This business sentiment has been ably supported by governments on both sides of the Palk Strait. For example, Anand Sharma, Union Minister of Commerce and Industry, recently announced a tie up with the Sri Lankan government to build a pharma manufacturing hub in the island nation, expected to be ready by next year.
Commenting on this announcement, Hitesh Gajaria, Partner KPMG says, “This initiative will not only boost bilateral trade between the countries but will also help Sri Lanka’s pharma landscape evolve and gain some global exposure too.”
Officials from Bal Pharma, an Indian pharma company with a 15-year long presence in the island nation and in fact a recipient of merit awards from the State Pharmaceuticals Corporation of Sri Lanka in June 2012 and in early 2000 too have seen the situation evolve over the years. Archana Dubey-Mitra, Associate Vice President API and Exports, Bal Pharma comments, “There has been a big move by the Sri Lankan Government to strengthen the local pharma industry. The government’s spending on the healthcare sector is continuously increasing and this trend aims to provide medical aide free to the people. Various reforms such as tax relief to the private sector and the infusion of more investments towards the healthcare sector in the budget will pave the future growth path. The Government is also providing opportunities for many Indian companies for joint ventures (JVs) and greenfield projects. The Sri Lankan Government is in the process to strengthen their regulation to have better quality checks. Overall the Government is providing good support to boost this sector.”
This support has fructified into various agreements recently signed between the two nations. “The signing of the Comprehensive Economic Partnership Agreement (CEPA) will make the current economic engagement more prolific by bringing more investment and services in Sri Lanka. The Indian Government has also clarified that they are not seeking reciprocity in relations with Sri Lanka and will help the latter set up a pharma hub in the country,” informs Gajaria.
Regulations with attractive features
Hitesh Gajaria, Partner KPMG |
Gajaria informs, “The duration taken for registration of a new product can vary depending on the compliance with the stringent documentation requirements and procedures followed by the Cosmetics, Devices and Drugs Authority (CDDA).” The CDDA is the island natIon’s equivalent of the CDSCO and is monitored by the body appointed by the Ministry of Health of Sri Lanka. The CDDA regulates both locally manufactured as well as imported products and all products in these categories have to be registered with the CDDA after fulfilling the regulatory requirements specified by the CDDA before they can be imported into or marketed in the country.
Dr E Saneesh Research Analyst, Business and Financial Services – Healthcare, Frost & Sullivan |
Dr E Saneesh, Research Analyst, Business and Financial Services – Healthcare, Frost & Sullivan gives further details of existing schemes introduced by the Sri Lankan Government. He says, “The Government of Sri Lanka has allowed the pharma sector in the country to be amongst the ‘Strategic Import Replacement Sectors’ and has lowered the minimum investment required, making the sector eligible for various schemes under the new tax regime. Under this scheme, the new enterprises are eligible for a five-year tax holiday, a concessionary tax rate post that period and the enterprises looking at expansion are eligible for concessionary tax rate.” These sops demonstrate the seriousness of the Sri Lankan Government to boost pharma companies and help Indian pharma companies expand their businesses by utilising existing opportunities.
In 2011, the Sri Lankan Government announced in its budget that pharma products would be exempt from port and airport levies. The Sri Lankan government offers a fiscal incentive package encompassing tax holidays of 10 years or more and customs duty exemptions engaged in export-oriented activities operating within specially designated Export Processing Zones operated under the directions of the Board of Investment (formerly known as the Greater Colombo Economic Commission).
In addition, the signing of the CEPA will further incentivise Indian players to look at Sri Lanka as a possible investment destination. Dubey Mitra feels, “This will not only be of interest to Indian companies but all companies exporting their products to Sri Lanka. The landing cost will definitely decrease but the competition will certainly rise and more companies will be attracted.”
Gajaria spells out compelling reasons why Indian pharma companies should consider having business operations in Sri Lanka instead of SEZs in India commenting, “In India, the SEZ units in Baddi and Solan have become saturated and are losing their sheen in terms of tax holidays and other incentives. In light of the demand for Indian generics globally, India is in need of cost effective manufacturing hubs. Sri Lanka could be a prospective destination for Indian companies to set up their manufacturing hubs, provided they are able to obtain the requisite US FDA site approvals.”
He continues, “Indian pharma companies will find it cheaper to export products to Sri Lanka in light of this policy. While this move will put pressure on the domestic industry in Sri Lanka which will have to compete with cheaper drugs, it will incentivise manufacturers to look at Sri Lanka as an export destination for formulations and APIs.”
Archana Dubey-Mitra Asso. Vice President API and Exports, Bal Pharma |
Comparing the business trends in the two territories, Dubey-Mitra avers, “Indian pharma companies can be more aggressive and increase their presence as the trends in both the markets are very similar. Indian players have relatively easier access to the region, as well as economical products with quality and therefore it should be advantageous to have a better presence. Moreover, the two countries have similar culture hence acceptance of the products should be high. We must target to capture above 30 per cent market share due to our reach to the entire island.”
Quality with no causalities
According to a PIB release issued on May 7, 2012 there were reports in the Sri Lankan media alleging supply of low quality drugs by Indian exporters. There were other reports alleging suspension of some Indian companies by the Government of Sri Lanka for violation of tender terms. Discussions were held by concerned authorities in Sri Lankan Government by the High Commission of India in the Sri Lanka as also during the visit of Health Ministers of Sri Lanka to New Delhi during July-August, 2011 wherein the need for clear technical specifications in the tendering process was stressed so as to prevent entry of sub-standard and low quality drugs in the Sri Lankan market.
The PIB release also mentioned that no report on banning of any Indian drug manufacturer has come to the notice of the Government of India. Drugs and pharma products are exported only after meeting stringent regulatory requirements prescribed by the regulatory authorities in various countries. Besides, Indian exporters have to comply with quality norms prescribed for the manufacturing of drugs and pharma in India by Drug Controller General of India (DCGI) under Drugs and Cosmetics Act. Any reported violation is viewed seriously and is dealt with as per prescribed procedure under Drugs and Cosmetics Act.
To avoid quality issues in the finished products and focus more on consumer friendly features the Sri Lankan Government has taken serious efforts to restrict unethical practices in Sri Lanka.
Saneesh says, “To counter the recent entry of sub-standard drugs into the market, the Sri Lankan Government has announced quality enforcement measures such as, revision of the qualifying process for manufacturers and labeling requirements in local languages. The price of drugs is market based and is determined by the producers. However, the Government has proposed a National Drug Policy to control the price of the drugs.”
Business potential
Market analysts and industry sources attest to the untapped potential of this opportunity. In 2012 the pharma market in Sri Lanka was between $450 milllion to $480 million and is expected to grow at a compound annual growth rate (CAGR) of 10 to 15 per cent by 2015. Of this pie, nearly 20 per cent is contributed by local manufacturers, while imports make up the rest. India ranks third in pharma imports to Sri Lanka. Of the more than 300 manufacturers in Sri Lanka, the top 10 companies comprise more than a third of the market share.
Speaking about Indian players Dubey-Mitra says, “There are many pharma companies well established in the region. Sun Pharma has done phenomenally well while companies like DRL, Cipla, and Micro Labs have established themselves too. Bal Pharma is one of the prominent suppliers to the Sri Lankan Government and has been getting merit awards.”
|
RANK
|
CORPORATIONS
|
MAT ~ 03/2013
|
MAT ~ 03/2012
|
MAT ~ 03/2011
|
MAT ~ 03/2010
|
MAT ~ 03/2009
|
|
MAT ~ 03/2013
|
SL Rs 000
|
SL Rs 000
|
SL Rs 000
|
SL Rs 000
|
SL Rs 000
|
|
| TOTAL MARKET |
28,697,715
|
25,284,244
|
22,915,411
|
19,104,590
|
16,156,728
|
|
|
1
|
CIPLA |
2,208,524
|
1,973,623
|
2,007,381
|
1,589,977
|
1,162,793
|
|
2
|
GLAXOSMITHKLINE |
1,892,761
|
1,761,415
|
1,687,671
|
1,467,361
|
1,323,326
|
|
3
|
ZYDUS CADILA* |
1,805,932
|
1,388,618
|
1,118,439
|
896,579
|
793,308
|
|
4
|
SUN PHARMA |
980,001
|
833,373
|
704,245
|
564,429
|
468,244
|
|
5
|
TORRENT PHARMA |
789,227
|
695,780
|
589,767
|
503,478
|
436,275
|
|
6
|
ASTRON |
630,262
|
539,453
|
474,656
|
391,268
|
338,131
|
|
7
|
MEAD JOHNSON NUTR. |
625,987
|
521,800
|
450,759
|
350,201
|
276,829
|
|
8
|
USV |
621,520
|
458,385
|
386,864
|
334,829
|
270,483
|
|
9
|
RANBAXY |
618,922
|
571,878
|
553,949
|
539,195
|
445,700
|
|
10
|
ABBOTT |
544,654
|
501,864
|
614,254
|
597,985
|
483,601
|
|
11
|
KALBE GROUP |
535,782
|
423,270
|
387,486
|
341,257
|
276,527
|
|
12
|
MICRO LABS |
531,613
|
506,982
|
437,202
|
373,484
|
317,691
|
|
13
|
ASTRAZENECA |
507,593
|
434,581
|
387,023
|
348,811
|
291,536
|
|
14
|
GETZ PHARMA |
453,121
|
356,229
|
288,998
|
214,433
|
157,680
|
|
15
|
SANOFI AVENTIS |
399,017
|
346,302
|
312,382
|
260,415
|
214,197
|
|
16
|
NOVO NORDISK |
379,875
|
279,654
|
254,007
|
197,259
|
181,942
|
|
17
|
ALLERGAN |
378,679
|
347,272
|
276,757
|
199,618
|
161,512
|
|
18
|
E. MERCK |
374,977
|
316,390
|
284,178
|
230,242
|
167,081
|
|
19
|
GLENMARK |
352,356
|
340,096
|
310,664
|
234,138
|
219,887
|
|
20
|
DR. REDDYS LAB |
351,356
|
296,182
|
254,971
|
234,748
|
192,409
|
| Source: IMS Health, Sri Lanka Pharmaceutical Audit (SLPA), March 2013 | ||||||
According to the World Health Organization, in Sri Lanka, cardiovascular diseases account for approximately 30 per cent of the deaths, while cancer accounts for nine per cent followed by respiratory diseases (nine per cent) and diabetes (four per cent). Ranbaxy has a significant presence in the anti-infective, cardiovascular, dermatology, asthma, and diabetes therapeutics. “These therapeutic areas would have immense business potential for Indian players should they choose to look at Sri Lanka as a prospective market,” analyses Gajaria.
|
RANKINGS
|
Table 1
|
||
|
BRAND
|
CORP
|
||
|
12M
|
QTR
|
||
|
TOTAL MARKET
|
|||
|
1
|
1
|
AUGMENTIN
|
GLAXOSMITHKLINE
|
|
2
|
4
|
SUSTAGEN
|
MEAD JOHNSON NUTR.
|
|
3
|
2
|
ZAART
|
Cipla
|
|
4
|
3
|
GLYCOMET
|
USV
|
|
5
|
6
|
SEROFLO
|
Cipla
|
|
6
|
7
|
ATORVA
|
ZYDUS CADILA
|
|
7
|
5
|
MIXTARD HM 30/70
|
Novo Nordisk
|
|
8
|
8
|
PANADOL
|
GSK
|
|
9
|
9
|
DIAMICRON
|
LLS
|
|
10
|
10
|
FORACORT
|
Cipla
|
|
11
|
12
|
T4
|
BAG
|
|
12
|
11
|
SERETIDE
|
GSK
|
|
13
|
13
|
GLUCOPHAGE
|
Merck Marker
|
|
14
|
16
|
ENHANCIN
|
Ranbaxy
|
|
15
|
17
|
ZINNAT
|
GSK
|
| Source: IMS Health, Sri Lanka Pharmaceutical Audit (SLPA), March 2013 | |||
As with other geographies, Non Communicable Diseases (NCDs) are on the rise in Sri Lanka. According to recent data published by World Bank’s Human Development Network, NCDs account for around 90 per cent of diseases in the Sri Lankan population. The island nation is characterised as a generics-driven market majorly focused on alimentary and metabolism segments with the highest growth coming from the cardiovascular therapeutic area.
Concurring with these figures, Saneesh predicts, “Cardiovascular diseases contribute more than 30 per cent to the mortality, followed by cancer and diabetes. The NCDs are expected to drive the pharma market in Sri Lanka.” Other promising therapeutic segments are the nervous system while the derma range seems to be a lucrative option as well.
Gajaria points out, “Originator brands, which have grown by 16 per cent from 2010, have been lately outpaced by generics, which have grown at a rate of 19 per cent in the same period. The generics market share has grown considerably over the last few years and presently represents close to ~66 per cent of the total market.” According to the IMS Health, over a 12 month period ending march 2013, GSK’s Augmentin was the top selling brand with Indian companies like Cipla, USV, Ranbaxy, Zydus Cadila…. also featuring the top 15 brands. (Refer to IMS Table 1)
Indo – Sri Lanka business relation
According to Gajaria, Sri Lanka recorded a $ 9,313 million trade deficit in 2012, a 4.1 per cent year on year decline . However, the pharma industry in Sri Lanka is on the brink of growth, with the prospect of relatively inexpensive labour and the proximity to India. It is predicted that Sri Lanka’s negative pharma trade balance is expected to widen over the next five years.
Sri Lanka’s negative balance of trade is only going to increase in the coming years, with the increasing incidence of NCDs driving demand in the pharma market.
“The negative trade balance is primarily due to the limited local industry though the (Sri Lankan) Government is encouraging local manufacturers. However the gap is too high to meet total demand. This is definitely not a cause of concern to the Indian players working or keen to enter this market. In fact, Sri Lanka can serve well as an efficient manufacturing hub for India,” feels Dubey-Mitra
Spelling out both, the opportunities as well as the risks of this situation, Saneesh remarks, “A decline in imports without simultaneous increase in local production will have a detrimental effect on healthcare in the country. This scenario should be of strategic interest to the Indian companies looking for investments in the Sri Lankan pharma sector. However, the low per capita expenditure on medicines and proposed drug price control policy would be a concern/restraint for the growth of the local market,”
Dubey-Mitra too comes to the same conclusions saying, “The overall situation looks promising as there has been an increase in the consumption driven by increased spending on healthcare and focus on healthcare by the Government. Given the very limited number of local pharma manufacturers (only six catering to 15-20 per cent of the total demand), Sri Lanka is currently left with no option but to import these products from their neighbours. This is an opportunity, which most Indian pharma manufacturers are pursuing and encashing. Therefore growth is a given.”
She recalls that earlier, the regulatory guidelines were too stringent and it was easy to register or renew (marketing licenses). But since last year, changes have been introduced making CDDA more stringent, primarily due to many back to back complaints regarding imported pharma goods. She opines that Indian companies have a good regulatory back up and will therefore always find it easy to register.
The authorised regulatory bodies of both the countries have shown a sustained interest and are targeting to register robust growth, which will help interested Indian pharma companies, both newcomers as well as existing players, grow much faster. These initiatives are an assurance of the commitment of both governments and Indian companies are sure to be feeling relieved, especially in the light of changes in the island nation’s regulatory procedures.
Its early days to monitor the progress on collaborations like the pharma manufacturing hub announced by India’s Union Minister of Commerce and Industry but it sure looks like a win-win for both nations.