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Pharma Business dynamics in ROW markets

Challenges & opportunities for Indian Pharma SME manufacturers

a) Introduction
From an era (Pharma 1.0) of blockbuster drugs, global Pharma market has moved into the
current era (Pharma 2.0) that is focussing on emerging markets opportunity and Genericisation.
Many factors are driving this change. Western economies are decelerating and a large chunk
of Healthcare costs are public funded. Though governments acknowledge healthcare provision
to be strategically important, their willingness and ability to pay for it is subject to the current
economic slowdown. Simultaneously R&D productivity at global pharma giants has been at
historic lows leaving them grappling with a patent cliff and need to discover newer avenues of
In such a scenario, emergence of E7 markets (also known as BRICKMT for Brazil, Russia, India,
China, South Korea, Mexico & Turkey) that is forecast to generate per-capita GDP growth of
6.9% a year till 2020, made it an attractive destination for global pharma industry. It is
estimated that E7 pharma sales is projected to grow by 10.7% all though 2008 to 2020. With an
estimated size of $260.9 bn by 2020, E7 markets are expected to contribute 21% to global
pharma sales, doubling its contribution of 10.5% in 2008.
The emerging markets growth opportunity
Mkt Size (USD Bn)
Mkt contri %
100% 4.5%
21% 10.7%
23% 8.3%

Similarly ROW markets (excludes

US, Western Europe, Japan and E7)
are expected to increase its
contribution to global pharma sales
from 15% in 2008 to 23% in 2020
Adapted from : World pharma model v.1.0, UBS investment research, Q-series
and become worth $288.9 bn.
However despite increasing level of affluence in ROW markets, these markets have been and
are slated to be dominated by generics.

These factors have created a momentum that is shifting the focus of global pharma business to
Genericisation & emerging markets (ROW & E7). As a result of these dynamics, Generics
business is expected to grow at 8.5% CAGR from 2008 to 2020, in contrast to overall projected
growth of just 4.5%.for global pharma sales.

India with its traditional advantage of low cost of skilled manpower and innovation, is well
poised to benefit in this scenario. There are approximately 250 large units and about 8000 small

scale units that meet around 70% of the countrys demand for bulk intermediates, API &
Indian pharma industry has also been a significant force in global pharma markets. Over the
last three years, exports of pharmaceuticals (largely generics) have grown at over 21.5% (CAGR)
and now accounts for over $13bn in annual sales.
Being a leading player in generics, India already has a huge presence in the highly regulated
Pharma markets like US & Western Europe. Highlighting Indias dominance, nearly 40% of
Abbreviated New Drug Applications (ANDA) received by the USFDA in 2012 were from India,
with a further 87 confirmed and another 25 already received between January and June 2013.
While Indian pharmaceutical products are exported to 200 countries, almost two thirds of
Indian generic exports are to the highly regulated markets (e.g. the US and Europe). Exports to
highly regulated markets is primarily from 546 USFDA approved company sites and 166
companies with CEPs from EDQM.
Thus in value terms, Indian Pharma exports have inadequate contribution from Indian
Pharmaceutical SMEs and is skewed towards highly regulated markets, leaving markets like
ROW countries relatively underserved.

b) Indian Pharma SMEs

Indian Pharma SMEs play a significant role in pharma market with contribution of 87 per cent
in production by volume and 40 per cent by value. Traditionally SMEs have served the domestic
market and a few ROW markets with limited share in the Total Indian Pharma exports. However
exports can offer an attractive opportunity to build an additional - high margin - revenue stream
for SMEs.
Stringent regulations & requirement for significant investments in infrastructure, can be a
barrier for Pharma SMEs to access highly regulated markets. But ROW countries can be a
strategic fit as exports market for these SMEs. ROW markets offer higher margins compared to
domestic market, with lessor regulatory stringency and the organized sector in these countries
is not uniformly well developed. ROW markets are relatively underserved by large Pharma
companies as these markets are fragmented, require highly flexible business models and have
much lower volumes compared to highly regulated markets or E7 markets.

c) Trends in ROW markets

ROW market is a set of heterogeneous markets each with its own set of opportunities,
challenges and characteristics. However certain broad trends can be observed in ROW pharma
markets that can significantly impact a companys ability to access them.

c.1) Increased focus on indigenisation

Many governments in ROW countries are realizing the strategic importance of Pharmaceutical
industry. Pharma industry not only is a key component of their welfare agenda to provide basic
level of healthcare to local population but also can be a significant drain on limited foreign
currency reserves. Thus governments are setting up tariff and non-tariff barriers to protect and
promote local pharmaceutical industry.
For example in Algeria, in last few years, government has implemented following measures
leading to a significant increase in local manufacturing activity.

Tariff barriers
o Increased tax rates for imported products

Non-Tariff barriers
o Banning import of products with more than 2 local manufacturers
o Preferential interest rates for new manufacturing projects
o Differential regulatory requirements for imported and locally produced
products. Bioequivalence is required for imported formulations and formulated
bulk premix but not for locally produced formulations

c.2) Increased regulatory stringency

With the rising reach of low-cost generic medicines, regulators across many ROW markets are
opting for stricter norms to focus on quality. With the distinction between regulated and semi
/ non-regulated market thinning by the day, CTD format with minor country specific
customizations is becoming increasingly common. More countries insist on plant audits for
GMP approval.
For eg. Peru MOH now insists for GMP plant audits for those plants that do not have approvals
from any one of the Stringent regulatory authorities like USFDA, EMEA, TGA etc
Many African countries like Kenya, Uganda & Tanzania authorities have also mandated GMP
Plant audits.

c.3) Move towards a harmonized regulatory environment

A cluster of countries come together to create a uniform regulatory environment, provide
mutual recognition to product approvals and in many cases also provide an unified market for
the manufacturers

(Indonesia, Cambodia, Malaysia, Laos, Myanmar, Philippines, Singapore, Thailand, Vietnam & Brunei Darussalam)

Its major objectives includes the harmonisation of technical guidelines and regulatory
requirements applicable to the ASEAN pharmaceutical industry & development of Common
Technical Documents with a view to arriving at Mutual Recognition Arrangement (MRAs).
(KSA, UAE, Qatar, Kuwait, Oman, Bahrain..)

The GCC countries agreed to adopt the Common Technical Document (CTD) framework in 2009
and have since progressively moved towards its implementation. They also have a unified
streamline approach for plant and product registrations.

d) Key Aspects for success in ROW markets

The above trends can be managed and even leveraged by Indian formulation manufacturers to
build their export business in ROW markets.

d.1) Newer business models Stacked sourcing agreements

A stacked agreement is a long term supply commitment that progressively moves from supply
of finished formulation supply of formulated bulk premix formulation technology transfer
followed by supply of API / excipients / packaging material for a specified period. Typically
formulation tech transfer occurs after fulfilment of volume commitment by buyer over a period
of 3 to 5 years.

Historically manufacturers have been reluctant to adopt stacked sourcing model as they are
not keen to part with the intellectual property. However it is slowly gaining acceptance as this
model aids manufacturer to open up a market for their finished products, which in normal
course of events was unavailable due to local government policy of promoting local
manufacturing. The manufacturer gets a long term commitment for revenues and is able to
generate significant revenues before actual formulation tech transfer.

The buyer benefits from

having a clear visibility on
pathway to formulation tech
agreement can also be
leveraged by the buyer to
Stacked sourcing model
convince the government to
approve finished product
imports which may be
discouraged in normal course of events. Typically the formulation tech transfer fee in such
agreements are recovered by a small mark-up on cost of finished products as well as formulated
bulk premix consignments. Buyer negotiates formulation tech transfer fee to be a token
amount, which can be a significant advantage in markets where government exerts tight
control over forex availability and discourages payment of any tech-transfer fee.

Thus stacked sourcing agreements can ensure a win-win situation for the Indian manufacturer
as well as the buyer. Typically, buyers in ROW market would find it difficult to convince a large
pharma company for such an agreement, as it would require change in company policies and
approvals at multiple levels. In contrast, the buyer may find it easier to work with a owner
driven Pharma SME that is expected to have faster decision making and is more amenable to
flexible business models.
To effectively deliver on the stacked agreement, manufacturer needs to build n-1
capabilities, offer an integrated solution through a network of suppliers (discussed in next two
sections) and build capability to execute formulation technology transfer.
Execution of formulation tech transfer many a times suffers due to lack of protocols within
manufacturer organization on how to execute such projects. Formulation tech transfer is more
than just providing dossier documents / SOPs or demonstrating three validation batches at
client locations. Manufacturer should take following measures to ensure smooth execution of
formulation tech transfer projects

Create an internal SOP for formulation tech transfer procedures based on WHO
Guidelines on transfer of technology in Pharmaceutical manufacturing that addresses
following areas

transfer of development and production (processing, packaging and cleaning)

transfer of analytical methods for quality assurance and quality control
skills assessment and training
organization and management of the transfer
assessment of premises and equipment


Qualification and validation.

These formulation tech transfer projects, should have a project manager to drive the whole
initiative towards timely successful completion. Ideally the project manager should have cross
functional reach across the manufacturing organization.

d.2) Build n-1 capabilities

Whether as a part of stacked sourcing agreements or as a stand-alone product, supply of
formulated bulk premix (n-1 in API parlance) can be a quick mode of entry into many markets
for a SME Pharma manufacturer. This strategy has advantage of circumventing Local
manufacturing requirements as discussed in previous section, without actually needing to ever
share formulation technology. This strategy may also translate into lower upfront expenses like
product registration & GMP plant audit costs.
However companies need to view formulated bulk premix as an independent revenue source
and not just an extension of finished product. Manufacturers are advised to generate following
data specifically for formulated bulk premix,
Stability studies Accelerated and long term stability studies to be generated for formulated
bulk as well as for finished product.
Shipment validation Stability in the container intended to be used for delivery of formulated
bulk premix to client for a period and temp/humidity conditions simulating the shipment period
& conditions, builds confidence among the buyers and regulators.

d.3) Offer an integrated solution

Many a times ROW markets have less developed ecosystem for supply of API, packaging
material or excipients. In such cases, stacked agreement not only allows extending the revenue
stream for the Indian manufacturer beyond formulation tech transfer, but also assures the
buyer of continued long term support.
While Buyers generally prefer an integrated supply source rather than deal with multiple
partners, manufacturer organization is not structured to provide the seamless experience. A
manufacturer can benefit immensely from a networked model wherein manufacturer has prenegotiated agreements with their vendors to provide seamless sourcing experience for the
buyer. If needed a unified invoicing option can also be negotiated with the vendors as well as
the buyer.

d.4) Improve compliance with regulatory norms

Zone IV stability data - Many countries in LATAM, ASEAN, GCC etc now insist on zone-IV
stability studies. Non-availability of such data that is relatively low-cost but time consuming to
generate, has delayed or even lead to loss of an export opportunity in many cases.
Thus manufacturers should ideally incorporate Zone-IV studies as a part of their product
development protocol.
Countries known to expect zone IV Long-term stability conditions

Source:, Pg 118, accessed on 3rd Dec 2013 at 08:35 AM IST

Bioequivalence Though a significant cost, some countries insist that BE study data for finished
product be submitted before approval is granted for import of either finished product or even
formulated bulk premix. Considering the business potential and individual market of interest a
decision to generate the same can be taken.

API from DMF & Non-DMF source For core products, a manufacturer can consider preparing
registration dossiers for formulation using API from both DMF and non-DMF source. This can
provide flexibility to offer differential prices depending on the regulatory requirement of the
importing country.

Reference NRA approval - Plant approval from stringent regulatory authorities like USFDA, TGA
Australia, UK MHRA, can enable exemption from plant audits in large number of countries.
However typically this route entails high cost, huge efforts and in many cases manufacturers
infrastructure may not be geared to face audit from such SRA.
However similar strategy can be employed with lower resources, within regional clusters. In
many cases, an approval of reference NRA makes approval from other countries within that
cluster significantly easy.
For example, if a manufacturer is targeting Middle East markets than approval by Jordan NRA
(JFDA) provides automatic approval in Syria and facilitates approval within Middle East.
Similarly, for a manufacturer targeting LATAM markets approval by any one of the four
reference NRAs can facilitate approvals in other countries. The four reference NRAs for LATAM
are ANVISA Brazil, ANMAT Argentina, COFEPRIS Mexico, INVIMA Colombia,

d.5) Super Generics

Indian pharma industry is known globally for its formulation development prowess.
Supergenerics (Mouth Dissolving tabs/ Effervescent /Granules) or fixed dose combinations
approved by USFDA / EMEA enables pharma SMEs to build competitive advantage. Regulatory
pathway for approvals of such products may be slightly longer compared to normal products,
however it can lead to significant improvement in margins, especially when the improvement
fulfils a genuine patient need. For example, Ahmedabad based Lincoln Pharma has developed
a novel Ondansetron nasal spray which has been granted a patent in 2011.

e) What can Pharma SMEs do better?

e.1) Well thought out comprehensive contract documents
o Certified Bilingual contracts
o Focus on scenario planning.

All possible what if scenarios & remedial measures to be clearly defined

o Embassy legalized
o Choose Neutral venue of arbitration

e.2) Partner identification & assessment process

Pharma SMEs would need a partner in local countries to register, distribute and market their
products. Choosing a partner arguably can be the most important decision a manufacturer will
make that will determine the success in particular market. Hence most companies pay a
significant amount of time and energy to whet the prospective partners on a matrix of
capability, financial strength, strategic fit and reputation.
Equally important in our opinion is to assess the partner on softer areas like cultural fit, business
principles, personal comfort, organizational culture etc. This issues are particularly important
wherein a manufacturer envisages a long term relations with the partner.

f) Conclusion
ROW markets can offer a comparatively easier learning curve for exports market access to
Indian Pharma SMEs. ROW markets offer higher margins compared to domestic markets and
can become a significant contributor to a Pharma SMEs top line and bottom line. Indian
Pharma SMEs can leverage their relatively nimble decision making process to create
organizational processes that endow competitive advantage to it compared to its bigger peers.
Profitable growth of Pharma SMEs is necessary not only to ensure continued self-reliance of
India in healthcare segment