Pharma's big opportunity
Novartis, don’t lose heart. There’ll be more Glivec-like patents to fight and, hopefully, win. While India may not have the best patents laws—at least, from Novartis’ point of view—it does have a burgeoning consumer market.
A McKinsey report, India Pharma 2015, just released, says that the country could well become the third-largest market in terms of incremental growth after the US and China, and touch a market size of $20 billion by 2015 (the estimate includes all retail sales of pharmaceutical products and institutional sales at manufacturer prices). This from an industry size of just $6.3 billion in 2005 and therefore implying a CAGR of 12.3 per cent. The current market size is estimated at around $7 billion.
The report points out that if the Indian economy maintains its growth rates, then the domestic pharma market will move into the global top 10 (currently it’s #14) by value. Also—Big Pharma, listen to this—the share of global MNC drug makers could increase from 22 per cent to between 30 and 35 per cent in another eight years. Provided, of course, things like patentability and data exclusivity become more friendly towards patented products.
The report, shared exclusively with Business Today ahead of its release, sees six trends that will drive the growth of the Indian pharma market over the next decade. These are: doubling of disposable incomes and the number of middle-class households; expansion of medical infrastructure; greater penetration of health insurance; rising prevalence of chronic diseases; adoption of product patents; and aggressive market penetration led by smaller companies.
So, what are the worries and what could upset the calculations? “The biggest challenge is going to be the building of medical infrastructure and in ensuring greater insurance penetration,” says Gautam Kumra, Director, McKinsey, who along with Palash Mitra, Partner, McKinsey, co-authored the study. What Kumra is referring to on the medical infrastructure side goes beyond the fact that these investments are capital intensive but to other issues (the weak links, if one may call them) like talent and training (doctors and nurses are in short supply).
The assumption underpinning the study is that the number of physicians and hospital beds in the country will double by 2015 (that is, an additional 2 million hospital beds and 0.6 million physicians). Corporate hospital chains will play a leading role in transforming the quality of secondary and tertiary care. Investments in healthcare infrastructure are expected to grow at around 15 per cent over the next 10 years.
The rapid scale-up is seen as a critical driver of growth for pharma products. At the moment, according to the report, India has only 1.5 beds per 1,000 people, similar to the levels of sub-Saharan Africa . The WHO norm is 3.3 beds per 1,000, and the average is much higher in developed economies (7.4 for countries like the US, West Europe and Japan) and even other developing countries (4.3 for middleincome countries such as Brazil, China, Thailand and South Africa). The story is the same, says the report, when it comes to healthcare personnel, including the number of doctors. Currently, the doctor-patient ratio in India is only 0.5 per 1,000.
The study also points to three other major trends: (i) Mass therapies will continue to remain important despite the shift to specialty drugs, (ii) Generics will dominate, while the share of patented drugs will increase to about 10 per cent by 2015 implying a market size of $2 billion (currently almost nil) and iii) tier-II markets will register high growth, while tier-I markets will continue to hold ground by providing significant opportunity. Bottom line: Despite all the grumbling, Big Pharma will stay put in India.
