Growth of Indian pharmaceuticals in the world market
CONTENTS
Sr.
No.
chapter Page
no.
1. Introduction 3-11
2. Reasons for...
Growth of Indian pharmaceuticals in the world market
Introduction
- 2 -
Growth of Indian pharmaceuticals in the world market
The Indian pharmaceutical sector has come a long way, being almost no...
Growth of Indian pharmaceuticals in the world market
market will remain the most lucrative market for the Indian companies...
Growth of Indian pharmaceuticals in the world market
The pharmaceutical industry in India meets around 70% of the country'...
Growth of Indian pharmaceuticals in the world market
significant changes and divide within the industry. A look into organ...
Growth of Indian pharmaceuticals in the world market
Export markets increasingly drive IPI: in a turnover of US$5 billion,...
Growth of Indian pharmaceuticals in the world market
to this sector. Besides, planning commission has earmarked $34 millio...
Growth of Indian pharmaceuticals in the world market
vascular and central nervous system drugs. Anti-infectives comprise t...
Growth of Indian pharmaceuticals in the world market
India is also home to 2.5 million Dementia/Alzheimers disease patient...
Growth of Indian pharmaceuticals in the world market
- 11 -
Growth of Indian pharmaceuticals in the world market
Reasons for Growth
Cost advantage
Contract Manufacturing
Research and...
Growth of Indian pharmaceuticals in the world market
Reasons for growth
2.1 Cost advantage
The most critical challenge fac...
Growth of Indian pharmaceuticals in the world market
2.2 Contract Manufacturing
Many global pharmaceutical majors are look...
Growth of Indian pharmaceuticals in the world market
Select Contract Manufacturing Deals in India
Indian company Multinati...
Growth of Indian pharmaceuticals in the world market
2.3 Research and Development
India is becoming an increasingly attrac...
Growth of Indian pharmaceuticals in the world market
2.4 Mergers and Acquisitions
The pharmaceutical sector leads the M&As...
Growth of Indian pharmaceuticals in the world market
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Trends and S...
Growth of Indian pharmaceuticals in the world market
SWOT Analysis
Strengths
� Low cost - Indian manufacturers are one of ...
Growth of Indian pharmaceuticals in the world market
Weaknesses
� Poor R&D expenditure -Compared to the global pharmaceuti...
Growth of Indian pharmaceuticals in the world market
� Low entry barriers - Due to very low barriers to entry, Indian phar...
Growth of Indian pharmaceuticals in the world market
Opportunities
� Off patent drugs - Large number of drugs going off-pa...
Growth of Indian pharmaceuticals in the world market
Threats
� Transition from “Process” patent to “Product” patent – This...
Growth of Indian pharmaceuticals in the world market
Trends and Strategies
The Indian domestic pharmaceutical industry is ...
Growth of Indian pharmaceuticals in the world market
Efforts Taken by the government
Experience Drawn from Past Pharmaceut...
Growth of Indian pharmaceuticals in the world market
Efforts by the Indian government
In the year 2002 Government had form...
Growth of Indian pharmaceuticals in the world market
4.2 Important Developments after liberalization process in 1991
Follo...
Growth of Indian pharmaceuticals in the world market
4. Imports
Imports of drugs and pharmaceuticals are regulated through...
Growth of Indian pharmaceuticals in the world market
8. Product Patent in Pharmaceuticals -
Product patent in pharmaceutic...
Growth of Indian pharmaceuticals in the world market
4.3 Research and Development –
A. Fiscal Incentives
India is emerging...
Growth of Indian pharmaceuticals in the world market
a) The unit should be prequalified and registered with Department & S...
Growth of Indian pharmaceuticals in the world market
d) Have filed at least 10 patent applications in India based on resea...
Growth of Indian pharmaceuticals in the world market
4.4 Pharma Parks/SEZs for Pharma industry-
In order to enable India t...
Growth of Indian pharmaceuticals in the world market
and would be able to generate exports worth Rs 2000 crores and employ...
Growth of Indian pharmaceuticals in the world market
potential in these countries would be carried out to improve exports ...
Growth of Indian pharmaceuticals in the world market
Efforts by the Indian pharmaceutical
industry
- 36 -
Growth of Indian pharmaceuticals in the world market
Efforts by the Indian pharmaceutical industry
The IPI, seeking to tak...
Growth of Indian pharmaceuticals in the world market
Major Players
Ranbaxy Laboratories
Dr. Reddy's Laboratories
Nicholas ...
Growth of Indian pharmaceuticals in the world market
Major players
6.1 Ranbaxy Laboratories
Tejendra Khanna, Chairman
Ranb...
Growth of Indian pharmaceuticals in the world market
IMS Health estimated that Ranbaxy is among the top 100 pharmaceutical...
Growth of Indian pharmaceuticals in the world market
6.3 Nicholas Piramal
Ajay G. Piramal, Chairman
Now a company grossing...
Growth of Indian pharmaceuticals in the world market
6.5 Biocon
Dr. Kiran Mazumdar-Shaw, Chairman and Managing Director
Bi...
Growth of Indian pharmaceuticals in the world market
6.7 Strides Arcolab
Arun Kumar, MD
Bangalore-based Strides Arcolab is...
Growth of Indian pharmaceuticals in the world market
India vs. China in pharmaceuticals
The Chinese edge
Where India score...
Growth of Indian pharmaceuticals in the world market
India vs. China in pharmaceuticals
In the global economy, both India ...
Growth of Indian pharmaceuticals in the world market
7.2 Where India scores...
That said, while China is set to provide st...
Growth of Indian pharmaceuticals in the world market
7.3 The equation: Present and future
Given the fact that the 'low cos...
Growth of Indian pharmaceuticals in the world market
Some Important Articles
Tweaking drugs won't help cos skip price cont...
Growth of Indian pharmaceuticals in the world market
Some Important articles from Economic times
8.1 Tweaking drugs won't ...
Growth of Indian pharmaceuticals in the world market
products’ composition and recent alterations in them to see if they e...
Growth of Indian pharmaceuticals in the world market
Regulations passed recently aim to create the right incentives to sti...
Growth of Indian pharmaceuticals in the world market
8.3 India as offshore pharma destination FRIDAY, NOVEMBER 03, 2006
Th...
Growth of Indian pharmaceuticals in the world market
outsourcing high-tech projects there, or even setting up a fully-fled...
Growth of Indian pharmaceuticals in the world market
8.4 Dr. Reddy's net profit triples FRIDAY, OCTOBER 27, 2006
Dr. Reddy...
Growth of Indian pharmaceuticals in the world market
Revenue from North America generics finished dosage business jumped t...
Growth of Indian pharmaceuticals in the world market
Conclusion
- 56 -
Growth of Indian pharmaceuticals in the world market
CONCLUSION
The achievements of the Indian pharmaceutical industry are...
Growth of Indian pharmaceuticals in the world market
Recommendations
- 58 -
Growth of Indian pharmaceuticals in the world market
RECOMMENDATIONS
1. With the second-largest population in the world, a...
Growth of Indian pharmaceuticals in the world market
Bibliography
- 60 -
Growth of Indian pharmaceuticals in the world market
Bibliography
Analysis of the Indian Pharmaceutical Industry With Emph...
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Growth of indian pharmaceuticals in the world market

  1. 1. Growth of Indian pharmaceuticals in the world market CONTENTS Sr. No. chapter Page no. 1. Introduction 3-11 2. Reasons for Growth 12-17 1. Cost advantage 13 2. Contract Manufacturing 14 3. Research and Development 16 4. Mergers and Acquisitions 17 3. SWOT Analysis 18-23 1. SWOT Analysis 19 2. Trends and Strategies 24 4. Efforts Taken by the government 25-35 1. Experience Drawn from Past Pharmaceutical Policies 25 2. Important Developments after liberalization process in 1991 27 3. Research and Development 30 4. Pharma Parks/SEZs for Pharma industry 33 5. Greater Thrust on Pharma Exports 34 5. Efforts Taken by the industry 36-37 6. Major Players 38-43 1. Ranbaxy Laboratories 39 2. Dr. Reddy's Laboratories 40 3. Nicholas Piramal 41 4. Cipla 41 5. Biocon 42 6. Serum Institute of India 42 7. Strides Arcolab 43 7. India vs. China in pharmaceuticals 44-47 1. The Chinese edge 45 2. Where India scores 46 3. The equation: Present and future 47 8. Some important articles 48-55 1. Tweaking drugs won't help cos skip price control 49 2. Cracking Japan's generics market code 50 3. India as offshore pharma destination 51 4. Dr. Reddy's net profit triples 53 9. Conclusion 56 10. Recommendations 58 11. Bibliography 60 - 1 -
  2. 2. Growth of Indian pharmaceuticals in the world market Introduction - 2 -
  3. 3. Growth of Indian pharmaceuticals in the world market The Indian pharmaceutical sector has come a long way, being almost non- existent before 1970 to a prominent provider of healthcare products, meeting almost 95% of the country's pharmaceuticals needs. The domestic pharmaceutical sales have increased from Rs4bn in 1970-71 to Rs214bn in 2002, at a CAGR of 13.7% per annum. The total Indian production constitutes about 1.3% of the world market in value terms and, 8% in volume terms. The per capita consumption of drugs in India, stands at US$3, is amongst the lowest in the world, as compared to Japan- US$412, Germany- US$222 and USA- US$191. Indian pharmaceutical industry is mounting up the value chain. From being a pure reverse engineering industry focused on the domestic market, the industry is moving towards basic research driven, export oriented global presence, providing wide range of value added quality products and services. Government policies will play an important role in defining the future of the pharmaceutical industry. The product patent regime which came into effect from January 2005 will lead to long- term growth for the future. In the present scenario, the growth of a domestic pharmaceutical company is critically dependent on its therapeutic presence. The old and mature categories like anti-infectives, vitamins, analgesics are de-growing while; new lifestyle categories like Cardiovascular, Central Nervous System (CNS), and Anti Diabetic are expanding at double-digit growth rates. Increased generic penetration, intense competition, fragmentation of the industry has negatively impacted the overall value growth of the domestic pharmaceutical market. In this scenario, to grow in the domestic market, pharmaceutical companies are constantly eyeing for innovation, introduction of new value added products, product life cycle management and enlarging their market reach. Indian companies are putting their act together to tap the generic drugs markets in the regulated high margin markets of the developed countries. The US - 3 -
  4. 4. Growth of Indian pharmaceuticals in the world market market will remain the most lucrative market for the Indian companies led by its market size and the intensity of blockbuster drugs going off patent. An estimated US$45bn of drugs expected to go off patent by 2007 in US alone. Outsourcing in the fields of R&D and manufacturing is the next best event in the pharmaceutical industry. Spiraling cost, expiring patents, low R&D cost and market dynamics are driving the MNCs to outsource both manufacturing and research activities. India with its apt chemistry skills and low cost advantages, both in research and manufacturing coupled with skilled manpower will attract a lot of business in the days to come. The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharmaceutical 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 Pharmaceutical 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. - 4 -
  5. 5. Growth of Indian pharmaceuticals in the world market The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. 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. The Indian patent act of 1970 amended on March 22, 2005 marks the end of a protected era and signals a new phase in the integration of India into the global pharmaceutical market. The new amendment seeks to make copying of post-1995 patented drugs illegal. As India enters product patent regime how will it affect the Indian pharmaceutical industry (IPI), health care industry, legal machinery enforcing the regulations and most importantly patients in India and the developing world given the fact Indian drugs are exported to more than 65 countries? With a regulatory system focused only on process patents, helped to establish the foundation of a strong and highly competitive domestic pharmaceutical industry which in the grip of a rigid price control framework transformed into a world supplier of bulk drugs and medicines at affordable prices to common man in India and the developing world. Introduction of product patents will, however, mark the end of a golden age for IPI. The new regulations will reshape the landscape of IPI forcing - 5 -
  6. 6. Growth of Indian pharmaceuticals in the world market significant changes and divide within the industry. A look into organization of pharmaceutical producers of India (OPPI) directory shows only 300 units out of 10,000 registered companies are in the organized sector. While process patent helped to flourish IPI into a world-class generics industry, product patent regime will filter the best from the pack and would be favorable to players with built-in scientific and technical resources. The impact of the new regulations will not deter the Indian pharmaceutical majors as they are already doing roaring business in the very countries where these patent laws are strictly in force. Driven by the knowledge skills, growing enterprise, low costs, improved quality and demand (domestic and international) the pharmaceuticals sector has witnessed a tremendous growth over the past few years - from a turnover of Rs. 5000 crores in 1990 to over Rs. 50,000 crores during 2004-05. Exports have also grown very significantly to over Rs. 16700 crores during this period. Exports of Drugs, Pharmaceuticals and Fine Chemicals 1999-2000 2000-01 2001-02 2002-03 2003-04 Rs. 7230.16 Crore ($ 1.60 billion) Rs. 8575.47 Crore ($1.95 billion) Rs. 9834.7 Crore ($2.18 billion) Rs. 11925 .4 Crore ($2. 65 billion) Rs. 14100.00 Crore ($3.13 billion) Growth of Pharmaceutical Exports 1999- 2000 2000- 01 2001- 02 2002- 03 2003- 04 15.57% 20.73% 11.13% 21.2% 18.24% - 6 -
  7. 7. Growth of Indian pharmaceuticals in the world market Export markets increasingly drive IPI: in a turnover of US$5 billion, exports constitute $3.2 billion and the industry is poised to grow to $25 billion by 2010 (McKinsey). The share of IPI in world pharmaceutical market is 1.0% (ranks 13th) in value and 8% (ranks 4th) in volume terms. The global market for generic drugs is estimated at $27 billion (2001) and the expiry of patents on drugs will be worth $80 billion (2005) offers a huge opportunity to IPI. The industry has developed Good Manufacturing Practices (GMP) facilities for the production of different dosage forms. The pharmaceutical industry exports drugs and pharmaceuticals worth over $ 3.8 billion. It ranks 17th in terms of export value of bulk actives and dosage. Indian exports cover more than 200 countries including the highly regulated markets of USA, Europe, Japan and Australia. It is also recognized that the cost of drugs produced in India is amongst the lowest in the world. It is estimated that by the year 2010 industry has the potential to achieve Rs 1, 00,000 crores in formulations with bulk drug production going up from Rs 8000 crores to Rs 25,000 crores. India’s rich human capital is believed to be the strongest asset for this knowledge-led industry. Various studies show that the scientific talent pool of 4 million Indians is the second largest English speaking group worldwide, after the US. India today has the largest number of US Food & Drug Administration (FDA) approved drug manufacturing facilities outside the US. In addition, Drug Master Files (DMFs) filed by Indian companies with the FDA is 126 higher than Spain, Italy, China and Israel put together. DMF has to be approved by FDA for a drug to enter the US market. Research & Development (R&D) is a key to the strength of pharmaceutical industry especially in the product patent period. The global pharmaceutical industry spent $30.4 billion (2001) on R&D. The R&D expenditure (as a percentage of turnover) by the IPI is low (1.9%) when compared global giants (10 - 16%). With transition into the new regime many Indian companies are mobilizing their resources war chest with an increase in their R&D budget. Government of India (GOI) encouraged the R&D in pharmaceutical companies by extending 10 year tax holiday - 7 -
  8. 8. Growth of Indian pharmaceuticals in the world market to this sector. Besides, planning commission has earmarked $34 million towards drug industry R&D promotion fund for the tenth plan. Globally, pharmaceutical industry grew at a compounded annual growth rate of 9.1 per cent in the last 23 years to $491 billion propelled by a string of innovative blockbusters. Multinationals were reshaped by mergers and acquisitions as a way of fattening their research pipelines. This at best represents a short-term solution. With a slew of brand name drugs losing patent protection in the next few years and the pressure building for pharmaceuticals to cut price, these giants find themselves under immense strain to find new drugs and reduce price. Bringing a new drug into the market costs a company an average of about $800 to $900 million. Some estimates show that patient recruitment and medical personnel account for nearly 70 per cent of the clinical costs that are required to bring a drug to market. The less expensive means to raise research productivity is outsourcing research to low cost havens such as India and China. The global pharmaceutical outsourcing market stands at $10 billion (2004). Pharmaceutical multinationals have maintained a low-key presence in Indian market due to absence of product patents and rigid price controls. Pharmaceutical industry did not receive significant foreign direct investment (FDI). From August 1991 to December 1998 this industry accounted for a meager 0.44% of the total FDI. Introduction of product patents will see multinationals strengthening their presence in the country. The second largest population in the world, a growing economy and rising income levels makes Indian market difficult to ignore. In the domestic market, the share of Indian companies has steadily increased from around 20 per cent in 1970 to 70 percent now. Ranbaxy Laboratories is the market leader in terms of revenues followed by Cipla and Dr Reddys Laboratories. Glaxo is the only multinational to figure among the top ten pharma companies in India. In India, 97 per cent of drugs are off patent and are manufactured by a vast number of companies. The key therapeutic segments include anti-infectives, cardio - 8 -
  9. 9. Growth of Indian pharmaceuticals in the world market vascular and central nervous system drugs. Anti-infectives comprise the largest therapeutic segment in India, accounting for about 26 per cent of the market. Lets take a look at how and whom does the new rule affect with a few specific case. A symptom of the new regulation is a dispute about the anti-blood cancer drug, Gleevac, sold by Novartis for $2750 per month when the prohibited generics used to cost less than one-tenth of the price. In India 24,000 new cases of this disease are reported each year with about 18,000 patients succumbing to it. The country does not have a strong health insurance sector as in the US to cushion the rising healthcare cost. In addition most patients pay for medicines through their own funding and is not backed by medical insurance schemes. Private sector provides 80% of the country’s health care and the government role is limited with a budget of only $215 million as per the 2005-06 budget estimates. Since 1986 when the first case of AIDS was reported in India the affected population has grown to 4.5 million in the late 2002. The impact of the recent amendments will be felt in developing world as well as half the AIDS patients in the third world rely on India's generic drug industry. Cipla, Ranbaxy Laboratories, Matrix Laboratories, and Hetero Drugs recently announced an agreement with the Clinton foundation to provide drugs to four African and nine Caribbean countries at a per capita cost of about $0.37 per day. India's ministry of health is negotiating a final price with the generic drug manufacturers in an effort to obtain drugs for India at a price even lower than that. The 12 ARVs (anti retro-viral drugs) used for AIDS and manufactured in India are pre-1995 period inventions. As AIDS patients develop resistance to old drugs, new treatments will become less affordable. If a drug is desperately needed, the new law allows the government, like the rest of the world, to declare an emergency and cancel its patent. India had never declared such an emergency, and for years resisted admitting that it had an AIDS problem. - 9 -
  10. 10. Growth of Indian pharmaceuticals in the world market India is also home to 2.5 million Dementia/Alzheimers disease patients. As most of the anti- holinesterse drugs are recent the price of these medicines would automatically go up. The government-run patent office will come under pressure for the first time in several years to streamline the entire process. As with any new administrative or legal system, transition to a new regime will not be smooth. Can the enormously strained Indian legal system bear the additional pressures as we enter the product patent world? The decades of incubation and shielding of IPI by favorable government policies and absence of foreign competition is over. IPI is in the cross roads now and staring at a new world full of opportunities and threats. The Indian pharmaceutical industry is fast on its road to healthy growth. The Indian pharmaceutical sector was largely positioned as a generics market. But now it is transforming to emerge as major contributor in the global perspective. The drive of the Indian pharmaceutical sector towards its greater share in the global industry is from its introduction of product patents in 2005. In the last twenty years, patents were only granted on processes decision. This being to the disadvantages of many multi-national companies, they exited from the country. However, it turned advantageous to India, which enabled it to become a leading producer of generic medicines. RNCOS’ market research report, “Opportunities in Indian Pharmaceutical Sector” tells that the pharmaceutical sector in India currently shares US $6 billion of the total $552 billion global pharmaceutical industry. And this share is poised to grow at a rate of 12% every year, compared to the annual growth of 8% in the world market. This is pointed evidence to the promising scenario of the pharmaceutical market in India. - 10 -
  11. 11. Growth of Indian pharmaceuticals in the world market - 11 -
  12. 12. Growth of Indian pharmaceuticals in the world market Reasons for Growth Cost advantage Contract Manufacturing Research and Development Mergers and Acquisitions - 12 -
  13. 13. Growth of Indian pharmaceuticals in the world market Reasons for growth 2.1 Cost advantage The most critical challenge facing the global pharmaceutical industry today is the increasing cost of drug discovery and development and the increasing time to market. This is further compounded by: • impending patent expirations of blockbuster molecules • pricing pressures • low public opinion • challenges to intellectual property by increasingly aggressive generic companies • re-importation pressures • Medicare/Medicaid reform • increasing regulatory hurdles. This scenario is forcing the multinational pharmaceutical companies (MNCs) to rethink their strategic options in order to exploit their core competencies across the globe. In this situation, India stands a lot to gain because of its inherent advantages like stability, culture, cost, and educated workforce. This has led to increased alliances and collaborations thus eventually creating a win-win situation for both the parties. The growth of Indian pharma industry is also driven by the low drug production costs, which are 55 percent lower than in the western countries. Another reason of high growth rates is the system of contract manufacturing. - 13 -
  14. 14. Growth of Indian pharmaceuticals in the world market 2.2 Contract Manufacturing Many global pharmaceutical majors are looking to outsource manufacturing from Indian companies, which enjoy much lower costs (both capital and recurring) than their western counterparts. Many Indian companies have made their plants cGMP compliant and India is also having the largest number of USFDA-approved plants outside USA. Indian companies are proving to be better at developing Active Pharmaceutical Ingredients (APIs) than their competitors from target markets and that too with non- infringing processes. Indian drugs are either entering in to strategic alliances with large generic companies in the world of off-patent molecules or entering in to contract manufacturing agreements with innovator companies for supplying complex under- patent molecules. Some of the companies like Dishman Pharma, Divis Labs and Matrix Labs have been undertaking contract jobs for MNCs in the US and Europe. Even Shasun Chemicals, Strides Arcolabs, Jubilant Organosys, Orchid Pharmaceuticals and many other large Indian companies started undertaking contract manufacturing of APIs as part of their additional revenue stream. Top MNCs like Pfizer, Merck, GSK, Sanofi Aventis, Novartis, Teva etc. are largely depending on Indian companies for many of their APIs and intermediates. The Boston Consulting Group estimated that the contract manufacturing market for global companies in India would touch $900 million by 2010. Industry estimates suggest that the Indian companies bagged manufacturing contracts worth $75 million in 2004. - 14 -
  15. 15. Growth of Indian pharmaceuticals in the world market Select Contract Manufacturing Deals in India Indian company Multinational Product Lupin Laboratories Fujisawa Cefixime Apotex Cefuroxime Axetil, Lisinopril (Bulk) Nicholas Piramal Allergan Bulk and Formulations Advanced Medical Optics Eye Products Wockhardt Ivax Nizatidine (anti- ulcerant) Dishman Pharmaceuticals Solvay Pharmaceuticals Eprosartan Mesylate IPCA Labs Merck Bulk Drugs Tillomed Atenelol Orchid Chemicals and Pharmaceuticals Apotex Cephalosporin and other injectables Sun Pharma Eli Lilly CVS products, anti-infective drugs and insulin Kopran Synpac Pharmaceuticals Penicillin- G Bulk Drug Cadila Healthcare Altana Pharma Intermediates for Pantoprazole Boehringer Ingelheim Gastrointestinal and CVS Products Biocon Bristol Myers Squibb Bulk Drugs - 15 -
  16. 16. Growth of Indian pharmaceuticals in the world market 2.3 Research and Development India is becoming an increasingly attractive destination for R&D activities in the pharmaceutical industry. A variety of factors, from changing IP and patent laws, via favorable cost/skill ratios, to the past success of outsourcing in the IT fields, have converged to create a compelling business opportunity for Indian companies in pharmaceutical R&D. Global pharmaceutical companies can exploit this opportunity by developing an ‘India Strategy’ to enhance and complement their existing R&D efforts. Indian Pharmaceutical companies are in a favourable position to develop drugs at a fraction of the international costs due to the low manpower cost, infrastructure, quality scientists and the capability to conduct path-breaking research. • The Government has taken various policy initiatives in order to strengthen Research and Development in the pharma sector. • Fiscal incentives are awarded to Research and Development units in the pharma sectors towards the development of new drug molecules, clinical research, new drug delivery systems, new Research and Development set ups and infrastructure provision. • Certain leading Research and Development companies have increased their Research and Development spending to over 5 percent of their turnover in comparison to an average spending of 2 per cent. • Pharma units interested in obtaining Income Tax Exemption under Section 35(2AB) need to get their Research and Development unit recognized by CSIR. • A Pharmaceutical Research and Development Promotion Fund to the tune of Rs 150 crores has been established for promoting Research and Development in the pharma sector - 16 -
  17. 17. Growth of Indian pharmaceuticals in the world market 2.4 Mergers and Acquisitions The pharmaceutical sector leads the M&As wave after information technology. This trend is fuelled by the need to explore newer markets and products for future growth in this industry. Further, acquisitions also act as mechanisms to alleviate regulatory constraints in penetrating overseas markets. Hence, Indian pharmaceutical companies are increasingly focusing on global acquisitions and are adopting the strategy of acquiring existing generic drug marketing companies that hold valid drug licenses. The pharmaceutical companies have been aggressively making acquisitions overseas, especially in the US and Europe, in the past two to three years. Most of the acquisitions have been in the generics space and have resulted in Indian firms gaining access to manufacturing facilities in potential areas like the European Union. Industry consolidation is considered to be a better option for inducing growth. Many organised companies like Ranbaxy, Sun Pharma, Wockhardt, DRL and Cipla, have already adopted the consolidation strategy in an attempt to strengthen their base in the regulated markets by acquiring small companies in Europe and the US. - 17 -
  18. 18. Growth of Indian pharmaceuticals in the world market SWOT Analysis Strengths Weaknesses Opportunities Threats Trends and Strategies - 18 -
  19. 19. Growth of Indian pharmaceuticals in the world market SWOT Analysis Strengths � Low cost - Indian manufacturers are one of the lowest cost producers of drugs in the world. With a scalable labor force, Indian manufactures can produce drugs at 40%to 50% of the cost to the rest of the world. In some cases, this cost is as low as 90%. � Strong technical skills – Indian pharmaceutical industry posses excellent chemistry and process reengineering skills. This adds to the competitive advantage of the Indian companies. The strength in chemistry skill help Indian companies to develop processes, which are cost effective. � Fluency in English speaking - Most people in India, especially those who are educated and have advanced degrees, are fluent in English. This aptitude allows them to communicate with most of the outside world, which is an important asset to the IPI. The health statistics of India make it clear that India produces a sufficient number of medical and pharmacy graduates, which contributes to the strengthening of the IPI. � Patent – The Patent Act and Drug Price Control Order of the 1970s forced MNCs to shrink their operations in India, thus providing space for indigenous pharmaceutical companies to expand in the local market. As a result, in the past two to three decades domestic pharmaceutical companies have established operations and are self sufficient in all aspects. For example, Cipla Limited could provide the generic version of the AIDS triple cocktail to impoverished South African people at $350/patient/year or at a price that is one-thirtieth its cost in the United States. Indian patent laws allowed local companies to set up operations to produce bulk drugs that are still under patent, by various synthetic routes. The prevalence of this reverse engineering is controversial, but it suggests that the IPI’s chemists have a strong showing in organic/ medicinal chemistry. The IPI’s tremendous potential to produce bulk drugs will be a major asset in future drug discovery programs. - 19 -
  20. 20. Growth of Indian pharmaceuticals in the world market Weaknesses � Poor R&D expenditure -Compared to the global pharmaceutical industry, Indian R&D expenditure is still minuscule, which could have a negative effect in the long run, especially in Product Patent regime. The average R & D spend in India, though growing at a CAGR of 18% over last five years, is just 1.9% of sales, as against 10- 16% spend by global pharma companies. Even if 25% of gross sales are invested in R&D, the IPI’s total R&D budget is comparatively very small. Individual R&D budgets of many US companies probably amount to much more than the cumulative R&D budgets of all the companies in India. Thus, availability of funds is a major weakness of the IPI. � Tag of being “Copy Cats” – Majority of the Indian companies are dependent on replicating drugs developed by MNCs, hence Indian companies are viewed in not so good light. � Price Regulation - The Indian pharma companies are marred by the price regulation. Over a period of time, this regulation has reduced the pricing ability of companies. The NPPA (National Pharma Pricing Authority), which is the authority to decide the various pricing parameters, sets prices of different drugs, which leads to lower profitability for the companies. The companies, which are lowest cost producers, are at advantage while those who cannot produce have either to stop production or bear losses. � Slow growth - Indian pharma market is one of the least penetrated in the world. However, growth has been slow to come by. As a result, Indian majors are relying on exports for growth. To put things in to perspective, India accounts for almost 16% of the world population while the total size of industry is just 1% of the global pharma industry. - 20 -
  21. 21. Growth of Indian pharmaceuticals in the world market � Low entry barriers - Due to very low barriers to entry, Indian pharma industry is highly fragmented. This makes Indian pharma market increasingly competitive. The industry witnesses price competition, which reduces the growth of the industry in value term. To put things in perspective, in the year 2003, the industry actually grew by 10.4% but due to price competition, the growth in value terms was 8.2% (prices actually declined by 2.2%) � Labour laws - Outdated and restrictive labour laws are hampering all the industries in India and making it unviable for the MNCs to set up production base in India. � Animal rights - Animal experiments are an essential part of pharmaceutical R&D. Every drug molecule must be screened using animals first to determine its efficacy and side or toxic effects. If Indian animal rights activists block the use of animals in R&D experimentation, the IPI will be forced to turn to other countries for animal studies. A great need exists to provide appropriate information to animal activists in India so a balance can be struck between animal rights and human rights. � Infrastructure - The infrastructure in India is good but could be improved. The development of infrastructure is a key to success, and the IPI must take more definitive steps to overcome this weakness. - 21 -
  22. 22. Growth of Indian pharmaceuticals in the world market Opportunities � Off patent drugs - Large number of drugs going off-patent in Europe and in the US between 2005 to 2009 (approx. $80 billion) offers a big opportunity for the Indian companies to capture this market. Since generic drugs are commodities by nature, Indian producers have the competitive advantage, as they are the lowest cost producers of drugs in the world. � Expansion - Opening up of health insurance sector and the expected growth in per capita income are key growth drivers from a long-term perspective. This leads to the expansion of healthcare industry of which pharma industry is an integral part. � Outsourcing - Being the lowest cost producer combined with FDA approved plants; Indian companies can become a global outsourcing hub for pharmaceutical products. � Patent - A patent is granted to an invention that is novel, nonobvious, and useful. The IPI has a clear opportunity to be part of the international patent community in the acquisition of patents. This process will stimulate economic development, provide job opportunities, and help India build a global reputation as a nation with a strong scientific community. It will also make modern medicines available to the entire Indian population. More important, indigenous R&D activities will help domestic companies discover drugs to treat tropical diseases. - 22 -
  23. 23. Growth of Indian pharmaceuticals in the world market Threats � Transition from “Process” patent to “Product” patent – This is the major threat Indian pharmaceutical industry is facing. Indian companies especially medium and small sized do not have capabilities to develop new molecules, and they may succumb to the giants. � Counterfeit drugs – The extent of the problem of counterfeit drugs is unknown. Counterfeiting is difficult to detect, investigate, and quantify. So, it is hard to know or even estimate the true extent of the problem. What is known is that they occur worldwide and are more prevalent in developing countries. It is estimated that upwards of 10% of drugs worldwide are counterfeit, and in some countries more than 50% of the drug supply is made up of counterfeit drugs � Other low cost countries - Threats from other low cost countries like China and Israel exist. However, on the quality front, India is better placed relative to China. So, differentiation in the contract manufacturing side may wane. - 23 -
  24. 24. Growth of Indian pharmaceuticals in the world market Trends and Strategies The Indian domestic pharmaceutical industry is increasingly becoming globally competitive to counter the weaknesses and threats. The key trends and strategies being adopted by the local pharmaceutical industry are: Increased R&D Focus Driven by the imminent change to a product patent regime at home from 2005 the leading pharmaceutical companies in India have been increasing their R&D budgets over the years.Indian pharmaceutical companies are likely to double their expenditure on R&D over the next 2 years. Exports driven growth Indian pharmaceutical companies are on a global beat. Currently, exports contribute more than half the total revenues for most of the Indian pharmaceutical majors. Exports have increased in recent years as Indian pharmaceutical companies have made deep inroads into the regulated generic markets of the US and Europe, in addition to unregulated markets - 24 -
  25. 25. Growth of Indian pharmaceuticals in the world market Efforts Taken by the government Experience Drawn from Past Pharmaceutical Policies Important Developments after liberalization process in 1991 Research and Development Pharma Parks/SEZs for Pharma industry Greater Thrust on Pharma Exports - 25 -
  26. 26. Growth of Indian pharmaceuticals in the world market Efforts by the Indian government In the year 2002 Government had formulated a new Drug Policy but the same could not be implemented due to litigation involving it, hence the policy of 1994 still continues to be in force. The present Policy known as the National Pharmaceuticals Policy, 2005 has been necessitated due to several developments that have taken place during the course of last few years as well as to address some of the major concerns as highlighted above. Price regulation of the essential medicines is an important component of this policy. However several other matters having a close bearing on the pharmaceuticals sector have also been included in the policy. 4.1 Experience Drawn from Past Pharmaceutical Policies The first comprehensive Drug Policy of 1978 and thereafter the Drug Policy of 1986 together with the application of process patent under the Patent Act of 1970 successfully paved the way for development of indigenous pharmaceutical industry which went into the production of generic drugs in a big way . A conducive environment for success was provided by the then prevailing trade and economic policies. During the period from 1978 to 1990 indigenous industry acquired a respectable status in terms of product range and market share. R&D was confined to process development/innovation of existing molecules. As regards pricing, the span of control, inclusion/exclusion of drugs under price control, methodologies adopted etc. continued to be debated. The Government developed principles of selectivity, from time to time, to keep the price control manageable and focused, as would be observed from declining trend in number of drugs under price control. In 1970, almost all bulk drugs and their formulations were under price control. In keeping with the economic policies of the country the number got reduced to 347 bulk drugs in 1979, 142 in 1987 and finally to 74 in 1995. It would have got reduced further under the criteria adopted in the Pharmaceutical Policy 2002; however, the same could not be implemented due to litigation involving it. - 26 -
  27. 27. Growth of Indian pharmaceuticals in the world market 4.2 Important Developments after liberalization process in 1991 Following are some of the important developments that have taken place in pharmaceutical sector after the process of liberalization of the Indian economy was initiated by the Government in the year 1991 1) Industrial Licensing Industrial licensing for all kinds of drugs has been abolished (it has recently been done for the last remaining bulk drugs produced by the use of recombinant DNA technology, bulk drugs requiring in-vivo use of nucleic acids and specific cell-tissue targeted formulations). However the need for obtaining manufacturing license under Drugs and Cosmetics Act, 1940 continues for all units whether organized or small scale. The State Drug Controllers are authorized to issue such licenses in most cases. 2. Foreign Direct Investment FDI up to 100% is permitted, subject to stipulations laid down from time to time in the Industrial Policy, through the automatic route in the case of all bulk drugs cleared by the Drug Controller General (India), all their intermediates and formulations. Recently bulk drugs produced by the use of recombinant DNA technology, bulk drugs requiring in-vivo use of nucleic acids as the active principles and special cell/tissue targeted formulations have also been allowed this facility. 3. Foreign Technology Agreement Automatic approval for Foreign Technology Agreement (FTA) is already available in the case of all the bulk drugs cleared by Drug Controller General (India) , all their intermediates and formulations, except bulk drugs produced by the use of recombinant DNA technology, bulk drugs requiring in-vivo use of nucleic acids as the active principles, and specific cell/tissue targeted formulations. - 27 -
  28. 28. Growth of Indian pharmaceuticals in the world market 4. Imports Imports of drugs and pharmaceuticals are regulated through EXIM Policy in force and presently all items except those requiring clearance under The Narcotics and Psychotropic Substances Act , 1985 are allowed under OGL. Further, a centralized system of registration has been introduced under the Drugs & Cosmetics Act and Rules made there under, administered by Ministry of Health and Family Welfare. These arrangements may continue to regulate imports of Drugs and Pharmaceuticals. 5. Exports Exports are permitted in accordance with the EXIM Policy and relevant procedures/rules formulated for the purpose by the Directorate General of Foreign Trade. Exports are also subject to laws prevalent in importing countries. Also, the exporters are allowed imports of inputs on duty-free basis for export production. The industry has shown commendable export performance, the trade balance being positive. Over the last few years the compounded annual growth rate in exports has been 22.7 percent. 6. Constitution of Pharmaceutical Export Promotion Council (Pharmexil) In order to provide a boost to pharmaceutical exports Government constituted a separate Export Promotion Council for Pharmaceuticals (Pharmexil) in the year 2004- 05. This Council works closely with the Department of Commerce and the Export Promotion Cell in the Department of Chemicals and Petrochemicals to undertake activities such as promoting exports, preparing country-profiles, assessing export potential across the countries and to have greater degree of interaction internationally. 7. Research & Development As recommended by the Mashelkar Committee in 1999 a Pharmaceutical Research and Development Support Fund (PRDSF) with a corpus of Rs. 150 crores has been set up under the administrative control of the Department of Science and Technology. A Drug Development Promotion Board (DDPB) to administer the utilization of PRDSF has also been set up . - 28 -
  29. 29. Growth of Indian pharmaceuticals in the world market 8. Product Patent in Pharmaceuticals - Product patent in pharmaceuticals has been introduced in the country with effect from 1st January , 2005 by amending the Patents Act , 1970 in conformity with the TRIPS agreement . The physical infrastructure in the four patent offices in the country (Kolkata, Delhi, Chennai and Mumbai) has been substantially strengthened and computerization has been introduced. Steps are now being taken to further augment and improve the software and human resources in these offices to enable them to deal with the new responsibilities . 9. Schedule M of Drugs and Cosmetics Act, 1940- The revised Schedule M of the Drugs and Cosmetics Act, 1940 related to Good Manufacturing Practices (GMP) has come into effect from 1stJuly 2005.This would in the long run strengthen the pharmaceutical industry as a producer of quality medicines . 10. Introduction of Value Added Tax (VAT) VAT has been introduced in India with effect from 1st April,2005 .Already 22 States have implemented it .The remaining States are likely to implement it in the near future. VAT on medicines has been kept at 4% 11. Excise Duty payable on MRP (Maximum Retail Price) A Notification was issued on 7th January, 2005 under which Excise duty became leviable on MRP with an abatement of 40%. - 29 -
  30. 30. Growth of Indian pharmaceuticals in the world market 4.3 Research and Development – A. Fiscal Incentives India is emerging as the most favored destinations for collaborative R&D bioinformatics, contract research and manufacturing and clinical research as a result of growing compliance with internationally harmonized standards such as Good Laboratory Practices (GLP), current Good Manufacturing Practices (cGMP ) and Good Clinical Practices (GCP) With the application of product patent in the case of pharmaceuticals it is imperative for the Indian industry to accelerate its efforts in R&D in this sector. The present level of spend on R&D (about 5% of turnover) is much lower as compared to most of the developed countries (15 to 20%) With a view to encourage R&D in this sector it is essential to provide suitable incentives to industry. At the same time it is also necessary that the incentives are made use of by those units which are genuinely engaged in R&D. As such the required incentives would be made available with some safeguards to ensure that these are available to the deserving cases only. The incentives available would be as under – a) The benefit of 150% weighted exemption under section 35(2AB) to be continued till 31st March, 2015 b) Section 35(2AB) to be extended to depreciation on investment made in land and building for dedicated research facilities, expenditure incurred for obtaining regulatory approvals and filling of patents abroad and expenditure incurred on clinical trials in India . c) Reference Standard (sample under test) would be exempted from import duty d) Reference books to be imported for R&D would be exempted from import duty. e) Presently there are 101 specified instruments (list 28) required for R&D purposes which are exempt from import duty. With the ever changing requirements new instruments are required to be imported .These instruments based on the certification of DSIR would also be exempt from import duty. The fiscal incentives are at present only available up to 31st March, 2007. Since R&D activity has to be carried over long periods of time, fiscal incentives would be granted over a longer period of time extending upto 10 years i.e. upto 31st March, 2015. The above incentives would be available to such units which fulfill the following conditions - 30 -
  31. 31. Growth of Indian pharmaceuticals in the world market a) The unit should be prequalified and registered with Department & Scientific and Industrial Research (DSIR) as R&D centre. b) The unit should submit a statement certified by the Auditors showing the total expenses incurred on R&D. c) In case of claims for clinical trials, the unit should submit approval obtained from the Drug Regulatory Authority for carrying out the trials and certificate by the CEO or the Auditor for completion of trials. d) In case of claims for patent filing abroad, the unit should submit relevant document (official receipt, etc) showing the filing expenses duly certified by the CEO or the Auditor. e) In case of claims related to land and buildings, the unit should submit a letter signed by the CEO confirming that the claims pertain to facilities used exclusively for R & D. B .R&D Intensive Companies (Gold Standard Companies) The Pharmaceutical Research and Development Committee headed by Dr R.A. Mashelkar in its report submitted to Government in November, 1999 recommended that R&D intensive companies fulfilling certain conditions should be given price benefits for the drugs under DPCO. It specified certain norms in this regard and termed these as the gold standards. Since six years have elapsed since this report was submitted it has been considered proper to revise these norms The revised norms are as under – a) Invest at least 3% of the annual sales turnover on R&D or Rs 50 crores per annum, (average of last 3 years) whichever is higher on research facilities. b) Employment of at least 200 scientists in India (MScs or Phds employed at least for one year). c) Own and operate manufacturing facilities in India which have been approved by at least two reputed foreign regulatory agencies (US, Europe, Japan, Canada, Australia, Israel, South Africa etc) - 31 -
  32. 32. Growth of Indian pharmaceuticals in the world market d) Have filed at least 10 patent applications in India based on research done in India Companies fulfilling the above norms would be eligible for the benefit of 200% weighted deduction under 35(2AB) till 31st March, 2015 Additional incentives under price control measures may also be considered to such companies by Department of Chemicals and Petrochemicals. However in order to be eligible for any of the additional incentives such companies would be expected to fulfill the following norms – a. The unit should submit a statement signed by HRD/R&D chief or CEO certifying the number of scientists employed through the year. b. The unit should submit a statement certified by the CEO and the Auditor that it has invested at least 3 per cent of the annual sales turnover or Rs 50 cr (average of the last three years) whichever is higher, on R & D. c. The unit should submit certified true copy of the approval granted by the Drug Regulatory Authority of the specified countries approving the manufacturing facility for export to their country. d. The unit should submit particulars/documents evidencing patents filed in India The inter-departmental Screening Committee constituted by DSIR may further recommend additional safeguards to be taken for making available fiscal incentives to various companies. (Comments by DST/ CSIR/DBT/DSIR) C Pharmaceutical Research and Development Support Fund (PRDSF) At present, the Pharmaceutical Research and Development Support Fund (PRDSF) has a corpus of Rs. 150 crores (where only interest income is available for spending) is utilized for funding R&D projects of Research Institutions and industry in the country. It is not adequate to meet the present day and the emerging requirements of this sector. It needs to be sufficiently augmented over the next five years. It has been decided to convert it into an annual grant of Rs. 150 crores, and thereafter it would be suitably increased further in a phased manner over a period of next five years Priority would be given for R&D in case of diseases which are endemic to India like malaria, tuberculosis, hepatitis-B, leis mania (kala-azar), HIV/AIDS etc. (Comments by Health/DST/DBT/Expenditure/Revenue/Planning Commission) - 32 -
  33. 33. Growth of Indian pharmaceuticals in the world market 4.4 Pharma Parks/SEZs for Pharma industry- In order to enable India to achieve a leading position as the Drug Maker of the World it is essential that a World class infrastructure is provided for the accelerated growth of the industry. Added to this are the environmental concerns due to difficulties in hazardous waste disposal by some of the bulk drug units. In order to provide the required infrastructure it is essential to have a scheme where Central Government, State Governments and industry are participants. A special scheme for setting up 29 pharmaceutical parks in the country (separate for bulk and for formulations) in the next 5 years is proposed. This would be broadly on the lines of Scheme for Integrated Textile Parks. a) This scheme would be based on public-private partnership model b) Each park would be set up in a minimum area of 250 acres for bulk and 100 acres for formulations. It would be expected to have about 50 to 100 units, investment of 1000 crs to Rs 2000 crs and likely employment of about 20,000 persons. c) Scheme to be implemented through SPVs (Special Purpose Vehicles) with Industry Associations to be the main promoters d) An MOU will be signed with a leading professional body/ consultant to act as Project Management Consultant e) Where an SEZ is to be set up the minimum size criterion for pharma SEZs would be 50 hectares for the next 3 years. This would encourage quick setting up of such parks and for demonstration effect. After a successful take-off of the scheme minimum size may be increased suitably all environmental approvals in the case of pharma parks would be granted at the State level only (Comments by Health/DIPP/Commerce/Environment) (Government has recently passed an Act to facilitate setting up of Special Economic Zones in the country. Some SEZs for pharma have been sanctioned in a few states. There is need to have more of such economic zones in the country. It is estimated that an SEZ in an area of 50 hectares would require an investment of Rs 100-120 crores on land and development. It would be able to attract an investment of Rs 1000 crores - 33 -
  34. 34. Growth of Indian pharmaceuticals in the world market and would be able to generate exports worth Rs 2000 crores and employment of about 6000 people .Looking to the attractive tax concessions and good infrastructure available in these parks these are becoming popular with the industry) . 4.5 Greater Thrust on Pharma Exports Pharmaceutical Export Promotion Council (Pharmexcil) is the sole agency authorized for issuance of Registration-cum-Membership Certificate to exporters of Drugs and Pharmaceuticals. Pharmexcil, during the last over one year of its formation, has successfully completed various projects, particularly sponsoring full-fledged trade delegations to various countries Future growth of pharma sector would be largely driven by exports to other countries. Although exports of pharma products from India are growing at a healthy rate there is need to accelerate this further in view of the vast potential existing in some of the countries. Following steps are envisaged to be taken in this regard a) Suitable measures would be taken to tackle the non tariff barriers to exports of pharma products in various countries through consistent efforts and greater interaction with the concerned agencies of the focus countries b) Africa , Latin America , ASEAN and CIS countries have been put in the category of focus countries by Commerce department. These would continue to get special attention for the purpose of exports. c) The South Asian Free Trade Area (SAFTA), an agreement between Saarc countries comprising of India , Pakistan , SRI LANKA, Bangladesh , Nepal, Bhutan , and Maldives is scheduled to come into force on January 1, 2006. It will be fully operational by 2016. The pact holds huge potential for intra-regional trade growth which is presently only US$7 billion (only6% of the total external trade in the region which is US$350 billion) Pharmaceuticals has a substantial potential in the intra- regional trade of the area. A detailed study would be undertaken of this potential A study to determine the market potential for pharma products in these countries and their registration procedures /requirements would be carried out soon. d) Some more countries with good potential namely GCC, European Union. Japan and Korea would also be paid special attention looking to the big potential for pharma exports in these. An action plan including a study of the pharma export - 34 -
  35. 35. Growth of Indian pharmaceuticals in the world market potential in these countries would be carried out to improve exports of pharma products to these countries e) International meets/conferences/seminars with potential countries would be organized on a regular basis in India and abroad f) Apart from the existing formal arrangements for export of drugs there is an urgent need to have a government-industry standing forum for each of the high potential markets comprising of the key industry players active in that area and concerned government departments. g) Quality is an important issue with the importers from India . It would be worthwhile to lay down guidelines regarding the consignments of pharma products being exported outside India. A system of registration for quality products would be worked out in consultation with industry. h) Exports may be exempted from service tax. i) Pharmexil would be suitably strengthened to meet the future challenges of export market. It would be assisted financially and otherwise for opening warehouses/offices in some of the countries to help the Indian entrepreneurs there, for an online library, organization of exhibitions in various countries, and brand building activity (Comments by Commerce/Pharmexcil) - 35 -
  36. 36. Growth of Indian pharmaceuticals in the world market Efforts by the Indian pharmaceutical industry - 36 -
  37. 37. Growth of Indian pharmaceuticals in the world market Efforts by the Indian pharmaceutical industry The IPI, seeking to take full advantage of benefits offered by the government, has been allocating money to R&D. Its focal points are drug discovery, development of drug delivery systems, biotechnology, and bioinformatics. Companies are reevaluating their strengths and emphasizing product segments that are profitable to the company. Many companies are trimming their portfolios to focus on particular therapeutic segments. Pharmaceutical marketing is also changing rapidly, and pharmaceutical companies are making elaborate marketing efforts. Companies such as Sun Pharma, Nicholas Piramal, and Dr. Reddy’s Laboratories have opted for brand/company acquisition to increase therapeutic reach and market penetration. Such specialization would make the entry of MNCs difficult. Some theorize that companies with a strong marketing force would be attractive for possible take-over.Many pharmaceutical companies are entering into marketing arrangements such as Hoechst Marion’s agreement with Nicholas Piramal and Ranbaxy’s pact with Cipla, Glaxo, and Hoechst Marion. Recent mergers and acquisitions include Nicholas Piramal’s acquisition of Roche Products, a company mainly involved in diagnostic products and Zydus Cadila’s acquisition of German Remedies in India. Sanofi Synthelabo, the second largest pharmaceutical company in France, will buy out Ahmedabad-based Torrent Pharmaceuticals.Very recently, Dr. Reddy’s Laboratories signed a definitive agreement to acquire 100% of Meridian Healthcare and BMS Laboratories, whose primary business is manufacturing and marketing generic pharmaceuticals in the United Kingdom - 37 -
  38. 38. Growth of Indian pharmaceuticals in the world market Major Players Ranbaxy Laboratories Dr. Reddy's Laboratories Nicholas Piramal Cipla Biocon Serum Institute of India Strides Arcolab - 38 -
  39. 39. Growth of Indian pharmaceuticals in the world market Major players 6.1 Ranbaxy Laboratories Tejendra Khanna, Chairman Ranbaxy Laboratories Limited is an Indian company incorporated in 1961. It is India's largest pharmaceutical company. It exports its products to 125 countries with ground operations in 46 and manufacturing facilities in 7 countries. It is ranked among the top 10 generic companies worldwide. The CEO of the company is Malvinder Mohan Singh. In 1998, Ranbaxy entered the USA, the world's largest pharmaceuticals market and now the biggest market for Ranbaxy, accounting for 28% of Ranbaxy's sales in 2005. For the twelve months ending on December 31, 2005, the Company's Global Sales were at US $1.178 billion with overseas markets accounting for 75% of global sales(USA: 28%, Europe: 17%, Brazil, Russia, India and China: 29%). Most of Ranbaxy's products are manufactured by license from foreign pharmaceutical developers, though a significant percentage of their products are off- patent drugs that are manufactured and distributed without licensing from the original manufacturer because the patents on such drugs have expired. In December 2005, Ranbaxy's shares were hit hard by a patent ruling disallowing production of its own version of Pfizer's cholesterol-cutting drug Lipitor, which has annual sales of more than $10 billion. It was the first Indian pharmaceutical to have a proprietary drug (extended- release ciproflaxin, marketed by Bayer) approved by the U.S. FDA and the U.S. market accounts for 36% of its sales. 78% of Ranbaxy’s sales are from overseas markets; its offices in 44 countries manage manufacturing in 7 countries and distribution in over 100. - 39 -
  40. 40. Growth of Indian pharmaceuticals in the world market IMS Health estimated that Ranbaxy is among the top 100 pharmaceuticals in the world and that it is the 15th fastest growing company. By 2012, Ranbaxy hopes to be one of the top 5 generics producers in the world, and it consolidated its position with the purchase of French firm RGP Aventis in 2003. Ranbaxy also has higher aspirations, however, “to build a proprietary prescription business in the advanced markets.” To this end, it keeps a dedicated research facility in Gurgaon staffed with over 1100 scientists. They currently have two molecules in Phase II trials and 3-5 in pre-clinical testing. It spent $75 million in R&D in 2004, a 43% increase over its 2003 expenditure. 6.2 Dr. Reddy's Laboratories K. Anji Reddy, Chairman Founded in 1984 with $160,000, Dr. Reddy’s was the first Asia-Pacific pharmaceutical outside of Japan and the sixth Indian company to be listed on the New York Stock Exchange. It earned $446 million in fiscal year 2005, deriving 66% of this income from the foreign market. In order to strengthen its global position, Dr. Reddy acquired UK-based BMS Laboratories and subsidiary Meridian Healthcare. Although 58% of Dr. Reddy’s revenues come from generic drugs, the company was committed to WTO-compliance long before the 2005 bill took effect, and most of these products were already off patent. Dr. Reddy has long been a research-oriented firm, preceding many of its peers in setting up a New Drug Development Research (NDDR) in 1993 and out-licensing its first compound just four years later. Dr. Reddy’s has since outlicensed two more molecules and currently has three others in clinical trials. Although Dr. Reddy’s is publicly-traded, the Reddy family (including founder/chairman K. Anji Reddy, son-in-law/CEO GV Prasad and son/COO Satish Reddy) holds a hefty 26% share in the company.11,44 - 40 -
  41. 41. Growth of Indian pharmaceuticals in the world market 6.3 Nicholas Piramal Ajay G. Piramal, Chairman Now a company grossing $350 million per year, Nicholas Piramal started its existence with the 1988 acquisition of Nicholas Laboratories and grew through a series of mergers, acquisitions and alliances. The company has formed a name for itself in the field of custom manufacturing. It cites its 1700-person global sales force as another core strength; with its acquisition of Rhodia’s inhalation anaesthetics business, Nicholas Piramal gained a sales and marketing network spanning 90 countries. Nicholas Piramal is well-poised for the challenge of surviving in the aftermath of product patent protection. The company has respected intellectual property rights since its inception and refused to “support generic companies seeking first-to-file or early-to-market strategies.” Instead, it decided to make its own intellectual property and opened a research facility last November in Mumbai with hopes of launching its first drug in 2010 at a cost of $100,000. 6.4 Cipla Dr. Yusuf K. Hamied, Chairman and Managing Director Cipla burst into the international consciousness in 2000 with Triomune, an AIDS treatment costing between $300 and $800 per year that infringed upon patents held by several companies who were selling the cocktail for $12,000 per year. Long before this news, Cipla had been building a strong global presence, and it now distributes its 800-odd products in over 140 countries. Privately-held Cipla holds a prominent spot in its home country as well; it is the leader in domestic sales, having just unseated GlaxoSmithKline for the first time in 28 years. Revenue in 2004 totaled $552 million (using Rs 43.472 = $1) about 75% of which was derived in India. Cipla did not report having a research program. - 41 -
  42. 42. Growth of Indian pharmaceuticals in the world market 6.5 Biocon Dr. Kiran Mazumdar-Shaw, Chairman and Managing Director Biocon is probably best known for its founder, Kiran Mazumdar-Shaw, who overcame incredible gender-based discrimination to become the richest woman in India. Originally an extension to an Irish chemicals company seeking to break into the Indian market, Biocon is now the leading biotech in India, bringing in Rs 646.36 crore (almost $150 million) in revenue for fiscal year 2004. It initially made its money by producing enzymes, but Biocon recently decided to become a research-oriented company with the goal of bringing a proprietary new drug to market. The company went public in March 2004, and “its shares were oversubscribed by 33 times on opening day.” Eight months later it launched Insugen, a bio-insulin that is its first branded product. Biocon also has two wholly-owned subsidiaries, Syngene and Clinigene, that perform custom research and clinical trials. 6.6 Serum Institute of India Dr. Cyrus Poonawalla, Chairman The Serum Institute of India can make the enviable claim that 1 out of every 2 children in the world is immunized with one of their vaccines. It is the world’s largest producer of measles and DTP vaccines, and its portfolio includes other vaccines, antisera, plasma products and anticancer compounds. The Serum Institute earned Rs 565 crore ($130 million) in revenue in fiscal year 2005, selling mainly to UN agencies and to the Indian government. The Serum Institute is part of the Poonawalla Group, whose holdings include a horse stud farm and manufacturers of industrial equipment and components. - 42 -
  43. 43. Growth of Indian pharmaceuticals in the world market 6.7 Strides Arcolab Arun Kumar, MD Bangalore-based Strides Arcolab is one of India’s largest exporters of finished pharmaceuticals with operations in over 50 countries. It is amongst the top five global manufacturers of soft gelatines and a leading sterile injectables manufacturer in India. The company has 13 manufacturing plants spread across the US, Brazil, Mexico, Italy, Poland, Singapore and India. Strides is the first one to enter the Latin American market. The Latin American (Latam) pharmaceutical market is a semi-regulated market but the regulatory framework is similar to advanced pharmaceutical markets. Their Latin operations have grown rapidly and we have become the largest Indian pharmaceutical company in that region. - 43 -
  44. 44. Growth of Indian pharmaceuticals in the world market India vs. China in pharmaceuticals The Chinese edge Where India scores The equation: Present and future - 44 -
  45. 45. Growth of Indian pharmaceuticals in the world market India vs. China in pharmaceuticals In the global economy, both India and China have staked claims as nations to watch out for in the future. Both these countries along with their counterparts Russia and Brazil (labeled as the BRIC nations) have been touted to emerge as the fastest growing economies by 2050. While much has been said about the impact of India and China on the dynamics of the global economy, here, we shall attempt to find out as to which country has the edge in the global pharmaceutical space. 7.1 The Chinese edge... China has proven its capabilities in the manufacturing space and the same advantage extends to the pharmaceutical segment as well. Being a cost-efficient country, it has emerged as the preferred destination for outsourcing intermediates (used in the manufacture of APIs) and Active Pharmaceutical Ingredients. Chinese companies have forged growing relationships with top global pharma companies (referred to as Big Pharma) in custom manufacturing and also for outsourcing older APIs. Besides this, China also has the edge over India in the biotech field due to the presence of high quality research institutions and the Chinese government's commitment. The number of DMF (Drug Master File) filings made by Chinese companies have also been witnessing a rise in recent times, highlighting the growing interest of multinationals in the country. In fact, India too, has been sourcing intermediated from China for the purpose of manufacturing low cost APIs. - 45 -
  46. 46. Growth of Indian pharmaceuticals in the world market 7.2 Where India scores... That said, while China is set to provide stiff competition to India in the API space, it still lags behind in the formulations segment. This can be gauged by the fact that in the global generics market, while India accounts for 25% of the Abbreviated New Drug Applications (ANDA) filed in the US market, China has yet to file a single ANDA. India's advantage vis-à-vis China lies in R&D, availability of scientific manpower, laws that have begun to recognize intellectual property and Indian companies having alliances with global pharma companies in research, generics and manufacturing. Even in the API space, while China has been growing at a fast pace, it still falls behind India in terms of overall filings made until now. India is making increasing strides in the global generics space, as can be evinced by the progress made by Tier-I companies such as Ranbaxy and Dr.Reddy's. Ranbaxy is already ranked amongst the top ten generic companies in the world. Both of them have emerged as major contenders in the consolidation activity gaining momentum in the generics market and have also been aggressive in challenging innovator patents (Para IV). In contrast, the Chinese Tier -I company, Zhejiang Hisun, has yet to make a significant mark in the global generics market. India VS China: Top company comparison Ranbaxy Hisun Formulations presence in US Yes No Formulations presence in EU Yes No API presence in the US Yes Yes API presence in the EU Yes Yes Local formulations presence Yes Yes Drug discovery research Yes No DMF filings Yes Yes ANDA filings including Para IV Yes No Source: Newport Strategies - 46 -
  47. 47. Growth of Indian pharmaceuticals in the world market 7.3 The equation: Present and future Given the fact that the 'low cost distinction' is no longer a trait unique to the Indian pharmaceutical sector with the resurgence of Chinese companies in this area, Indian companies will have to focus more than ever on moving up the value chain. This has to be by capitalizing on the generics opportunity (in both plain vanilla and value added products), strengthening efforts on the NDDS and NCE research front and continuing relationships with global pharma in research and manufacturing. At present, on an overall basis, India does have the edge over China in terms of relevance to the global pharmaceutical industry. That said, Indian companies need to capitalize on the window of opportunity currently available before the competition from China begins to pose a significant threat. - 47 -
  48. 48. Growth of Indian pharmaceuticals in the world market Some Important Articles Tweaking drugs won't help cos skip price control Cracking Japan's generics market code India as offshore pharma destination Dr. Reddy's net profit triples - 48 -
  49. 49. Growth of Indian pharmaceuticals in the world market Some Important articles from Economic times 8.1 Tweaking drugs won't help cos skip price control OCTOBER 25, 2006 The game may soon be up for drug-makers who dodge price control by effecting minor changes in the composition of a drug or by changing its brand name or strength. The proposed Drugs (Price Regulation and Control) Bill of ’06 will arm the government or a designated authority the power to forestall such changes in a drug sold under an approved brand name, without a therapeutic justification. Some companies have in the past got the composition of drugs altered without any significant therapeutic value addition after National Pharmaceutical Pricing Authority (NPPA) fixed the prices. Doxycycline, a broad-spectrum antibiotic, which is under price control, is a classic case, which now comes in combination with lactic acid bacillus — a source of bacteria that helps in digestion. In some cases, this practice leads to even irrational combination of medicines, said a trade source. Drug approvals and compositional changes fall under the domain of the Union and state health ministries, while pricing is the turf of the central pricing agency, NPPA, an attached office of the chemicals and fertilisers ministry. NPPA fixes prices of specified strengths of medicines, and when a company changes either the strength or the composition, there is no government-fixed price for the changed entity till the drug regulator catches up. Although the drug is still under price control, companies make gains by selling the product at their own price till NPPA intervenes again. After a recent ET report on this practice, the investigating wing of the Monopolies and Restrictive Trade Practices (MRTP) Commission had swung into action and ordered a probe into the matter. The director general of investigation and registration (DGIR) has asked as many as 16 major drug makers, including MNCs, to furnish details about their - 49 -
  50. 50. Growth of Indian pharmaceuticals in the world market products’ composition and recent alterations in them to see if they escaped price control by such means 8.2 Cracking Japan's generics market code FRIDAY, OCTOBER 27, 2006 Indian generic makers have traditionally looked west — to the US and Europe — for new markets. But those markets are becoming less attractive: with generic penetration already high, competition is intense. And moves by retailers such as Wal-Mart to slash prices and profit margins on generics in the US only add to the pressure. The next big opportunity lies to the east, in Japan, where changes in drug regulations will create a large and potentially lucrative market for generics in the next few years. Like its US and European counterparts, Japan has struggled to bring rising health-care costs under control. In 2004, cheaper generics made up just 17% of the total volume of the Japanese drug market (and 5% of the value), dramatically lower than other developed countries (53% and 46% of drug volume in the US and Germany, respectively). Japan’s fiscal situation and demographic profile also add urgency. Healthcare spending has increased from 6% to 9% of Japanese GDP between 1990 and 2004. The future healthcare burden will be exacerbated as the elderly population balloons and has medical costs four times that of the non-elderly. Not only will Japan’s share of people over 65 years be among the highest in developed countries — projected to be 30%, as against 19% for US and 26% for Germany — but the Japanese will also live longer. Japan has among the highest life expectancy in the world, especially for women. So far, the government’s belt-tightening efforts have focused on reducing the $65 billion in pharmaceutical costs, which represents 23% of Japan’s National Health Insurance expenditures and accounts for the second-largest pharmaceutical market in the world. - 50 -
  51. 51. Growth of Indian pharmaceuticals in the world market Regulations passed recently aim to create the right incentives to stimulate both supply of and demand for generics. To increase generic demand, patients will now face lower direct costs for using generics due to lower prices and out-of pocket spending compared with branded products. Hospitals will also have an incentive to use cheaper generics, as they will receive a single, lump sum payment that will cover all medical costs. And doctors and pharmacists will receive a small cash incentive for prescribing and dispensing generics. Similarly, to increase the supply of generic products, suppliers will now be able to apply for approvals twice a year rather than annually and will be required to sell a full range of product dosages but need to only prove bio-equivalence for the highest-dosage strength. The strategies to increase generic substitution should yield results over the longer term as they embody the tried-and-tested approaches used by other developed countries. Evidence from places like the UK and Germany, with comparable health system and incentive programmes, suggest that a pro-generics approach can boost demand significantly. - 51 -
  52. 52. Growth of Indian pharmaceuticals in the world market 8.3 India as offshore pharma destination FRIDAY, NOVEMBER 03, 2006 The global pharmaceutical industry is desperate to improve its productivity when researching and developing new drugs. Over the last 10 years or so, multinational pharmaceutical companies (MPCs) have accordingly been off-shoring more and more of their R&D to emerging countries, to accelerate output and reduce costs. The two main beneficiaries of this trend have been, unsurprisingly, India and China. And equally unsurprisingly, they are in constant, though unpublicised, competition to claim a still greater share of the bounty. The two countries must have a great deal in common, from an MPC’s perspective. Both boast remarkable new technical capabilities, at least in some phases of the R&D value chain. Both have a deep pool of talent, and a vast treatment-naïve population of patients for clinical trials. On the negative side, both raise much the same concerns for MPCs, notably over the security of data and other intellectual property (IP), and over administrative and regulatory roadblocks. Given such similarities, how is an MPC to differentiate the two countries when weighing its off-shoring options? Well, for a start, their skills do vary from phase to phase: India is still clearly ahead of China in data management, and probably in chemistry-phase activities as well, while China has more advanced biology capabilities. Such considerations might sway an MPC’s ad hoc outsourcing decisions, but its strategic thinking would be influenced more by the difference in “value proposition” put forward by each country. The Chinese pharmaceutical market will be worth US $25 billion in 2010 (nearly three times India’s market in 2010)). MPCs — in the hope of increasing their access to that treasure-chest — are tempted to place a long-term strategic bet by - 52 -
  53. 53. Growth of Indian pharmaceuticals in the world market outsourcing high-tech projects there, or even setting up a fully-fledged captive R&D centre. India by contrast offers a shorter-term as well as ongoing payoff. Its vendor base is far broader than China’s, and being quick-footed and resourceful can churn out abundant high-quality work at short notice. Jointly these Indian service-providers offer a rapid turbo-charge to an MPC’s R&D engine. The MPC secures not just time- and cost-savings, but also a smoother flow to its entire R&D pipeline. This unique advantage is something that Indian pharma companies cannot afford to ignore, let alone jeopardise. They need to play it to maximum effect, promoting the image on the one hand, and nurturing the reality on the other. After all, the great competitor China is hardly sitting idle. MPCs are fast establishing a captive base there. Recent case in point: AstraZeneca’s $100 million investment in China. Its vendor base is increasing in number and advancing remorselessly in capabilities. - 53 -
  54. 54. Growth of Indian pharmaceuticals in the world market 8.4 Dr. Reddy's net profit triples FRIDAY, OCTOBER 27, 2006 Dr. Reddy's Laboratories Ltd said on Friday quarterly net profit more than tripled, beating forecasts, helped by strong growth in the key US market and gains from drugs exclusivity. But the company said it may not be possible to repeat the "exceptional" performance in the October to December quarter and beyond as the exclusivity for two generics -- prostate cancer treating Proscar and cholesterol drug Zocor -- end in December. "Authorised generics' 180-day period ends December. To that extent the revenue will diminish very significantly, but the other aspects of our business will continue to perform," G.V. Prasad, Dr. Reddy's chief executive, told Reuters in an interview. Analysts said it would gain from other authorised generics. "Although pricing pressures are existing, their authorised generic deals could keep the revenues flowing," said Kavita Thomas, an analyst at First Global Securities, which has an outperform rating on the stock. Other Indian drug makers have also reported a strong performance in the July to September quarter, helped by a surge in sales of generic drugs and strong growth in the domestic market. The Hyderabad-based company, India's only New York-listed drug maker, said net profit according to U.S. accounting standards rose to 2.80 billion rupees ($61.96 million) from 890 million rupees reported a year earlier. A Reuters poll of 10 brokerages had predicted a median profit of 1.57 billion rupees for the firm, India's fourth-largest pharmaceuticals company. U.S. SALES Total revenue jumped to 20 billion rupees from 5.8 billion rupees, while revenue from its core businesses, excluding the contribution from authorised generics and acquisitions, grew 42 percent to 8.2 billion rupees. - 54 -
  55. 55. Growth of Indian pharmaceuticals in the world market Revenue from North America generics finished dosage business jumped to 9.08 billion rupees from 299 million rupees, helped by authorised generic versions of Zocor and Proscar, which contributed 39 percent of the total revenue. Third-ranked Ranbaxy Laboratories Ltd.'s quarterly net profit rose by more than six times, while number one Cipla Ltd reported 47 percent growth and second- ranked Sun Pharmaceutical Industries said net profit rose 26 percent. Shares in Dr. Reddy's, valued at $2.4 billion, rose about 15 percent in the quarter, lagging the Mumbai exchange's healthcare index, which rose about 18 percent. Its shares ended 2.6 percent higher at 730.35 rupees in a firm Mumbai market on Friday. Dr Reddy's said in October that it may exclusively distribute the generic version of GlaxoSmithKline Plc's Imitrex tablets in the United States as it had settled a legal dispute. - 55 -
  56. 56. Growth of Indian pharmaceuticals in the world market Conclusion - 56 -
  57. 57. Growth of Indian pharmaceuticals in the world market CONCLUSION The achievements of the Indian pharmaceutical industry are spectacular in recent times and are praise worthy, which has evolved as model industry of the country in performance. India has a strong infrastructure for pharmaceutical business environment. But, in the 21st century, the pharmaceutical value chain would depend on the ability of pharmaceutical companies to make the technological shift necessary to maintain and increase their competitive positions. - 57 -
  58. 58. Growth of Indian pharmaceuticals in the world market Recommendations - 58 -
  59. 59. Growth of Indian pharmaceuticals in the world market RECOMMENDATIONS 1. With the second-largest population in the world, a highly educated population that is fluent in English and with technical skills, and well-developed buying power, India has great potential for industrial growth. 2. Since India has an edge over China, tapping the world generics market before China is very important for Indian pharmaceutical industry. 3. Combining information technology with the pharmaceutical industry is also a good tool which can be utilized by the IPI. 4. The government and the economy of India have also helped the IPI to grow. - 59 -
  60. 60. Growth of Indian pharmaceuticals in the world market Bibliography - 60 -
  61. 61. Growth of Indian pharmaceuticals in the world market Bibliography Analysis of the Indian Pharmaceutical Industry With Emphasis on Opportunities in 2005 - Hemant N. Joshi National Pharmaceuticals Policy, 2006 Part-A - Department of Chemicals and Petrochemicals Government of India http://www.researchandmarkets.com/reportinfo.asp?report_id=41589&t=e&cat_id= http://www.pharmaceutical-drug-manufacturers.com/pharmaceutical-industry/ Indian Pharmaceutical Industry - Dhruv Sagar http://www.dgciskol.nic.in/ http://en.wikipedia.org/wiki/Pharmaceuticals_%28India%29 http://www.pharmaceutical-drug-manufacturers.com/pharmaceutical-industry/ Arpit Jhunjhunwala Contact no.9867367199 - 61 -

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