The booster called vaccines

Utkarsh Palnitkar, Partner, Transaction Advisory Services, Leader-Policy and Investment Advisory Services, Industry Leader-Health Sciences at Ernst & Young, in conversation with Nandini Patwardhan on the Indian vaccines segment.

How has the Indian vaccines segment evolved over the years?

As per industry sources, in 2005, the vaccines market earned revenues of around $10 billion and it is estimated to reach $20 billion in 2012. The human vaccines segment is the fastest growing segment in this sector and prominent players include Serum Institute of India, Panacea Biotec, Indian Immunologicals, Aventis Pharma, GlaxoSmithKline, Shantha Biotechnics and others. Vaccine manufacturers like Serum Institute of India and Indian Immunologicals have a very strong global presence. Serum exports its vaccines to more than 140 different countries worldwide, whereas Indian Immunologicals is the largest supplier for foot and mouth disease.

Vaccines and recombinant therapeutics are the leading sectors driving the growth of the biotechnology industry in India. According to industry estimates, a major share of the revenues is generated through exports accounting for almost 53 percent, over those from the domestic market, which are at a share of about 47 percent. With increasing consolidation of manufacturing and marketing capabilities by Indian companies, India has already achieved leadership position in the global vaccines market and is all set to grab the market opportunity in the global recombinant therapeutics market.

What is the difference between regulated and unregulated markets?

In the regulated markets, specifically US, the biogeneric regulatory pathway is yet to be defined. This has kept in bay the pure-play generic players from entering the market in the recombinant space. On the other hand, China is actively involved in the field of vaccines, stem cells and gene therapy. Several of the biotechnology products manufactured in China are developed using recombinant technologies.

In India, biogenerics related to paediatric and therapeutic treatments are clearly defined from a regulatory standpoint allowing players to launch products. After January 2005, with a shift in IP guidelines the scope of process patenting a biologic vaccine has decreased considerably leading the way to alliances as a means to sustain growth momentum.

What ails the Indian vaccines market?

Until a few years back the Indian vaccines market was suffering from cut throat competition and price erosions leading to reduced market shares and increasing market fragmentation. However, due to proactive measures on the part of the Government of India, and organisations like the WHO and UNICEF, players have gradually shifted focus towards the global markets. These organisations have engaged prominent players such as Serum Institute of India, Panacea Biotec and Shantha Biotechnics as pre-qualified vaccine manufacturers and procure vaccines from them at highly competitive prices.

However, these problems will stay to an extent because all the products are biogenerics and they can only be overcome by investments in alliances and drug discovery efforts to complement pricing pressures leading to margin erosion.

What are the other pressures on players in the vaccines market?

The pressures are to counter ageing of the product basket and ensure a good viable pipeline of products. Some of the domestic companies have started investing in drug development in collaboration with various institutes. Along with pipeline generation, putting in place efficient global supply chains to boost effectiveness in distribution is the key for companies to go global.

Also, the domestic Indian companies depend on government procurement to push volumes. This has its own timelines and guidelines. Thus, fallout of this is the immunisation programme that is undertaken by governments all over the world.

The other main challenge is in financing the enterprise. Indian companies have performed exceptionally well in the domestic and the lesser regulated markets. However, funding opportunities to drive expansion or drug-discovery plans is important to rise up the value chain. Additionally, funding the biotech enterprise is a topic widely discussed now-a-days. The sliver lining is that almost all the global life sciences venture capital funds have entered India and actively pursuing investment opportunities.

What are the trends observed in the Indian vaccines market?

The Indian biologics market currently stands at an interesting threshold, where the next few years shall witness emergence of new competitive therapies, and improved product portfolios that could change the dynamics of the existing market. In the recombinant vaccines segment, the next few years will witness emergence of multivalent vaccines with improved patient compliance and newer vaccines to meet the unmet medical needs of the people. Pricing dynamics will play a critical role and so will the active participation and support from the government.

In the recombinant therapeutics space, there will be emergence of new players who would pose formidable competition to existing players. This will lead to competitive pricing strategies and could lead to price erosions especially in the erythropoietin, G-CSF and insulin segments. The recombinant therapeutic segments will also witness emergence of drugs with modified drug delivery systems like pegylation, which could significantly impact the market shares of conventional products and could also hamper the market entry strategies of emerging players. However, with opening up of the global biogenerics market, players could shift focus from the restricted domestic market to the untapped potential in the international biogenerics market.

The next few years will also witness launch of newer therapies, prominent among these would be the monoclonal antibodies products, stem cell therapies, growth factors and others. Biocon has already announced the availability of its monoclonal antibody product BioMAb EGFR.

Similarly Reliance Life Sciences is also geared up to launch its recombinant products like platelet derived growth factors and epidermal growth factors. India slowly inching towards the leadership position for highest number of diabetics, there is a huge potential for these products in areas such as delayed wound healing and diabetic foots. Similarly, the government has also pledged significant support for research, and commercial development of stem cell therapy. The first commercial products to hit the market are estimated in 2007. If stem cell therapy is indeed successful as an established, efficacious, safe and affordable therapy it will significantly impact the future of the Indian biopharma industry and change the face of India on the global biopharma map. Increasingly, MNC pharmaceutical companies are launching their portfolio of products in India with minimal lag time from the global launch. The US-based drug-maker Wyeth is poised to bring into India its $1 billion paediatric vaccine for pneumococcal diseases. French vaccine maker Sanofi-Aventis influenza vaccine in India in a week and four more are expecting regulatory approvals by mid-2006. The UK-based GlaxoSmithKline, for which vaccines are Rs 100 crore business in India, set up a vaccine manufacturing facility in Maharashtra earlier this year. GSK recently got regulatory clearance for clinical trials of its Infanrix hexa, a six-in-one combination vaccine that immunises against six diseases.

How are companies trying to overcome these challenges?

The only way to meet the challenge is to cater to the private segment in the field of recombinant vaccines. This leads to investing in drug discovery and alliances for tapping licensing opportunities. Vaccine manufacturers in India should enhance their capabilities and most focus their R&D and manufacturing activities on vaccines. Combination vaccines hold significant opportunity for Indian manufacturers as they possess inherent advantages in terms of low delivery cost, single-dose administration, etc. Government agencies present a bouquet of funding opportunities. A notable example is Technology Development Board (TDB). The Technology Development Board is the first organisation of its kind within the government framework with the sole objective of encouraging commercial enterprises to take up technology-driven projects. It offers soft loans to the enterprises, for commercialising innovative indigenous technologies and/or adapting imported technologies to Indian conditions.

About seven to eight life sciences projects have been financed during the current year, which include Trichoderma and Rhizobium fermentation—Haryana Biotech; Purified antigen vaccine for FMD in animals by Bangalore-based BioVet; Production of recombinant Hepatitis C viral antigens by Hyderabad-based Sudarshan Biotech; Pentavalent Vaccine (DTP+Hib+HepB) by Hyderabad-based Shantha Biotechnics; Biotech based oncology and endocrinology drug by Hyderabad-based Genotech Laboratories; Commercialisation of enzymes by Hyderabad-based Celestial Labs; and Trace analysis laboratories in genome valley for contract research by Vimta Labs.

Which of the segments in the vaccines market offer lucrative business opportunities?

Segments in recombinant category that caters to lifestyle diseases as well as the anti-infectives are the most promising. All said and done lucrative business opportunities will be in the services space; ie contract research and drug discovery. Biogenerics is there on the horizon but is an area still under debate. Leveraging the arbitrage opportunities that come from operating in China, both in-bound and out-bound partnering are going to provide a new business potential. This is considering the fact that the drug development costs in India are 1/8th vis-à-vis China's 1/5th of the global costs, it makes sense for Chinese companies to outsource new drug discovery activities to India while both countries can proceed with pre-clinical studies and drug development simultaneously.

Securing rDNA products from China would benefit both partners since China is ahead in the technology while India has the marketing and distribution set up, which can facilitate export of Chinese biotechnology products to the US and more regulated markets such as the European Union in the long run. While the vaccines manufactured in China can be priced competitively for the Indian market, it offers the Chinese counterpart access to revenues from the Indian market.

Many vaccine makers are supplying vaccines to the WHO. Is this a type of business model adopted to ensure profitability?

Indian vaccine players have started off in the paediatrics segment catering to diseases of the developing world. This segment is very price sensitive and the highly competitive nature of the domestic pharmaceutical market imposes strong low-cost manufacturing discipline, which is a key strength in this industry. Supplying to WHO leverages the cost arbitrage that accrues from operating in this geography, thereby ensuring a sustainable top-line performance.

What about exports of vaccines to other countries?

Exports have been a major contributor, with several vaccines being procured by UNICEF/WHO programmes. Exports are important as it ensures a steady flow of revenues that can be re-invested in other efforts. Companies like Serum Institute and Indian Immunologicals have made their mark as a quality provider of vaccines in the international market.

The recombinant market in India had so far been dominated by imports of established global brands. Major MNCs active in the Indian vaccine market include GlaxoSmithKline, Aventis and Wyeth. The market has become increasingly competitive with the entry of a number of domestic players including Bharat Biotech, Biological E, Cadila Healthcare, Cadila Pharmaceuticals, Haffkine Bio Pharmaceuticals, Panacea Biotec, Serum Institute of India, Shantha Biotechnics and Wockhardt.

nandini.p@expressindia.com