The Indian pharmaceuticals market looks poised to grow to $55 billion in 2020, according to a new McKinsey & Company report — “India Pharma 2020: Propelling access and acceptance, realising true potential”. This will be a quadrupling of the market from the $12.6 billion the industry made in 2009. The report states that the pharma market has the further potential to reach $70 billion by 2020 if aggressive growth efforts are embraced.
“The scale and complexity of the market is increasing as India is moving towards the global top tier,” says Palash Mitra, Partner at McKinsey & Company, and Leader of the Pharmaceuticals & Medical Products Practice in India.
Acknowledging existing discontinuities in global pharmaceuticals markets, the report says it is the BRIC countries, including India, that will lead growth in the coming decade.
The other countries in the BRIC bloc are Brazil, Russia and China.
The Indian pharmaceutical industry has been growing at 13-14 per cent in the past five years, a significant increase over the nine per cent growth witnessed between 2000 and 2005. According to the report, five new opportunities will capture 45 per cent of the market by 2020, growing from the $3-billion industry today to $14-18 billion in 2020. These are patented products, consumer healthcare, biologics, vaccines and public health.
Metro and Tier-1 markets, which have been growing at 14-15 per cent in the last five years, will drive growth in the industry. They account for 60 per cent of the Indian pharmaceuticals market today and look set to continue growing to a market size of $33 billion by 2020. This will be the result of rapid urbanisation and the expansion of medical infrastructure. Rural markets, on the other hand, will constitute 25 per cent by 2020, up from 20 per cent currently, while Tier-2 markets will decline from the present share of 20 per cent to 15 per cent.
“Access in rural and Tier-2 markets are an issue,” said Mitra, “Traditional commercial models are not going to work. The industry needs to look to newer approaches to enhance healthcare and drugs.”
Epidemiological factors such as an increased patient pool by 2020, increasing accessibility to drugs due to an increase in investment in medical infrastructure, a greater acceptance of new medicines and greater affordability are the drivers of this growth.
Affordability will result in half of the forecasted growth, with rising incomes and increasing insurance coverage lowering the cost of drugs. Increases in income will result in an additional 73 million people in middle and upper class segments, while 650 million people will have health insurance by 2020. While private insurance will grow by 15 per cent by 2020, the majority of people will be provided insurance through government-sponsored schemes which focus on the ‘bottom of the pyramid’ segment of society.
“While growth in the pharmaceuticals market has thus far been driven by rising affordability, the industry needs to be more proactive in enhancing accessibility and acceptance of modern medicine,” cautioned Mitra.
There have been a number of changes in the industry over the past five years. The report points to the discontinuous development in the broader healthcare sector, combined with the changing structure of the business itself due to significant changes in the leaders of the industry. Four of the leaders in the pharma market today, including the market leader, are new participants. The flux is also being caused by shifts away from traditional sources of growth in favor of news ones.
Identifying changes organisations in the pharmaceuticals industry will have to make to adapt to the upcoming changes, the report places importance of the building of large brands through brand portfolio managements. A shift away from traditional business models is also suggested, with companies being advised to import talent from outside the industry and encouraging more risk-taking.
The government will also have to take an active role to ensure the potential of the industry is realised. McKinsey suggests raising spending on healthcare to three per cent of GDP, increasing investments in rural and Tier-2 healthcare infrastructure, adopting measures to contain healthcare costs and increasing the number of doctors in the system as policy measures to aid the industry.
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