.
For example, Lupin recently set up two R&D plants in the United States, and Cipla plans to invest US$166 million to develop respiratory and oncology drugs in the United Kingdom. Searching the globe for the best facilitates and skill sets to meet growth ambitions could enable India to compete with its rivals on cost, development, and technical IP. The report points to this indication of India’s multimarket ambitions: “Clearly, they are intent on moving in on Western rivals and being able to launch high-profit advanced formulations more quickly.”
Many report contributors predict that a new chemical entity (NCE) will emerge from India in the next few years, although most Indian companies remain hesitant to commit sustained investment in discovery. Biocon does have an oral insulin formulation in development. The report forecasts further investment and expansion in biotechnology and biosimilars. By 2020, that part of the market should represent 15% of total sales. Meanwhile, India is set to take an even larger share of European and US generics markets. And as developing nations grow their own healthcare systems, market penetration will expand rapidly across regions such as Africa (25–30% per year forecast).
Indian drug companies praise new government efforts to actively support their industry. Indian regulators have visited the FDA for training, and the government committed to enhancing the drug sector’s reputation globally through its Responsible Healthcare Trust. The Indian Drug Manufacturers’ Association is actively encouraging members to invest in innovation.
The report predicts more partnerships taking place between Western and Indian drug companies like those between Mylan and Biocon and between Sun Pharmaceuticals and Merck. India soon could be a top drug producer by value (currently ranked 12th) and volume. But a gentrifying Indian economy and gradually rising production costs present key long-term challenges. Indian manufacturers may eventually get into complex R&D, then move lower-margin manufacturing to even less expensive regions — in reflection of Western developers now.
CPhI’s Rutger Oudejans said of India, “What’s been most impressive is the ability of companies here to constantly develop themselves through new services and technologies. These findings and trends clearly show India cementing itself as the global center of generics and manufacturing innovations. Over the next few years, many of the companies present at CPhI India 2014 will grow into global entities supplying both western and developing markets.”
ChIna: Two Sides of the Coin
The Pharma Insights China 2015 report describes a country with “two faces: a massive ingredients exporter and the world’s biggest domestic healthcare need.” Reporting on research conducted after the CPhI China 2015 event, this publication provides an overview of opinions among Chinese manufacturers and international companies operating in China. The overall picture reveals a positive outlook for growth, with the domestic market emerging as a driving force. The world’s second largest economy, China continues to rapidly expand. Unlike drug manufacturing in the West, its growth does not depend on exports and associated regulatory standards.
With those favorable economic factors, some Western manufacturers are altering their business strategies to take advantage. Chinese respondents predict a near doubling of sales over the next five years, with nearly three-quarters saying that their companies focus chiefly on investing in APIs and generics. CPhI forecasts that the market ultimately could develop higher- margin, lower-volume finished drug products — once a critical demand is reached from China’s increasingly aware middle-class population.
Few experts believe that such changes will happen for at least 10 years. In fact, China’s growing API and generics domination could hinder those developments — particularly for exports to the West, where there is a more complex regulatory framework. Most manufacturing facilities in China are large-scale producers of generic APIs in high volumes. A market shift away from those would require new pilot and scale-up plants to be built.
Of the international companies surveyed, all want Chinese distribution partners to increase sales across the country’s diverse regions. Distribution is a well-known problem for market entry. The main difficulty for foreign companies working in China has been to find the right local collaborations. Trust is a key issue for many Western companies operating in the country, with respondents reporting concerns about supply chain and distribution integrity, patent protection, and the knowledge base of regional manufacturers. All foreign companies surveyed said they would invest further with increased market protection.
Less than half of Chinese respondents want to instigate or further US business. Most want to deepen ties with European (62.8%) and Indian (74.4%) markets. That may relate to the lack of trust mentioned above and/or to a dearth of FDA-approved facilities in China. For the short term, at least, faster gains can be made elsewhere.
Chris Kilbee of UBM EMEA said, “Continued expansion of China’s domestic market makes it an exciting time for all manufacturers right now, both domestic and international. It is unusual for a major pharma economy’s future growth to be driven predominately by domestic sales rather than exports. Clearly, international companies must now act to get a foot-hold in this region. The crucial factor for success is local partners and local knowledge. We believe that China will see increased contract manufacturing and continued growth in biologics over the next five years. Rather than [seeing the country] move toward complex finished formulations, we will first see its manufacturers diversify into biologics and new low-cost, high- growth regions like South America.”
Cheryl Scott is cofounder and senior technical editor of BioProcess International; firstname.lastname@example.org.