The Indian pharmaceutical industry: a time of transition - Thoughts from the Centre | Deloitte UK

By Pratik Avhad, Senior Analyst, Insight


From being nowhere on the global pharmaceutical (pharma) map in 1970 to playing key role in delivering high-quality and affordable generic drugs worldwide, the Indian pharma industry has come a long way. In the first blog of our series on the ‘pharmacy of the world’, we looked at the factors behind its evolution and highlighted some of the recent domestic and international challenges which have resulted in a period of more volatile and somewhat stagnant growth. This blog explores new initiatives that the industry has embarked on to tackle these challenges and kick-start growth.

By 2023, the global pharma market is expected to exceed US$ 1.5 trillion (three to six per cent CAGR), with India’s pharma spend expected to grow to around US$ 32 billion from US$ 20 billion in 2018.1,2 To capitalise on this growth and address current challenges, Indian pharma companies are working to establish sustainable revenue streams and cost leadership strategies, through the approaches discussed below.

Rationalising the generic drugs portfolio

In response to the erosion of generic drugs prices in the US and Europe, generic drug manufacturers in India are exiting drug portfolios where margins are deemed unsustainable.3 Currently, the top ten largest companies (by revenue) are focusing on developing differentiated complex generics (including biosimilars). According to the US Food and Drug Administration (FDA) a complex generic drug usually means the product has:

  • complex active ingredients
  • a complex formulation process
  • a complex route of delivery
  • a complex dosage form
  • or may be a complex drug-device combination.4

This shift in focus is primarily due to the fact that complex generics are harder to develop, face less competition and command higher margins than generics. Indian pharma companies also aim to be the first-to-file and first-to-market complex generics and generics to gain a competitive advantage. In 2019, the FDA approved 110 complex generics drugs (11 per cent of the generic drug approvals) and 107 applications for first generics with no generic competition (30 per cent of which were application from Indian companies).5,6

Building a specialty drug business model

Indian pharma companies are also investing in building their specialty drugs pipelines. Specialty drugs are high value prescription medications used in the treatment of chronic, complex or rare diseases, and require advanced scientific research and innovation.7 While specialty drugs are more expensive to develop compared to generics, limited competition with fewer players in this space mean better margins (around 20 to 40 per cent, compared to eight to ten per cent from generics).8 IQVIA predicts that, by 2023, the developed market will see the share of specialty drugs rise to 50 per cent of overall pharma spend, demonstrating the attractiveness of this market for the industry.9

Revamping the active pharmaceutical ingredient (API) business

Larger companies are also focusing on producing key APIs in-house rather than procuring them from external API manufacturers, to drive cost-competitiveness and supply reliability. Exports of APIs from India increased by around 11 per cent in 2019 compared to the previous year and the global API market is expected to reach US$ 245 billion (6.1 per cent CAGR) by 2024.10,11 This growth is encouraging the Indian pharma industry to focus on timely development and commercialisation of APIs, expanding the scale and scope of API operations, and developing reliable relationships with global and domestic customers.12

Increasing research and development (R&D) investment

The shift in focus towards complex generics and specialty drugs has required companies to increase their R&D investment. Deloitte analysis of the annual reports of the top five Indian pharma companies (by revenue) show that following an upward trend in both sales and R&D investment between 2011 and 2017, there was a dip in sales growth in 2018 and a reduction in the annual investment in R&D in the past two years, leading to a corresponding reduction in the R&D investment to sales ratio.

Figure 1. Year on year trend of Pharma sales, R&D investments and R&D investment as a percentage of sales revenue

Source: Deloitte analysis of the Annual reports of top five Indian pharma companies (by revenue)

To deploy the available R&D resources rationally companies are:

  • evaluating and identifying R&D investment in generics to monitor return on investment (ROI), monitoring investment in long-term specialty drug pipelines and funding related clinical trials
  • investing in developing specific products for emerging markets.

Focus on cost optimisation

The volatility experienced in top line growth over the past decade (as discussed in the first blog) prompted the Indian pharma industry to optimise its cost structure,13 focusing on:

  • improving R&D productivity through getting products filed, approved and launched expeditiously, while rationalising and releasing generic resources to be deployed in specialty business
  • reducing selling, general and administrative (SG&A) expenses
  • building agility in supply chain
  • bringing efficiency in raw material procurements.14

A report by the Federation of Indian Chambers of Commerce and Industry (FICCI) suggests some companies have been able to trim their cost structure by 10 per cent in a short time.15

Strategic investments for long term value creation

Indian pharma companies are currently betting on inorganic growth through mergers and acquisitions (M&A), collaborations, partnerships, joint ventures and in-licensing to create high-value and high-margin asset pipelines. As global pharma companies are looking to reshape their portfolios through divestments, Indian pharma companies are looking to build their specialty drugs and complex generics pipeline.16

Building culture of quality and compliance excellence

Historically, compliance lapses have remained a pain-point for the Indian pharma industry and the past few years saw increased regulatory scrutiny and compliance challenges to meet Current Good Manufacturing Practice (cGMP) guidelines, which provide systems that assure proper design, monitoring, and control of manufacturing processes and facilities.17 Indian pharma companies have started to address the quality and compliance issues by deploying India-specific interventions coupled with global best practices,18 including:

  • strengthening technical elements of quality management system (QMS), including data reliability, good documentation practices, process validation and investigations
  • use of advanced analytics techniques to identify QMS risks and reduce out-of-specifications results and deviations
  • expanding and upskilling talent across all levels to leverage digital technologies which can help in building culture of quality and compliance excellence.19


The Indian pharma industry’s current strategies and priorities are focused on growth. Some of these strategies, such as rationalising their generic drugs portfolio, increasing specialty products in the pipeline, cost optimisation, and focus on quality and compliance, will deliver results in the near future. Other strategies, like API business revamping, intensification of R&D investment, and long term strategic investments, will likely take longer to deliver results. Nevertheless, these steps should strengthen the industry’s global footprints. In the final blog of this series, I will explore what the future holds for the industry!

Update on the impact of COVID -19 in India (as at April 16)

India has seen a gradual increase in the number of confirmed COVID-19 cases, and by April 16 there were 13,387 confirmed cases and 437 deaths.20 On March 25, the Indian government announced a 21 day nationwide lockdown, which has now been extended until May 3. India is currently carrying out around 21,000 tests per day and is expected to increase testing capacity to 40,000 tests a day by the end of April.21 Moreover, the Health Ministry, in preparation for the anticipated surge in the number of cases, has earmarked 100,000 hospital beds in 601 dedicated COVID-19 hospitals across the country.22 Export of key APIs and formulations which was banned at the start of March has been lifted, while the export of paracetamol and hydroxychloroquine (HCQ) is being permitted on a case by case basis.23,24 Under the nationwide lockdown the pharma industry is operating at only 20-30 per cent of normal manufacturing capacity, but this is expected to pick up after April 20, as restrictions on ancillary good manufacturers for pharma like packaging materials and logistics are eased.25,26


Pratik Avhad, Senior Analyst, Deloitte

Pratik is a senior analyst within the Insight team based in Hyderabad, India. He supports Deloitte’s UK Centre for Health Solutions by producing independent and objective business research and analysis into key industry challenges and associated solutions.

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