Financial Management in Pharmaceutical industry


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The report was prepared with the overview of global pharmaceutical markets and Asian markets with special emphasis on emerging markets such as India.

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Financial Management in Pharmaceutical industry

  1. 1. DR.RICHA SINGHPage1FINANCIAL MANAGEMENT INPHARMACEUTICAL INDUSTRYMANAGEMENT RESEARCH PROJECT--Dr.Richa SinghProfessional diploma in financial management,Centre for Management,Thadomal Shahani Education Trust
  2. 2. DR.RICHA SINGHPage2INDEX1. INTRODUCTION—GLOBAL HEALTH----------------Pg 032. TOP-DOWN APPROACH -world TO India—------pg 043. History of the industry--------------------------------pg 114. WTO agreement—1995, 1970----------------------pg 135. The ‘PATENT’ play—Indian implications –------pg 166. The Game changes (2005) --------------------------pg 187. Major players in the industry----------------------pg 238. Managers role becomes more dynamic—-----pg 279. The Indian market: Opportunities ---------------pg3210. The Indian Market: Challenges-----------------pg4011. Recent Financial deals-----------------------------pg4412. What’s new-Industry updates/Trends—-----pg4613. Conclusion-------------------------------------------pg4714. Abbreviations----------------------------------------pg5015. References--------------------------------------------pg51
  3. 3. DR.RICHA SINGHPage3INTRODUCTION---GLOBAL HEALTHGlobal healthcare industry can beDivided into above componentsMedicalDevices&technologyMedicalliterature &I.T.SolutionsMarketResearchFirmsRegulatoryauthoriesDiagnosticsPharmaceticalsHospials &Clinics
  4. 4. DR.RICHA SINGHPage4Each of these components is interdependent and each one needsspecialised professionals with a ‗human‘ touch, investment in research &development, and sharp financial acumen to plan ahead of time.The world pharmaceutical industry has been changing profoundly inthe last decade. Intensive globalization, increased competitiveness andthe fight for global market shares create new challenges forpharmaceutical companies. Fast globalization definitively reinforces theconsolidation of the world pharmaceutical industry. Alliance in forms ofmergers and acquisitions prevail more and more as a strategicorientation for the world pharmaceutical companies. By alliance, theytend to create strategic synergies in an endeavour to be successful,competitive and capable to continue with further development circles.Globally all stakeholders in the healthcare domain share a commonconcern to make healthcare products and services available to maximumnumber of people at low cost ,and in an efficient, quick manner.There are a lot of challenges arising because different demographicneeds, climatic variation and changes regulatory outline in each country.Thus the role of a manger to effectively manage--resources, people,information and activities becomes more prominent.TOP-DOWN APPROACH -world view TO Indian viewPharmaceutical Industry Trends- Global ScenarioThe global pharmaceutical market research has been done by manycompanies and almost all of the market reports indicate a significantgrowth of pharmaceutical market. The forecasting indicatespharmaceutical market growth of about 4 - 6% in 2010-2011. Theestablished markets, including the US, UK, and Japan, together accountfor 30% of the global demand for pharmaceutical excipients.If present industry overview is taken into consideration then the globalpharmaceutical market in 2010 is projected to grow 4 - 6%exceeding $825 billion. The global pharmaceutical marketsales are expected to grow at a 4 - 7% compound annualgrowth rate (CAGR) through 2013.
  5. 5. DR.RICHA SINGHPage5This industry growth is driven by stronger near-term growth in the USmarket and is based on the global macro economy, the changingcombination of innovative and mature products apart from the risinginfluence of healthcare access and funding on market demand. Globalpharmaceutical market value is expected to expand to $975+billion by 2013. Different regions of the world will influence thepharmaceutical industry trends in different ways.A] Middle East & African Pharmaceutical MarketThe Middle East combined with the African Pharmaceutical market isprojected to grow at a CAGR of around 11% during 2010-2012. Thedevelopment of infrastructure and rapidly changing regulations in thisregion are being seen as the cause of its growth. Also there is a highprevalence of diseases and huge population base that increases theoverall pharmaceutical sales in this part of the world. Presently SouthAfrica, Saudi Arabia and Israel dominate the regions pharmaceuticalindustry due to their better infrastructure and regulatory environment.However, The Middle East pharma market depends on importedpharmaceutical drugs and therapeutics. The governments of countries inthis region are taking measures to raise their domestic productionthrough heavy investments in the pharmaceutical industry. How far they
  6. 6. DR.RICHA SINGHPage6are successful in the attempt of becoming considerable pharmaproduction centre remains to be seen.B] European Pharmaceutical MarketEuropean Trade in Pharmaceuticals 2008SOURCE:EUROSTATThe seven main European markets represent a marketplace forpharmaceutical products worth US$162 billion a year.The seven markets are diverse in terms of health provision, funding,domestic production and health plans. The market is expanding due toan ageing population, earlier diagnosis of disease and wider use ofpharmaceuticals. Government responses to meeting the rising demandsin publicly funded health - and especially the drugs bill - range from
  7. 7. DR.RICHA SINGHPage7increased health insurance, co-payments and related taxes to increaseduse of private funding and generic substitution. Increasingly, battlesabout reimbursement levels and pricing are set to hot up in the comingyears.The growth in the generics sector looks set to continue - particularly inmarkets where current levels of generic subscribing are low. Themigration of R&D to countries that offer more advantageous commercialand research environments will become a cause for concern.C] Asia Pacific Pharmaceutical MarketThe pharmaceutical market world over will experience significant shifts.Asia-Pacific region will emerge as the fastest growing pharmaceuticalmarket over the recent past. The reason for this positive shift can beattributed to the low costs and favourable regulatory environment. Thisregion has experienced important developments regarding contractmanufacturing, especially in generics and APIs. Increased R&D activitiesin the region have helped Asia-Pacific pharmaceutical industry toachieve an estimated market size of around US$ 187 Billion in 2009.Here, the pharmaceutical industry is expected to grow at a CAGR ofaround 12.6% during 2010-2012. It can, in fact, become the global APIproduction hub in next few years.Pharmaceutical sales are growing at a fast rate in India, China,Malaysia, South Korea and Indonesia due to the rising disposableincome, several health insurance schemes (that ensures the sales ofbranded drugs), and intense competition among top pharmaceuticalcompanies in the region (that has boosted the availability of low costdrugs). China‘s pharmaceutical market will continue to grow at a 20+ %annually, and will contribute 21% of overall global growth through2013. India - 3rd Largest Producer of Pharmaceuticals Across the World-is already a US$ 8.2 Billion pharmaceutical market. The Indianpharmaceutical industry is further expected to grow by 10%.
  8. 8. DR.RICHA SINGHPage8Distribution of Global Pharmaceutical Sales by Region
  9. 9. DR.RICHA SINGHPage9Source: IMS Health Market Prognosis, March 2010
  10. 10. DR.RICHA SINGHPage10S
  11. 11. DR.RICHA SINGHPage11HISTORY OF THE PHARMACEUTICALINDUSTRY‖In response to multiple tragedies related to thepharmaceutical industry during the 1950s and 1960s, theworld saw a substantial increase in the number of regulations,guidelines, and laws regarding the "safety, quality and efficacyof new medicinal products" over the next decade. As the industryexpanded production into international markets, pharmaceuticalstandards still remained a national responsibility and global standardsdid not exist. Soon, there was a need to standardize quality and safetyregulations in order to provide consumers with safe products in a timelymanner.It was the EC (now the European Union) which urged for the creation ofa single market for pharmaceuticals in the 1980s.However, it was until 1989, at the WHO Conference of DrugRegulatory Authorities (ICDRA), that plans began to develop forthe creation of a global pharmaceutical regulator. In April 1990, theInternational Conference on Harmonisation of Technical
  12. 12. DR.RICHA SINGHPage12Requirements for Registration of Pharmaceuticals for HumanUse (ICH) was created. Now, the ICH is composed of more thansix parties that represent the regulatory bodies and theresearch-based industries that are responsible for the decisionmaking processes related to the pharmaceutical industry inthe United States, Japan, and Europe. Included in this groupare the European Union, the Ministry of Health, Labor, andWelfare (Japan), the Japan Pharmaceutical ManufacturersAssociation (JPMA), the Food and Drug Administration(FDA), and the Pharmaceutical Research and Manufacturersof America (PhRMA). There are also ICH Observers that act asa liaison with non-ICH countries, including the World HealthOrganization (WHO) and The European Free TradeAssociation (EFTA).The ICH guidelines are currently divided into four maincategories: Quality topics, Safety topics, Efficacy topics, andMultidisciplinary topics.Quality topics incorporate guidelines for the stability testing of newdrug substances and products, the impurities in new drug products, andthe specifications for test procedures and acceptance criteria for newdrug substances and new drug products.Safety topics focus more on providing the guidelines for toxicity testsand carcinogenicity studies.Efficacy topics include clinical safety measures, ethnic factors, andspecial population situations and,Multidisciplinary topics range from medical terminology to data andelectronic standards.‖‖‖ In recent years, the Food and Drug Administration (FDA) hasbecome more involved with international regulatory partners andinternational health associations in order to leverage its resources and
  13. 13. DR.RICHA SINGHPage13achieve its public health goals. By sharing regulatory informationinternationally, drug product quality will continue to improve as well astechnological innovation. This, in turn, will enhance public healthprotection. The FDA also will continue to actively work with the ICH on anew plan to develop a pharmaceutical quality system with will be "basedon an integrated approach to risk management and science." In the nearfuture, the FDA will seek membership in the Pharmaceutical InspectionCooperation Scheme (PIC/S). This is an "arrangement between "healthauthorities whose purpose includes leading the internationaldevelopment, implementation, and maintenance of harmonized CGMPstandards and quality systems of world-wide pharmaceuticalinspectorates." Also, this participation will further increaseharmonization and information sharing in the global pharmaceuticalindustry.WTO AGREEMENT -1995The World Trade Organization (WTO) is the international organizationdealing with the rules of trade between nations. As of February 2005,148 countries are Members of the WTO. In becoming Members of theWTO, countries undertake to adhere to the 18 specific agreementsannexed to the Agreement establishing the WTO. They cannot choose tobe party to some agreements but not others (with the exception of a few"plurilateral" agreements that are not obligatory).Of these agreements, Trade-Related Aspects of IntellectualProperty Rights (TRIPS) is expected to have the greatestimpact on the pharmaceutical sector and access to medicines.The TRIPS Agreement has been in force since 1995 and is to date themost comprehensive multilateral agreement on intellectual property.The TRIPS Agreement introduced global minimum standards forprotecting and enforcing nearly all forms of intellectual property rights(IPR), including those for patents. International conventions prior toTRIPS did not specify minimum standards for patents. At the time thatnegotiations began, over 40 countries in the world did not grant patentprotection for pharmaceutical products. The TRIPS Agreement nowrequires all WTO members, with few exceptions, to adapt their laws tothe minimum standards of IPR protection. In addition, the TRIPS
  14. 14. DR.RICHA SINGHPage14Agreement also introduced detailed obligations for the enforcement ofintellectual property rights.However, TRIPS also contains provisions that allow a degree offlexibility and sufficient room for countries to accommodate their ownpatent and intellectual property systems and developmental needs. Thismeans countries have a certain amount of freedom in modifying theirregulations and, various options exist for them in formulating theirnational legislation to ensure a proper balance between the goal ofproviding incentives for future inventions of new drugs and the goal ofaffordable access to existing medicines.India had signed the WTO agreement and since Trade RelatedIntellectual Property Rights(TRIPS) was a part of WTOagreement, India was bound to implement the provisions ofTRIPS agreement provided a transition period of ten yearfrom 1995-2005. This meant that India had to make significantchanges in its patent law and respect the Intellectual Property Right‘s(IPR‘s) by 2005WHAT IS A PATENT?Patent is a legal document granted by the governmentgiving an inventor the exclusive right to make, use andsell an invention for a specified period of time. It isalso available for significant improvements onPreviously invented articles.According to the UN definition, a patent is a legallyEnforceable right granted by country‘s government toits inventor. Patent Law represents one branch of alarger legal field known as intellectual property rights.Patent Law centres on the concept of novelty and non-obviousinventions. The invention must be legally useful.The focused only on process patents, helped to establish the foundationof a strong and highly competitive domestic pharmaceutical industrywhich in the grip of a rigid price control framework transformed into aworld supplier of bulk drugs and medicines at affordable prices to
  15. 15. DR.RICHA SINGHPage15common man in India and the developing world. The Indianpharmaceutical companies have been doing extremely well in developedmarkets such as US and EuropeWHY PATENT?The underlying idea behind granting patents is toencourage innovators to advance the state oftechnology. Patent protection guarantees profits toinventors in return for investing in the production ofsocially useful information by granting a temporarymonopoly on the product. The patent holder therefore,can prohibit all others from copying the patentedproduct and offering it in the market for a lowerprice, during the life of the patent.
  16. 16. DR.RICHA SINGHPage16Cost of Developing an Innovative MedicineBACKGROUND OF INDIANPHARMACEUTICAL INDUSTRY WITHRESPECT TO PATENTThe Indian Pharmaceutical industry has transformed itself over the pastfew decades in India, being almost none existing till 1970‘s, to now beinga prominent provider of Pharmaceutical Products. The IndianPharmaceutical industry meets approximately 95% of the country‘spharmaceutical needs. The present turnover of the Indian PharmaIndustry is approximately $ 9.0 billion of which the share of exports is40%. Compared to the global picture, the Indian pharmaceutical
  17. 17. DR.RICHA SINGHPage17Industry ranks 4th in terms of volume, and 13th in terms of value, whichis highly significantPRE TRIPS: PATENTS ACT (1970)Patents Act 1970 in its original form does not differentiatebetween Process and Product patents for medicines, food andchemicals. One of the important features of the Act was that it did notprovide product patents for the three mentioned industries. Theseindustrial sectors were covered by product patent only. In addition theDrug Price control Order, 1970 put a cap on the maximumprice that could be charged and ensured that the life savingdrugs are available at reasonable prices. The Act of 1970safeguards the interests of the inventor and consumer in an evenhandedmanner. Therefore with a regulatory system focused only on processpatents, helped to establish the foundation of a strong and highlycompetitive domestic pharmaceutical industry which in the grip of arigid price control framework transformed into a world supplier of bulkdrugs and medicines at affordable prices to common man in India andthe developing world. The Indian pharmaceutical companies have beendoing extremely well in developed markets such as US and EuropePOST TRIPS: PATENTS AMENDMENT ACT(2005)The Patent Amendment Act 2005 passed by the Parliament in its budgetsession of 2005 brings the Indian Patent Act in full conformity with theintellectual property system in all respects. The amendment of 2005extends full TRIPS coverage to food, drugs and medicines. Itrequires patents to be provided to products as well. The otherimplications under the new act are the term of a patent protectionhas been extended to twentyyears compared to the seven yearswhich was provided by the act of 1970 and the onus of provingon a legal complaint that the process used by one enterprise istotally different from that which has been used by anotherwould lie on the defendant. Prior to the amendment theresponsibility was on the patent holder to establish patent breach.
  18. 18. DR.RICHA SINGHPage18Under the new patent law Indian pharma companies which were free tocopy and sell patented molecules or drugs will not be able to do so.Therefore no patented drug launched after 1st January 2005 can becopied and sold, also there are patent applications of MNC PharmaCompanies pending in the EMR mailbox which are going to be shortlyopened by the patent office. If the patent office grants patents rights thenIndian pharma companies selling those molecules will have to stopmanufacturing and marketing of those drugs or may have to pay royaltyif they continue to manufacture and market those drugs.Further the government of India is also committed to cGMP(currentGood Manufacturing Practices) norms as specified byWHO(World Health Organization) and has subsequently modifiedSchedule M of the Drugs & Cosmetics Act and now Pharmacompanies have to follow strict standards in manufacturing practices.THE GAME CHANGES –‗NEW‘ RULESThe rules of pharmaceutical business are changing. Indianpharmaceutical companies can no longer get away withplundering intellectual properties of multinationalcompanies. Pharmaceutical business has become a newballgame altogether after the introduction of product patentsin January 2005.PARAMETERS PRE AND POST TRIPS(a) NEW PRODUCT DEVELOPMENTPre TRIPSNew product development efforts of Indian pharmaceutical companiesin process patents era were limited to reverse engineering moleculesdiscovered by other companies. Thanks to absence of product patents,Indian companies did not have to go through long winded drugdevelopment process. Nor did Indian companies have to expend anyeffort on research focus. The focus of the Indian companies was tolaunch a copy of a blockbuster drug ahead of their rivals inIndia and abroad.
  19. 19. DR.RICHA SINGHPage19Post TRIPSA large number of drugs are going ―off patent‖ in the next few years.According to IMH Health, more than $60 billion worth of drugs aregoing ―off patent‖ by 2011. Thus, Indian companies will not be short ofnew products for at least another two years. Further Indianpharmaceutical companies have also stepped up their efforts in productdevelopment for the global generic market and this is visible with theDMF filings at the US FDA. About 30% of the new DMF filings at the USFDA are being filed by Indian companies. In the long run, howeverIndian companies may find it hard to make money from drugs comingoff patent. Already competition in generic market is intense and likely toincrease further in the future. Focus on basic research will comewith its own issues. Indian companies will have to acquire theskills of identifying research areas that offer excellent revenueand profit potential. This will entail a closer tracking of diseaseprofiles and related therapies as well as keeping a Close tab on theresearch programmes of rivals. Besides, Indian companies willhave to pay more attention to economics of drug developmentprocessThe actual problem lies in the fact that the product patents failto introduce research and development in the neglecteddiseases. Hence while on one side the introduction of product patentswill help in development of new and more effective drugs, the problemstill remains that the research and development undertaken by the drugmanufactures evade the neglected diseases and the diseaseswhich are region specific such as medicines for malaria andtuberculosis which are found prevailing in developingcountries like India(b) THERAPEUTIC COVERAGEPre-TRIPSIn the absence of product patents, Indian pharmaceutical companies didnot feel the need to focus on specific therapeutic areas. Most Indian
  20. 20. DR.RICHA SINGHPage20pharmaceutical companies eschewed narrow focus and triedto cover as many therapeutic areas as possible.Post TRIPSOpinion is divided over the therapeutic strategy that Indian companiesshould pursue in product patent era. Some companies believe that focuson select therapeutic segment will fetch them greater dividends in termsof new chemical entities and market share. Other companies believesuch a strategy is risky given the size of Indian companies and that a bigsetback in research could sink the company. Instead such companies arepursuing a de-risking strategy of building a wide product portfolio. Inthe domestic market, such a strategy will result in economies of scale atproduction and marketing stage, putting the company in a better place toweather competition from multinationals.(C) COST OF PRODUCTIONPre-TRIPSIndian pharmaceutical firms use to produce and supply bothbulk drugs and finished formulations in the global market atvery competitive rates. The expansion of AIDS treatment over thepast few years has been driven by the accessibility and affordability ofgeneric ARVs (anti-retro viraldrugs) from India. Indian pharmaceuticalcompanies have mastered the science of producing drugs cheaply. Indiancompanies have developed a high level of chemical synthesis skills. Theabsence of development costs together with efficientproduction has enabled Indian companies to establish a solidposition in bulk drug manufacturing. country. This has resultedin the Indian pharmaceutical players offering their products atsome of the lowest prices in the world. But scale did not receive asmuch importance as it should have, because the cost of Indianpharmaceutical companies was already low owing to aforesaid reasons.Post TRIPSSpecifically, the introduction of product patent protection in the Indianmarket may have far-reaching implications on access to medicines ataffordable prices in a large number of developing and least developedcountries, because a product patent system will make India dependent
  21. 21. DR.RICHA SINGHPage21on the multinational companies for technology and for permission toproduce the patented drug. Exorbitant prices will be charged andthe Indian pharmaceutical industry will become subservient tothe MNCs. They will lose the position that they had gained in the wakeof the Act of 1970.Millions of Indians need medicines. Most of them cannotafford to pay high prices. Going by global experience, productpatents that are now enforced, can only lead to monopolies and these, inturn, to high prices. India needs to build in enough safeguardseven in our current patent law. Perhaps in our haste to join WTO,we neglected many important issues.(D) MERGER AND ACQUISITIONS:Pre TRIPSThe Indian companies excel as far as the back end of the pharmaceuticalvalue chain is concerned i.e manufacturing APIs and formulations.What the Indian companies are short of is the front-enddistribution and marketing infrastructure in the developedworld.Acquisitions are the quickest way to front end access. Indian Drugmanufacturers persuaded foreign acquisitions to bridge this gap and tofulfil following motives.• Improve global competitiveness• Move up the value chain• Create and enter new markets• Increase their product offering• Consolidate their market shares• Compensate for continued sluggishness in their home market.There are also entry barriers for companies from the developingcountries and acquisitions make it easy for these organizations to find afoothold in the developed markets.Post TRIPS
  22. 22. DR.RICHA SINGHPage22Companies are reaching out to their counterparts to takemutual advantage of the other‘s core competencies in R&D,Manufacturing, Marketing and the niche opportunities offeredby the changing global pharmaceutical environment. The paceof change has never been as rapid as it is now. To adapt to thesechanging trends, the Indian pharmaceutical and biotechnologycompanies have evolved distinctive business models. Size and end-to-end connectivity are major detriments in the global markets. To achievethem, Western MNC‘s have to look to Indian companies. While,India‘s strong manufacturing base will stand global genericcompanies in good stead as a low-cost development andmanufacturing destination the spate of mergers andacquisitions by Indian companies has ushered an era of the"Indian Pharmaceutical MNC Indian pharmaceutical companieshave now moved up a step in the value chain and are looking at inorganicroute to growth through acquisitions. Many top and mid tier Indiancompanies have gone on a global "shopping spree" to build upcritical mass in International markets.(E) EXPORTSPre-TRIPSMost Indian companies focused on exports. Exports improve thevaluation of companies owing to higher margin in overseas markets.Indian companies built fortunes by making cheaper versions ofblockbuster drugs and selling them in domestic and export markets.Pharmaceutical exports clocked $7.2 billion in 2007-08,accounting for six per cent of the country‘s total exports,according to Pharmexcil, the Pharmaceutical ExportPromotional Council.Post TRIPSIn the export markets even after the introduction of product patents,products under patent protection will comprise only 15 percent of themarket. So a vast chunk of the market will be still open forcompetition although margins will be wafer thin. Exports have
  23. 23. DR.RICHA SINGHPage23continued to be a priority for Indian companies. Major blockbuster drugswill come off patent in the near future, creating a big generic opportunityfor Indian ompanies. Also, a growing demand for anti-AIDS drugsin Africa will keep Indian companies busy. Exports have andwill continue to provide Indian companies with the strength towithstand the onslaught of multinationals in the domesticmarket.Current Indian Senario –Major playersIndia currently represents just U.S. $6 billion of the $550billion global pharmaceutical industry but its share isincreasing at 10 percent a year, compared to 7 percent annualgrowth for the world market overall. Also, while the Indian sectorrepresents just 8 percent of the global industry total by volume, puttingit in fourth place worldwide, it accounts for13 percent by value,2 and itsdrug exports have been growing 30 percent annually.The ―organized‖ sector of Indias pharmaceutical industry consists of 250to 300 companies, which account for 70 percent of products on themarket, with the top 10 firms representing 30 percent.
  24. 24. DR.RICHA SINGHPage24According to the German Chemicals Association,in 2005, Indias top 10 pharmaceuticalcompanies were :Ranbaxy, Cipla, Dr. ReddysLaboratories, Lupin, Nicolas Piramal,Aurobindo Pharma, Cadila Pharmaceuticals,Sun Pharma, Wockhardt Ltd. and AventisPharma.Indian-owned firms currently account for 70 percent of the domesticmarket, up from less than 20 percent in 1970. In 2005, nine of the top 10companies in India were domestically owned, compared with just four in1994.Indias potential to further boost its already-leading role inglobal generics production, as well as an offshore location ofchoice for multinational drug manufacturers seeking to curbthe increasing costs of their manufacturing, R&D and othersupport services, presents an Opportunity worth an estimated$48 billion in 2007.India‘s pharmaceutical industry currently comprises about 20,000licensed companies employing approx. 500,000 staff. Besides manyvery small firms these also include internationally well-knowncompanies such as Ranbaxy, Cipla or Dr. Reddy‘s. With sales ofroughly EUR 1 bn, Ranbaxy is currently the world‘s seventh largestgenerics manufacturer.
  25. 25. DR.RICHA SINGHPage25Between 1996 and 2006, nominal sales of pharmaceuticals on theIndian subcontinent were up 9% per annum and thus expandedmuch faster than the global pharmaceutical market as a whole (+7%p.a.). Indian companies strongly expanded their capacities, makingthe country by and large self-sufficient. Nonetheless, with totalsector sales of roughly EUR 10 bn, India commands a less than 2%share in the world‘s pharmaceutical market (1966: 1.5%). This putsthe country in twelfth place internationally, even behind Korea, Spainand Ireland and before Brazil, Belgium and Mexico. Among theAsian countries, India‘s pharmaceuticals industry ranks fourth at 8%,but has lost market share to China, as sales growth there wasnearly twice as high and sales volumes nearly four times higher thanin India.
  26. 26. DR.RICHA SINGHPage26Currently the most important segment on the domestic marketis anti-infectives; they account for one-quarter of total turnover. Nextin line, and accounting for one-tenth each, are cardio-vascularpreparations, cold remedies and pain-killers. By contrast,medicines against civilisation diseases (such as diabetes, asthma andobesity)or so-called lifestyle drugs (anti-depressants, drugs to helpsmokers to quit and anti-wrinkle formulations) are of little significance
  27. 27. DR.RICHA SINGHPage27at present. All in all, the Indian pharma industry produces about 70,000different drugs.CHANGING ROLES FOR MANAGERSManagers of pharmaceutical industry need financial and non-financialinformation to develop and implement strategy by planning for thefuture (budgeting); making decisions about products, services, pricesand what costs to incur (decision-making using cost information); andensuring that plans are put into action and are achieved (control). Thisfunction is called management accounting.In time, developments and innovations appeared. Organizationsconfronted with automation of production processes and technologicalevolution developed new and complex cost and management systems.The decline of manufacturing and rise of service industries led to theneed for ―accurate knowledge of product costs, excellent cost controland coherent performance measurement‖ (Cooper and Kaplan, 1989).And the challenge of today‗s competitive environment is todevelop efficient and effective management and cost systemswhich also allows to measure performances and providestimely and accurate information to facilitate efforts to controlcosts, to measure and improve productivity, and to deviseimproved production processes.In this way, management accounting is now implicated with (Collier,2003): value-based management, non-financial performancemeasurement systems, quality management approaches,activity-based costing and management and strategicmanagement accounting in order to help managers to increase thevalue of the business.THE IMPORTANCE OF MANAGEMENT CONTROL INMONITORING THE PHARMACEUTICAL INDUSTRYManagerial accounting is an integral part of management which providesinformation that is used by management to formulate strategies, plan,coordinate and control the activity, make decisions, optimize the use ofresources and safeguard assets. Management controls in
  28. 28. DR.RICHA SINGHPage28pharmaceutical industry are the organization, policies, andprocedures used by agencies to reasonably ensure that:1) programs achieve their intended results;2) resources are used consistent with agency mission;3) programs and resources are protected from waste, fraud,and mismanagement;4) laws and regulations are followed; and5) reliable and timely information is obtained, maintained,reported and used for decision making.The Management Control acts through the following phases in sequence(Johnson and Kaplan, 1987): 1) planning, where for any company‘s unita set of objectives must be defined, that is of specific expected results,which need to be: understandable, agreed, measurable in extent andtime, reachable, consistent with one another and with the availableresources, 2) programming, where a program is drawn up in order toget the planned objectives, taking into account the internal and externalrestraints to the company 3) result checking, where it is measuredwhether each company‘s unit has achieved or not the assignedobjectives, 4) shifting analysis, where the possible shifting betweenobjectives and results is analyzed and 5) corrective actionimplementation, in order to optimize the units behavior against theplanned objectives.HOW CAN WE MEASURE THE PERFORMANCE OF APROJECT OR AN ACTIVITY IN PHARMACEUTICALINDUSTRY?The standard-cost method is a modern and efficient method forpharmaceutical industry. This method offers undeniable advantages inwhat concerns the operative study and analysis of the productionefficiency, being thus able to accomplish an important function in theleadership of the modern enterprise: it is an investigation andprevisional tool and it represents a precious mean when you have tomake a decision.
  29. 29. DR.RICHA SINGHPage29The standard-cost method makes part of the category of methods ofprevisional calculation and of efficient of the production process whichallows the establishment of the production costs with anticipationregarding the beginning of the production process and the achievementof the budgetary control of the costs through the determination of thedivergence between the real and pre-set costs taking into account thedivergences and their causes in the same time with the development ofthe production process. According to the concept of this method, theproduction costs must be calculated with anticipation and one must usepre-set measures. In the same time with the development of theproduction process, the operative follow-up of expenses is organized asthrough a comparison with standard costs in order to establish thedivergences regarding the expenses and their causes so that thebudgetary control of the cost should be accomplishedHOW TO MONITOR RISK IN PHARMACEUTICALSCORPORATIONS?Every entity faces a variety of risks from external and internal sourcesthat must be assessed. A precondition to risk assessment isestablishment of objectives, linked at different levels and internallyconsistent. Risk assessment is the identification and analysis of relevantrisks to achievement of the objectives, forming a basis for determininghow the risks should be managed. Because economic, industry,regulatory and operating conditions will continue to change,mechanisms are needed to identify and deal with the special risksassociated with change.For R&D companies, this will mean registering all clinical andhuman trials in a central location, as well as voluntarilydisclosing all relevant information. This could possibly includecompulsory reporting—directly by researchers—of all data to a thirdparty. On the commercialization side, direct marketing would beredefined as comparative data became common and readily available.Should executives fight growing pressure for increased transparency?Companies that embrace information transparency will benefit fromrenewed public trust, fewer and smaller settlement payouts, improvedP/E ratios, and lower costs of capital. Transparency also means thatsociety will begin to share the risks inherent in the pharmaceutical
  30. 30. DR.RICHA SINGHPage30business. Ultimately, as pharmaceutical companies give to society,society will balance its need for innovation against the risks involved innew drug therapies.For the future we are not so bold as to believe that this vision of thefuture is either completely accurate or will be passionately embraced bythe industry. Debate and spirited discussion should occur. The importantpoint is that companies, and the industry as a whole, begin to design andprepare for a new environment. Companies must prepare for thesechanges today to ensure that they can use the upcoming shifts to theiradvantage. The following steps are offered as a guide (O‗Meara andRyan, 2011): Review competitive positioning. Is our company stronger inresearch and development or manufacturing and marketing? Rethinkyour strategic goals and choose a business model that best supportsthem. Adopt new financial tools. Assess the feasibility, costs andbenefits associated with various financial tools and then understand theimplications that each alternative brings. Plan for information transparency. At the most basic level,companies must identify and mitigate the risks inherent in sharinginformation. Recent examples of personal data threats in consumerfinance and retail banking offer good lessons about the difficulty ofmaintaining data integrity. By working with public advocacy and legalgroups you can help shape data transparency. Encourage patients to become active partners in theirhealth care. Patients are becoming increasingly active partners in theirhealth care decisions. Companies can facilitate this trend through betterconsumer education and by stressing the importance of two-waycommunication. Also, all marketing strategies should reinforce thispartnership message. Ultimately, it is up to all pharmaceutical companies to beginmanaging their challenges to emerge as part of a better, moreproductive and stronger industry. The future will depend on confrontingeach challenge and on a new mindset—it‗s time to think beyond the nextblockbuster.
  31. 31. DR.RICHA SINGHPage31THE IMPACT OF MANAGEMENT CONTROL ON STRATEGYAND PERFORMANCESTo maintain a competitive position a company must generate theinformation necessary to define and implement its organizationalstrategies. Strategy is the link between an organization goals andobjectives and the operational activities executed by the organization. Inthe current global market, firms must be certain that such a linkageexists.The accomplishment of a strategy reclaims taking in consideration thedifferent management horizons: First is the strategic horizon –settles the goals and objectives on long term, 5-10 years, and as a resultof these elaborates strategic plans. Second is budgetary horizon –translates into practice the established goals and objectives on mediumterm using budgets and operational plans. And the end is operationalhorizon – elaborates, applies, pursuits and analyses action plans.Management control acts within each horizon using specific instrumenton every level and the controlling process is bounded to the decisionmaking process. The Management Control Systems (MCS) enablesmanagers to perform strategic analyses on issues such as determiningcore competencies and organizational constraints from a cost-benefitperspective and assessing the positive and negative financial and non-financial factors of strategic and operational plans.Healthcare Players are pursuing new business models and approaches toovercomethe challenges posed by dwindling margins, high outflows, andcases of fraud and abuse. These new models help keep pace withregulatory and legislative changes,bring focus on changing customerdefinitions, and enable collaboration with allstakeholders. While thisenables better outcome management, these approachesalso help fulfillthe long-aspired state of lower premiums, wider coverage,flexible plans,and healthy margins.
  32. 32. DR.RICHA SINGHPage32INDIAN MARKET: OPPTUNITIESGenericsIndian firms will likely take around 30 percent of the increasingglobal generics market, the Associated Chambers of Commerce andIndustry of India (Assocham) forecast.Currently, the Indian industry is estimated to account for 22 percentof the generics world market.Low production costs give India an edge over other generics-producing nations, especially China and Israel, says Assocham‘sPresident Mahendra Sanghi.India has the largest number of U.S. Food and Drug Administration(FDA) approved drug manufacturing facilities outside the U.S.Indian firms now account for 35 percent of Drug Master Fileapplications and one in four of all U.S. Abbreviated NewDrug Application (ANDA) filings submitted to the FDA.The U.S. continues to be an attractive market for Indian firms, despitethe challenges of price erosion and the launch of ―authorized generics‖by innovator companies, says Ranjit Shahani, vice chairman and
  33. 33. DR.RICHA SINGHPage33managing director, Novartis India Ltd, and President of theOrganisation of Pharmaceutical Producers of India.The major concern of the U.S. FDA appears to be the entry of counterfeitdrugs, he says, but he does not believe this to be an obstacle forreputable Indian manufacturers. Moreover, while the World TradeOrganization (WTO) Doha Trade-Related Aspects of IntellectualProperty rights (TRIPs) national Emergency/compulsory licenseagreement presents an exporting opportunity for Indian firms, Shahanistresses that the firms must have anti-diversion measures in place inorder to protect their reputation.―The European generics market, pointing to Dr Reddys recentacquisition of Betapharm of Germany for $570 million, holds morepromise.‖ Indian companies have acquired over $1 billionworth of pharmaceutical companies overseas in the past yearand a half and should increasingly look more aggressively atcountries like Brazil, Russia and the Collaboration for Growth
  34. 34. DR.RICHA SINGHPage34Indian firms should move up the value chain to produceinnovative ―super generics‖ as the once-a-day Ciprofloxacin productdeveloped by Ranbaxy and licensed to Bayer, move up from producing―generic generics‖ to branded generics.Biotechnology GenericsFirms based in India and China could be among the first to bring biogenerics (generic versions of biological products) to the regulatedmarkets and faster than expected. The first bio generic product wasapproved by the European Medicines Agency (EMEA) which refers tothese products as ―biosimilars,‖ in April 2006.IMS estimates that biotechnology products accounted for 10 percent ofglobal pharmaceutical sales in 2004Patents on the first generation of blockbuster biopharmaceuticals arebeginning to expire, and the high cost of these products means thegeneric versions will find large markets among hard-pressedgovernments and other payers. Sales of bio generics are flourishing inthe unregulated markets.An early beneficiary when the regulated markets finally establishframeworks for bio generics is likely to be Wockhardt. Thispharmaceutical and biotechnology company was one of the first Indiandrug manufacturers to enter the European market, achieving thisthrough a series of acquisitions;Biopharmaceuticals are central to Workhardts growthstrategy and the firm expects this area of its business to takeoff from 2006. Export Import Bank Chairman T.C. VenkatSubramanian believes the patent expires on 11 major drugs couldhelp bring a ―biotechnology revolution‖ to India. He forecaststhat biotechnology could potentially generate revenues of $5
  35. 35. DR.RICHA SINGHPage35billion and create one million jobs by 2010, through productsand servicesBiotechnologyIn 2003-04, biopharmaceuticals accounted for 60 percent of Indias totalbiotechnology market, which was worth an estimated $709 million-up39 percent over the previous period.Investment in the sector was up 26 percent to $137 million-and exportsaccounted for 56 percent of industry revenues. The domesticbiopharmaceuticals sector grew 38.5 percent and had the largest localmarket share, at 76 percent, followed by bioagriculture at 8.4 percent,bioservices at 7.7 percent, and industrial products at 5.5 percent and bio-informatics at 2.5 percent.The industry is growing fast, with an initial emphasis on vaccines andbioservices. The industry is situated mainly in Karnataka, although thereare operations in Andra Pradesh, Hyderabad, Kerala, Maharashtra andWest Bengal.The top 10 players in terms of revenues in 2004 were:-Biocon, Serum Institute of India, Panacea Biotec,Nicholas Piramal, Novo Nordisk, VenkateshwaraHatcheries, Wockhardt, GSK, Bharat Serums &Vaccines, and Eli Lilly & Co. ----according to reports ofBurrill & Co, the U.S.-based life sciences merchant bank. As isgenerally the case worldwide, most biotech companies in India havedeveloped along the contract or collaborative research models.Observers also warn that Indias nascent biotechnology sector could faceparticularly strong competition from China, the only developing countryto participate in the international Human Genome Project.India is regarded as having the edge over China in terms ofqualified, English-speaking employees, intellectual propertyrights, and judicial and quality standards. However, if China
  36. 36. DR.RICHA SINGHPage36does emerge as the dominant biotechnology player, this couldhave very serious implications for India.Outsourcing: IT OutsourcingIndias status as an information technology superpower, with accessto specialist skills and 24/7 work hours, is a huge advantage as itstrengthens its position as the destination of choice for contractresearch, including drug discovery.Eighty-two percent of U.S. companies overall rank India as their first-choice IT outsourcing destination, says leading international clinicalresearch organization Chiltern International, adding that IT and IT-enabled services (ITES) companies have been expanding theiractivities in India to new business segments such as bioinformaticsand life sciences;Those doing so or planning to include Accenture, Intel, Satyam,Cognizant, IBM, Oracle and TCS.Wipro Spectramind, Indias largest third-party offshore businessprocess outsourcing provider, is conducting bioinformatics work forglobal pharmaceutical companies.―India is considered a highly promising outsourcing IT and clinical datamanagement destination because of its rich talent pool, technologicalinnovation, creditable quality, operational flexibility, cost effectiveness,time-to-market and competitive advantage,‖ says Dr. Umakanta Sahoo,general manager of CRO Chiltern International in India.MNCs that have already entered into off shoring contracts include :Pfizer India, which has signed a preferred provider contract for itsbiometrics division with Cognizant Technologies India and is alsoworking with SIRO Clinpharm;Wyeth, working with Accenture in clinical trial data management;
  37. 37. DR.RICHA SINGHPage37GSK, whose biomedical data sciences and clinical data managementcentre in Bangalore supports studies for the group worldwide; andNovartis, which has a software development, centres for specialized drugdevelopment programs.Healthcare IT solutions offered by TCSOther Advantages: CRAMSThe global pharmaceutical market is estimated to represent a $48 billionopportunity for India by 2007, in terms of:• manufacturing outsourcing-supply of active pharmaceuticalingredients (APIs) and intermediates• development outsourcing-conducting preclinical and clinical trials• customized chemistry services-contract research services forcompounds pre-launch.
  38. 38. DR.RICHA SINGHPage38Worldwide revenues for pharmaceutical industry contractmanufacturing and research services (CRAMS) totalled $100 billion in2004 and will grow at an average annual rate of 10.8 percent to reach$168 billion by 2009, say analysts at Frost & Sullivan.Within this total, the global market for contract manufacturing ofprescription drugs is estimated to increase from a value of $26.2 billionto $43.9 billion, although the over-the-counter medicines andnutritional products sector will show the fastest growthThe Asian region has recently been challenging North America andEuropes traditional domination of the global pharmaceutical contractmanufacturing market: India and China could potentially account for 35percent to 40 percent of the outsourced market share for activepharmaceutical ingredients, finished dosage formulations andintermediates.Indian successes in this area have already created some significantinternational developments.For example, Jubilant Organosys, which has the largest CRAMS businessin India, acquired Target Research Associates plus 64 percent of TrinityLaboratories and its wholly owned subsidiary Trigen Labs, all U.S.-basedfirms.
  39. 39. DR.RICHA SINGHPage39Another large Indian firm, Bilcare Ltd, acquired its first manufacturingfacility in the U.S. last year, with the purchase of Philadelphia-basedproClinical Inc.CONTRACT RESEARCHIndia and Chinas drug outsourcing discovery markets combined arecurrently worth around $7.3 billion and, driven by governmentinitiatives to diversify the drug discoveryportfolio and develop infrastructure, are set to reach $19.8 billion in2011, say analysts at Frost & SullivanIn September 2004, a global innovation survey by the EconomistIntelligence Unit identified India as an R&D ―hotspot,‖ defined as a placewhere(1) companies are able to tap into existing scientific and technicalexpertise networks,(2) there are good links to academic research facilities,(3) the environment supports innovation and(4) it is easy to commercialize.
  40. 40. DR.RICHA SINGHPage40Costs of pharmaceutical innovation in India are estimated as low as one-seventh of their levels in Europe, and the countrys clinical researchindustry is currently worth $100 million.INDIAN MARKETS: CHALLENGESPatents and Intellectual Property RightsSince the introduction of product patents the MNCs have largelyreturned, the most recent being Merck & Co, which inaugurated itswholly owned subsidiary MSD India Pvt Ltd in July 2005 after beingabsent for approximately 20 years.Assocham believes the new patent regime will enable the development ofinnovative new drugs, which will increase profitability for MNCs. It willalso force domestic players to focus on R&D, which, for those who canafford to do so, will have long-term beneficial effects, it says.The industry is also waiting to see whether the government will followinternational guidelines governing compulsory licensing, the process bywhich the TRIPs agreement permits governments, in special cases, towaive the patent on a particular medicine. Elsewhere in the world, the
  41. 41. DR.RICHA SINGHPage41trade treaty allows compulsory licenses to be issued in response to anational emergency, but in India they may currently be invoked due tofactors such as the reasonability of a products price, and its potential forexport and local manufacturing, among other issues. Government policyin this area needs to be more clearly defined.Pricing IssuesThe prices of 74 bulk drugs and their formulations, which account foraround 40 percent of the retail pharmaceutical market, are controlled bythe Drug Price Control Order (DPCO) of 1995. The governments 2002Pharmaceutical Policy would have reduced the numbers of price-controlled drugs still further, but this proposal is currently under judicialreview in the Supreme Court. If it is approved, the number of price-controlled drugs is expected to drop to 25.Regulatory ReformsThe government needs to provide incentives and allow companies tomake additional profits that they can plough back into research. Taxincentives are also necessary to attract more foreign investment into thecountry, as they have proved successful in regions such as Singapore,Puerto Rico and Ireland.
  42. 42. DR.RICHA SINGHPage42The government is now starting to develop an infrastructure for clinicaltrials in India, with amendments made recently to Schedule Y of theDrugs and Cosmetics Rules of 1945 to allow for multicenter concurrentclinical trials in India and address the protection of trial participants,and the integration and quality of data. Among other developments,Good Clinical Practice guidelines have been published and mademandatory.―The success of government moves to encourage further outsourcingactivities will depend on both the new Policy and improvements to theregulatory framework, Kewal Handa of Pfizer India says.In terms of TRIPs compliancy, he urges the government to take apragmatic view and create a truly level playing field so that all companiescan operate on an equal footing.R & D SpendingIndian manufacturers cannot fulfill their ambitions to become players onthe world stage unless they make significant increases to their R&Dexpenditures; at 2 percent of sales, these are currently far below theglobal level of 10 to 20 percent.In fiscal 2005, the leading five Indian companies increased their R&Dspending 47 percent overall to a total of $192.3 million from $131 millionin fiscal 2004. Within that total, individual companies spending rose asmuch as 90 percent, with Dr Reddys amounting to 14.7 percent of its netsales. However, Nicholas Piramal and Cipla still spend less than 5percent of their net sales on research, and the combined R&Dexpenditures of the five is still less than 3 percent of Pfizer, the worldsleading research-based drug manufacturer.Indias new patents regime is already producing changes in terms ofgreater commitment to discovery research within the industry, althougha major shift for Indian firms away from reverse engineering will not beseen for three to four years, Ajay Piramal of Nicholas Piramal forecasts.In what was regarded as the start of a significant new trend, inSeptember 2004, the Indian firm Glenmark out licensed GRC-3886, aPDE4 inhibitor in development for the treatment of asthma and chronicobstructive pulmonary disease to Forest Labs of the U.S., for $190
  43. 43. DR.RICHA SINGHPage43million in staggered milestone payments and 15 percent of sales inroyalties.Developing the Domestic Indian Pharmaceutical MarketSatish Reddy of Dr Reddys Laboratories applauds the governmentsdraft National Pharmaceutical Policy for 2006s provisions on increasingaccess to treatments for life-threatening diseases, but points out thatWestern lifestyle diseases are currently providing the major growth inthe domestic market.India currently spends 4.5 to 5.0 percent of its GDP on healthcare, but public spending accounts for just 0.9 percent, puttingthe nation among the 20 lowest-spending countries worldwide.Total health expenditures were $29.3 billion in 2004, with around 83percent accounted for by private providers. The balance of spending isalso iniquitous; while the poorest 20 percent of the population hasdouble the mortality rates, malnutrition and fertility of the richestquintile, the latter group receives about three rupees for every one rupeespent on the former. Two-thirds of what the government spends onhealth care goes to secondary and tertiary care rather than basic services.Ninety-four percent of all private health spending is out ofpocket, mostly at the time of the incident, and more than 40percent of hospitalized people borrow money or sell assets inorder to cover their expenses. The remaining 6 percent of spendingis provided by insurance -3.7 percent social, 1.6 percent employer-sponsored and 0.7 percent private insurance.The health insurance market was opened up to the private sector in2000 and, since then, growth has been fast, with nearly 10.3 millionpolicies sold in 2003-04 compared to 7.5 million in 2001-02. A 40percent compound annual growth rate (CAGR) is forecast for the healthinsurance sector over the coming years, making it a significant driver of
  44. 44. DR.RICHA SINGHPage44the domestic health care market, which analysts at McKinsey believecould be worth $40 billion by 2012.Lack of InfrastructureWith rampant power cuts and bad transportation facilities India lacksbehind its close Asian competitors to efficiently utilise the availableresources.RECENT FINANCIAL DEALS
  45. 45. DR.RICHA SINGHPage45An enabling factor for Indian firms activity overseas is their increasedliquidity in the market, with increasing numbers of Foreign CurrencyConvertible Bond listings and private equity findings.Eleven of the 18 acquisitions are comparatively small, worth $5 to $30million, but the value of Indian industry purchases is rising fast, havinggrown from just $8 million in 1997 to $116 million in 2004, and this fastpace is expected to continue.
  46. 46. DR.RICHA SINGHPage46INDUSTRY UPDATES—RECENT NEWS2011 will be a year of regulatory tusslefor pharmaceutical industry--Government policy and regulatory changes were the focuspoint for the pharmaceutical industry in India in the year2011.Indian pharmaceutical major, Ranbaxy Laboratories hassigned a consent decree with the US Food and DrugsAdministration [FDA] in order to make it possible to selldrugs produced at its plans in India, which are facing afan in the USCentre aims to boost pharmaceutical exports to China Thecentral government is keen on increasing export ofpharmaceutical products to neighbouring China as thecountry appears to be ready to allow Indian genericsmakers to enter the country.Biocon receives positive results under phase 3 TREAT-PLAQ study with ItolizumabPharma sector to see healthy growth, but not for allcompaniesWockhardt receives final approval to market nasal sprayof FluticasoneIndia is emerging as a new centre for the trials ofpaediatric oncology drugs.
  47. 47. DR.RICHA SINGHPage47A tree-member delegation of the Central Drugs StandardControl Organization (CDSCO) is scheduled to bedispatched by the Union Health Ministry to China.The 12 doctors attached to M Y Hospital, Indore, and 66other government and private doctors were involved inthe trials conducted on children and mentally challengedpatients among others in alleged violation of rules by nottaking consent of the subjects and also by not informingthe health authorities.CONCLUSIONHealth spending as a% of GDP 2010Health spending as a% of GDP 2020GDP growth Health spendinggrowthCountry 2010 2020 2010-2020 2010-2020Brazil 8.7% 9.7% 45.3% 62.0%China 4.6% 5.7% 114.9% 166.5%India 4.4% 5.2% 100.2% 140.0%Russia 5.5% 5.8% 44.9% 52.2%© 2010 PricewaterhouseCoopers, LLPThere has never been a more important time for Indias government andits drug producers, both multinational and domestic, to work together inpartnership for the good of the industry and the nation. With itsenormous advantages, including a large, well-educated, skilled andEnglish-speaking workforce, low operational costs and improvingregulatory infrastructure, India has the potential to become the regionshub for pharmaceutical and biotechnology discovery research,
  48. 48. DR.RICHA SINGHPage48manufacturing, exporting and health care services within the nextdecade.However, in order for this to happen, it is imperative that the regulatoryenvironment continues to improve. Otherwise, India needs to look to theachievements of China, where the governments strong commitment pro-industry policies have produced a positive environment that not onlyoffers drug manufacturers a product patent regime but also, andcrucially, data protection. Indias continuing failure to do so needs to beurgently rectified.The goals set out in the Indian governments draft NationalPharmaceuticals Policy for 2006 in terms of domestic marketdevelopment are ambitious, and will require a positive pricingenvironment if the countrys 1 billion people are to be able to access thelife-saving and innovative medicines they need.Again, partnership is key: industry leaders are keen to work withgovernment on issues of affordability and point out that price controlswill do nothing to increase access to new and effective treatments. Forforeign investors, collaborations with India present a huge opportunityboth in terms of joint production for the global market and supply of thegrowing domestic market.Outlook for India‘s pharmaceutical industry up to 2015All in all expect India to see drugs sales rise by an annual 8% to nearlyEUR 20 bn between 2006 and 2015. To be sure, this growth rate ishigher than that seen for Germany (+5% p.a.) and the entire world(+6%). Nonetheless, India‘s share in world pharmaceutical sales will riseonly marginally to a good 2%.Growth of India‘s pharmaceutical industry and thus its share in globaldrugs manufacturing could even be slightly higher if the Infrastructureproblems could be remedied quickly. While the Pharmaceuticalindustries of China and Singapore will likely Continue to show muchhigher growth, India looks set to even lose market share in Asia. It islikely that many of smaller companies will merge or disappear from themarket altogether. By contrast, large pharmaceutical companies withsales volumes of over EUR 50 m will be able to increase their sales as
  49. 49. DR.RICHA SINGHPage49they will be better equipped to adjust their product ranges to thedemands of international markets.These firms will expand their capacities in India – mostly in the sector‘sclusters surrounding Delhi and Mumbai – but will also take over firms inthe industrial countries. Medium-sized businesses will benefit fromincreasing contract Production for western firms.All in all, the share of pharmaceuticals in the total chemicals industry inIndia will come to roughly 17% in 2015 (2006: 18%), compared with 28%in Germany (from 24% in 2006). For the world as a whole, the ratio willlikely be only slightly lower than the German level (25%).Although India‘s pharmaceutical sector is growing strongly, thepopulation‘s demand for drugs cannot be met by the country‘s ownproduction in all segments. At EUR 1.5 bn, India‘s total drugs importsare comparable in size to Norway‘s entire pharmaceuticals market.Imports look set to continue to rise strongly.On a medium-term horizon, one-fifth of the world‘s pharma sales will beaccounted for by the emerging markets. China will then be among thegroup of the five largest manufacturers, while India will join the group ofthe ten largest suppliers. The sooner India manages to close theinfrastructure gap, the higher growth will be in the country‘spharmaceutical industry.
  50. 50. DR.RICHA SINGHPage50