BUSINESS PROPOSAL O N
Pharmaceutical Industry
Submitted To:
Shanti Business School
Prepared By:
Prapti Bhatt
Brief History: The Indian Pharmaceutical Industry today is in the front rank of India¶s science-based industry with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously. Playing a key role in promoting and sustaining development in the vital field of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world. The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control. The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of pharmaceutical formulations. Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharmaceutical products has been done away with. Manufacturers are free to produce any drug duly approved by the Drug Control Authority. Technologically strong and totally self-reliant, the pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime is well set to take on the international market.
ADVANTAGE
INDIA Competent workf orce: India has a pool of personnel with high managerial and technical competence as also skilled workforce. It has an educated work force and English is commonly used. Professional services are easily available. chemical synthesis: Its track record of development, particularly in the area of improved costbeneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs. Cost-effective
& Financial Framew ork: India has a 53 year old democracyand hence has a solid legal framework and strong financial markets. There is already an established international industry and business community. Legal
Inf ormation & in
Technology: It
Globalisati on:
The country is committed to a free market economy and globalization. Above all, it has a 70 million class market, which is continuously growing.
middle
has a good network of world-class educational institutions and established strengths Information Technology.
For the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India. ADVANTAGE INDIA Competent workf orce: India has a pool of personnel with high managerial and technical competence as also skilled workforce. It has an educated work force and English is commonly used. Professional services are easily available. Consolidati on:
chemical synthesis: Its track record of development, particularly in the area of improved costbeneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs. Cost-effective
& Financial Framew ork: India has a 53 year old democracyand hence has a solid legal framework and strong financial markets. There is already an established international industry and business community. Legal
Inf ormation & in
Technology: It
Globalisati on:
The country is committed to a free market economy and globalization. Above all, it has a 70 million class market, which is continuously growing.
middle
has a good network of world-class educational institutions and established strengths Information Technology.
For the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India. Consolidati on:
THE
GROWTH
SCENARIO India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per year. It is one of the largest and most advanced among the developing countries.
Over 20,000 registered pharmaceutical manufacturers exist in the country. The domestic pharmaceuticals industry output is expected to exceed Rs260 billion in the financial year 2002, which accounts for merely 1.3% of the global pharmaceutical sector. Of this, bulk drugs will account for Rs 54 bn (21%) and formulations, the remaining Rs 210 bn (79%). In financial year 2001, imports were Rs 20 bn while exports were Rs87 bn. TO THE STEPS STRENGTHEN INDUSTRY Indian companies need to attain the right product-mix for sustained future growth. Core competencies will play an important role in determining the future of many Indian pharmaceutical companies in the post product-patent regime after 2005. Indian companies, in an effort to consolidate their position, will have to increasingly look at merger and acquisition options of either companies or products. This would help them to offset loss of new product options, improve their R&D efforts and improve distribution to penetrate markets.
Research and development has always taken the back seat amongst Indian pharmaceutical companies. In order to stay competitive in the future, Indian companies will have to refocus and invest heavily in R&D. The Indian pharmaceutical industry also needs to take advantage of the recent advances in biotechnology and information technology. The future of the industry will be determined by how well it markets its products to several regions and distributes risks, its forward and backward integration capabilities, its R&D, its consolidation through
mergers
and
acquisitions,
co-marketing
and
licensing
agreements.
THE
GROWTH SCENARIO India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per year. It is one of the largest and most advanced among the developing countries.
Over 20,000 registered pharmaceutical manufacturers exist in the country. The domestic pharmaceuticals industry output is expected to exceed Rs260 billion in the financial year 2002, which accounts for merely 1.3% of the global pharmaceutical sector. Of this, bulk drugs will account for Rs 54 bn (21%) and formulations, the remaining Rs 210 bn (79%). In financial year 2001, imports were Rs 20 bn while exports were Rs87 bn. TO THE STEPS STRENGTHEN INDUSTRY Indian companies need to attain the right product-mix for sustained future growth. Core competencies will play an important role in determining the future of many Indian pharmaceutical companies in the post product-patent regime after 2005. Indian companies, in an effort to consolidate their position, will have to increasingly look at merger and acquisition options of either companies or products. This would help them to offset loss of new product options, improve their R&D efforts and improve distribution to penetrate markets.
Research and development has always taken the back seat amongst Indian pharmaceutical companies. In order to stay competitive in the future, Indian companies will have to refocus and invest heavily in R&D. The Indian pharmaceutical industry also needs to take advantage of the recent advances in biotechnology and information technology. The future of the industry will be determined by how well it markets its products to several regions and distributes risks, its forward and backward integration capabilities, its R&D, its consolidation through mergers and acquisitions, co-marketing and licensing agreements.
Prominent Pharmaceutical Companies in India
The Indian Pharmaceutical market ranks fourth in the world, thanks to the growing momentum and global competitiveness. More and more people are now looking for a promising career in pharmaceutical industry. Some of the Pharmaceutical companies in India are Dr. Reddy's Labs, Ranbaxy laboratories, Matrix Laboratories, Lupin, NATCO Pharmaceuticals, Procter & Gamble Hygiene and Healthcare, Pfizer, Merck, Kerala Ayurveda Pharmacy, GlaxoSmithkline Pharma, Dabur Pharma, Glenmark Pharmaceuticals, Biocon, Cipla, Ipca Laborataories, Orchid Chemicals & Pharmaceuticals.
India's
In
pharmaceutical industry in the spotlight
2001, Indias pharmaceutical industry became the focus of public
debate when Cipla, the country's second-largest pharmaceuticals
company, offered an AIDS drug to African countries for the price of USD 300, while the same preparation cost USD 12,000 in the US. This was possible because the Indian company produced an all-inone generic pill which contains all three substances required in the treatment of AIDS. This kind of production is much more difficult in other countries as the patents are held by three different companies. In
the final analysis, the price slump was a result of India's lax patent
legislation. In 2005, patent legislation was tightened, so Indias pharmaceutical sector had to adjust.
Up until the 1970s Indias pharmaceuticals market was mainly supplied by large international corporations. Only cheap bulk drugs were produced domestically by state-owned companies founded in the 1950s and 60s with the help of the World Health Organisation (WHO). These state-run firms provided the foundation for the sectors growth since the 1970s. Back then, Indias government aimed to reduce the countrys strong dependence on pharmaceutical imports by flexible patent legislation and to create a selfreliant sector. In addition, it introduced high tariffs and limits on imported medicines and demanded that foreign pharmaceutical companies reduce their shares in their Indian subsidiaries to twofifths. This made India a less attractive location for international companies, many of which left the country as a c onsequence.
Especially India Drugs
and Pharmaceutical Ltd. (IDPL) is credited
with speeding up the development of a national pharmaceutical industry. Several IDPL staff have successfully founded their own firms, which now belong to the top group among Indias pharmaceutical companies. In the 1980s, however, the decline of state-run companies began among other things because of increasing central government bureaucracy and insufficient corporate governance. Today, there are no (entirely) state-owned pharmaceutical companies left.
By contrast, the weakening of the patent system and numerous protectionist measures sped up the development of a m ajor national pharmaceutical industry on a private-sector basis, which made it possible to provide the population with a large number of drugs.
Large market share for generic drugs
As there was no efficient patent protection between 1970 and 2005, many Indian drug producers copied expensive original preparations by foreign firms and produced these generics by means of alternative production procedures. This proved more cost-efficient than the expensive development of original preparations as no funds were required for research, which contained the financial risks. This spending block may come to as much as EUR 600 m for only one drug. This kind of money could previously only be raised by large
corporations in the industrial countries. The competitiveness of generics producers is based on cost-efficient production. In this field, Indian
companies are currently in top position. At one-fifth, Indias
share in the global market for generic drugs is considerably higher than its share in the overall pharmaceuticals market (approx. 2%). At the same time, Indias pharmaceutical companies gained know-how in the manufacture of generic drugs. Hence the name pharmacy of the poor which is frequently applied to India. This is of significance
The workforce and technological proficiency of pharmaceutical companies in India ensures the growth of the industry on a global scale as well as within India. The sector is predicted to value about $3.1 billion (USD). Gr owth of
Indian Pharmaceutical market
In the year 2008, Indian pharmaceutical market was assessed at $7,743m which witnessed an augmentation of 4.0% over 2007. Business observers predict that the Indian pharmaceutical market will escalate at an increasing mode as compared to the global pharmaceutical market, at a CAGR of 13.2% during the fiscal years 2009-14 to reach an overall worth of $15,490m in 2014. India has also appeared as the preferred location for the pharmaceutical companies of the world because of its towering growth scenario furnished by elderly population, alteration in disease profile, developing patent system and socio-economic circumstances. The competition in the Indian pharmaceutical market is cutthroat and the market is divided among the top 10 pharma companies accounting for 36.1% of the overall R&H sales in the fiscal year 2008.
India began to abide by the World Trade Organization's Trade Related Aspects of Intellectual Property Rights (WTOTRIPS) agreement and acknowledged product rights after the revision of the Indian Patent Act in January 2005. Indian firms are laying out strategies to benefit from the Japanese government proposal to endorse generic drugs to minimize healthcare charges.
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Ranbaxy
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By sales India's largest pharma firm with the returns touching Rs 4,198.96 crore (Rs 41.989 billion) in 2007 Dr. Reddy's Laboratories With a turnover of Rs 4,162.25 crore (Rs 41.622 billion) in 2007, Dr Reddy's lab is second largest drug firm in India by sales .
Laboratories
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Cipla
Cipla generated an annual revenue of Rs 3,763.72 crore (Rs 37.637 billion) in 2007 making itself the third y
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largest pharmaceutical firms. Sun Pharmaceuticals Sun Pharma Industries had an overall earnings of Rs 2,463.59 crore (Rs 24.635 billion) in 2007. Lupin Labs: Lupin Labs yielded total profit of Rs 2,215.52 crore (Rs 22.155 billion) in 2007. Aur obindo Pharma India's sixth largest pharma company by sales, Aurobindo posted Rs 2,080.19 crore (Rs 20.801 billion) annual returns in 2007. GlaxoSmithKlineg
With 2007 turnover touching Rs 1,773.41 crore (Rs 17.734 billion, GSK is India's seventh largest pharma firm. Cadila Healthcare Cadila's earnings was Rs 1,613.00 crore (Rs 16.13 billion) in the fiscal year 2007, establishing itself as India's eight largest drug company. Aventis Pharma With an annual revenue of Rs 983.80 crore (Rs 9.838 billion) in 2007, Aventis Pharma has made a place for itself in the top ten pharma companies in India Laboratories
Ipca
Ipca is India's 10th largest pharma company by sales and in 2007 it had a turnover of Rs 980.44 crore (Rs 9.804 billion)
Major issues concerning the pharmaceutical c ompanies in India
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Failure of the new patent system: Prerequisites associated with Sec 3(d) of the Patent (Amendment) Act 2005 restrict the copyright of an existing drug. Moreover, mandatory licensing permits Indian companies to keep producing generics of copyright products for overseas selling to underdeveloped nations. Lack of proper infrastructure: Issues associated with regular power cuts and lack of suitable transport infrastructure will decelerate the expansion of the sector. Inadequate funds: Restricted funding from FIs, venture capitalists and the government may decelerate the expansion of biotechnology sector in India. Regulatory impediments: Rising of due meticulousness and conformity with product standards leads to high costs and interruption in the launch of new products. Severe competition: Low margins and restricted capital to assist R&D is the result of intense pricing competition among local producers. This rivalry will further deepen from the joining in of the big drug companies in the Indian market to control the cost benefit and large reserve sources.
THE
PHARMACEUTICAL
MARKET:
INDIA
-
REVIEW
India has a huge population in excess of one billion people and a growing middle class with access to high quality healthcare. Conversely, in this geographically vast country plagued by natural disasters, the majority of the population is both rural and poor and Western-style pharmaceuticals are not even an issue for millions of people. The Indian pharmaceutical market is highly competitive and remains dominated by low priced, domestically-produced generics. In value terms, India accounts for less than 2% of the world market and per capita expenditure on pharmaceuticals is relatively low.
India has an established domestic pharmaceutical industry, responsible for around 8% of world pharmaceutical production. The industry is export-oriented and the larger domestic companies are competing in the global market for both generics and original products. The highly skilled domestic workforce offers good opportunities for outsourcing both research and production. The biopharmaceutical sector is currently experiencing double digit growth and this is expected to continue, driven by the vaccines market. Growth drivers include education and increased awareness of disease prevention, increases in disposable income and government participation in immunisation programmes. Continued growth is also expected in the diagnostic and therapeutic segments, including cancer and diabetes. India is already known as the diabetic capital of the world and the number of diabetes patients in India is expected to grow to 70 million by 2025. Cancer therapies are also lucrative for many Indian companies due to high unmet need, increased awareness and the comparative affordability of domestically produced drugs. ENHANCED
STRATEGIC
INTELLIGENCE
Espicom's
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highly regarded world pharmaceutical market reports have been redesigned to provide enhanced strategic intelligence in a user-friendly format. Each report provides in-depth information, setting the pharmaceutical market in context. The reports provide: Five-year projections for economic, demographic, health expenditure, health workforce and pharmaceutical market indicators. S pecialised intelligence on OTCs, generics, biologics and biosimilars. Exclusive economic and demographic data from the Economist Intelligence Unit (EIU) for each market in the series. A separate statistical health file, comprising health expenditure, health infrastructure, health services and health personnel. The reports are updated quarterly, providing you with the latest information for a full year. In addition, the service will keep you up to date with market and industry news on a regular basis
Up until the 1970s Indias pharmaceuticals market was mainly supplied by large international corporations. Only cheap bulk drugs were produced domestically by state-owned companies founded in the 1950s and 60s with the help of the World Health Organisation (WHO). These state-run firms provided the foundation for the sectors growth since the 1970s. Back then, Indias government aimed to reduce the countrys strong dependence on pharmaceutical imports by flexible patent legislation and to create a self-reliant sector. In addition, it introduced high tariffs and limits on imported medicines and demanded that foreign pharmaceutical companies reduce their shares in their Indian subsidiaries to two-fifths. This made India a less attractive location for international companies, many of which left the country as a consequence.
Especially India Drugs
and Pharmaceutical Ltd. (IDPL) is credited
with speeding up the development of a national pharmaceutical industry. Several IDPL staff have successfully founded their own firms, which now belong to the top group among Indias pharmaceutical companies. In the 1980s, however, the decline of state-run companies began among other things because of increasing central government bureaucracy and insufficient corporate
governance. Today, there are no (entirely) state-owned pharmaceutical companies left.
By contrast, the weakening of the patent system and numerous protectionist measures sped up the development of a m ajor national pharmaceutical industry on a private-sector basis, which made it possible to provide the population with a large number of drugs.
Large market share for generic drugs
As there was no efficient patent protec tion between 1970 and 2005, many Indian drug producers copiedexpensive original preparationsby foreign firms and produced these generics by means of alternative production procedures. This proved more cost-efficient thanthe expensive development of original preparations as no fundswere required for research, which contained the financial risks. Thisspending block may come to as much as EUR 600 m for only onedrug. This kind of money could previously only be raised by largecorporations in the industrial countries. The competitiveness o generics producers is based on cost-efficient production. In this field,Indian companies are currently in top position. At one-fifth, Indias
share in the global market for generic drugs is considerably higher than its share in the overall pharmaceuticals market (approx. 2%). At the same time, Indias pharmaceutical companies gained know-how in the manufacture of generic drugs. Hence the name pharmacy of the poor which is frequently applied to India. This is of significance
Competitive advantages over traditional manufacturers
Irrespective
of the disadvantages in some areas, India's pharma-
ceutical companies make use of their competitive advantages over traditional drugs manufacturers in western industrial countries. Wage costs in the Indian drugs industry come to only about 30% of the European level or 20% of the US level. Overall drugs manufacturing in India is up to 50% cheaper than in wester n industrial 5 countries.
For international pharmaceutical firms, India is attractive as a location for research primarily because of its low development costs. Clinical tests may be conducted more easily and often even yield more precise results. Thanks to higher population numbers, there are considerably more suitable persons to be found who can take part in tests than in the west. Approval for drugs to go on the market will only be granted if they have passed several tests on humans. In order to achieve this, companies usually need several thousand persons per drug. This means that roughly 100,000 volunteers must be subjected to initial examinations. In many cases, clinical tests by drug manufacturers in the west failed because their test persons had already taken a number of other medicines so the effect of the
new drug could not be proven. Moreover, roughly 40 to 70% of all drug trial persons will fail to complete the test phase. By contrast, 90% of all probands in India complete the tests, not least because they seek to improve their income situation by participating. This could cause a problem if ethical aspects gain in importance; in light of the relatively high financial incentive, participants pay too little attention to potential side effects.
However, it is not altogether easy for western firms to relocate their clinical tests to emerging markets. In many cases, local hospitals must make large-scale investments and train their staff. Despite these difficulties several large international companies have chosen India
as their location for clinical tests. Eli Lilly, the US pharma-
ceutical company, currently has several projects in India, and Pfizer (US) is carrying out clinical tests for malaria drugs there. The market for contract research in India could reach a volume of nearly EUR 2 bn by 2010, up from EUR 600 m in 2006. All in all, the global market volume for contract research is likely to rise from EUR 8 bn recently to EUR 20 bn by 2020.
So the formerly distant relationship between Indian and international companies is beginning to turn increasingly towards cooperation. A case in point is the Contract Research Agreement between an Indian
and a British company, which lays down a limited number of
previously agreed steps to develop a new drug in laboratories in
India.
As a result of the new patent legislation, the countrys pharmaceutical industry is reorienting itself and focussing on self-developed medicines and/or contract research and production for western drugs companies. Also the expansion of Indian firms abroad looks set to continue preferred target markets are the US and European countries.
