Pharmaceutical exports from India are set to increase by an average 18.5% a year to 2012, driven by multi-billion dollar patent expirations and growth in the global generics market, according to a new report.

Stringent price control norms in their home market are another factor turning Indian manufacturers towards exports, and their overseas sales of pharmaceuticals reached a value of $7.2 billion in 2007-8, says the new study, which is published by research firm RNCOS.

Indian drugmakers hold a very strong competitive manufacturing advantage over their western counterparts in terms of cost of production and reverse engineering skills; the cost of making both bulk drugs and formulations in India is around 10%-20% of the cost in the west, it says. Moreover, many Indian manufacturers have upgraded their manufacturing plants, giving the country the highest number of plants outside the USA to have been certified by the US Food and Drug Administration (FDA). Others have also been certified by the European Directorate for the Quality of Medicines (EDQM) and other regulatory agencies, enabling Indian companies to sell in the highly-regulated but lucrative markets of northern America and Europe.

The US and Europe remain the biggest export destinations for Indian generic manufacturers. However, Indian companies are also increasing their presence in emerging markets such as those in Central and Eastern Europe, Latin America and Africa, due to lower levels of competition and entry barriers, says RNCOS.

However, another new study, from Research and Markets, points out that generics – including value-added generics – account for as much as 80% of Indian drugmakers’ total sales. Only a very few players, such as Ranbaxy, Biocon and Dr Reddy’s, are willing to take the risk of investing millions in building research capabilities and developing molecules.

Indian firms’ very low levels of investment in R&D in the past have been the result of: a lack of product patent protection – an important factor here has been India’s delayed adoption of the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement; and an inadequate profit base - price controls have squeezed profit margins, making it difficult for either Indian or international companies to invest sizably in R&D. The profitability of Indian companies is also much lower than international levels, with pre-tax profit margins of much less than 6% on sales, compared to the 18% profit margins common to international companies, the report points out.

However, the acceptance of TRIPS’ provisions means that Indian firms are now starting to invest in R&D, and exploit their traditional cost advantages in new areas. Another significant competitive advantage is presented by India’s huge population, which makes it an ideal base for clinical trials, especially in diseases which are particularly prevalent in Asian and developing countries. Such R&D activities would therefore be targeted towards such therapeutic areas antibiotics, antiparasitics and other antibacterials, the report suggests.