Catching the pulse of the Indian pharma market!!

14 Jun 11 Catching the pulse of the Indian pharma market!!

With global pharmaceutical markets registering sluggish growth (around 4-6%), multinational companies have shifted their attention towards emerging markets like India which grew at the double digit rate of around 13-15% in 2010. Economic growth, increasing healthcare expenditure and the improved Intellectual Property framework has made India an attractive destination. It is currently the third largest market in terms of volumes and stands 14th in value. According to a McKinsey report – India Pharma 2015: Unlocking the potential of India Pharmaceuticals market – the market will triple to USD 20 billion by 2015 and move into the world’s top-10 pharmaceutical markets. Multinational companies have been vying for a piece of this pie for some time now, but India represents a myriad of challenges and it differs greatly from developed markets like the US and Europe. Here are some of the factors that distinguish Indian markets from developed markets:

  1. The market is semi-regulated which means the regulations aren’t stringent enough. The product patent regime has been active only since 2005. Prior to this, generic companies were allowed to market any patented drug.
  2. The market is fragmented with a host of unorganized players and there is intense competition.
  3. The purchasing power of consumer/patient is comparatively low and there is a huge section of people who do not have access to primary care (in rural markets). The health insurance system is underdeveloped too. The drug price control order exerts pricing pressure.
  4. There are restrictions on marketing – advertising of prescription products is not allowed.

So what can multinational companies do to counter these challenges? The way Indian markets operate is different, and multinational companies find it challenging to function in the same way as they do in developed countries. They need to adopt an India-centric approach to gain ground in this competitive field. Companies like Abbott and Daiichi Sankyo have taken the inorganic route by acquiring Piramal

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and Ranbaxy respectively, while some have entered into joint ventures with Indian companies. Efficient integration of the multinational company and the Indian counterpart is necessary for the deal to be profitable for the former. They should look to create a flexible business model with these acquisitions mainly to achieve cost optimization. In my opinion, one company has stood out from the rest because of its ‘organic’ strategy and flexibility to cater to the requirements of the Indian pharmaceutical market. And that is Glaxo SmithKline (GSK). It was the only multinational company that was a part of the top-10 pharma companies in India (2007). There was a time when people failed to recognize it as a foreign company. Dr Hasit Joshipura, Managing Director, GlaxoSmithKline Pharmaceuticals, once mentioned in his interview with Business line (edition dated November 10, 2007) that “GSK is the first innovator company to adopt an India-specific business model, not now but 25-30 years ago and the strategies are well recognized and supported by the parent company.” Some of the India-centric strategies by GSK include:

  1. Tiered pricing approach: The US and Japan have the highest prices of drugs as countries with a higher GDP are made to contribute more to the cost of R&D; while prices are low in emerging countries like India. In the least developed countries, pricing is done at almost a no-profit level. GSK is selling the best drugs at prices well below those that are charged in developed countries. They are implementing the differential pricing strategy even in different sections of India. Some multinational companies are still defending their high price with patents, while others are experimenting with tiered pricing.
  2. Altered product line: It has selectively marketed drugs that are suitable for India. GSK has strategically focused on anti-infectives, acute care products and gastrointestinal products and has created a dominant position in these therapeutic groups.
  3. Management of economies of scale: The Company has retained overall profitability of lower prices with high volumes of sale.

The GSK example highlights the India-centric approach and going by this, I believe that multinational companies need to consider certain things while operating in Indian markets:

  1. Manage cost/price with no compromise on quality: India is a price sensitive country. There is a high rate of substitution as there are approximately 150 generic brands for a single molecule. Price remains a sensitive factor, but Indian customers will not compromise on quality.
  2. Tap rural markets: Urban markets are saturated, but there is a vast opportunity in rural areas. Multinational companies need to adopt smarter strategies like robust distribution networks, appropriate pricing of medicines, awareness campaigns, etc, to tap these markets; because if tapped properly, it can yield huge profits.
  3. Overcome generic competition: The Indian market is a generic playground. The absence of product patent allows generic companies to manufacture and market any patented drug. As a result, the innovator product and the generic product have to compete directly in the market. Multinational companies need to overcome this intense competition. Innovative medicines can get an upper hand if altered to suit the disease trends in India.
  4. Adapt to changes in regulatory framework: The Indian pharma market is opening up to product patent and stronger IP protection. This will unlock new opportunities and act as an innovation driver for both Indian as well as multinational companies.

The future for multinational companies looks bright and they are looking more active than ever with rampant acquisitions and product patent coming into play. I think whichever strategy multinational companies adopt – organic or inorganic – the most important thing they need to do is to catch the pulse of the Indian customers.

Sayli Vaidya

Sayli was a research analyst at ValueNotes, with a focus on healthcare and pharma.

5 Comments
  • Rajashree Menon
    Posted at 11:18h, 21 July Reply

    Nice read.. MNC’s are increasing looking rural, especially the big guns in IPM.. GSK, Novartis, Aventis. Secondly, they have entered the me-too market with no differentiation. I am closely watching their success in both these approaches.. In the short term, i cannot see much success.. but since MNC’s have a visionary approach, i can see this providing them a significant edge in the IPM.

  • Sayli Vaidya
    Posted at 11:28h, 30 June Reply

    @Namrata: Thank you for sharing your views. Although, i feel, that the 2P’s – place and promotion are even more important than the other two. Promotion of medicines to doctors and distribution still remain the key areas, where the multinationals need to concentrate especially in the Indian market context.

  • Namrata
    Posted at 09:33h, 30 June Reply

    Nice read!…would like to add a few thoughts though…
    agree with your point that the Indian pharma market is unique in terms of challenges & opportunities…

    on a macro-level it feels that most of the article content is making the pharma market analogous to retail/FMCG market!

    to drill more deeply…its apt to summarize that MNCs / foreign pharma cos. can do good / successful business in India by “catching the pulse of regulatory changes a.k.a TRIPS / pdt. patents post-2005” –

    foreign cos. need to alter the 4P’s of marketing as 2 of it – Place and Promotion are useless in the Indian market context;

    foreign cos. can now launch (innovator) Product (sans fear of generics) & also resort to “smart” Patenting in form of NDDS (for about-to-expire patents) and thereby command Price (at the level they want to with no fear of the DPCO or NPPA biting at their heels!)

  • Sagar Kulkarni
    Posted at 19:06h, 15 June Reply

    Yes the big gun companies will have to alter their ways and implement India-centric strategies in order to be competitive. I think only GSK has done it well till now. Nice Read!!

  • Rathin
    Rathin
    Posted at 12:44h, 14 June Reply

    “I think whichever strategy multinational companies adopt – organic or inorganic – the most important thing they need to do is to catch the pulse of the Indian customers.”

    Isn’t this applicable to all industries?

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