Poised on the cusp of an exciting period of growth, the Indian pharmaceutical market is big and getting bigger, driven by growing prosperity and a shift in disease patterns. Since 2005, a number of intellectual property (IP) and regulatory reforms have unlocked new opportunities for multinational companies (MNCs) in the Indian pharmaceutical market. What will the future hold for pharmaceuticals in India? In this complicated business environment, the uncertainty is such that a change in assumptions could invalidate a company’s basic approach to creating and capturing value. A bet on one breakthrough strategy carries with it the risk of destroying the company, but not pursuing a breakthrough strategy sacrifices all the potential upside.
The Pharmaceuticals Market
Although the Indian pharmaceutical market is attractive, it is more than a little bit crowded with over 20,000 pharmaceutical firms, 60,000 distributors and 700,000 to 800,000 retailers competing for the pharmaceutical dollar. The top 10 companies control about 30% of the market and 250 companies control 70% of the market. Fortunately for MNCs, whose limited portfolios make brand-building essential, there are still opportunities to build and sustain brands in the market despite intense competition and fragmentation. In a market where doctors are free to prescribe any drug (whether branded or generic), any broad shifts in prescription patterns will radically impact revenues.
Pharmaceutical sales are rising faster than growth in real private consumption and will continue to grow, driven by both increased healthcare spending per capita and a larger proportion of spend going toward pharmaceuticals. While acute therapies have historically dominated the market and epidemics provide spurts of growth, chronic therapies are growing at a faster rate and have witnessed significant price increases at a time when overall pricing in the domestic pharmaceutical industry has been fairly stable. The price increase can be attributed to increasing disposable income among chronic patients, prescription “lock in” with few equivalent brands, and novel technologies that differentiate treatments and deliver increased value to patients. Domestic pharmaceutical sales stood at $6.2 billion at the end of 2006 and even under current conditions (minimal patent protection, unconsolidated distribution network, and an undeveloped health insurance system), are expected to grow at a rate of 9.5-10% annually, to reach $16 billion, by 2015. Despite this seemingly certain growth, the real uncertainty for MNCs is whether doctors will prescribe their brands or consumers will demand their brands when generic options exist.
Uncertainties in the market
The uncertainties inherent in a complex, growing market like India make forming and committing to one strategy difficult because the assumptions the strategy was built on may well change. A company that has been committed to a breakthrough strategy may face catastrophe if the underlying assumptions change. Strategic risk is the danger of change so profound that a company’s basic approach to creating and capturing value is threatened. The challenge is not to look for a superior prediction of the future, because it doesn’t exist—most of the uncertainty is outside the company’s control. The challenge is to…