India's fast-growing economy, expansion in health care insurance and infrastructure, to grow national drug sales to $20 billion by 2015
India's pharmaceuticals market will undergo a major transformation in the next decade. The Indian drug market is expected to grow to $20 billion in annual sales by 2015. India will be one of the world's top 10 pharmaceutical markets by 2015 by replacing Brazil, Mexico, South Korea and Turkey. The market will grow at a compounded annual rate of 12.3 per cent over the next few years said McKinsey & Co in the report titled "India Pharma 2015: unlocking the potential of Indian pharmaceutical market.
The Indian Pharma market is all set to provide the third largest opportunity globally only after US and China as incremental growth is expected over the next eight years and in the same league as the growth in Japan and Canada and the UK.
India will be ranked 10th globally giving rise to competition, need for innovation in drug processes and better marketing strategies.
According to Palash Mitra, partner and co-leader of McKinsey's pharmaceuticals and medical products practice, five factors will drive the growth of the market over the next decade.
- Doubling of disposable incomes and the increase in numbers of middle-class households will account for nearly 40% of this projected growth as both affordability and access will increase dramatically.
- Significant expansion of medical infrastructure like rise in hospital beds from 17 lakh in 2005 to 37 lakh will make up another 20%
- Greater penetration of health insurance will add another 15%. 90 percent of the Indian population is uninsured and must pay out-of-pocket for pharmaceuticals and healthcare services.
- A gradual shift in disease profile and adoption of patented products will add another 10%.
- Population growth will comprise the remaining 15%.
Along with growing incomes, the market's expansion is being fuelled by a shift in disease patterns. Stressful lifestyles have lead to rise in chronic ailments. Diseases related to metabolic disorders, such as diabetes, cardiovascular cases, Pressure etc.
The study forecasts that the mass therapies will remain important despite a shift towards specialty therapies that will account for 45 per cent of the market by 2015. The growing share of patented products (to 10 per cent from its current nominal levels) and the growing purchasing power of tier 2 markets, including rural India, will contribute to almost half of the growth till 2015.
Indian market will continue to be dominated by branded generics as there is a strong pipeline of drugs for which new processes are being developed. Indian generic manufacturing companies like Dr. Reddy's Laboratories and Ranbaxy Laboratories compete with U.S.-based makers of name-brand drugs like Merck & Co., Inc. and Pfizer Inc.
Indian and foreign companies must gear up to cater to an expanding middle class, increase in the prevalence of chronic diseases and rise in demand from small towns and villages.
The challenge to growth will be different for large domestic companies, their smaller rivals and multinationals. The large companies will have to contend with aggressive attack by smaller companies and introduction of patented products by the global majors.
In the last few years, bigger companies have been growing at about the average industry rate but smaller companies rose more rapidly. This has come at the cost of global pharma majors, which have been losing market share since 2000.
The smaller companies must focus on creating the market rather than capture market share. The growth prospects for traditional products are limited and companies must innovate approaches to differentiate their products in the marketplace.
MNCs must invest in building the local organisation and become champions of Indian business to succeed locally.
Indian government needs to create an infrastructure to expand healthcare throughout the country, to rural hospitals and clinics. The policy makers need to create an encouraging environment for the industry. Measures such as incentives to support capability building in R&D, ensuring broader access through higher levels of health insurance penetration, and building public health infrastructure and capability are important areas among others that require their intervention.
The study, in coming to these conclusions, assumed current economic and income growth levels will sustain. The market can even grow to $24 billion if growth proves more rapid than expected while it will rise only to $16 billion if growth is slower.