Ambalal Sarabhai Enterprises Ltd Management Discussions.

Overview of Indian Pharmaceutical Industry

Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK. India contributes the second largest share of pharmaceutical and biotech workforce in the world. The pharmaceutical sector in India was valued at US$ 33 billion in 2017. Indias domestic pharmaceutical market turnover reached Rs 129,015 crore (US$ 18.12 billion) in 2018, growing 9.4 per cent year-on-year (in Rs) from Rs 116,389 crore (US$ 17.87 billion) in 2017. In February 2019, the Indian pharmaceutical market grew by 10 per cent year-on-year.

With 71 per cent market share, generic drugs form the largest segment of the Indian pharmaceutical sector. Based on moving annual turnover, Anti-Infectives (13.6%), Cardiac (12.4%), Gastro Intestinals (11.5%) had the biggest market share in the Indian pharma market in 2018.

Indian drugs are exported to more than 200 countries in the world, with the US as the key market. Generic drugs account for 20 per cent of global exports in terms of volume, making the country the largest provider of generic medicines globally and expected to expand even further in coming years. Indias pharmaceutical exports stood at US$ 17.28 billion in FY18 and US$ 19.14 billion in FY19. In FY18, 31 per cent of these exports from India went to the US.

The ‘Pharma Vision 2020 by the governments Department of Pharmaceuticals aims to make India a major hub for end-to-end drug discovery. The sector has received cumulative FDI worth US$ 15.93 billion between April 2000 and December 2018. Under Budget

2019-20, allocation to the Ministry of Health and Family Welfare increased by 3.1 per cent to Rs 63,298 crore (US$ 9.06 billion). Indian pharmaceutical sector is expected to grow at a CAGR of 15 per cent in the near future and medical device market expected to grow $50 billion by 2025.

Market Size

The pharmaceutical sector was valued at US$ 33 billion in 2017. The countrys pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–20 to reach US$ 55 billion. Indias pharmaceutical exports stood at US$ 17.27 billion in FY18 and have reached US$ 15.52 billion in FY19 (up to January 2019). Pharmaceutical exports include bulk drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and surgicals. Indias domestic pharmaceutical market turnover reached Rs 129,015 crore (US$ 18.12 billion) in 2018, growing 9.4 per cent year-on-year (in Rs) from Rs 116,389 crore (US$ 17.87 billion) in 2017.

Indian companies received 304 Abbreviated New Drug Application (ANDA) approvals from the US Food and Drug Administration (USFDA) in 2017. The country accounts for around 30 per cent (by volume) and about 10 per cent (value) in the US$ 70-80 billion US generics market.

Indias biotechnology industry comprising bio-pharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics is expected grow at an average growth rate of around 30 per cent a year and reach US$ 100 billion by 2025.

Investments and Recent Developments

The Union Cabinet has given its nod for the amendment of the existing Foreign Direct Investment (FDI) policy in the pharmaceutical sector in order to allow FDI up to 100 per cent under the automatic route for manufacturing of medical devices subject to certain conditions.

The drugs and pharmaceuticals sector attracted cumulative FDI inflows worth US$ 15.93 billion between April 2000 and December 2018, according to data released by the Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the recent developments/investments in the Indian pharmaceutical sector are as follows:

• In February 2019, the Indian pharmaceutical market grew by 10 per cent year-on-year.

• Between Jul-Sep 2018, Indian pharma sector witnessed 39 PE investment deals worth US$ 217 million.

• Investment (as % of sales) in research & development by Indian pharma companies* increased from 5.3 per cent in FY12 to 8.5 per cent in FY18.

• In 2017, Indian pharmaceutical sector witnessed 46 merger & acquisition (M&A) deals worth US$ 1.47 billion

• The exports of Indian pharmaceutical industry to the US will get a boost, as branded drugs worth US$ 55 billion will become off-patent during 2017-2019.

Government Initiatives

Some of the initiatives taken by the government to promote the pharmaceutical sector in India are as follows:

• The allocation to the Ministry of Health and Family Welfare has increased by 13.1 per cent to Rs 61,398 crore (US$ 8.98 billion) in Union Budget 2019-20.

• In October 2018, the Uttar Pradesh Government announced that it will set up six pharma parks in the state and has received investment commitments of more than Rs 5,000-6,000 crore (US$ 712-855 million) for the same.

• The National Health Protection Scheme is largest government funded healthcare programme in the world, which is expected to benefit 100 million poor families in the country by providing a cover of up to Rs 5 lakh (US$ 7,723.2) per family per year for secondary and tertiary care hospitalisation. The programme was announced in Union Budget 2018-19.

• In March 2018, the Drug Controller General of India (DCGI) announced its plans to start a single-window facility to provide consents, approvals and other information. The move is aimed at giving a push to the Make in India initiative.

• The Government of India is planning to set up an electronic platform to regulate online pharmacies under a new policy, in order to stop any misuse due to easy availability.

• The Government of India unveiled Pharma Vision 2020 aimed at making India a global leader in end-to-end drug manufacture. Approval time for new facilities has been reduced to boost investments.

• The government introduced mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to deal with the issue of affordability and availability of medicines.

Road Ahead

Medicine spending in India is projected to grow 9-12 per cent over the next five years, leading India to become one of the top 10 countries in terms of medicine spending.

Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are on the rise.

The Indian government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

Advantage India

A US$33 billion opportunity, the pharmaceutical industry in India presents considerable potential for collaborative and outsourced R&D in drug development, biotechnology, chemicals, and manufacturing of medicinal products.

Indias CRAM sector is globally recognized for its high-end research services and is one of the fastest growing segments of the countrys pharmaceutical industry.

The country has a low cost of production, low R&D costs, innovative scientific man power, and a large number of national laboratories that have the potential to steer the industry ahead to a higher level.

Besides, India is the only country in the world that has the highest number of USFDA-approved plants for generic drug manufacturing outside the US. Some of the leading Indian pharma companies derive about 50 per cent of their turnover from exporting generic medicines to developed markets like the US and Europe.

Your company has also USFDA plants through its subsidiaries. And It also deals in Bulk drugs, Speciality drugs and Generic drugs in its different wholly owned subsidiaries. Hence looking to the overall scenario of Pharmaceutical market, it is expected that your company will also get the benefits of the same.

There were 104 employees on the roll of the company as on 31st March,2019.