chapter - 4 indian pharmaceutical industry : an...
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CHAPTER - 4
INDIAN PHARMACEUTICAL INDUSTRY : AN OVERVIEW
4.1 INTRODUCTION:
The pharmaceutical sector in India is one of the highly organized
industrial sectors in India, characterized by a multitude of
manufacturers. It is highly fragmented industry with more than 20,000
domestic players as manufacturers of end-use pharmaceuticals. Only
about 330 of these are in the organized sector; out of which 45 units
have an international presence.
Due to the presence of low cost manufacturing facilities, educated and
skilled manpower and cheap labor force, the industry is reaching new
heights in the field of production, manufacturing and research &
development 1. The Indian pharmaceuticals industry grew from US$0.32
billion in 1980-81 to US$ 21.26 billion in 2009-10.The industry ranks
3rd in terms of volume of production (10% of global share) and 14th
largest by value.
As per the Directory of Pharmaceutical Manufacturing Units in India,
2007, published by National Pharmaceutical Pricing Authority,
Government of India, there are 10563 pharmaceutical manufacturers
across the country. Out of total 10563 pharmaceutical manufacturers in
the country, 8174 unit (77.4%) manufacture formulation drugs and 2389
units (22.6%) are engaged in manufacturing of bulk drugs.
___________________________________________________________________ 1 see www.indianbusiness.nic.in
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The state-wise distribution of number of formulation and bulk drugs
manufacturers show that most of the concentration is in the five states of
Maharashtra (29.7%), Gujarat (14.4%), West Bengal (7.2%), Andhra
Pradesh (6.9%) and Tamil Nadu (5.4%) which accounts for more than
60% of the total number of manufacturers in the country (see table 4.2
and graph 4.1).
Table : 4.1
State –wise Distribution of Pharmaceutical Manufacturing Units in India
State No. of Manufacturing Units %
Share
Cumulative
% Share Formulation Bulk Drugs Total
Maharashtra 1928 1211 3139 29.7 29.7
Gujarat 1129 397 1526 14.4 44.1
West Bengal 694 62 756 7.2 51.3
Andhra Pradesh 528 199 727 6.9 58.2
Tamil Nadu 472 98 570 5.4 63.6
Others 3423 422 3845 36.4 100.0
Total 8174 2389 10563 100.0 -
(Source: Bulk Drugs Manufacturing Association)
Graph : 4.1
Concentration of Pharmaceutical Manufacturing Units
in India-2007
29.7
14.47.26.95.4
36.4
Maharashtra
Gujarat
West Bengal
Andhra Pradesh
Tamil Nadu
Others
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4.2 GLOBAL PHARMACEUTICAL MARKET:
The global pharmaceuticals market generated total revenues of
$534.8 billion in 2005, this representing a Compound Annual Growth
Rate (CAGR) of 7.7 per cent for the five-year period spanning 2001-2005.
The Indian pharmaceutical industry is one of the worlds largest,
industries world-wide contributing to 8% in volume and 1% in value in
relation to global pharmaceutical sales. Of the total pharmaceutical
market, formulations account for 78% and bulk drugs for the balance
22%.
During 2000-05, the pharmaceutical market in India has showed
consistently strong growth and accounted for 6.6% share of the Asia-
Pacific market. The India’s pharmaceutical market had a total revenue of
$6.4 billion in 2005; represented by a CAGR of 9.5% for the five-year
period spanning 2001-2005. A study by the Indian Commission for
Health in India reveals that, in 2004 56% of the Indian health
expenditure in on drugs that worth around $17.9 billion but most of this
is on traditional medicines rather than allopathic drugs. In 2010, the
Indian pharmaceuticals market is forecast to have a value of $9.4 billion,
an increase of 47.1% since 2005. The CAGR of the market in the period
2005-2010 is predicted to be 8 per cent.
The Indian pharmaceutical companies have been doing extremely well
in developed markets of USA and Europe, to list a few, they are
Ranbaxy, Dr Reddy’s Labs, Wockhardt, Cipla, Nicholas Piramal and
Lupin. Globally, the pharmaceutical industry ranks 4th in terms of
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volume and 13th in terms of value. The leading players in the Indian
pharmaceuticals market are Cipla, GlaxoSmithKline, Ranbaxy, Nicholas
Piramal, Sun Pharma, Pfizer,Dr Reddy’s, Zydus Cadila, Torrent, Sanofi-
Aventis and Aristo2 .
Globally, at present, the Indian pharmaceutical industry ranks 4th in
terms of volume (8% share of global sales) and 13th in terms of value (1%
share of global sales). Indian pharmaceutical industry is a highly
organized sector and it is estimated to be worth US$ 4.5 billion, growing
at over 9% annually. Currently this sector is in the front position of
India’s science based industries in the complex field of drug manufacture
and technology. Indian pharmaceutical sector’s value of output grew
more than tenfold from US$ 1.1 billion in 1990 to over US$ 12.4 billion
during 2005-06 due to low costs, knowledge skills, increasing number of
enterprises, improved quality and buoyant demand—both in domestic
and international market.
4.3 HISTORY OF INDIAN PHARMACEUTICAL INDUSTRY:
Indian pharmaceutical industry started its journey in 1903 when
Professor P.C. Roy formed Bengal Chemical and Pharmaceutical Works in
Kolkata. During the first half of the 20th century the colonial government
was not interested in local production, so India remained largely
dependent on the UK, France and Germany for medicines.
_____________________________________________________________________ 2 see www.researchandmarkets.com, September 2006
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The new and independent government in 1947 emphasized on
industrialization to achieve self-reliance and, therefore, invested heavily
in pharmaceuticals among other industries and reduced import of
medicines. The Government took its first concrete steps towards
selfreliance in pharmaceutical sector in 1954 with the establishment of
Hindustan Antibiotics Ltd. (HAL), and in 1961 by establishing Indian
Drug and Pharmaceuticals Ltd. (IDPL).
Until 1991, India’s industrial policy regime was amongst the most
inward-looking anywhere. But in June 1991 the scenario had drastically
changed and marked the turning point of India’s policy regime towards
the world. As a part of the overall integration with the global economy,
India has also accepted GATT/WTO, Intellectual Property Rights (IPR)
regime. In the past, Indian pharmaceutical companies have earned huge
revenues by selling copies of Western companies’ patent product. In
2005, this practice has come to an end with implementation of stronger
intellectual property (IP) protection laws.
The Indian pharmaceutical sector has come a long way, being almost
non-existing during 1970, to a prominent provider of health care
products; meeting almost 95% of the country’s needs. Currently the
Indian pharmaceutical sector is valued at approximately $8 billion
(Tanuja Talwar and Pooja Sareen, Nov2010). It ranks 3rd by volume of
production (10% of global share) and 14th by value (1.5% of global share)
Nearly 40% of the world’s bulk drug requirement is met by India. Today
the Indian pharmaceutical sector is truly global evidenced by some big
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ticket acquisitions of foreign companies like Sun Pharma’s acquisition of
Taro Pharma, Wockhardt’s acquisition of Negam Labs, Nicholas-
Piramal’s acquisition of Abbott Labs, DRL’s acquisition of Betapharm etc.
The government started to encourage the growth of drug
manufacturing by Indian companies in the early 1960s, and the Patents
Act, in 1970, removed composition patents from food and drugs, and
though it kept process patents, these were shortened to a period of five to
seven years. The lack of patent protection made the Indian market
undesirable to the multinational companies that had dominated the
market, and, while they streamed out, Indian companies started to take
their places. They carved a niche in both the Indian and world markets
with their expertise in reverse-engineering new processes for
manufacturing drugs at low costs.
4.4 GROWTH OF INDIAN PHARMACEUTICAL INDUSTRY:
Since independence, the pharmaceutical industry was dominated by
Multinational Companies (MNCs). The market share of Multinational
Companies was almost 100% at the time of Independence. Considering
the healthcare of the Indian Public, the Govt. of India encouraged the
domestic pharmaceutical companies in India. When the international
norms recognized the product patent, the government of India enacted
the Indian Patent Act in 1970 (process patent), with the objectives of
allowing the domestic companies to grow. The Indian Patent Act
recognized the “Process” to manufacture a product and not the end
“Product”. Indian companies took advantage of the Patent Act and
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succeeded in reducing molecules, which were under Patent Production or
at a cost that was lower than the original research cost. By taking the
cost advantages, the Indian Pharmaceutical companies fixed their prices
lower than the prices fixed by the Multinational Companies
manufacturing the drugs. Apart from the Indian Patent Act 1970, DPCO,
FERA and increased imports tariffs also helped the growth of the
domestic pharmaceutical companies. With a view to the above effect, the
Multinational Companies’ market share, decreased from 100% in 1947
to 80% in 1970 and 33% in 1991 with corresponding increase in
domestic company’s market share (see table 4.2).
Table : 4.2
Market Share of Indian Pharmaceutical Industry (since Independence)
Market Share���� Multi-National
Companies
Domestic
Companies Year
1947 100% -
1970 80% 20%
1991 onwards 33% 67%
(Source:Annual Report 2008-09, Department of Pharmaceuticals, GOI)
Till 1970s India’s pharmaceuticals market was mostly supplied by
large MNCs. Low-priced bulk drugs were only produced domestically with
the help of the World Health Organisation. These state-run firms
provided the foundation for the sector’s growth since the 1970s. Back
then, India’s government aimed to reduce the country’s strong
dependence on pharmaceutical imports by flexible patent legislation and
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to create a self-reliant sector. In addition, it introduced high tariffs and
limits on imported medicines and demanded that foreign pharmaceutical
companies reduce their shares in their Indian subsidiaries to two-fifths.
This made India a less attractive location for international companies,
many of which left the country as a consequence.
Table : 4.3
Growth of Indian Pharmaceutical Sector
Year Growth of Indian Pharmaceutical Sector(Rs. Crores)
Domestic Market Exports Imports Total Market Size
2000-01 - - - -
2001-02 - - - -
2002-03 30365 12826 2865 42326
2003-04 32575 15213 2956 47332
2004-05 34128 17857 3139 52029
2005-06 39989 22216 4515 62566
2006-07 45367 24942 5867 68442
2007-08 50946 30760 6734 78610
2008-09 55454 38433 8552 89335
2009-10 - *42154 * 9828 -
(Source: Annual Report 2008-09, Department of Pharmaceuticals, GOI) * indicates projected data by Directorate General of Commercial Intelligence and Statistics,kolkota
The Indian pharmaceutical sector covers more than ninety five
percent of domestic pharmaceutical needs and witnessed tremendous
growth over the past years. The domestic market size increased from
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Rs.30,365 crores in 2002-03 to Rs.55,454 crores in 2008-09(see
table:4.3).
Among the third world countries, it is ranked very high in terms of
technology, quality and the product mix of medicines manufactured.
Today, most of the medicines is produced locally. The highly fragmented
Indian pharmaceutical industry has around 30,000 players, out of which
330 are in the organized sector ( Sudarshan Maity, Nov,2010).
4.5 INDIAN PHARMACEUTICAL INDUSTRY AND TRIPS:
With the economic reforms in India that resulted in globalization India
became a signatory to GATT and also TRIPS. Hence India was under
compulsion to introduce product patent by 1st Jan 2005, giving a
moratorium period of 10 years from 1st Jan 1995 to 31st Dec 2004. In
view of the TRIPS agreement the Indian pharmaceutical companies have
gone for major structural changes starting from 1st Jan 1995 in the form
of Merger, Acquisition, Consolidation and investing more on Research &
Development. All these above measures were taken for the purpose of
retaining the current market share, export share, inventing new
products, reducing the cost and improving the quality to international
levels and betterment of Research and development. Indian
Pharmaceutical Industry started thinking internationally and acting
globally. It shifted from reengineering to invention of new products, from
process to product patent. Hence, there was a conversion of business risk
and financial risk into product risk. In this changing situation, a study
on the stand of the pharmaceutical industry and the change in capital
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structure they have undergone in order to face the product patent regime
with effect from 1st Jan 1995 is very essential.
4.6 INDIAN PHARMACEUTICAL INDUSTRY AND R & D :
One of the distinctive features of the big Pharmaceutical firms is their
high level of investments in research and development. The expenditure
made by by In-house R&D units in industry has consistently increased.
Through industry efforts, many new medicines and equipments have
been developed and marketed. These drugs hadled to striking declines in
mortality from heart diseases and strokes over the last four decades. A
few years ago, investment in R&D was as low as 0.001% of the total
global R&D, but now companies are focusing on drug discovery and
R&D. The investment of companies in R& D increased in the recent years
and there are 10 top pharmaceutical companies in India that invested
more than Rs.100 crores in R&D during 2008-09 (see table 4.4).
Table 4.4 Investment in R & D by Top Ten Indian Companies in 2008-09 (amount in Rs.Crores)
S.No. Company Names R & D Expenses
Sales R&D expenses as % of Sales
1. Ranbaxy Laboratories Ltd. 460.5 3,656.2 12.6
2. Dr. Reddy’s Laboratories Ltd. 292.8 4,146.2 7.1
3. Sun Pharma Inds Ltd. 188.3 1,722.1 10.9
4. Cipla Ltd. 175.7 3,658.0 4.8
5. Cadila Health Care Ltd. 161.8 1,758.5 9.2
6. Lupin Ltd. 142.1 2,051.7 6.9
7. Wockhardt Ltd. 126.7 1,189.0 10.7
8. Torrent Pharmaceutical Ltd. 112.1 8,95.2 12.5
9. Panacea Biotech Ltd. 107.2 843.0 12.7
10. Aurobindo Pharma Ltd. 107.2 1,991.0 12.7
Source: (www.indiastat.com)
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The key to success in this industry is the research and development of
drugs and the approval of the patent from Food and Drug Association
(FDA) of USA for the world market. Research and Development is the
starting point of the industry value chain and also the most important
value creator. India is putting efforts to develop modern technology in
pharmaceutical industry. The key issue in promoting research and
development is to induct technology at par with the advanced countries.
The Government of India is encouraging private and public sectors
through Public–Private Partnership (PPP) model in terms of ownership of
assets and responsibility and also in attracting the foreign investors to
increase FDI inflows through automatic route in the pharmaceutical
sector for research and development. In recent years some positive
initiatives and measures have been taken by the Government. Important
among them are:
• Recognition of the pharmaceutical industry as a knowledge-based
industry.
• Reduction in interest rates for export financing.
• Additional deduction in computation of tax liability for research and
development expenses, and also tax-holiday facility.
• Reduction in the price control of pharmaceuticals.
The Indian pharmaceutical industry is taking full advantage of
benefits offered by the Government and has been allocating money to
research and development. The industry’s focal points are drug discovery
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and patent approval, development of drug delivery systems, and
biotechnology and bioinformatics.
There is a visible paradigm shift in the sense that now the world is
moving from a “Business process outsourcing” cult to “Knowledge
process outsourcing”. The emphasis is more on the knowledge so that the
intellectual capital among the employees is developed into the
organizations. One such area is the “research and development” done in
the pharmaceutical industry in formulation of cost effective drugs. This
paper attempts to gauge the importance of this knowledge capital as
against the structural capital employed (CE).
The Intellectual Capital in pharmaceutical industry can be traced
into three important aspects (Shurveer S. Bhanawat and Nidhi
Bhanawat, Nov,2011):
1. The skilled manpower which is the core for R&D activities of these
firms, the expenses the firms makes on their training and
development, etc. these are integral part of human capital.
2. The huge investment that the firm makes on the R&D infrastructure,
this is an inseparable component of the structural capital.
3. The continuous efforts of the firm in developing new molecules result
in a substantial patent ownership in these firms. This intellectual
property forms a part of the organizational assets and capital.
Since these industries invest so much of their resources on these, it
is necessary to study their relative importance and also their contribution
to the overall performance of these firms.
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4.7 SIX SIGMA IN INDIAN PHARMACEUTICAL INDUSTRY:
Six Sigma has become a dynamic methodology, which has been
utilized by a number of companies worldwide so as to improve processes,
reduce the costs so as to increase profitability, and growth of the
company in long run. Motorola first initiated it in 1980. Six Sigma is a
Greek letter, which stands for standard deviation. The standard deviation
measures the variation in a process. Six Sigma is powerful data driven
management methodology that delivers validated improvement in
profitability and productivity.
In a pharmaceutical company, where a large amount of money is
invested in the Research and Development work, implementation of Six
Sigma can work wonders not only in reducing unnecessary costs but also
in the improvement of the processes involved so as to increase its
efficiencies, thus, ultimately, resulting in the increase of profitability of
the organization. Pharma Business leaders and regulators increasingly
understand the importance of implementation of the Six Sigma and it is
all set to revolutionize the pharma manufacturing sector. Implementation
of Six Sigma in a pharmaceutical company like Cipla, Ranbaxy etc in
India will surely help the company to utilize its resources in a proper
manner, which will be significantly reflected in their Income Statement
with increasing profits ( Arindam Banerjee, Nov,2010).
In a pharmaceutical company Six sigma can be utilized in every span
of area of the company like Production, Research and Development,
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Accounting and Finance, Maintenance etc. Some of the areas where Six
Sigma can be utilized are:-
i. Reducing lead-time for a product development
ii. Reducing Billing Errors
iii. Increasing Machine Efficiency
iv. Increasing and Enhancing the process of new Technology and
equipment Reducing defects and a proper control and check on
Quality level
v. Having a proper Inventory Control System in the organization
vi. Increase in the quality of the customer service.
vii. Improvement in the process of Marketing andSales and Logistics.
The Indian Pharmaceutical Companies which have applied six sigma
are as follows:
1. Eli Lilly
2. Zydus Cadila
3. Dr. Reddy Laboratories Limited
4. Pfizer
4.8 MERGERS AND ACQUISITIONS IN INDIAN PHARMACEUTICAL INDUSTRY:
The Mergers and Acquisitions/ Licensing Deals in Indian
Pharmaceutical Industry are as follows:
1. Orchid Chemicals & Pharmaceuticals Ltd, a Chennai-based
pharmaceutical company, has entered into an agreement to acquire
US-based generic marketing company Karalex Pharma LLC, in an all-
cash deal.
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2. In May 2010, Glenmark Pharmaceuticals licensed its chronic pain
molecule to Sanofi Aventis for a cumulative deal of US$ 321.7 million.
3. Dr Reddy’s Laboratories has signed an agreement with Alchemia, an
Australian pharmaceutical company, for marketing
Fondaparinuxsodium (which is used for the treatment and prevention
of deep vein thrombosis (DVTs)) in all markets outside North America.
According to the agreement, Dr Reddy’s will pay to Alchemia a royalty
on sales at an agreed proportion.
4. Super Religare Laboratories (SRL), a diagnostic chain, has signed a
definitive agreement to buy Piramal Healthcare’s diagnostic chain for
US$ 128.6 million, making it the country’s largest diagnostic
player.(Sudarshan Maity, Nov 2011)
Table 4.5 The Major Deals between Domestic Companies & MNC’s during 2006 to 2010
S.No Domestic Operation Acquired
MNC Year
Amount $ million
1. Matrix Lab Mylan Inc 2006 736
2. Dabur Pharma Fresenius Kabi 2008 219
3. Ranbaxy Daiichi Sankyo 2008 4.6
4. Shanta Biotech Sanofi Aventis 2009 783
5. Orchard Chemicals
(injectible business) Hospira 2009 400
6. Piramal Health Care
(domestic formulations)
Abbott
Laboratories 2010 3.72
(Source: www.economictimes.indiatimes.com)
4.9 GLOBAL RECESSION AND INDIAN PHARMACEUTICAL INDUSTRY:
Despite global recession and financial crisis, during the year 2008-09
and 2009-10, pharmaceutical industry managed to expand its revenue.
The reasons behind the growth of pharmaceutical industry are the strong
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domestic demand, growing preference for generic version drugs
worldwide and favourable rupee-dollar exchange rate. The aggregate
income of the drugs and pharmaceutical companies for the first two
quarter of 2010-11 grew by 13% and 7.8%, respectively, as compared to
the previous year. As per the report of Centre for Monitoring Indian
Economy (CMIE), the estimated growth in aggregate income for the next
two quarters would be 9.5% and 10.2%, respectively (Parimal Kr. Sen,
Indrani Saha and Palash Garani, Nov,2011).
4.10 FOREIGN DIRECT INVESTMENT IN INDIAN PHARMACEUTICAL SECTOR:
The Indian Pharmaceutical Sector ranks amongst ranks amongst the
top twenty sectors attracting FDI inflows. During the early years of
liberalization, it ranked amongst top 10 sectors attracting FDI inflows.
but later on of 199. The trends of FDI inflows in the Indian
pharmaceutical sector , growth rate of FDI inflows into the sector, share
of pharmaceutical FDI in the total FDI inflows, impact of FDI inflows in
India on FDI in pharmaceutical sector and Government initiative
regarding FDI have been discussed below.
4.10.1 Trends of FDI Inflows in India and Pharmaceutical Sector:
The FDI inflows increases from Rs.409 crores in 1991-92 to Rs.13,548
crores in 1997-98 but further decreases to Rs.10,311crores during 1999-
2000 (see Table 4.6 and Graph 4.2) For the years from 2000-01 to 2009-
10, the FDI inflows in India is on an increasing trend except for the years
2002-03 and 2003-04. The FDI inflows in India increased from Rs.12,645
crores in 2000-01 to Rs.19,361crores but declines to Rs.14,932 crores in
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2002-03 and Rs.12,117 crores in 2003-04. The FDI inflows further
increased to Rs.17,138 crores in 2004-05 and Rs.17,138 cores in 2009-
10. .During the year 2008, FDI inflows are Rs.98,664 crores with an
increase of more than Rs.18000 crores over the previous year, which
reveals that there is no influence of global financial crisis on FDI inflows
in India.
As far as quantum of FDI is concerned, the IPI attracts Rs 48 crores of
FDI in 1991-92 which gradually decreases to 8 crores in 1992-93Rs. 254
crores in 1993-94 and Rs.228 Crores in 1999-2000 but slightly
decreases to 226 crores in 2000-01 which further increases to 288
crores in 2001-02. FDI declines to 192 crores in 2002-03
The FDI in IPI is high during the year 2004-05 , 2007-08 and
2009-10 amounting to Rs.1343 crores, Rs.1326 crores and Rs.1005
crores respectively.
The Compounded Annual Growth Rtae (CAGR) calculated as
[CAGR= (Ending Value/Starting Value) ^1/n -1] of FDI inflow in India
is 35.05% and FDI inflows in Indian Pharmaceutical Sector is 17.36%.
The FDI in IPI during the year 1991-92 is 11.75 % of the total FDI
inflows in to the country, but gradually decreases to 0.7% in 1992-93,
7.6% in 1993-94 and 0.7% in 1994-95 (see Table 4.6 and Graph 4.2). FDI
in IPI as a percentage of total FDI inflows showed a higher percentage in
the years 2003-04 and 2004-05 and 2005-06 amounting to 4.1%, 7.8%
and 3.1% respectively. FDI further declined to 0.6% in 2008-09 and 0.8%
in 2009-10. It is also evident from the table that the rate with which FDI
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inflows are increasing in India is higher than that of FDI inflows in
Indian Pharmaceutical Industry.
Table: 4.6
Trends of FDI inflows in India and Indian Pharmaceutical Sector
Year FDI inflows in
India (Rs.Crores)
FDI inflows in Pharmaceutical Sector
(Rs.Crores)
Share of Pharmaceutical FDI in total FDI Inflows (%)
1991-1992 409 48 11.7
1992-1993 1,094 08 0.7
1993-1994 2,018 154 7.6
1994-1995 4,312 31 0.7
1995-1996 6,916 177 2.6
1996-1997 9,654 167 1.7
1997-1998 13,548 125 0.9
1998-1999 12,343 122 0.9
1999-2000 10,311 228 2.2
2000-2001 12,645 226 1.7
2001-2002 19,361 288 1.4
2002-2003 14,932 192 1.2
2003-2004 12,117 502 4.1
2004-2005 17,138 1343 7.8
2005-2006 24,613 760 3.1
2006-2007 70,630 970 1.3
2007-2008 98,664 1326 1.3
2008-2009 122,919 810 0.6
2009-2010 123,378 1005 0.8
CAGR 35.05% 17.36% -
1/N 0.1 0.1 -
(Source: Department of Industrial Policy and Promotion, Ministry of commerce and Industry, GOI)
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Graph: 4.2
Trends of FDI inflows in India and Pharmaceutical Sector
020000400006000080000
100000120000140000
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-200
0
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
Years
Am
ount of FDI in
flow
s
(Rs.
Cro
res)
FDI in India FDI in Indian Pharmaceutical Sector
4.10.2 Growth of FDI Inflows in India and Pharmaceutical Sector:
The growth in FDI inflows in India decreased from 167.48% in 1992-93 to
-16.46% in 1999-2000, but further increases to 53.11% in 2001-02 (see
Table 4.7). The growth in FDI decreased from 53.11% in 2002 to -22.88%
in 2003 and -18.85% in 2004 but further increased to 186.96% in 2007
and 0.37% in 2010. the growth in FDI inflows is recorded very high
during 2006-07 and negative during 2003 and 2004.
The growth rate of FDI inflows in the Indian Pharmaceutical Sector
shows a varying trend. It increases from -83.33% in 1992-1993 to 1825%
in 1993-94 and further decreased to -2.2% in1998-99 and decreases
from 1.7% in 2000-01 to 1.2% in 2002-03, but increased to 4.1% in
2003-04 and 7.8% in 2004-05. The pharma FDI again gradually
decreased to 0.6% in 2008-09 and 0.8% in 2009-10..
The growth rate of FDI in IPI is high during the years 2003-04 and
2004-05 to an extend of more than 100% over the previous year.
111
Table: 4.7
Growth rate of FDI Inflows in India and Pharmaceutical Sector
S.No Year Growth rate of FDI(%) Growth rate of FDI in IPI(%)
1. 1991-1992 - -
2. 1992-1993 167.48 -83.33
3. 1993-1994 84.46 1825.00
4. 1994-1995 113.68 -79.87
5. 1995-1996 60.39 470.97
6. 1996-1997 39.59 -5.65
7. 1997-1998 40.34 -25.15
8. 1998-1999 -8.89 -2.40
9. 1999-2000 -16.46 86.89
10. 2000-2001 22.64 -0.88
11. 2001-2002 53.11 27.43
12. 2002-2003 -22.88 -33.33
13. 2003-2004 -18.85 161.46
14. 2004-2005 41.44 167.53
15. 2005-2006 43.62 -43.41
16. 2006-2007 186.96 27.63
17. 2007-2008 39.69 36.70
18. 2008-2009 24.58 -38.91
19. 2009-2010 0.37 24.07
(Source: Department of Industrial Policy and Promotion, MCI, GOI)
112
14.10.3 Impact of FDI inflows in India on FDI Inflows in the Pharmaceutical Sector:
A regression analysis was done to assess the effect of Total FDI
inflows in India on FDI inflows in The Indian Pharmaceutical Sector. FDI
in India is considerd as independant variable and FDI in Indian
Pharmaceutical Sector as a dependant variable. The R Square value is
.512 which means that FDI inflows in India marginally effects the FDI
inflows in the Indian Pharmaceutical Sector. The beta(t) is 4.221 with a
significance value of .001 which means that FDI in India significantly
influences FDI in Indian Pharmaceutical Sector.
Table:4.8 Regression analysis to assess the impact of FDI inflows in India on FDI
inflows in the Pharmaceutical Sector
Regression Table:4.8a
Variables Entered/Removedb
FDIa . EnterModel1
VariablesEntered
VariablesRemoved Method
All requested variables entered.a.
Dependent Variable: IPIb.
Table:4.8b
Model Summary
.715a .512 .483 319.3968Model1
R R SquareAdjustedR Square
Std. Error ofthe Estimate
Predictors: (Constant), FDIa.
Table:4.8c
ANOVAb
1817408 1 1817407.697 17.815 .001a
1734243 17 102014.290
3551651 18
Regression
Residual
Total
Model1
Sum ofSquares df Mean Square F Sig.
Predictors: (Constant), FDIa.
Dependent Variable: IPIb.
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Table:4.8d
Coefficientsa
209.828 92.256 2.274 .036
7.791E-03 .002 .715 4.221 .001
(Constant)
FDI
Model1
B Std. Error
UnstandardizedCoefficients
Beta
StandardizedCoefficients
t Sig.
Dependent Variable: IPIa.
i. INDIAN PHARMACEUTICAL INDUSTRY AND FDI: GOVERNMENT INITIATIVE:
Government has allowed hundred per cent foreign direct investment
(FDI) under the automatic route. At present the key players in Indian
pharmaceutical sector are Ranbaxy Laboratories Limited, the biggest
pharmaceutical manufacturing company in India, Dr. Reddy’s
Laboratories, the manufacturers and marketers of a wide range of
pharmaceuticals both in India and abroad, Clipla, the Indian
pharmaceutical company renowned for the manufacture of low cost anti
AIDS drug, Nicholas Piramal, the second largest pharmaceutical
healthcare company in India, GlaxoSmithKline(GSK), a UK based world’s
second largest pharmaceutical company, and Zydus Cadila. The drugs
and pharmaceuticals sector including those involving use of recombinant
technology (Department of Indiustrial Policy and Promotion).
The drugs and pharmaceuticals sector has attracted FDI worth US$
1707.52 million between April 2000 and April 2010, according to data
published by the Department of Industrial Policy and Promotion (DIPP) in
April 2010.The Government plans to set up a US$ 639.56 million venture
capital (VC) fund to give a boost to drug discovery and strengthen the
pharmaceutical infrastructure in the country.
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4.11 INDIAN PHARMACEUTICAL INDUSTRY- A SWOT ANALYSIS:
The domestic pharmaceutical industry has so far enjoyed an edge over
international peers due to the absence of product patent in the country.
However, with the product patent regime coming in, the Indian pharma
majors felt a threat of severe competition and shrinkage in margin. Thus,
to strengthen their footing in the competitive product patent era and to
grab a potential market share in the global generic market, at a time
when and over 75 per cent of the global drugs are going off patent in
2005, many pharma companies have increased R&D investments
significantly. For instance, the R&D expense of Lupin increased by 222
per cent to Rs 17.29 crore in the quarter ended 4 June. During the
period, the R&D expenses of Nicholas Piramal, Dr Reddy’s lab and
Ranbaxy also increased by 71, 50 and 16 per cent to Rs 9.36 crore, Rs
48.62 crore and Rs 56.5 crore, respectively. This is an indication of
increasing importance of Intellectual Capital (IC) in these firms, therefore,
in the emerging scenario; it further necessitates the need for Intellectual
Capital (IC) measurement and reporting. The SWOT analysis of the
Indian pharmaceutical industry is given below:
a. Strengths
• Cost competitiveness
• Well developed industry with strong manufacturing base
• Access to pool of highly trained scientists, both in India and abroad
• Strong marketing and distribution network
• Rich biodiversity
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• Competencies in chemistry and process development
b. Weaknesses
• Low investments in innovative R&D
• Lack of strong linkages between industry and academia
• Low medical expenditure and healthcare spend in the country
• Production of spurious and low quality drugs tarnishes the image of
industry at home and abroad
• Shortage of medicines containing psychotropic substances
c. Opportunities
• Significant export potential
• Licensing deals with MNCs for NCEs and NDDS
• Marketing alliances to sell MNC products in domestic market
• Contract manufacturing arrangements with MNCs
• Potential for developing India as a centre for international clinical trials
• Niche player in global pharmaceutical R&D
• Supply of generic drugs to developed markets
d. Threats
• Product patent regime poses serious challenge to domestic industry
unless it invests in research and development
• R&D efforts of Indian pharmaceutical companies hampered by lack of
enabling regulatory requirement
• Drug price control order puts unrealistic ceilings on product prices
and profitability and prevents pharmaceutical companies from
generating invest able surplus
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• Lowering of tariff protection
• The new MRP-based excise duty regime threatens the existence of
many small scale pharma units (Sudarshan Maity, 2010)
4.12 Brief Profile of the Select-FDI Based Companies in the Indian Pharmaceutical Sector:
The list of select FDI-based companies considered for analysis in this
study are as follows:
i. Abbott India Ltd.
ii. Astrazeneca Pharma India Ltd.
iii. Aventis Pharma Ltd.
iv. Biocon Ltd.
v. Fresenius Kabi Oncology Ltd.
vi. Fulford (India) Ltd.
vii. Glaxosmithkline Pharmaceuticals Ltd.
viii. Kerala Ayurveda Ltd.
ix. K D L Biotech Ltd.
x. Matrix Laboratories Ltd.
xi. Merck Ltd.
xii. Novartis India Ltd.
xiii. Pfizer Ltd.
xiv. Ranbaxy Laboratories Ltd.
xv. Sandu Pharmaceuticals Ltd.
xvi. Solvay Pharma India Ltd.
xvii. Wanbury Ltd.
xviii. Wyeth Ltd
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4.12.1 Abbott India Ltd:
Abbott India Ltd. was incorporated on 22nd August, 1944 under the
Companies Act, 1913 as Boots Pure Drug Company (India) Limited. On
1st November, 1971, its name was changed to The Boots Company (India)
Limited. On 1st January, 1991 it was again changed to Boots
Pharmaceuticals Limited. On 31st October, 1995 the name was changed
to Knoll Pharmaceuticals Limited, thereafter to Abbott India Limited on
1st July, 2002.
Abbott India Ltd has a strong brand equity and high esteem in the
market. To provide service to the customers, Abbott India has a network
of 18 distribution points, which cater to 11,000 stockists and 70,000
retailers.
4.12.2 Astrazeneca Pharma India Ltd:
Astrazeneca Pharma India Ltd was incorporated on 11th July,1979
and got the Certificate of Commencement of Business on 6th November,
1979. It was promoted jointly by Astra Pharmaceuticals AB, Sweden
(Astra) and IDL Chemicals Ltd., Hyderabad (IDL).In the year 1980, the
Company entered into a technical collaboration with Astra
Pharmaceuticals AB, Sweden for the supply of information and know-
how, manufacturing process and technical data for the manufacture of
basic drugs, formulations, fine chemicals and industrial chemicals.
AstraZeneca India is the only multinational pharmaceutical firm in India
that offers an integrated approach to the discovery, development and
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marketing of medicines. It is involved in both the manufacturing and
marketing of medicines.
4.12.3 Aventis Pharma Ltd:
Aventis Pharma Limited was incorporated in May 1956 under the
name Hoechst Fedco Pharma Private Limited. Over the years, its name
was changed to Hoechst Pharmaceuticals Private Limited, Hoechst India
Limited and Hoechst Marion Roussel Limited. Sanofi-aventis, one of the
world's leading pharmaceutical companies, and its 100%
subsidiary, Hoechst GmbH, are the major shareholders of Aventis
Pharma Limited and together hold 60.4% of its paid-up share capital.
Aventis Pharma Limited has two state-of-the-art manufacturing
facilities, one at at Ankleshwar, Gujarat (chemistry and pharmaceuticals)
and the other at Verna, Goa (pharmaceuticals), incorporating the latest
designs and processes in manufacturing. Both the sites have been
identified as global sourcing units.
4.12.4 Biocon Ltd:
Biocon is India's first biotechnology company, established
in 1978. It is India's first biotechnology company to export
microbial enzymes to USA and Europe. It is the first biotechnology
company to receive ISO - 9001 certification in India. Syngene, a Biocon
subsidiary, is India's first custom research company in drug discovery. It
is the first Indian company to be approved by US FDA for the
manufacture of lovastatin, a cholesterol-lowering molecule and the first
company, globally to manufacture human insulin, INSUGEN. It
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acquired 78% of stake in a German pharmaceutical company i.e.
AxiCorp GmbH for a consideration of €30 million in 2008. It is ranked
among the top 20 biotechnology companies and 7th largest biotech
employer in the world
4.12.5 Fresenius Kabi Oncology Ltd:
Fresenius Kabi Oncology Limited is one of the leading companies for
cancer research and anti-cancer products. Leveraging the global outreach
through integration with Fresenius Kabi, Fresenius Kabi Oncology
Limited is benchmarking the oncology excellence with world class
production, state-of-the-art manufacturing and research & development
facilities.
In the year 2003, Dabur India Ltd., spins off the Pharmaceutical
Business into Dabur Pharma Ltd and in 2008, the Bruman family,
promoters of the Dabur Pharma Group divested its entire stake in Dabur
Pharma Ltd to Fresenius Kabi, a business segment of Fresenius SE, a
German multinational company with business interests across the globe.
4.12.6 Fulford (India) Ltd:
Fulford was incorporated in the year 1948. It was then registered
under the name C E Fulford and was 100% owned by C E Fulford
Limited of UK. Until 1968, the company was engaged in the business of
manufacturing and marketing pharmaceutical consumer products,
including cough tablets and herbal ointments, marketed under the
trademarks – PEPS and ZAMBUK respectively. On July 1, 1968,
Schering-Corporation, USA, an international research-based
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pharmaceutical company acquired 100% ownership of C. E. Fulford
Limited, UK. Subsequently, a manufacturing plant was set up at Andheri
for the manufacture of pharmaceutical products. The company’s
operations commenced with the introduction of an antibiotic injection
under the brand name GARAMYCIN and an antifungal skin solution
under the brand name TINADERM. In 1971, Schering Corporation
merged with Plough Inc., a mass merchandiser of popular consumer
products and Schering-Plough Corporation was formed. Schering-Plough
has its headquarters and executive offices at New Jersey, USA. In
August 1981, the company changed its status from a private company to
a public company and from January 1, 1982 diluted the foreign
shareholding from 100% to 40%, to fall in line with the prevailing
government policy. It is a subsidiary of Schering-Plough Corporation,
USA, a leading research-based company, engaged primarily in the
discovery, development, manufacturing and marketing of pharmaceutical
and health care products worldwide.
4.12.7 Glaxosmithkline Pharmaceuticals Ltd:
It was established in the year 1924 in India. GlaxoSmithKline
Pharmaceuticals Ltd. (GSK Rx India) is one of the oldest pharmaceuticals
company in India and employs over 3500 people. Globally, it is a USD 45
billion, leading, research-based healthcare and pharmaceutical company.
In India, it is one of the market leaders with a turnover of Rs. 2003 crore
and a share of 5.0%. The mission of GSK is to improve the quality of life
by enabling people to do more, feel better and live longer.
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4.12.8 K D L Biotech Ltd:
The Company was incorporated under the name of Kopran Drugs
Private Limited, on 12th August 1986 as a private limited company under
the Companies Act, 1956 with Registrar of Companies, Maharashtra. The
Target Company was converted into a public limited company on 2nd
July 1998, pursuant to which the name was changed to Kopran Drugs
Limited. The name of the company was again changed from Kopran
Drugs Limited to KDL Biotech Limited on 18th July 2000.
4.12.9 Kerala Ayurveda Ltd:
One of the Largest manufacturer of Ayurvedic medicine in compliance
with Good Manufacturing Practice (GMP). It has wide product range of
350, for various ailments. Kerala Ayurveda was founded in Aluva, Kerala
in 1945 by Late Vaidiyan KGK Panicker, the renowned Ayurvedacharya.
Now, more than half a century later, his inspired creation epitomizes all
that is modern and state-of-the-art in Ayurveda. Kerala Ayurveda has
over 75+ Ayurvedic doctors, graduates and post-graduate medical staff,
with several years of experience under its network. Kerala Ayurveda
operates a chain of 27 clinics and 3 Ayurveda Hospitals located across
India, and a wellness resort in Bangalore, “Ayurvedagram”.
KAL's manufacturing facility at Athani, Kerala, produces a range of
350 classical and proprietary Ayurvedic medicines, including therapeutic
formulations. Their clinics, resorts and wellness centers offer a full range
of Ayurvedic lifestyle products, including health supplements, skin and
beauty care products, specialty foods, teas, spices, books and CDs.
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The products manufactured in KAL are classified into two categories:
a. Classical Medicines: These are formulations manufactured based on
the Ayurvedic Formulatory of India. This is developed from 3000 years
old scriptures. In KAL, they follow the traditional method for
manufacturing these products.
b. Proprietary Medicines: These medicines are manufactured based on
the formulas developed by KAL R & D division. The products are clinically
tested by Clinical Trial, Animal trial etc before launching in market.
4.12.10 Matrix Laboratories Ltd:
Matrix Laboratories Limited, a subsidiary of Mylan Inc., is one of the
world’s largest manufacturers and suppliers of Active Pharmaceutical
Ingredients (APIs). It has a wide range of therapeutic categories, including
antibacterials, central nervous system agents, antihistamine/anti-
asthmatics, cardiovasculars, antivirals, antidiabetics, antifungals, proton
pump inhibitors and pain management drugs.
Based in Hyderabad, India, Matrix laboratories also maintains an
impressive portfolio of finished dosage forms of generic antiretroviral
(ARV) products, which treat people living with HIV/AIDS, including
pediatric therapies. The hallmark of Mylan and Matrix’s ARV franchise is
affordability, as it has continually and significantly reduced drug costs.
As a result, the company’s ARV products are helping nearly one-third of
people receiving treatment today for HIV/AIDS in the developing world.
During 2009, Mylan received the World Health Organization’s
approval of the heat-stable ARV tablet, Lopinavir/Ritonavir, which the
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company formulated before any other company – brand or generic. Mylan
and Matrix intend to build on this achievement by introducing
innovations that expand people’s access to ARV medications and related
resources.
4.12.11 Merck Ltd:
Merck is the world’s oldest pharmaceutical company established in
the year 1668. Merck Limited (formerly E. Merck Limited) was set up in
India in the year1967. Merck Limited went public in 1981 as the first
Merck Group company to do so. The Merck Group now holds 51% of the
share capital of Merck Limited, while the remaining 49% is publicly
traded on the Bombay Stock Exchange Ltd. and the National Stock
Exchange of India Ltd. The company has both Pharmaceuticals and
Chemicals operations.
Merck Ltd is a global pharmaceutical and chemical enterprise with
around 40,000 employees in 67 countries. With the acquisition of
Millipore in July 2010, a global leader in the life science tools market,
revenues totaled around EUR 9.3 billion in 2010. Around 30% of the
company’s total capital is publicly traded, while the Merck family owns
an interest of about 70% via the general partner E. Merck KG.
4.12.12 Novartis India Ltd:
Novartis India (NIL) was incorporated in the year 1947. It is a
subsidiary of Swiss giant Novartis - the world's second largest
pharmaceutical company. The company finds its origin from three
separate entities namely Geigy, Ciba, and Sandoz. Geigy was founded in
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1758; Ciba was founded around 1860 and Sandoz was founded in 1886.
In the year 1970 Ciba and Geigy merged and formed Ciba-Geigy. Much
later in 1996 Sandoz was merged with Ciba-Geigy. Together these three
entities became one to form Novartis. Today, Novartis has 100,000
associates working across 140 countries.
4.12.13 Pfizer Ltd:
Pfizer was founded in the year1848 by Charles Pfizer and his cousin
Charles Erhant in Brooklyn, New York. Santonin was its first preparation
and was used to fight parasitic worms. During the Second World War,
Pfizer became the first company to manufacture penicillin in large volume
using its expertise in fermentation. Today Pfizer has around 3 million
compounds in its medicine library and has about 122,000 employees
worldwide. Its revenues for the year 2003 were about US$ 45.2 billion.
Pfizer came to India through Dumex Limited in 1950. It had a record
turnover of about US$ 172 million by November 2006. It invested about
US$ 15.75 million in clinical research in India. In Indian it has
headquarters in Mumbai. It has about 2000 employees.
4.12.14 Ranbaxy Laboratories Ltd:
Ranbaxy Laboratories Limited (Ranbaxy) is one of the India's largest
pharmaceutical company. It is an integrated, research based,
international pharmaceutical company, producing a wide range of
quality, affordable generic medicines, trusted by healthcare professionals
and patients across regions. Ranbaxy today has a presence in 23 of the
top 25 pharmaceutical markets of the world. It was incorporated in 1961
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and went public in 1973. The Company has a global footprint in 46
countries, world-class manufacturing facilities in 7 countries and serves
customers in over 125 countries. In June 2008, Ranbaxy entered into an
alliance with one of the largest Japanese innovator companies, Daiichi
Sankyo Company Ltd., to create an innovator and generic
pharmaceutical powerhouse. The combined entity now ranks among the
top 20 pharmaceutical companies, globally. The Company has a pool of
over 1,200 R&D personnel engaged in path-breaking research.
In July 2010, Ranbaxy’s New Drug Discovery Research (NDDR) was
transferred to Daiichi Sankyo India Pharma Private Limited as part of the
strategy to strengthen the global Research and Development structure of
the Daiichi Sankyo Group.
4.12.15 Sandu Pharmaceuticals Ltd:
Sandu Pharmaceuticals Ltd was established in the year 1899 as
M/s.Sandu Brothers Pvt. Ltd. has acquired a unique position and
reputation as a leading enterprise in the field of Ayurveda. 'Sandu' is an
ISO 9001:2000 certified group of Companies specializing in manufacture
and marketing of Ayurvedic medicines with a rich heritage of more than
100 years. The company manufactures quality Ayurvedic products and
has a distribution network in Indian and also across the globe.
4.12.16 Solvay Pharma India Ltd:
Solvay is an international chemical and pharmaceutical group with
headquarters in Brussels. In India, Solvay has its presence in the
Pharmaceutical sector through its group company Solvay Pharma India
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Ltd. It has has a wide range of products in the field of Womens Health,
Gastroenterology , Mental Health and influenza vaccines. It ranks 41
amongst the Indian Pharmaceutical companies as per the latest ORG IMS
Oct 2009 report with a turnover of Rs.1844 million Indian rupees and a
growth of 17.4%. It is head quartered at Mumbai and employs more than
450 people throughout India. It operates through two sales divisions and
reaches out its customers across the country through more than 1100
distributors. Currently the company structures itself into two divisions.
Both divisions put together offer a product mix for different therapy areas
in Gastroenterology, Women's Health, Mental Health, Vaccines & ENT
segment.
4.12.17 Wanbury Ltd:
Wanbury Limited the fastest growing pharma company amongst top
100 companies in India as per ORG-IMS has strong presence in domestic
branded formulations. In the year 1990, it was incorporated as Pearl
Distributors Pvt. Limited. In 1991, Pearl Distributors Pvt. Limited went
public and was renamed as Pearl Organics Limited. In 2004, Wander
Limited merged with Pearl Organics Limited and Pearl Organics Limited
renamed as Wanbury Limited. It is the fastest growing company amongst
top 100 companies in the domestic market as per ORG-IMS (2008). It is
ranks 47th as per ORG-IMS (Jan-2009).
Cpink, one of the key brands of Wanbury was awarded "Best Brand
Launch" by ORG-IMS in India in 06-07. Rabiplus, another key brand
of Wanbury, was awarded “Best Brand Launch” by ORG-IMS in India in
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2007-08. It is the world’s largest manufacturer of Metformin. Exports to
over 50 countries, 65% of which is to the regulated markets
4.12.18 Wyeth Ltd:
Wyeth Limited is a subsidiary of Wyeth, USA; a global leader in
pharmaceuticals, consumer healthcare and animal health products. It
was incorporated on September 20, 1947 as a private limited company
under the name Lederle Laboratories (India) Ltd. The name was changed
to Cyanamid India Limited on October 31, 1962. The company became a
public enterprise in November 1965. On January 1, 1998, three
companies - Wyeth Laboratories Limited, John Wyeth (India) Limited and
Wyeth (India) Private Limited - were amalgamated with Cyanamid India
Limited and the combined entity was named Wyeth Lederle Limited. On
April 1, 2003, Geoffrey Manners & Co. Limited was merged with Wyeth
Lederle Limited and the name of the company was changed to Wyeth
Limited. Wyeth Limited is a market leader in oral contraceptives, folic
acid and depilatory cream. It was the first to launch hormone therapy. In
the field of vaccines, Wyeth introduced vaccines against H1B and
invasive pneumococcal disease in the country. It is among India's leading
multinational companies. The company has a state-of-the-art
manufacturing facility in Goa