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PHARMACEUTICAL INDUSTRY IN INDIAPresented By:Shailesh Bijegaonkar (06) Kaustubh Das (11) Ameya Desai (12) Yogesh Hotwani (19) Zainulabhidin Kazi (28) Amrut Parab (41) Rajesh Shetty (52)

MAIN FEATURES1. One of the two fast growing knowledge based industries in India with 250 large and about 5000 small scale units. 2. They produce over 350 bulk drugs and the complete range of formulations. 3. One of the main world leaders in Bulk drugs. Meeting 80% domestic demand for bulk drugs along with sizeable exports. 4. Meets the entire demand for formulations with a good amount of surplus for export. 5. Pharma industry in India growing at a rate of 15% per annum .

Total imports and exports of Drugs & PharmaceuticalsYear1997-98 1998-99 1999-00 2000-01

ImportsRs (m) $m

ExportsRs (m) $m

27, 110 30, 473 15, 020 20, 325

602 677 312 423

54, 190 61, 520 72, 301 87, 299

1204 1367 1506 1819

Benefits of trading with IndiaWorld class quality. Competitive prices. Excellent service. World class banking and communications. English language. Impartial governmental and judicial system.

Comparative prices of some products in USA and IndiaNo. Item Pack US price in Price in Rupees India 1520 695 1190 715 500 28 57 31 8 18

1 2 3 4 5

Ciprofloxacin Cephalexin Piroxicam Cetirizin Amlodipin

250mg10t 250mg10t 20 mg 10t 10 mg 10t 5 mg 10t

Comparative prices of some products in USA and IndiaNo 6 7 8 9 10 Ite m Atenolol 25 mg Omeprozole 20mg Ranitidine 150mg Cephaclor 250mg Gentamicin 0.3% ac 14 t 10 t 10 t 10 t 10 t US price in Rupees 640 1455 640 1070 990 Price in India 15 40 9 196 6

S.W.O.T ANALYSISStrengths : 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

Weaknesses : Low investments in innovative R&D and lack of resources to compete with MNCs for New Drug Discovery Research. 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.

Opportunities : Significant export potential. 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.

Threats : Product patent regime Drug Price Control Order The new MRP based excise duty

PORTERS ANALYSIS OF THE PHARMACEUTICAL INDUSTRY

Threat of new entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Rivalry among Existing Firms

Threat of Substitute Products

THREAT OF NEW ENTRANTS

FACTORS Easily accessible in India Capital Requirement Relatively low fixed costs Need for working capital is high

Product differentiation & Brand name Competitive advantage Distribution network not a major concern Switching costs Patent Regime 2005

CHARACTERIZATION (Current) Reputation and Brand Loyalties Access to distribution channels Access to raw materials Access to technology/know how Access to favourable locations Degree of Seller Concentration Rate of industry growth High Relatively accessible Yes Low Yes High

FUTURE TREND High Accessible Yes Relatively higher Yes High

Steady (1.2 times economic growth) Yes

Steady

Significant cost differences among firms

No

INTENSITY OF RIVALRY

INDUSTRY COMPETITION Highly competitive Market leader (Cipla) about 6% share Highly fragmented with over 20000registered units

Product differentiation and patents

THREAT OF SUBSTITUTES

THREAT OF SUBSTITUTESOne of the most competitive industry Demand for pharmaceutical products continues and the industry thrives India is a very diverse country

SUBSTITUTES & COMPLEMENTS Ayurveda Homeopathy Home Remedies Quacks & Talismans Acupuncture & acupressure Biotechnology- Stem cell research Yoga

Characterization (Current) Availability of close substitutes Price-value characteristics of substitutes Ayurveda , homeopathy, yoga have a stronghold Cheap alternative like quacks & talismans. Also ayurveda is cheaper compared to allopathy

Future Trend The ayurveda, yoga and homeopathy sector will continue to grow With the price control of life saving drugs in the hands of the government, prices will become affordable to the common man. Will continue to remain inelastic Advance in stem cell research and biotechnology may even prove to be competition May become cheap with the advance in technology

Price elasticity of industry demand Availability of close complements

Relatively Inelastic Pharma drugs, biotechnolgy products

Price-value characteristics of complements

Complements are comparatively expensive

SUPPLIERS BARGAINING POWER

SUPPLIERS Raw material suppliers Intermediates suppliers Mfg & production plants Overseas head offices Local co-marketing partners Third-party suppliers

HOW COULD SUPPLIERS AFFECT YOU ? By threatening to raise prices By threatening to reduce product quality By threatening to withhold supply When its difficult to switch suppliers

LABOUR z A MAJOR SUPPLIER?

Can wreak havoc if labour force is unfavourable

Supplier can go for forward integration to become a pharma company Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies, who turned themselves into pharmaceutical companies

Firm has greater power over suppliers when: The firm purchases in large quantities It can choose between multiple suppliers The costs of switching between suppliers is low The firm is not dependant on any single supplier for important inputs

Who are the suppliers In Clinical Research Dept: Patients participating in clinical trials The investigators Study staff Internal labour

The concentration of the majority of industry sales among large pharmaceutical companies has decreased the bargaining power of suppliers. Thus, the chemical industry (supplier) maintain competitive pricing practices which in turn enhances the competitiveness among the major pharma companies

KEY SOLUTIONS FOR INDUSTRY Analyze your existing supplier base Maintain good relations with suppliers Effective negotiation with existing suppliers Look out for alternate suppliers

BUYERS BARGAINING POWER

BUYERS IN THE PHARMA INDUSTRYPatient & Family members Hospital boards & Finance Departments Pharmacist

Authorities affecting the pricing strategies: FDA- Food & Drug Administration National Pharmaceutical Pricing Authority.

POWER OF BUYERSEnd consumers do not have bargaining power. Brand identity exists but in the hands of influencer (doctors) Price sensitivity is less Highly fragmented market, so buyer is in a better position to negotiate Knowledgeable and make demands based on this knowledge

POWERFUL IN THE FOLLOWING SITUATIONSPurchase large volumes Buy products from known & trusted suppliers because they are standardized Knowledge of the patients

BUYERS INFLUENCE ON THE BUSINESSSeeking price reductions Demanding higher quality Demanding better service

Demographics: Estimated 200% increase in the occurrence of Cardio-Vascular diseases Cases of CVD are estimated to increase from about 2.9 crore in 2000 to as many as 6.4 crore in 2015 Deaths from CVD will also more than double. Urbanization is associated with unhealthy nutrition and physical inactivity, leading to obesity and increases in the prevalence of chronic diseases the rate of diabetes in India is expected to increase by 150.5 percent, from 31.7 million to 79.4 million between the period 2000-2030Source: NCMH Background PapersBurden of Disease in India (New Delhi, India), September 2005

STAKEHOLDERS

Stakeholders in Pharma SectorStakeholders - Government Government intervention is required for pharmaceutical markets to function effectively.

Governments responsibility in the pharmaceutical sector: Policy making Developing, implementing and monitoring drug policies. Drug regulation Licensing and inspecting premises and manufacturers, registration of drugs and independent drug information.

Professional standards Education and licensing standards for pharmacists, doctors and other health professionals Rational use of drugs Establishing standards, educating health professionals and supporting public and patient education

Government regulations regarding pricing Prices of pharmaceutical products are much lower then the prices in other countries, because of the socio-welfare. For eg:Ranitidline is sold by Glaxo in India at Rs. 7.20. The same product is sold by the same company in pakistan at Rs 65 and in U.S.A. at Rs 545.

Indian Patent SystemIndian patent act, 1911 Term of the patent Authorization for use of patented product

Impact on pharmaceutical sector onintroduction of product patent Evolution of domestic pharmaceuticalindustry Indian pharmaceutical sector has achieved a global recognition as a low cost producer of high quality products pharmaceutical products and its annual exports turnover is $1.5 bn.

RESEARCH AND DEVELOPMENT

National sector was 25% of Domestic Market

1970 Patent Act

Self Sufficiency

intro of patented product by minor changes in process

Passage of Patent Act weakened the IPP in Pharma Innovations

Affected all Foreign inventors Restriction on import High tariff rates Equity ceilings

Initiation in 1991 and modifications in 1994 and 1995

Abolishment of Industrial licensing

Technology imports

1999

PRDC

Foreign Technology Agreement In case of bulk drug & intermediaries formulation

To identify Support required

Undertake Domestic R&D

Foreign investment has also been liberalized; it had been allowed initially up to 51 percent, it was raised to 74% in March 2000 and to 100% in December 2001. As part of TRIPS agreement, India has implemented product patent with effect from January 2005. The department of Science and Technology has allotted an annual R&D fund of Rs 159 crore for PRDSF for year 2006-07. The investment in R&D has increased from 320 crore in 1999-2000 to 1500 crore in 2006.

Issues and Challenges High cost involved and high risk involved. Adequate infrastructure is not available for R&D in India. Issues such as use of radio labeled material for R&D, import of animal models / biological samples into india conduct of clinical trails are not resloved. Obligation from TRIPS is going to have significant impacts on indias bulk drug and formulation oriented pharma industry. Indian companies need product patent protection to encourage R&D inexpensive drugs.

Technology in Drug Discovery: Super Computers in Drug Discovery Polymorph Screening Microdosing in Clinical Trials

Technology in Manufacturing: Process Analytical Technology

Technology in Marketing: Customer Relationship Management

Technology in Drug Delivery: Nanotechnology Transdermal Chronopharmaceutical Delivery

PROVISIONS IN THE INTERIM BUDGET ~09

Budget Provision :-

The Pharma department has been allocated a total outlay of Rs 190.33 crore, which includes plan outlay of Rs 155.25 crore.

To develop rural health infrastructure, the government has allocated Rs 12056 crore for National Rural Health Mission (NRHM) which is inline with previous year allocation. The interim budget has extended interest subvention of 2% on pre and post shipment credit beyond March 31, 2009 for certain employment oriented sectors like textiles, Carpets, leather, Gem & Jewellery, Marine products and SMEs.

Slide 52 z7zainulabideen, 3/17/2009

Industry expectations not meet :Industry expected to reduce excise duty on drug containing and narcotic drugs from 16% to 4% in line with other drugs.

Custom duty on certain formulation in life saving medicines like Antibiotics, Anticancer, Anti-HIV to exempted.

Slide 53 z8zainulabideen, 3/17/2009

Outlook:Interest subvention of 2% on pre and post shipment for SMEs may help the Pharma SMEs. The allocation to NRHM would marginally benefit the companies that supplies drugs to center's of health programme like Cipla, Lupin and Ipca labs. Overall, the impact of budget on the pharmaceutical sector is Neutral.

Slide 54 z9zainulabideen, 3/17/2009

Analysts Expectations:Accounting for two percent of the world's pharmaceutical market, the Indian pharmaceutical sector has an estimated market value of about US $8 billion.

It's at 4th rank in terms of total pharmaceutical production and 13th in terms of value.

It is growing at an average rate of 7.2 % and is expected to grow to US $ 12 billion by 2010.

Slide 55 z10zainulabideen, 3/17/2009

THANK YOU