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Pioneer Institute of Professional Studies, Indore

A

RESEARCH PAPER

ON

Growth of Indian Pharmaceutical Industry

PIONEER

(Since 1996)

Submitted to Submitted By

Prof. Dr. V K Jain Sanjay Trivedi

Prof. Satnam Ubeja MBA 3rd sem

Roll. # 09010135


DECLERATION

I hereby declare that this Research Paper entitled GROWTH OF INDIAN PHARMACEUTICAL INDUSTRY

submitted for the extra co curriculum activities for the partial fulfillment of the requirement of Master

of Business Administration (MBA) of PIONEER INSTITUTE OF PROFESSIONAL STUDIES INDORE is based on

secondary data found by me in various Companies fact sheets, previous research papers, magazines and

websites collected by me in under guidance of Prof. Satnam Kaur Ubeja.

January 2010 Sanjay Trivedi

MBA Semester III

Roll no. 09010135


INTRODUCTION

1. Conceptual Framework

Health is defined both as cause and effect of economic development. The pharmaceutical

industry provides significant socio-economic benefits to the society through creation of jobs,

supply chains, and through community development. The industry also plays an important role in

technological innovation, which may reduce costs of economic activity elsewhere in the

economy. Players in the Indian pharmaceutical industry include: branded drug manufacturers,

generic drug manufacturers, firms developing biopharmaceutical products, nonprescription drug

manufacturers, and firms undertaking contract research. In addition, there are also enablers of the

industry such as universities, hospitals and research centers that play a role in R&D activities.

The pharmaceutical industry is an exciting industry worldwide with growth rate of 8% and a

turnover of around US$ 650 billion. In terms of value, the major constituents are the United

States (US) (48% share), European Union (EU) (28%share) and Japan with a share of 12%, and

the rest of the world, including India, contributes around 20%. However, in terms of volume, the

share of the rest of the world is approximately three times larger. An example in this regard, is

India, which ranks 4th in terms of volume with a share of 8% in the world pharmaceutical market

and only 13th in terms of value. The annual turnover of the Indian pharmaceutical industry is

approximately, US$ 19 billion.

The period of the 1995-2008 (i.e. the Post-TRIPS period) saw the strongest performance of the

Indian pharmaceutical industry on several fronts. Not only did the industry improve its

production performance seen in the previous decades, and that too by a significant margin, the

industry turned into a net foreign exchange earner during the decade in question. The Indian

pharmaceutical industry, now a $19 billion industry, has shown tremendous progress.

Structure of the Indian Pharmaceutical Sector

The Indian pharmaceutical sector is one of the largest within developing countries and is

expected to have an overall production value of US$ 14 billion in the year 2015. Presently, it is

the second largest export industry in India, exporting to over a 100 countries in total with main

export regions being USA, Western Europe, Asia (especially China) and the middle-east. India

also has the largest amount of FDA approved drug manufacturing facilities outside of the USA.

The industry growth rate during the 1990s was on an average around 15% for bulk drugs and

20% for formulations (IBEF and Ernst and Young, 2004a).


Main triggers and actors for innovation

The pharmaceutical sector employs technological capabilities that are rooted in innovative drug

discovery and development activities (product development), technological capabilities related to

discovering different processes of producing drugs (process development), and finally,

technology related to producing and packaging formulations (manufacturing). Certain limitations

in the macro, meso and micro environment render it hard for developing countries to build these

capacities in the pharmaceutical sector. At the macro level, a disjuncture between demand for

health research and on-going activities in the sector, a lack of scientific culture amongst

scientists and researchers (including emphasis on collaboration), weak public support and

bureaucratic rigidity are some of the main problems that challenge the system. At the meso-level,

there are issues of access to information and technological inputs that are important for health

research, inadequate human capital formation, institutional instability and weak scientific

infrastructure. And at the micro-level, issues of intellectual isolation of researchers and lack of

incentives for collaborative research, such as low salaries, restriction of career opportunities due

to bureaucratic bottlenecks in adequate research budgets, and lack of on-job training possibilities

make it hard to create an efficient innovative environment. Although Indias chosen path to

achieve self-sufficiency in the sector was one of an independent latecomer (Amsden and Cho,

2003), the governments main focus was on achieving local production of all antibiotics needed

by the Indian population.8 From the 1960s until now, policy changes that have had impact on the

sector broadly belong to three identifiable phases.

Nature of innovation and firm groups in the Indian pharmaceutical sector

The Indian pharmaceutical sector is a heterogeneous mixture of firms, both organized and

unorganized. They range from large firms that are either subsidiaries of large multinational firms

or wholly Indian, such as Cipla, Ranbaxy and Dr. Reddy Labs, to medium and small-sized firms

that also extend to garage operations. As against the commonly quoted figure of 20,000

manufacturing units in the pharmaceutical sector, an expert committee set up by the government

of India in 2003 has clarified the number of active units on the basis of drug manufacturing

licenses issued. According to the Committee, the total number of manufacturing units engaged in

the production of both bulk drugs and formulations within India is not more than 5877.13 the

market is highly fragmented with only around 300 companies accounting for almost all of the

domestic market.

The 6000 odd firms that form part of the sector demonstrate significant technological differences

that reflect in their annual sales turnover, export potential, R&D investments and most


importantly, the nature of innovative activities. Using country level data collected on these

variables, the firms can broadly be classified into three main categories.

The first group of firms comprises large-scale pharmaceutical firms that are both subsidiaries of

MNCs in India or wholly-owned Indian firms. Group 1 includes firms like Ranbaxy, which is the

largest pharmaceutical company in the country, also ranked in the top 100 companies worldwide;

Cipla, which is the largest producer of generic drugs in India with around 800 products in the

market. Group 1 firms have an annual sales turnover of more than 300 crore rupees (US$

650,000), have extensive brand marketing networks for their brands that help in creating and

promoting brand identity of their products amongst consumers across the

country. The second group of companies comprises medium sized operators who are either

generic producers or specialists in niche areas of contract research and small scale units which

manufacture drugs for the bigger firms within India. These companies supply predominantly to

the Indian market as well as to other semi-regulated and unregulated markets. Firms classified as

group 2 have an annual sales turnover between 100-300 crore rupees (US$ 210,410 to US$

650,000). The third and final group of companies comprises those that mainly perform

manufacturing activities for bigger Indian companies, both local and multinational companies.

Companies that fall into group 3 have an annual turnover of less than 100 crore rupees (US$

210,410) annually. The 6000 odd firms can be broken up into 100 firms belonging to Group 1,

200 firms to group 2 and the remaining 5700 fall into group 3, when both bulk drugs and

formulations are taken into account. This categorization helps pin point the extreme variance in

industry structure because it embodies the vast differences amongst firms in terms of firm size,

employment capacity, innovation potential, R&D investments and exports. Out of the 103 firms

surveyed as part of the empirical investigation, 31 belonged to group 1, 27 to group 2 and 44 to

group.

Group 1 comprises mainly of big pharmaceutical firms, whose pharmaceutical activity can be

classified into two main categories: generics and innovative R&D. These innovative firms

already have large market shares domestically, and are supplying to regulated, semi-regulated

and non-regulated markets. Their R&D activities mainly 18 focused on process development

until recently and the R&D expenditure of the companies is presently around 6% of their annual

turnover, and this is projected to rise up to 10% by the year 2010. Extensive process

development capabilities have enabled these firms to venture into innovative options, such a

specialty generics, and the firms are keenly developing marketing infrastructure abroad to

penetrate foreign (regulated) markets. This has been the driving force behind the recent wave of

international acquisitions and alliances such as Dr. Reddys acquisition of Betapharm in

Germany (the 4th largest generic company locally), Ranbaxys acquisition of RPG Aventis in

France (amongst the top five generic companies) and Terapia in Romania, and Matrix

Laboratories acquisition of DocPharma in Belgium (the second largest generic company locally)

. The experience of group 1 companies has been that while the entry barriers to regulated

markets for the supply of generics are very high, the monetary returns and the ease of business

that follows entry into these markets are both higher than in the semi-regulated and unregulated


markets worldwide. These added profits earned by the sale of generic products in regulated

markets allow group 1 firms to increase their R&D spending locally. Group 2 companies have an

annual turnover between 100-300 crore rupees and have much more limited investment

capabilities to indulge in R&D. They are either pure generic suppliers, or are shifting to product

development categories that involve specializations. Companies in group 2 are trying to establish

themselves as niche players in contract research and manufacturing by choosing specific areas

where they can be competitive. Some of these companies that are quite high up in the

profitability chain presently are also planning to expand their activities and gradually move into

regulated markets following the example of group 1 companies, thereby climbing up the industry

value chain. The activities of both group 1 and 2 companies show that R&D efforts and process

and product innovation are not isolated phenomena in the Indian pharmaceutical sector as

projected by many scholars, but well inter-linked. Adaptive and incremental innovation activities

are non-trivial activities. Reverse engineering, for instance, presupposes a deep understanding of

the processes and products in the pharmaceutical industry. As Kline and Rosenberg (1986)

observe, quite often design is the initiating point of innovation. What Indian firms have been

doing falls clearly in this domain. They further note that innovation has three major aspects to it:

(a) innovation is not a linear process but one involving many interactions and feedbacks in

knowledge creation; (b) innovation is a learning process that involves several inputs at the same

time; and lastly, (c) on-going innovation processes can be initiating factors to invention

processes that involve formal R&D. This observation too fully applies to the pattern of

expanding R&D activities of Indian firms. Despite the emphasis on generic filings in regulated

markets to secure higher revenues and the edge in process development, focus on original

product development activities is gradually increasing within the sector. Several large companies

are very good examples of this, but there are also other medium-sized companies that are moving

into niche operations for exports mainly, which help emphasize this transition in the Indian

pharmaceutical sector. Their strengths in process development and manufacturing are helping to

adopt a combination of cooperative and competitive strategies, in order to adapt and as well as

capitalize on opportunities created by the new TRIPS-compliant patent regime. Group 3

companies, contrary to popular misconceptions; are mainly threatened by the standards on

minimum GMPs introduced under the new Schedule M of the Drugs and Cosmetics Act. This

will be the main reason, and not product patent protection, that will force unviable units to close

down in this group subjecting it to maximum consolidation in the next decade. Although many of

the group 3 firms are also strategically aiming to benefit from contract manufacturing, either for

larger Indian firms or even for foreign firms post-2005, only those who can upgrade their plants

to at least the GMP standards contained in the Schedule M of the Drugs and Cosmetics Act will

tend to benefit. Even such a generalization has to be made with a note of caution, since the

standards contained in Schedule M of the Indian Drugs and Cosmetics Act are much below the

WHO standards on GMPs. In this context, it remains unclear as to whether group 3 companies

that do upgrade their facilities to the standards specified under Schedule M can indeed end target

contracts for manufacturing from MNCs/ firms operating outside India. In order to be able to


manufacture for foreign partners from regulated markets,standards of foreign inspectors such as

USFDA will need to be met by group 3 firms, which are much more stringent than both the

Indian and WHO standards on GMPs. It therefore seems more likely that most such companies

which do adhere to GMP standards as specified by Schedule M will perform contract

manufacturing for group 2 companies in India who are looking at filling in the demand for

generics in the unregulated and semi-regulated markets or foreign partners directly from the

unregulated and semi-regulated markets. Alternatively, group 3 companies that comply with

Schedule M will also supply to companies that are targeting the domestic Indian market. The

firms in group 2 qualify to be called niche-operators because they are slowly moving into areas

of clear specialization in the drug discovery and development value chain. There is an enormous

emphasis being laid upon specialized contract research the areas of clinical research, drug

discovery, non-infringing process development and the anufacturing of biogenerics. Several

group 2 companies specialize in developing noninfringing processes for drugs. Apart from

Strides Acrolab India, another group 2 firm that has been a huge success and has even moved

into group 1 in a really short span of six years is Matrix Laboratories. Avaant Pharmaceuticals

main focus is to secure drug development licenses for compounds that were discovered by global

pharmaceutical firms, but subsequently ignored either due to research difficulties, change in

R&D focus or management changes in the company. Avaant presently has licenses for drug

development from several big companies, like Bayer. Several other group 1 companies are

themselves setting up niche R&D centers as standalone organizations, such as the new R&D

centre set up by Sun Pharmaceuticals, called Sun Pharma Advanced Research Company. There

are others who are seeking to specialize in generics business, focusing their attention on the

business opportunities created by the shift of group 1 firms into regulated markets and innovative

drug research. Several group 2 firms are actively supplying off-patent generics to the semi-

regulated and unregulated markets, by setting up manufacturing plants outside India or

strengthening supplier partnerships. Ajantha Pharmaceuticals is a good example: apart from

having a big presence in Russia, it has set up a manufacturing plant in Ukraine and is seeking

gradual entry into regulated markets. In contrast to such accounts, group 3 firms are not exactly

making headlines, since their activities are basically geared towards surviving by upgrading their

manufacturing facilities, and continuing to manufacture to either supply to big manufacturers

within India, or directly export to unregulated markets in Africa. Most of these firms are

struggling to cope with changes to status quo, although learning continues in those who manage

to upgrade their production activities, hence qualifying to be called manufacturers.


\

India now ranks 3rd worldwide in volume and 13th in value. Also country shows excellent

performance in export. Indian exports to more than 200 countries around the globe including the

highly regulated markets of US, Europe, Japan and Australia. India exported drugs worth around

US$ 8 billion in 2008-09, most of which to the US and Europe, followed by Central and Eastern

Europe, Latin America and Africa. The trend of patent filing in our country has tremendously

increased. A total of 35,218 patent applications were filed, 6040 from domestic and 29,178 from

foreign applicants in the last fiscal year. India stood at 18th position according to their number of

PCT international applications (IAs) filed in 2008. Indian pharmaceutical industry is entering an

era in which it is becoming a global hub for R&D activities, which may be in the area of new

drug discovery. Indian pharmaceutical industry has also been increasing the R&D expenditure

significantly in the recent years. With an increase in R&D spending, Indian companies could file

large number of Drug Master Files and Abbreviated New Drug Application (ANDA) with

USFDA. Indian Pharma companies are increasing the number of regulatory filings such as DMF

and ANDA as these enable them to manufacture and market drugs in the regulated market such

as the US and Europe. In the above backdrop, the paper is an attempt to trace the changing

context of innovation and technological developments in Indian pharmaceutical firms in the

recent past. The present paper examines the Performance of the Indian Pharmaceutical Industry

in Post- TRIPS period by evaluating the performance of a few leading pharmaceutical companies

by analyzing a few growth indicators like sales, profits, R&D expenditure, Patents granted by

USPTO, ANDA filings and approvals with USFDA in Post- TRIPS period, DMF filings with

USFDA in Post- TRIPS period and global DMF The global pharmaceutical industry is nowadays


made up of thousands of companies contained in this industry. There are an elite ten firms which

are based in Europe and America. These firms alone account for nearly half of the worlds

global drug market on their own. This said the current industrys leader in terms of global sales

is Pfizer and it has only roughly 10% of the market. This shows that there are not only one or a

few dominant players in the market and that competition within the pharmaceutical industry is

severe.

FY10/CY09 was a relatively better year for domestic Pharma companies as they recovered

from the crippling impact of forex volatility in the previous year. There was good growth seen

in generics especially in the US and the semi regulated markets. Europe continued to face

pressure. Companies focusing on custom manufacturing for innovators were not spared from a

slowdown in their business. This is because many of the global innovator companies chose to

rationalize their inventories in wake of the global slowdown. And so there were not too many

orders that were being given out. Further, the efforts of global innovators to entrench in the

domestic market intensified with Abbott Laboratories buying out the domestic formulations

business of Piramal Healthcare. Thus, with Daiichi also having acquired a majority stake in

Ranbaxy, 2 of the top 3 players in the Indian market are MNCs.

The European market posed a set of challenges for Indian generic companies. While the UK

was bogged with severe pricing pressure, the government's of Germany and France undertook

various healthcare reforms, which impacted the revenues of companies having a presence in

these countries. Further, the global economic slowdown only worsened matters.

In the domestic market, FY10 was a decent year for the pharmaceutical industry with most of

the top players managing to clock a double-digit growth. However, it was the chronic therapy

segment, which once again stole the thunder of the acute therapy segment. While the former

recorded a robust 18% YoY growth, the latter grew by 15% YoY.

Continuing with the trend last year, MNC companies did well during FY10/CY09 too. On an

average, they were able to clock top line growth in the range of 10% to 13%. On the margin

front, performance was mixed. While GSK Pharma and Novartis witnessed an expansion in

operating margins, Aventis and Pfizer witnessed declines. Aventis was impacted by the

termination of the agreement with Novartis Vaccines for the sale of the anti-rabies vaccine

'Rabipur'.

The product patents regime heralds an era of innovation and research resulting in the launch of

new patented product launches. In the longer run, domestic companies would face fresh

competition from MNCs, as they would make aggressive new launches. However, the latter

would most likely be subject to price negotiation.


Drugs having estimated sales of over US$ 108 bn are expected to go off patent between CY09

and CY13. With the governments in the developed markets looking to cut down healthcare costs

by facilitating a speedy introduction of generic drugs into the market, domestic Pharma

companies will stand to benefit. However, despite this huge promise, intense competition and

consequent price erosion would continue to remain a cause for concern.

The life style segments such as cardiovascular, anti-diabetes and anti-depressants will continue

to be lucrative and fast growing owing to increased urbanization and change in lifestyles. Growth

in domestic sales in the future will depend on the ability of companies to align their product

portfolio towards the chronic segment.

Contract manufacturing and research (CRAMS) is expected to gain momentum going forward.

India's competitive strengths in research services include English-language competency,

availability of low cost skilled doctors and scientists, large patient population with diverse

disease characteristics and adherence to international quality standards. As for contract

manufacturing, both global innovators and generic majors are finding it profitable to outsource

production. Although there has been a considerable slowdown in this area, the scenario is

expected to improve going forward as the pressure to prune costs increases.

Defining industry sector evaluation (growth competence)

The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (around 330

in the organized sector). The top ten companies make up for more than a third of the market. The

Indian Pharma industry grew by a robust 17% YoY in 2009 to '401 bn (approx. US$ 8.5 bn). It

accounts for about 1% of the world's Pharma industry in value terms and 8% in volume terms.

Besides the domestic market, Indian Pharma companies also have a large chunk of their

revenues coming from exports. While some are focusing on the generics market in the US,

Europe and semi-regulated markets, others are focusing on custom manufacturing for innovator

companies. Biopharmaceuticals is also increasingly becoming an area of interest given the

complexity in manufacture and limited competition.

drug price control order (DPCO) continues to be a menace for the industry. There are three

tiers of regulations - on bulk drugs, on formulations and on overall profitability. This has made

the profitability of the sector susceptible to the whims and fancies of the pricing authority. The

new Pharmaceutical Policy 2006, which proposes to bring 354 essential drugs under price

control has not been officially passed as yet and has been stiffly opposed by the pharmaceutical

industry.

e R&D spends of the top five companies is about 5% to 10% of revenues. This ratio is still

way below the global average of 15% to 20% of sales. Indian companies have adopted various

strategies for their R&D efforts. Some have entered into collaboration and partnership

agreements with innovator companies; others have out-licensed their molecules for milestone


payments. Hiving off R&D units into separate companies has also become a preferred option for

many Indian Pharma players. That said, given that the research pipelines of Big Pharma are

drying up, they have now begun to dabble in generics. In this regard, these innovator companies

are either buying out Indian firms or are forging alliances with them.

Six trends will influence the growth of the Indian pharmaceutical market over the next decade:

Doubling of disposable income and the number of middle class households

Expansion of medical infrastructure

Greater penetration of health insurance

Rising prevalence of chronic diseases

Adoption of product patents and

Aggressive market penetration led by smaller companies.


Rationale

In recent times the pharmaceutical industry has shown high interest in India due to its sustained

economic growth, healthcare reforms and patent related legislation. The spending powers of

Indian have consistently increased since 1990s.Owing to a stressful lifestyle the number of

chronic disease patients have only increased. The market is expected to rise three fold in coming

decade. My research aims to highlight the growth story of Indian pharmaceutical industry

making use available information.

Objective

o To assess the current standing of the Indian Pharma industry

o Analyze the competencies of the of Indian Pharma industry.

o Analyze future growth prospects of the Indian Pharma companies on a global level

Literature Review

In his research titled, People before Patents. The success story of the Indian Pharmaceutical

Industry, Richard Gerster says The Indian pharmaceutical industry is a success story. 500 000

people are employed in this sector, in some 12 000 firms. 2 900 of them are large scale units,

following a recent article by Pradeep Agrawal and P. Saibaba in the renowned Economic and

Political Weekly of Mumbai (29 September 2001). In the pre- and post-production sector, a

further 2.5 million jobs are thought to be involved. Compared to the general price index, drug

prices have risen much less in the last 15 years and remain far below average. Worldwide, India

is a country of very low drug prices while producing high quality medicines", Nihchal H. Israni,

president of the Indian Drug Manufacturers Association (IDMA), states proudly. Self-

sufficiency with regard to pharmaceutics exceeds 90 percent in spite of the policy of a more

open economy pursued by India since 1991.

In his research titled Growth of Indian Pharma Industry, Mukul Mukti stated The Indian

pharmaceutical industry has a unique amalgamation of two major critical factors that make it so

attractive and thereby add impetus to its growth. These are:

The process patent regime Price controls. The implementation of Good Manufacturing Practices

has further supplemented the growth of this industry which is now producing bulk drugs for all

the major therapy segments, which are now most in demand. In addition to this, the

competencies that India has achieved in process re-engineering and organic synthesis have


helped derive the most cost-effective solutions which are also compliant with the quality

standards. The purpose of this report is to provide an extensive outlook on the pharmaceutical

industry.

According to a new study Booming Pharma Sector in India by RNCOS, the Indian

pharmaceutical sector has posted double digit growth rate in the last five years and is presently

accelerating at a pace twice more than the global pharmaceutical market. In near future, the

potential and opportunities in this market will rise by several folds. In fact, the Indian

pharmaceutical market is expected to grow at a CAGR of 16% between 2007-08 and 2011-12.

Nilesh Zacharias and Sandeep Farias in their report Patents and the Indian Pharmaceutical

Industry stated The Indian pharmaceutical industry is a prime example of an industry that is

being forced to revisit its long-term strategies and business models as India opens its markets to

global trade. Factors such as protection of intellectual property are increasing in significance due

to the growing recognition of the need to ensure protection of valuable investments in research

and development (R&D). Efforts are being made in India to curb problems of weak

enforceability of existing intellectual property legislations, and the Indian government is moving

towards establishing a patent regime that is conducive to technological advances and is in

keeping with its global commitments. The process of liberalization initiated in 1991 has helped

develop policies that are focused on attracting capital from overseas and making India a global

industrial base. The resultant inflows of foreign direct investment and technology transfers have

created an environment for dynamic growth and increased competitiveness of Indian industry.

The current revenues of the Indian pharmaceutical industry are estimated at US$5.5 billion and it

is expected to grow at a compounded annual growth rate of 19% and touch US$25 billion in

revenue by 2010. India is slowly moving into global markets and competing with international

quality standards and prices. Although R&D is an important factor to ensure a competitive edge

in the international arena, the future of the Indian pharmaceutical industry hinges on patent

protection.


Research Methodology

Research design

Descriptive Research is the research method used because descriptive studies embrace a large

proportion of market research. The purpose is to provide an accurate snapshot of some aspect of

the market environment Descriptive research design is a scientific method which involves

observing and describing the behavior of a subject without influencing it in any way.

Descriptive research design is a valid method for researching specific subjects and as a precursor

to more quantitative studies. Whilst there are some valid concerns about the statistical validity, as

long as the limitations are understood by the researcher, this type of study is an invaluable

scientific tool. Whilst the results are always open to question and to different interpretations,

there is no doubt that they are preferable to performing no research at all.

Tools of data collection

There are many methods of data collection which can be used according to nature and type of

research. I will use following data for the research purpose.

Secondary data

o Articles

o Factsheet

o Management generals

o Annual report

o Research papers

o Internet

o News papers

Tools for data Analysis

Graphs and Charts


Major Finding and Results

On studying the current trend of the Pharmaceutical industry I present the major findings of the

research with the help of data obtained from other similar papers.

ANDA (abbreviated new drug application) Trend 2007-09

The Indian patent regime before the 2005 amendment granted only process patents on drugs.

This led to creation of a robust generic pharmaceutical industry in India which off late has gained

a strong global presence owing to their strategy of market presence through filing for an

Abbreviated New Drug Application (ANDA) under paragraph IV of the Hatch-Waxman Act of

United States.

In the year 2009, 100 ANDAs were filed by the top 10 companies. The top 10 companies

account for more than 50% of the total filed ANDAs. Some of the top Indian companies which

have driven the growth of the ANDA market are Wockhardt, Glenmark, Dr. Reddy, Aurobindo

and Ranbaxy to name a few from India.The Indian Pharmaceutical Industry accounts for nearly

32% of the total filed ANDAs in the year 2009.

Based on these statistics, it can be definitely predicted that growth of the Indian Pharmaceutical

companies is likely to achieve its desired milestones. This can only happen if the regulatory laws

continue to support the submission rates.


INDIAN PHARMA GROWTH BY 2020

A report from the U.S. consulting firm McKinsey & Co. released Friday projects that the Indian

pharmaceutical market will balloon to $55 billion by 2020 if the population continues to grow at

its current rateand the prevalence of illnesses continues its rapid rise.

The 1.3% annual rise in the population, plus a steady increase in disease, will make the patient

pool in India 20% larger in ten years that it is today, the report said.

At $55 billion in annual sales, the pharmaceutical industry will be four times its current $12.6

billion size, according to the report. If things go super well, according to what McKinsey calls

the aggressive growth scenario, the industry could grow even faster to $70 billion by 2020.

But McKinsey also said too many regulatory controls and an economic slowdown could depress

the growth of this key segment of the Indian market and produce only a $35 billion market in ten

years.

McKinsey expects pharmaceutical markets in four developing countriesIndia, China, Russia

and Brazilto spearhead future growth as the industry slow in the U.S., currently the biggest

market in the world.


India offers unique challenges and benefits, the report said. It has huge volumes but low price. It

is the third largest market in terms of volume but only the 10th

biggest in terms of value.

Between 2000 and 2005, the Indian pharmaceutical industry recorded compound annual growth

of 9%, which has increased to around 13% in the last five years, the report said.

Expanding Exports of Indian Pharma Products

This Chart shows us the Growth of Export of Pharmaceutical Products from India to 200 other

countries. From the Year 2004-2005 till to the Year 2008-2009, India has seen a growth of

104%. The Government of India has progressively invested into the Pharmaceutical Industry.

The growth has occurred through sales in over 200 countries all across the globe.


Performance

The Indian pharmaceutical market has shown growth of a little over 20 per cent for the 12

months ended July, above four times the global growth rate of about five per cent.

This unprecedented rate could attract more global companies to enter the domestic drug market,

thus triggering more buyouts of Indian companies by multinational drug makers, said industry

experts.

The Indian pharmaceutical market reached Rs 44,477 crore in size, with a value-wise growth rate

of 20.4 per cent over the previous years corresponding period on a Moving Annual Total (MAT)

basis for the 12 months ended July, according to data from IMS Health India. It tracks drug sales

in the country through a network of nationwide drug distributors.


Growth Forecast: 2015

The Indian drug market, currently valued fourth in terms of volume and 13th in terms of value, is

expected to become one of the largest in the world, thanks to the population size. IMS estimates

the healthcare market in India at Rs 1,40,000 crore by 2020. The Indian pharmaceutical market is

expected to touch $40 billion (Rs 1.8 lakh crore) by 2015, predicts the global management

consulting major, Mckinsey & Co.

IMS data said the anti-diabetic therapy segment recorded the highest growth for these 12 months,

at 29 per cent in value, among various therapeutic segments. The genito-urinary and sex

hormone segment recorded a growth of 24 per cent and cardio vascular system and nervous

system medicine showed 22 per cent value growth for the 12-month period.


As top Indian pharmaceutical companies sell themselves off, Indias Rs60,000 crore drug

market seems harking back to the 1970s, when it was dominated by foreign multinationals. Just

six of Indias top 10 drug makers by market share are controlled by domestic promoters today,

down from nine in December 2008.At least two more deals (of foreign firms acquiring Indian

drug makers) are likely in the next 18 months, said Tarun Shah, founder, MP Advisors. His firm

advised Japans third largest drug maker, Daiichi Sankyo Co. Ltd in acquiring the stake owned

by promoters in Indias largest drug maker, Ranbaxy Laboratories Ltd. The $4.6 billion

(Rs21,620 crore) acquisition was the first of the three deals that have changed the equations in

the Indian drug industry since December 2008.It was followed by Hyderabad-based Shantha

Biotechnics Pvt. Ltds acquisition by Sanofi-Aventis AG.

Last week, US drugs and nutrition company Abbott Laboratories announced a Rs17,000 crore

acquisition of the domestic formulation business of Mumbai-based drug maker Piramal

Healthcare Ltd, the largest player in the local market with a market share of 7%.

Global acquisitions have also changed the structure of the Indian market. The acquisition of US

multinational Wyeth by the worlds largest drug maker Pfizer Inc. has led sales of their Indian

subsidiary Pfizer Ltd to increase. The combine of Pfizer and Wyeth in India has now become the

eighth largest player with a market share of 3.5%.

And US drug maker Merck and Co. Inc.s acquisition of Schering Plough worldwide has made

the company the 10th largest in India, with a market share of 1.03%, according to retail market

statistics of IMS Health until September 2009.


The combined share of top 16 drug makers in the local market is 56%, or worth Rs33,600 crore,

according to retail audit data compiled by IMS Health.Since new acquisitions and mergers have

changed the ownership base in the industry, 23% of this market is now controlled by six

multinational companies.Until December 2008, British drug maker GlaxoSmithKline Plc-

promoted GlaxoSmithKline Pharmaceuticals Ltd was the only foreign firm in the top 10, with

about 4% market share in the Indian drug market till 2008.

Till the end of 2008, there were nine companies owned by Indian entrepreneurs out of top 10

with a combined market share of 32.67%. But the new constitution is that top 10 command

41.06% of total market , and four of the them are MNCs (multi-national companies), said Shah

of MP Advisors.

With multinationals interest to grow in this market and Indian entrepreneurs willingness to

encash, there could be more acquisitions happening, which will lead to MNCs increasing their

market share in the domestic market, he said.

Indian Companies in the US Market

Rising share in the US generics market and off-patent opportunities should benefit top Indian

drugmakers.The BSE Healthcare index has been one of the star sectoral performers over the last

year, giving 37% returns compared with the Sensexs 18%. A part of this jump has been due to

strong domestic demand, increased outsourcing activity and favorable rupee movement, all of

which have helped boost revenues and profits of Pharma companies.

Indian companies have cornered about 15 per cent market share of the US generics market. The

market is expected to grow at about 8 per cent annually over the next three-four years. Given that

over a third of the total ANDAs (abbreviated new drug applications) filed in the US are from

Indian manufacturers and the increasing pipeline of off-patent drugs, expect the share of Indian


companies to improve further in the time to come. In the next two-three years, about 26

blockbuster medicines worth over $96 billion are going off-patent in the worlds largest drug

market.

Rising market share

Ranbaxy

USFDA approves Ranbaxy ANDA on Alzheimers drug Aricept. The product is expected to

fetch the company over $230 million and $110 million in revenues and profits, respectively, in

the six months following the expiry of patents in November 2010. Its South Africa-based joint

venture, Sonke Pharmaceuticals, has won a 913.5 million rand (USD 133 million) order in that

country for supplying anti-retroviral (ARV) drugs for prevention and treatment of AIDS. Emkay

estimates that given Ranbaxys pipeline and FTF (first-to-file) opportunities, the company could

garner revenues of $1.7 billion (during the exclusivity period) over the next few years for drugs

including Lipitor, Nexium, Diovan and Actos.

Dr Reddys Laboratories

New product launches (about 8-10) and market-share gains from Prilosec (for heart burn) is

expected to help boost the US generic business of Dr Reddys in 2010-11. Its ANDA pipeline

now stands at about 73. Approval of the generic Arixtra (anti-coagulant) in the December quarter

and the launch of a couple of products with limited competition over the next couple of quarters

will help the company boost its revenue growth in the current fiscal. In addition to about 18 per

cent revenue growth in its India and emerging-market business, especially in Russia, the

company expects cost-cutting measures at its German business to help it improve operating-

profit margins.

Sun Pharma

The stock has been in the news after the company acquired management control in Israel-based

Taro Pharma. Taros product portfolio of dermatology, topical and OTC drugs is likely to

complement Suns own generic portfolio in the US market. Further, Taros cumulative ANDA

count for 2009 stands at 123. While Edelweiss estimates Suns core earnings to grow at 34 per

cent over the next two years (including incremental sales from new products in the US generics

space), the biggest hurdle for the company has been the FDA issues at its US subsidiary Caraco.


Discussion and Analysis of the result

From the above results by various researchers and outcomes thus obtained it is quite evident that

Indian Pharma industry is all set for a massive share in the global Pharma industry.Indian

pharmaceutical sector has posted double digit growth rate in the last five years and is presently

accelerating at a pace twice more than the global pharmaceutical market. In near future, the

potential and opportunities in this market will rise by several folds. In fact, the Indian

pharmaceutical market is expected to grow at a CAGR of 16% between 2007-08 and 2011-12.

From the graphical representation by the McKinsey report, in the absence of stringent Regulatory

policy the industry could well be a $70 billion industry by 2020 if the aggressive growth policy

is continued. Progress in the developed economies is at a standstill with the BRIC countries, the

so called emerging markets are taking the leap from many fronts.

Indian Pharma companies are on a global acquisition spree, specially gaining importance in the

global generics market. Indian companies are raising funds through FCCB, ADR to finance their

overseas acquisitions.

With strong chemistry skills, and high skilled manpower at cheaper cost, India is in a position to

manufacture at a very low cost compared to Pharma companies in the Western countries. This

has triggered Western Pharma companies to outsource their manufacturing activities to India

which also boosts the production capacity of indigenous industries.

Indias global competitiveness is witnessed by the following achievements:

1. India is the most preferred manufacturing base outside the USA and European countries.

2. India also happens to be the leading country with highest number of US FDA approved

plants 75outside USA followed by Italy with 55 and China having 27.

3. Special Economic Zones (SEZ) to boost manufacturing

4. Aggressive acquisition strategy including but not limited to Betapharm (Germany) by

Ranbaxy for USD 574 and Ranbaxy acquiring Tarapia for USD 324.

5. Product patent regime to attract foreign Pharma companies to set up plants in India.

Israel's Teva is developing an R&D centre at Noida,Ferrign BV, a Dutch major setting

up a plant in Mumbai

The spending on Research and Development has consistently improved by the industry and the

major players as a whole. Ranbaxy spends 10.3 % of their net sales on R& D. Of the other major

players Cadila with 11.7%, Lupin with 11.3%, Dr. Reddys Labs spend 8.9 %, Sun Pharma

spending 8.3% followed by other players. Such a spending still may be less as compared to

Western countries however it has been consistently increasing over the years.


Exports keep a high momentum contributing to the companies growth year on year. India being

a low cost manufacturing hub is attracted by foreign Pharma majors to set up plants.

Limitations

The research is limited by the following factors:

o Unavailability of latest data.

o The research done previously by other firms/researchers in limited domains.

Implication

The above study dwells in the existing status of the Indian Pharmaceutical industry and its future

prospects to be a leading global player in the world market. All the data and information

collected indicates a potential success of the industry. Developed markets are on the brink of

saturation paving way for the emerging ones, India being a frontrunner.

In the absence of unsupportive government regulations and policies, growth strategies adopted

by Pharmaceutical companies is sure to prove a successful venture. Acquisitions and Mergers

have strengthened the arms by creating more avenues for revenue and establishing themselves in

foreign territories.

Suggestion

o Employing a robust growth strategy is expected to bear fruitful results.

o More investments in technology and R & D for drug development hold the key.

o In licensing and Out licensing to minimize the risks involved.

o Filing for patents regularly.

o Marketing on a global level for more visibility.

o Backward integration for some of the drug companies to reduce costs.


Reference :

o http://www.equitymaster.com/research-it/sector-info/pharma/

o http://www.whoindia.org/LinkFiles/Trade_Agreement_Chapter05_Trade_Agreement_Im

pact_of_TRIPS.pdf

o http://www.ehow.com/how_5188889_analyze-qualitative-data.html

o http://www.mckinsey.com/locations/india/mckinseyonindia/pdf/India_Pharma_2015.pdf

o http://www.merit.unu.edu/publications/wppdf/2006/wp2006-031.pdf

o http://www.cygnusindia.com/Articles/Indian_Pharma_Industry_Quest_for_Global_Leade

rship-09.11.pdf

o http://www.pharmabiz.com/subscription/index.asp?ref=red&fn=/services/USFDA-

ANDA/index.asp

o http://www.pharmabiz.com/article/detnews.asp?articleid=58457&sectionid=45

o http://www.topnews.in/business-news/pharmaceutical-sector

o http://www.newkerala.com/news/world/fullnews-108909.html

o http://www.pharmaceutical-business-review.com/


A

RESEARCH PAPER

ON

Growth of Indian Pharmaceutical Indistry

PIONEER

(Since 1996)

Submitted to Submitted By

Prof. Dr. V K Jain Sanjay Trivedi

Prof. Satnam Ubeja MBA 3rd sem

Roll. No. 09010135


DECLERATION

I hereby declare that this Research Paper entitled GROWTH OF INDIAN PHARMACEUTICAL INDUSTRY

submitted for the extra co curriculum activities for the partial fulfillment of the requirement of Master

of Business Administration (MBA) of PIONEER INSTITUTE OF PROFESSIONAL STUDIES INDORE is based on

secondary data found by me in various Companies fact sheets, previous research papers, magazines and

websites collected by me in under guidance of Prof. Satnam Kaur Ubeja.

DATE: Sanjay Trivedi

MBA Semester III

Roll no. 09010135

growthofindianpharmaceuticalindustrysanjaytrivedi-131026144844-phpapp02

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