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India is gaining in importance as a manufacturer of pharmaceuticals. Between 1996 and 2006, nominal sales of pharmaceuticals were up
9% per annum and thus expanded much faster than the global pharmaceutical
market as a whole (+7% p.a.). Demand in India is growing markedly due to rising
population figures, the increasing number of old people and the development of
incomes. As a production location, the country is benefiting from its wage cost
advantages over western competitors also when it comes to producing medicines.
Since the end of the 1980s India
has been exporting more pharmaceuticals than it imports. Over the last ten years
the export surplus has widened from EUR 370 m to EUR 2 bn. At 32% in 2006, the
export ratio was about twice as high as in 1996 and will likely rise further in the
coming years (Germany: 55% at present).
Legal changes in India in 2005
made it considerably more difficult to produce new generics. Foreign pharmaceuticals, which enjoy 20 years of patent protection, can no longer be copied by
means of alternative production procedures and sold in the domestic market.
Hence, a reorientation was required in Indias pharmaceutical industry. It now
focuses on drugs developed in-house and contract research or contract production
for western drug makers.
The sectors development is
slowed by major infrastructure problems. These are, above all, qualitative and
quantitative shortcomings in the energy and transport sectors.
Author
Uwe Perlitz
+49 69 910-31875
uwe.perlitz@db.com
Editor
Tobias Just
Technical Assistant
Martina Ebling
Deutsche Bank Research
Frankfurt am Main
Germany
Internet: www.dbresearch.com
E-mail: marketing.dbr@db.com
Fax: +49 69 910-31877
Managing Director
Norbert Walter
Sales, EUR bn
20
1,000
16
800
12
600
400
2006
2007
2008
India, left
2009
2010
2011
2012
2013
2014
2015
World, right
Sources: Global Insight, VCI; Forecast: DB Research
Current Issues
April 9, 2008
!"
#
Share in 2006 sales, %
14.5
9.2
46.1
12.7
* without Japan
17.6
21.4
28.1
3.4
14.0
China
Korea
Singapore
Other
India
April 9, 2008
Current Issues
Current situation
97
99
01
India
03
05
World
Germany
'
21.3
Malaysia
16.2
China
15.4
8.8
India
Thailand
6.1
Indonesia
4.6
Korea
Japan
3.2
-0.1
-5
10
15
20
25
See Just, Tobias et al. (2006). Building up India: Outlook for Indias real estate
markets. Deutsche Bank Research. Current Issues. Frankfurt am Main.
April 9, 2008
Despite its high turnover growth rates, India cannot match the sales
achieved by its two major competitors in ex-Japan Asia, China and
Korea. With sales to the tune of EUR 36 bn or four times as much
as Indias, China is clearly the leader in the pharmaceuticals market.
Korea, too, outstrips India, with pharma sales amounting to EUR 14
bn. High growth rates are also being registered in the pharmaceuticals markets of Singapore, Malaysia, Thailand and Indonesia.
To be sure, sales in these countries are relatively low at EUR 1-7 bn.
23.8
34.4
17.2
1.5
3.0
6.1
6.7
7.3
25.6
38.2
9.0
7.1
1.8
6.7
7.1
4.5
USA
France
Italy
India
Japan
Germany
China
Other countries
Sources: Global Insight, DB Research
'
2. Medium-term outlook
1995=100
700
600
500
400
300
200
100
0
95
97
India
99
01
World
03
05
Germany
April 9, 2008
Slightly over 80% of the drugs are sold to the US and Europe, where
Indias companies are benefiting from the populations purchasing
power as well as regulatory changes (greater cost-consciousness).
By contrast, traditional sales markets such as Russia, Southeast
Asia, Africa and Latin America have lost in importance. However,
only 60 production locations of Indias pharma sector have been
certified by the World Health Organisation, which implies they
comply with the strict quality standards imposed by the US Food and
Drug Administration (FDA). Compliance with FDA standards is the
precondition for selling products on the important US market.
Current Issues
'
EUR bn
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
96 97 98 99 00 01 02 03 04 05 06
Sources: Global Insight, VCI
2005=100
160
140
120
100
60
2015
2025
2035
2045
World
China
India
Japan
Europe
North America
Source: UN
80
2005
See Bergheim, Stefan et al. (2005). Global growth centres 2020: Formel-G for 34
economies. Deutsche Bank Research. Current Issues. Frankfurt am Main.
April 9, 2008
'
2.8
2.8
1.7
The fact that despite the low level of unit labour costs India boasts a
highly skilled workforce has enabled the country's pharmaceutical
industry at a relatively early stage to offer quality products at
competitive prices. Each year, roughly 115,000 chemists graduate
from Indian universities with a masters degree and roughly 12,000
4
with a PhD. The corresponding figures for Germany just under
3,000 and 1,500, respectively are considerably lower. After many
chemists from India migrated to foreign countries over the last few
years, they now consider their chances of employment in India to
have improved. As a result, a smaller number is expected to go
abroad in the coming years; some may even return.
1.7
Germany
2.9
2.5
1.5
1.5
France
UK
2.2
1.9
1.6
1.6
2.9
3.1
1.7
1.6
Italy
1.9
1.8
1.0
1.5
E. Europe
6.6
6.4
5.5
5.5
Russia
6.7
8.1
6.5
6.0
USA
2.9
2.2
1.5
1.7
Japan
2.4
1.9
1.2
1.5
China
11.1
11.4
10.4
10.0
India
9.4
8.7
8.2
8.6
World
3.7
3.4
2.6
2.7
Source: DB Research
Irrespective of the disadvantages in some areas, India's pharmaceutical companies make use of their competitive advantages over
April 9, 2008
See Asuncion-Mund, Jennifer (2007). Indias capital markets: Unlocking the door to
future growth. Deutsche Bank Research. Current Issues. Frankfurt am Main.
See Hajos, Antal et al. (2006). Europische Pharmaunternehmen entdecken den
indischen Markt. Business in India Part 9. io new management No. 12.
7
Current Issues
See KPMG (2006). The Indian Pharmaceutical Industry: Collaboration for Growth.
April 9, 2008
In the coming years, Indian drug makers will likely continue to look
to foreign countries to expand their operations. An example for the
global orientation of Indian pharmaceutical companies is Ranbaxy.
Currently, Ranbaxy exports its products to 125 countries, has
subsidiaries in nearly 50 countries and production plants in more
than 10 countries. The US has become its most important sales
market. Sales to the US recently amounted to just under 30% of
Ranbaxys total sales, while sales to Europe came to nearly 20%.
Overall, approx. 80% of the manufacturers total sales are generated
abroad.
According to PwC, about half of all larger Indian drug makers are
looking to expand abroad through take-overs, whereas less than
20% of their Chinese competitors pursue that strategy. Targeted
markets are still the US and Europe. In many cases, there are
institutional obstacles to overcome first. More often than not, Indian
medicines fail because doctors and pharmacists in other countries
are reluctant to prescribe or hand out drugs produced in India. There
is a tendency to favour locally/nationally produced drugs. For this
reason, drug companies from India are finding it hard to gain a
foothold in western markets.
Over the past few years, for instance, Ranbaxy has bought
companies in Romania, Belgium, Italy and France, and intends to
become the worlds fifth largest manufacturer of generics by 2012.
Wockhardt is operating in Germany and the UK, as is Cadila in
France. At the beginning of 2006, Dr. Reddys bought Betapharm, a
German generics manufacturer, for almost EUR 500 m.
Current Issues
Sales, EUR bn
1,000
900
800
700
600
500
400
300
200
100
0
25
20
15
10
5
0
06
08
10
12
World, right
14
India, left
$4
1995=100
600
500
400
300
200
100
0
95
97
India
99
01
World
03
05
Germany
$$
April 9, 2008
Competition between Indian firms and western drug makers will probably be much fiercer as the companies from Asia are increasingly
seeking to tap the global markets. The generics market will grow in
both the developed countries and in the emerging markets. Most
vital medicines are already exempt from patent protection today.
The manufacture of generic drugs in that segment is growing
strongly. In addition, patents for high-turnover drugs with a volume
of EUR 100 bn will expire in the next few years. Of these drugs,
roughly one-third will likely be produced by Indian companies.
3. Summary
The pharmaceutical industry is expanding worldwide. For some
years now, it has been benefiting from the particular dynamics of the
Asian economies as both purchasers and producers. It is not only
the markets in China and India that register high growth rates.
Annual growth rates are also impressive in Singapore, Malaysia,
Thailand and Indonesia.
Thanks to low costs, qualified staff and extensive production and
research units India is becoming more and more of a major pharmaceutical location. Drivers of growth are the growing population,
which at 1.5 bn should exceed that of China already in 2025, as well
as the larger number of older people with markedly higher demand
for medicines. Add to this the increase in middle-class households
which have considerably higher incomes at their disposal than the
population on average.
India's pharmaceutical industry in
reorientation process
As a result of the new patent legislation, the countrys pharmaceutical industry is reorienting itself and focussing on self-developed
medicines and/or contract research and production for western
drugs companies. Also the expansion of Indian firms abroad looks
set to continue preferred target markets are the US and European
countries.
Despite the positive outlook India will lose market share in the Asian
market in future. The winner, first and foremost, will be China, which
will remain the No 1 thanks to its expected higher sales growth and
volume, as Indian companies' strategic reorientation away from
generics to original preparation is still in its infancy. The sooner India
manages to close the infrastructure gap, the higher growth will be in
the countrys pharmaceutical industry.
Uwe Perlitz (+49 69 910-31875, uwe.perlitz@db.com)
April 9, 2008
11
Asia
China and India are for good reasons in the spotlight as these two rising economic powers hold the promise of
becoming the two biggest consumer markets in the world. Likewise, in both countries economic reforms and
financial market development have been accelerating opening up a multitude of new investment opportunities.
But Asia is more than China and India. A decade after the Asian crisis many investors are rediscovering the
potential of the economic tigers of East and Southeast Asia as attractive destinations for business, trade and
investment. The regions diversity creates synergies and opportunities which are yet to be fully realised and
newcomers from South Asia or Indochina are introducing further business possibilities. Therefore, this research
series provides readers not only with studies, presentations and commentaries on economic and structural
issues in China and India, but also takes a look at the prospects and policy challenges of other Asian countries
as well.
450 bn reasons to invest in Indias infrastructure .................................................................... November 28, 2007
Asia trip report 2007
AAA: Affection, Analysis, Appreciation ......................................................................................... September 11, 2007
Understanding Vietnam
A look beyond the facts and figures .........................................................................................................July 26, 2007
Chinas banking sector: Ripe for the next stage? ...................................................................... December 7, 2006
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