Studies Outline Prospects for Indian Drug Industry

New studies conducted by international consultancy Ernst & Young and the Confederation of Indian Industry (CII) have highlighted the growth potential of India's pharmaceuticals sector. The two surveys are optimistic, although significant risks and challenges remain ahead.

Ernst & Young's report claims that the sector is set to become an "integral part of the global value chain" as outsourcing grows. Further, India could have an important role to play beyond its existing offering of active pharmaceutical ingredients production, clinical study services and R&D partnerships. The study argues that the local sector is set to make its presence felt in the global industry's regulatory environment and deployment of IT.

India already has more than 70 US FDA-approved drug manufacturing plants, and a growing number of local firms are moving into the bulk exports business. However, the CII's study notes that few Indian exporters have the foreign partners needed to target lucrative developed markets such as the US. Although the world's top 10 generics manufacturers already account for 27% of the global market, the CII believes that alliances with major pharmaceutical marketers could improve local firms' foothold in regulated markets. On this basis, the study expects the local sector to be worth US$48bn by 2007.

Collaborative efforts in R&D are also promising, but the studies are more cautious on this issue. Many Indian firms have somewhat belatedly moved into drug discovery in the wake of the country's new TRIPS-compliant patent law. Ernst & Young's study estimates that average R&D spending by Indian firms rose to 6% of sales in 2004 from just 2% in 2002, and could top 12% by 2007. Although some of the larger firms are already nearing this level of investment, whether they will be able to match the discovery capability of large multinationals remains to be seen.

In this regard, partnerships will again be essential. At present, India's research spending on chronic, life-threatening and lifestyle-related diseases is low, and CII believes that one solution is for greater external financing. Recent royalty agreements on new molecules with Lupin and Glenmark, and a recent financing deal at Dr. Reddy's, are promising signs of things to come. However, it remains to be seen how many Indian firms can generate the sustained revenue necessary to finance a value-generating discovery capability.