India Pharma In 2019: Buy, Build And Beware (Patient Power And Amazon)
Executive Summary
2019 promises to be action-packed for Indian firms as they stay hungry for M&A and on course to transition to a more innovation-led play. But election year surprises in India, rising patient awareness, and the entry of non-traditional players like Amazon could well up the variable quotient for pharma, industry pundits tell Scrip.
2019 could well turn out as the "buy-build-scale" year for Indian Pharma Inc, going by the predictions of some industry pundits.
Indian firms are generally forecast to sew up new acquisitions, take more definitive steps away from pure-play generics towards specialty products, biosimilars and innovation, and may also potentially expand the use of digital technology. However, any major policy upheavals in a poll-bound India, or an Amazon-led market disruption, could alter business dynamics significantly.
Ajit Dangi, president and CEO of Danssen Consulting, noted that “deglobalization” as previously prophesized by Morgan Stanley’s head of emerging markets and chief global strategist Ruchir Sharma had already begun, and will have an impact on India's pharmaceutical exports. Markets like Russia, China, the US and Europe are likely to encourage the local manufacture of pharmaceuticals.
“As a result, Indian pharma majors will start strategizing acquisition opportunities in these countries and consider local manufacturing rather than exporting from India,” Dangi, a former president and executive director of Johnson and Johnson India, told Scrip.
There is also generally wider expert consensus around India Pharma Inc’s overall appetite for deal-making in the new year. Dilip Shah, secretary general of the Indian Pharmaceutical Alliance (IPA), which represents leading domestic firms, identified inorganic growth as one of the likely prominent trends in 2019. “Be it active pharmaceutical ingredients or finished formulations or nutraceuticals, the Indian industry will witness the emergence of large conglomerates on the scene,” Shah predicted to Scrip.
He believes that Indian firms continue to have a “burning appetite" for acquisitions: “We will continue to see them through 2019-20.”
Niche Deals
While much of the potential M&A could likely be niche deals, no one’s ruling out the odd big-ticket transaction.
Salil Kallianpur, a former executive vice president at GlaxoSmithKline Pharmaceuticals Ltd. India, now running a digital health consultancy in the country, explained that niche alliances aren’t very expensive and offer the opportunity to buy differentiated and complex products at relatively cheap prices.
“However, the odd large deal cannot be ruled out if the US market opens up in the way Indian majors expect it to,” Kallianpur told Scrip. 2018 saw Aurobindo Pharma Ltd. acquire Sandoz International GMBH’s US dermatology business and generic US oral solids portfolio in a transaction worth around $1bn. (Also see "Big Statement By Aurobindo As It Seals $1bn Sandoz US Deal " - Scrip, 6 Sep, 2018.)
Interestingly, 2019 began with the Indian generic firm Hetero Labs, the world’s largest producer of antiretroviral drugs, snapping up Tarbis Farma, SLU, a company operating in Spain, from Grupo Ferrer Internacional, S.A. While deal details were sketchy, in addition to a robust product portfolio, Tarbis brings with it an extensive marketing network with well-experienced personnel in the retail business across Spain, a Jan. 2 statement from Hetero said.
Complex Generics, Biosimilars
Alongside M&A, Indian firms are expected to continue to evolve and build their portfolios in the areas of complex dosage forms, specialty products, biosimilars and biobetters, increasingly steering away from low-margin "plain vanilla" generics.
IPA’s Shah said that there is increasing commitment to promote biosimilars development programs and the economics of development, noting “the effort is on to leverage biologics to drive future growth.”
Ex-GSK executive Kallianpur provided an interesting take on how leading Indian firms - which have over 2017-18 built a differentiated portfolio including biosimilars, complex generics and differentiated formulations - are well poised for potential gains in markets like the US.
He noted that the existing volatility around the ACA (Affordable Care Act) could mean that hundreds of thousands of Americans could lose their healthcare cover.
“If this happens, the FDA will look for ways to increase generic penetration and that would be a big opportunity for Indian manufacturers,” Kallianpur said. A federal judge in December 2018 struck down ACA, though reports noted that the ruling will not take effect while the legal challenge moves through courts. (Also see "Texas Court Ruling Invalidating ACA Threatens Preexisting Illness Coverage, But It's Not The Final Word, Congress Says" - Medtech Insight, 17 Dec, 2018.)
Several front-line Indian firms including Sun Pharmaceutical Industries Ltd., Cipla Ltd., Lupin Ltd. and Aurobindo already have or are developing a range of specialty, complex and differentiated products or biosimilars largely targeted at the US and other Western markets.
In July 2018, Biocon Ltd.’s partner Mylan NV commenced commercial sales of Fulphila (pegfilgrastim-jmbd), a biosimilar version of Amgen Inc.’s Neulasta. Fulphila is the first biosimilar pegfilgrastim to be approved in the US, and it was approved in the EU in November. (Also see "Key Wins In US By Indian Firms - Keep An Eye On These In 2019 " - Scrip, 19 Dec, 2018.)
Uptick In Innovation?
IPA’s Shah also emphasized the growing thrust of Indian firms towards innovation. He noted that while India’s pharmaceutical industry is generally perceived as a provider of generics at low prices, patent publications in the country have reported a compound annual growth rate (2012-17) of 10.8 % versus 0.80 % for Japan, 0% for Korea and 1.50 % for Singapore.
China, however, continues to be ahead of India with 15.50 % CAGR for 2012-17, Shah noted, referring to data from the recent India Innovation Report by Clarivate Analytics, the former intellectual property and science division of Thomson Reuters.
“The number of patents published in India from 2015-17 has grown by almost 75 % compared to the period of 2005-07. An analysis of the top 20 assignees in India for 2015-17 shows that 12 out of top 20 assignees are residents. More importantly, one-third of them are pharmaceutical companies, namely Cadila Healthcare Ltd., Wockhardt Ltd., Sun/Ranbaxy Laboratories Ltd., and Lupin,” Shah said, adding that pharmaceuticals ranks fifth in the top technology categories in Indian patents by publication count for 2015-17. (Also see "Lupin Ends 2018 On High, Strikes Large MALT1 Deal With AbbVie" - Scrip, 24 Dec, 2018.)
“It is important to take note of the spurt in pharmaceutical patent publication, which is indicative of the innovation index.”
The Amazon Factor
But the general buoyancy notwithstanding, there appear to be some key variables that Indian pharma can’t afford to completely dismiss. Action around these could have more than a routine impact on business dynamics.
First up, Kallianpur referred to the potential entry of non-traditional players into healthcare. Companies like Amazon, which is all set to become “everything from an employer insurance aggregator to the next-generation retailer to a global healthcare logistics specialist”, could probably disrupt almost every stakeholder in the healthcare arena today, he noted.
“Amazon’s interest spreads from primary care (telemedicine) to healthcare at home services. The quicker Indian pharma learns to partner with such non-traditional players, the better for them,” he said, adding that it will be interesting to observe if this will relegate pharma to mere low-cost manufacturers instead of patient care providers as they "fancy themselves to be".
Last year, Amazon was said to be in early talks to invest in MedPlus, India’s second-largest pharmacy retail chain. that comes with an online and on-ground presence, though not much is currently officially known on where things stand on any possible deal. (Also see "Amazon Hurricane Heading Towards Indian Pharma?" - Scrip, 20 Jul, 2018.)
Enough Political Plank?
Next up is how election year politics could play out in India, though IPA’s Shah believes that the government is unlikely to experiment with new policy initiatives, as it is “very difficult to foresee their impact on the diverse stakeholder groups”. The country heads into general elections this year.
Kallianpur noted that the government has created “enough political plank” using healthcare - for example Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana (PMJAY), a reduction in prices of drugs, devices, hospital and surgery costs of surgeries - and will tout it. (Also see "Can Modicare Reshape India’s Health Care Paradigm?" - In Vivo, 27 Nov, 2018.)
“Traditionally in India, healthcare (or education) has never been an electoral plank and politicians understand that announcement of sops, loan waivers etc will work more for the immediate term than announcements that will take a few years to materialize,” he commented.
Danssen’s Dangi, though, suggested that with general elections round the corner government could perhaps be in a "generous mood", doling out freebies to gain vote share as witnessed in some Indian states by way of waivers of loans to farmers. He expects the government to aggressively promote generics by bringing amendments to various laws mandating a "generics only" policy and making drugs affordable to the masses. More medical devices are also likely to come under price control, he avers.
Some controversial policy tweaks have already been initiated, though clearly not with an eye on affordability of medicines. For example, the government on Jan. 3 extended price cap exemptions beyond home-grown innovation – a decision that hasn’t gone down well with some stakeholders. (Also see "New Window: India Extends Price Cap Exemption To Foreign Innovation" - Pink Sheet, 7 Jan, 2019.)
Growing Patient Power
But it’s the overarching trend of rising patient awareness in particular that pharma should not underestimate, probably even in emerging markets, an issue that has caught the attention of industry watchers. Such growing power in the hands of patients, Kallianpur believes, could likely upset a lot of "current equations".
He maintained that vigilant healthcare reporting has had a part to play in harnessing patient power in some cases in India as well, as seen in the faulty J&J hip implants case, where patients are expected to receive compensation. J&J has legally challenged, among other aspects, the compensation methodology in the case. (Also see "Hips Don’t Lie: J&J Faces Compensation Maelstrom In India Over Faulty ASR Implants" - Medtech Insight, 30 Aug, 2018.)
“As patients and caregivers become more aware, pressure on the government and regulators will increase. How this plays out on pharma margins will be interesting to observe,” Kallianpur added.