COVID-19 and HCQ medicine demand surge and export ban fiasco drew the world’s attention towards India’s pharmaceutical industry. Question is, do you know what makes the Indian Pharma industry so important not just for the 1.4 billion Indian population but the entire world? This is what we want to discuss in this editorial. 

The recently launched Mckinsey Report on Indian Pharma Industry highlights that the Indian pharmaceutical market has three unique characteristics. 

• First, branded generics dominate, making up for 70 to 80 percent of the retail market. 
• Second, local players have enjoyed a dominant position driven by formulation development capabilities and early investments. 
• Third, price levels are low, driven by intense competition. While India ranks tenth globally in terms of value, it is ranked third in volumes.

Evolution of Indian Pharma Industry 

In the early 2000s Indian underwent a large number of industry reforms. These reforms started delivering some tangible industry positive signals in the next half of the decade.  

This resulted in greater affordability and higher spending across a range of categories and The total market for healthcare products and services grew at a CAGR of 14% from 2000 to 2005. The pharmaceutical industry grew at a CAGR of 9 percent during that period. 

Drivers of Indian Pharma Industry growth between 2005 - 2015

For the next 10 years, the industry growth was driven primarily by rising incomes, and supported by five other factors: 

• Enhanced medical infrastructure; 
• Rise in the prevalence and treatment of chronic diseases; 
• Greater health insurance coverage; 
• Launches of patented products; 
• Newmarket creation in existing white spaces 

Estimates {without taking COVID-19 impact into account} suggest that the Indian pharmaceuticals market is poised to grow to $55 billion by 2020 driven by a steady increase in affordability and a step jump in market access. For perspective, consider this: at this scale, Indian pharma market will be comparable to all developed markets other than the US, Japan, and China. Interestingly, in terms of volumes, India will be at the top, a close second only to the US market. This combination of value and volume provides interesting opportunities for upgrading therapy and treatment levels. 

But can India afford the right healthcare and good medicines?

India will cover nearly 650 million people under health insurance schemes by 2020. Private insurance coverage is estimated to grow by nearly 15 percent annually until 2020. But this is not the sole reason for confidence. The largest impact will be delivered through government-sponsored programs that are largely focused on the ‘below poverty line segment, and are expected to provide coverage to nearly 380 million people by 2020.

Source: Mckinsey Report 

The gap in per capita spending on pharmaceuticals between rural and urban areas is massive. It stands around $1.8  in rural markets in 2007 vis-à-vis $15.6 in urban markets. However, this can shock some analysts who understand the per capita expenditure by US citizens. Yes, the rural population is using very cheap generic drugs, and sometimes no medicine at all. But also to mention that Indian healthcare is way more affordable than the US market. 

This does not mean that nothing is being done to facilitate higher standards of healthcare in rural segments. The non-traditional business models will drive access in Tier-II and rural areas. This, in turn, will reduce the gap in per capita spending between rural and urban areas.

For a detailed analysis, do read Mckinsey’s Indian Pharma Report.