The generics market has always been the bread and butter of the Indian pharmaceutical manufacturing industry. However, since 2003 the global generics market has been experiencing a downward trend. The result has been excess capacity, lower margins and consolidation amongst Indian players since the beginning of 2005 when the repercussions of this downward trend finally began to make their impact felt and triggered a downward growth curve. Two strategies will assist these manufacturers in moving forward from this scenario, Sanjiv Kaul, managing director of outsourcing-focused private equity firm Chrys Capital, told delegates at the recent inaugural Interphex trade show, held in Mumbai, where Outsourcing-Pharma.com was in attendance. Firstly, these firms need to focus beyond the US market, where Kaul believes too much attention is being placed at present. By 2010, out of the $160bn (€113bn) global generics market the US will only account for 27 per cent, he said. "The US market is a pure generics market, where distribution and prices are the only way to generate dollars," said Kaul. "This means that a volume share of 55 per cent only reaps 11 per cent in value." Kaul believes that the European generics market on the other hand presents a "significant opportunity" for Indian manufacturers to improve their margins. "Europe is a branded generics market and so pricing is not a major issue," he said. "Effectively the characteristic is that a volume share of 22 per cent would generate 15 per cent value - much better than in the US." Meanwhile, Kaul drew attention to the contract research and manufacturing services (CRAMS) opportunity that the industry is now presented with. Since 2005 when the country began compliance with the World Trade Organization's (WTO) intellectual property rules (TRIPS), the CRAMS business model began to emerge out of the ether. Previously the three business models Indian drug manufacturers followed were either the front end of generics manufacturing; the back end of generics manufacturing; or patent challenges. As such, the Indian CRAMS market value moved from $0.5bn in 2005 to $0.9bn in 2006 and Kaul believes it will reach $2.7bn by 2010, the equivalent of 5 per cent of the global market share. The emergence of CRAMS in India is a changing paradigm, and one that needs to be followed if the country is to move with the times. Of the $34bn in global outsourcing expenditure in 2005, 60 per cent was spent on contract manufacturing, 7 per cent on custom chemical synthesis and 33 per cent went to clinical research. In 2010 the overall expenditure will have risen to $50m and clinical research will have gained a 5 per cent market share at the expense of contract manufacturing. However, progress in this new arena is very slow for Indian firms, as discovery R&D is still nascent in the country, and in order to really succeed in this space manufacturers need to rid themselves of their generic mindset, said Kaul. "For example, currently, a generics firm that is doing well will allocate some money to R&D, but when times get tough, innovative research is the first thing to get cut," he said. "The current short-to medium-term view held by most firms needs to be changed to transcend to a medium-to long-term view." So far, India has only managed to attract $360m in drug discovery investment by foreign multinationals - a pitiful sum, said Kaul, who added that China is currently in the same position. Cuurently, 80 per cent of the pharmaceutical contract work undertaken by Indian firms consists of the manufacturing of active pharmaceutical ingredients (APIs) and intermediates, compared to 60 per cent globally. Kaul estimated it could take four years for Indian formulators to reduce this gap by diversifying their offerings and becoming larger players in the CRAMS space.
Indian drug manufacturers need to rid themselves of their generic mindset in order to evolve and remain competitive for the future.