research on pharma

7/29/2019 RESEARCH ON PHARMA

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CHAPTER 1

INTRODUCTION


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1. INTRODUCTION

1.1.The Indian healthcare industry

The healthcare industry in India is one of the most dynamic and evolving industry present in

the country. The currents trend of increasing number of lifestyle diseases and increasingurbanisation has led to increase in demand of specialised care.

Over the years the Indian healthcare industry has witnessed a substantial increase in demand

for high quality healthcare in tier 2 and tier 3 cities, this in turn has increased the number of

private players in the healthcare segment which of course the government has encouraged.

Rising incomes has been one of the key reason s there has been an increase in demand of

healthcare in the nation. Lifestyle disease such as heart diseases, obesity isone of the major

reason there has been a rise in the expenditure on healthcare products and facilities.

The Indian healthcare market is split into five major segments. The first being hospitals ,

hospitals in Indian consist of a mix of government and private players .Private players are

gathering a lot of momentum as they have the resources in providing good and standardised

healthcare.

The second segment is pharmaceuticals; it includes the industrial manufacture, separation,

processing, refining and packaging of chemical materials.

The diagnostic segment is also a part of the healthcare industry, this primarily consistof

analytical and diagnostic services.

The fourth segment would be medical equipment and supplies, which includes establishment

primarily involved in the manufacture of medical equipment and supplies.

Medical insurance also plays a vital role in the health care segment. This segment includes

health insurance that cover medical expenses and also medical reimbursement of medical

expenses incurred during an illness.

1.1.1.The Indian pharmaceutical industry

As India is a vast nation and has a population of 1.2 billion people, the primary aim of the

nations healthcare industry should be to produce and provide quality drugs to people who

need it that match international standards.

The Indian pharmaceutical industry is constantly evolving and trying to match the standards

of it global competitors, it is said to be worth 4.5 billion dollar with a growth rate of 89%

annually.

Among the developing countries, the Indian pharmaceutical ranks third in terms of

manufacturing, technology and quality of vast range of medicine. The pharmaceutical sector

of the Indian healthcare manufacture a wide variety of drugs ranging from simple pills meant

for headaches to more severe ailments.


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The industry is highly fragmented, registering close to 20000 units which is proof that the

pharmaceutical industry has expanded drastically. The nations pharmaceutical industry is set

to have a potential of reaching a total worth of 70 billion dollar by 2020.

The increasing number of high income groups will also help the pharmaceutical industry by

opening up the market to a number of multination companies that would be primarily selling

costly drugs (potential market worth 8 billion dollars).It is also said that the Indian domestic

pharmaceutical industry would be worth 20 billion dollars by 2015 which will make India the

country of choice to carry of clinical trial by major players in the same industry.

Since the structural reforms of 1991, the Indian pharmaceutical industry has evolved

drastically and there has been increasing interest by foreign players. This is mainly due to

India large population which consist of a range of competent workforce of skilled and

unskilled workers. Secondly, due to the nations liberal attitude towards doing business with

the foreign countries which in turn has led to reduction in the number of domestic players in

the market.

In the Indian pharmaceutical industry, the leading 200 companies hold around 70 % of the

market share and the market leader hold a decent 7%.On the profitability front, in 2008, the

pharmaceutical industrys average stood at around 14.5% in the Indian pharmaceutical

industry (foreign and multinational) with top firms sharing a ratio to sales at around 15-60%.

Indian drugs which are being exported to 200 countries in the world are among one of the top

20 exporters. Currently, Indian pharmaceutical firms produce sixty thousand completed

medicines and nearly four hundred bulk drugs used in formulations and twenty to twenty two

per cent of the worlds generic drugs.

The government has also taken several initiatives, policies and tax concession for the growth

of the business in the Indian pharmaceutical industry. Further the industry is eligible for

weighted tax reduction at hundred and fifty percent for the research and development

expenditure obtained during the process. The Department of Pharmaceuticals has encouraged

the creation of drug research facilities which can be used by private companies for research

work on rent. To facilitate Drug Research, the Government has launched a Scheme entitled

Drugs & Pharmaceuticals Research (DPRP) which aims at making the industry more able

at developing new drugs.

Even though the Indian government has taken up several initiatives, the pharmaceutical

industry in the nation is not growing at its full potential. This is mainly due to improper

money allocation or corruption which has led to reduction in the research and development in

the same field.

1.1.2.Indias advantage in the pharmaceutical industry

low cost of production as compare to other developed countries it accounts for approximately 8% of the world pharmaceutical production


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Produces around 60000 generic brands spread over 60 therapeutic categories. Recent increase in penetration of health insurance Government initiative in boosting Indias pharmaceutical sector, government

has set up pharma vision 2020 whose primary aim is to make India a global

leader in the pharmaceutical industry

1.2.OBJECTIVES

To analyse the market share and nature of competition in the Indian pharmaceuticalindustry.

To study the demographic of buyers and market segmentation To analyse the pharmaceutical industry based on PEST factors To examine the business diversification in the industry To study the recent mergers and acquisition taken place in the industry To throw light upon the impact on international exposure(import & export) on the

nations pharmaceutical industry.

To determine the future of Indias pharmaceutical industry To study the various marketing initiatives taken by the various firms To understand the trade and commerce in the industry. To analyse the business diversification in the industry

1.3.SUMMARY OF OBJECTIVES

Considering the above mentioned objectives of the study, the upcoming chapter speaks about

some researches by eminent persons from various organizations. Those researches provide

some insights about how this study is carried out in the following chapters.


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CHAPTER 2

REVIEW OF LITERATURE


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REVIEW OF LITERATURE

The annual report 2011-2012 by the department of pharmaceutical (Government of India)

gives a thorough description about the Indian pharmaceutical industry, patent law, value ofimport and export and the overall financial performance of the industry.

Vummaneni (2012), in his paper on mergers and acquisition in the journal International

journal of pharmaceutical research and development gives us an insight into the recent

mergers and acquisition taken place in the pharmaceutical industry of the nation and also

talks about the impact of these mergers and acquisition on the same.

The report by the India brand equity foundation (2011) throws light upon the strength and

weakness of the Indian pharmaceutical industry , the various segment present in the industry ,

growth of the pharmaceutical industry , competitive market, various demand drivers,opportunities and the abundance of government initiative that may or may not help the

industry.

Itumalla (2012) talks about the Indian healthcare and the impact of foreign direct investment

on the same. It basically talks how the Indian pharmaceutical industry is gathering

momentum and how the government is helping the industry by its various reforms taking

place in the industry.

The report titles Indian pharma 2015, unlocking the potential of Indian pharmaceutical

market talks about the Indian pharmaceutical market and how much it has evolved. it alsotalks about the government intervention need in order for the pharmaceutical industry to

further evolve and compete with it global players.

The report by the ministry of corporate affairs(GOI) on the competition impediments in the

pharmaceutical sector in India talks about the current market structure of the industry and the

recent trends that have been noticed in the same. The report also talk about the provision

needed to create healthy competition in the industry.

The report titled India pharma inc., gearing up for the next level of growth by PWC India

talks about the current rate at which Indias pharmaceutical industry is growing. The reportalso talks about initiatives the companies present in the industry should take like developing a

better business model in order to reach consumers better .This report also talks about the

government role in the Indian pharmaceutical industry.

The report by PWC titled from vision to decions , pharma 2020 throws light upon the

global scenario of the pharmaceutical industry. From this report we can learn how the global

pharmaceutical industry operates and the steps India can take to match up to its global

competitors.


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CHAPTER 3

INDUSTRY ANALYIS


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INDUSTRY ANALYSIS

3.1.MARKET SHARE AND NATURE OF COMPETITION

The Indian Pharmaceutical industry covers upto 13% of the HealthCare industry in India. [1]

There is a large number of players within this Industry who are globally operating in various

sectors like life science generic drugs, research and development, biotechnology and other

few on marketing the manufactured medicines by different companies. Foreign patents are

being sold to the Indian firms where Indian manufacturer produce these products for other

countries like United States, Russia, South Africa and other European countries. Small to

medium enterprises cover a larger market. In India 70% of the market share is being covered

by 250 largest companies within this industry. Today there are almost 24,000 companies in

this industry.The top 10 companies have 33.33% of the market share. At the end of 2012,

Indian Pharma Industry had 10% growth rate according to the IMS Research.

FIGURE3.1. Top four Companies in the market and its Trends

Under the global pharmaceutical industry the Indian pharmaceutical industry covers about

8% of the industry. There are more than 500 active pharmaceutical ingredients manufacturers

and also producing 60,000 generic brands for 60 therapeutic categories. These manufacturers

comprises on producers of various capabilities such doing technology innovation, drug

manufacturing designing the drugs. In technology development in pharmaceutical industry in

matter of the volume India stands 3 rd in the world and in in term of value they stand 14 th.The

growth rate for the last 5 years it has been at 15% CAGR.The discovery of new drugs started

to happen at the year 2005 with the introduction of product patents which the government

imposed. The cost of production in India is low thus it encouraged the foreign players to

produce their products by selling their patents to Indian firms. Therefore firms wanted to

invest their capital in India for their research and developments process for the low cost


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factors. Thus, the Indian exports have been increasing to the foreign markets. India is turning

into a medical hub.

The pharmaceutical industry faces a oligopolistic competition. This is because:

All products are close substitutes to each other in this market. The present growth rate in the pharma industry is promising this encourages lot of

competition in the industry but there are also other macro factors and legal procedures

for entering into the market, such as getting copyrights, registration procedures, patent

issues and other government regulation have to be followed.

Market Structure: In the Indian pharma market, 70% of the market share is covered by top

top 250 companies of the industry and the rest 30% consists of rest other companies. The top

companies involve in manufacturing high end products and have global collaborations. This

industry consists of: Manufacturers of generic drugs, Manufacturers of branded drugs, Manufacturers of non-prescription drugs, Manufacturers who involve in developing biopharmaceutical products, and the firms who are involved in contract research.

In India the domestic market has a steady growth of 14-15% from 2008-2012. The market

value accounts for Rs.48,200 crore.Factors that are responsible for the strong growth are:

lifestyle diseases have been spreading rapidly, the growing consumption and income have increased, this lead to growth in spending

on quality healthcare treatments,

the healthcare infrastructure has been developing where many health amenities arebeing opened for all,

with various methods and changes in the delivery systems being provided, the healthcare and the reach of pharma products are focused balanced in rural and

urban geographic.

Considerably the Indian market growth has been developing through large scale producers

and the number of manufacturers has been increasing yearly. The market is growing because

of its new product developments at a reasonable price. The top ten companies in the market

are highly fragmented with only 35-40% in spite of the growth in the industry. The effective

distribution channels and strong sales force have helped the main players grow steadily in the

market.

The most contestable claim is when we have to identify whether the Indian pharmaceutical

industry is highly concentrated market or not. This is because the drug market contains about

20,000 manufacturers where they have been focused on therapeutic segments which lead to

selling drugs at low prices. An assumption is always made on the market mechanisms wherethey are more competitors the price factor would be affected or stabilizes for itself, but this


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does not happen in case of pharma industry because the consumption is not like how it

happens in the other markets or for other goods. The consumer does not have preferences

much towards a particular drug because he follows the prescription that is advised by the

doctor. Hence the drugs being produced do concentrating on extensive marketing networks

by insisting or convincing doctors to market their particular drug. Even though there are lot ofdrugs available in the market, the consumer cannot choose his preferred drug when he/she is

prescribed for a particular drug by the medical professionals or doctors.

TABLE 3.1.

Market Share: Top 10 Companies in the Indian Pharmaceutical Industry

Source: moneycontrol.com (March 14, 2013)

The Indian firms have been doing well in the Industry, from the above figures we can find out

market leaders for today. So from the above table we can identify the market share of the

Indian Pharmaceutical Industry. Ranbaxy Labs has the highest market share in terms of sales,

followed by other major market leaders Cipla and Dr.Reddys labs. In the global pharma

industry India has 8% market share. India exports US $11 billion worth of generic drugs. By

the end of 2013 India is expected to grow at 17% CAGR in the export of generic drugs.

India markets its generics majorly to the developed countries like US, Japna and UK, the

largest export of generics in the world is from theIndian Pharma industry.Even thesedeveloped nations are shifting to from branded drugs to generics drugs in order to reduce the

healthcare costs.

Concentration ratio: It is measured by Herfindahl-Hirschman Index.

3.1.1.Herfindahl-Hirschman Index HHI: The herfindahl-hirschman index helps us

measure the size of the firm with relation to the industry to which it belongs. It also act as an

indicator of the amount of competition among the various firms in the industry.

The HHI is expressed as:

HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the ith firm).

Company Name Net Sales

(Rs. cr)

Market Share

(100%)

Ranbaxy Labs 7,686.59 13.1

Cipla 6,977.50 11.9Dr Reddys Labs 6,686.30 11.4

Lupin 5,364.37 9.00

Aurobindo Pharm 4,284.63 7.03

Sun Pharma 4,015.56 6.08

Cadila Health 3,152.20 5.00

Jubilant Life 2,641.07 4.45

Wockhardt 2,560.16 4.03

Ipca Labs 2,352.59 4.00
http://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/ranbaxylaboratories/RLhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/cipla/Chttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/drreddyslaboratories/DRLhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/drreddyslaboratories/DRLhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/lupin/Lhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/aurobindopharma/APhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/aurobindopharma/APhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/sunpharmaceuticalindustries/SPIhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/sunpharmaceuticalindustries/SPIhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/cadilahealthcare/CHChttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/jubilantlifesciences/JO03http://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/wockhardt/W05http://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/wockhardt/W05http://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/ipcalaboratories/ILhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/ipcalaboratories/ILhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/wockhardt/W05http://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/jubilantlifesciences/JO03http://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/cadilahealthcare/CHChttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/sunpharmaceuticalindustries/SPIhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/aurobindopharma/APhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/lupin/Lhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/drreddyslaboratories/DRLhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/cipla/Chttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/ranbaxylaboratories/RL


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A Herfindahl Index with an outcome of fewer than 1,000 is said to be a competitive

marketplace; an outcome of 1,000-1,800 to be a moderately concentrated marketplace; and a

result of 1,800 or greater to be a highly concentrated marketplace.

TABLE 3.2. Top Companies and its HHI Index

HII is more than 2000 which indicates it to be a highly concentrated marketplace.

Market Growth: Considering the market growth. India is dependent on other countries such

Russia, Brazil and South Africa. Indias growth is based on these countries. Whereas within

the domestic pharma market, India is expected to grow at CAGR of 15-20% annually to

become a US$49 billion market by 2020.

TABLE3.3 Market Growth in Foreign Market

Markets Growth rate (%) Key Indian Players

Russia 13-14 Ranbaxy, Lupin, Dr.Reddys and Glenmark

Brazil 15 Ranbaxy, Torrent Pharma.

South Africa 8 Cipla, Ranbaxy and Lupin

Source: Industry Data, ICRA Research

India is an emerging market for the medicine and drug production. It has a lot of scope to be

developed, number of hospitals are going to be built and the per capita expenditure on

medicines have been expected to increase from 61$ to 88$ by 2015. As lifestyle develops

people are more conscious to seek for quality treatments and medication. Thus, there is a

growth in this industry.

3.2. DEMOGRAPHIC OF BUYERS- MARKET SEGMENTATION

Indias population at present is over 1.21 billion. Apart from that the per capita income of the

people have been increasing, the present per capita income is Rs. 5729/ per month growing at

11.7% from Rs. 5130 per month. If the economy continues its pace and literacy rates keep

ascending, around a third of the population (34%) is expected to become the middle class in

the near future. The middle class population is fast increasing the purchasing power necessary

to afford quality western medicine in lieu of rise in disposable income. The per capita incomeis expected to increase at 13.7% (2012-2013 Rs. 68747 from 2011-2012 Rs. 61564). In

Company Name Net Sales

(Rs. cr)

Market Share

(100%)

Market Share ^2

Ranbaxy Labs 7,686.59 13.1 173.83

Cipla 6,977.50 11.9 143.23

Dr Reddys Labs 6,686.30 11.4 131.15

Lupin 5,364.37 9.00 84.66

Aurobindo Pharm 4,284.63 7.03 54.01

Other Companies 27300.68 46.8 2192.85

Total 58300 100 HHI 2780.13
http://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/ranbaxylaboratories/RLhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/cipla/Chttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/drreddyslaboratories/DRLhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/drreddyslaboratories/DRLhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/lupin/Lhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/aurobindopharma/APhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/aurobindopharma/APhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/aurobindopharma/APhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/lupin/Lhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/drreddyslaboratories/DRLhttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/cipla/Chttp://www.moneycontrol.com/india/stockpricequote/pharmaceuticals/ranbaxylaboratories/RL


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Indiapeople spend 7% of their disposable income in healthcare. The expenditure on

healthcare is expected to increase to 13% by the year 2025.

The Pharmaceutical Industry uses many tools to segment their customers. These tools are

certainly very crucial to maintain their customers and identify new opportunities in theirexisting and proposed markets. These tools helps in categorising customers based on certain

customer behaviour towards a particular drug and its feedback. These segments eventually

help in forming clusters of customers and identify target markets. In this industry the

physicians and medical professionals are categorised as traditional, aggressive, intuitive and

rational.As for the customers they are segmented as old conservatives and dynamic

innovators. Other segmentation approaches used in pharmaceutical industry include these:

1. The segmentation is made by categorising the customers and the physicians into heavyusers and light users. This can help to identify the volume the pharma products have to be

produced and the quantity that can be supplies based on the target market size. It also

helps to identify the customer loyalty and the customers who not loyal to a particular

brand or drug.

2. The buying styles and behaviour changes with respect to the forces that influence ofpurchase of drugs. When we consider the buying styles it is based on the below forces:

a. The customers are controlled and by the physicians, they are dependent on theprescription provided by the physicians, the customers have limited choice. They

are forced to abide by prescriptions. The physicians influence the customers to

purchase the drugs.

b. The physicians also buy certain products to check the particular drug on how itworks and the response that a drug has over the patients. They are certainly theapprovers of a particular drug. They provide attention to drugs being introduced in

the market so they can improve in their prescription to provide effective drugs and

medicine for curing their patients in minimum response time. This is certainly an

effect on how physicians capture their patients in their clinical rooms.

c. The physicians certainly focus on the quality of the particular drug and thecombination of chemicals that are involved in a particular product. They are very

particular on the quality, they determine the drug logically and cautious on what

drug they provide to their patients. Thus customers check upon the accuracy of drug

that works and cures their health illness.

d. The physicians already feel safety and security. The representatives have toemphasis on the benefits on the new drug they are marketing. They need to

communicate about the safety and security that they would receive on using a

particular drug.

3. Demographics: constant demographic changes will continue to provide the industry withopportunities for growth well into the future. People are living longer and enjoying active

lifestyles at older age; they are demanding new and better medicines to help them

maintain their quality of life.

4. Segment based on region: each sales representative is responsible for a group of zipcodes or regions. Some regions have large volume of prescriptions within a small regionin contrast to place where Physicians offices tend to be distant from one another. These


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regions are segmented into business volume for each zip code. The representative

manages the territory according to prescription volume, managed care trends, and

individual business potential.

Pharmaceutical Companies do market segmentation to identify their target market and targetcustomers. In pharmaceutical industry there are two types of customers one is the

intermediate customers those are the doctors and the other is the final consumers those are

our direct customers. Pharmaceutical segmentation is categorised into four types based their

products:

1. Industrial market products.2. OTC (Over the counter) or non-prescription products.3. Institutional market products.4. Prescription products.

The Industrial market is where the pharma companies sell their products in bulk to the large

hospitals. The pharmaceutical companies do capture market i.e the hospitals that source their

revenue based on the market size they target and their profitable customers.

Bulk drugs or active pharmaceutical ingredients are mostly purchased in the industrial

market. For pharmaceutical companies what is a matter of concern are the drugs that do not

require a prescription. Based on the prescription drug market it can be sub divided into two

catogories:

1. Doctors or Intermediate Customer.

2. Patients or consumer.

Segmentation

3.2.1. On the bases of Intermediate customer (Doctor):

Doctors can be classified on the basis of their

General Doctors. Place of Profession (Govt. Hospitals, Private clinics, Rural and Urban) Age (Experienced, Young professionals and Interns) Consultancy Style and Professionalism (Dispensing and Prescribing) Specialisation (Diabetologists, Cardiologists) Consumption pattern (heavy, medium, light andnon-users).

These factors would a company to understand the market and effectively plan to execute the

tasks.


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3.2.2.On the bases of consumers:

Patients can be categorized as

Gender-wise (male and female patients) Age (geriatric patients, pediatric patients,young patients etc.) Same diseases or illness. eg. Diabetic patients Stages of diseases and illness (chronic illness and acute illness)

Macro Segmentation

Demographic: on the basis of Age, race, gender, migration, urbanization, income, family

composition, education we observe the market.

a. Considering the age, 42% of the Indias children are malnutrition, this creates lowproductivity and inefficiency in the future. There is high infant mortality in India

accounting about 1.72 million.

b. The development of pharmaceutical industry is dependent on the overall growth in thehealthcare industry. The income level of people is divided according urban and rural

markets. The money spent on healthcare differs from cities and towns based on

various. The per capita money spent on healthcare is expected to increase to 88$ per

year, according to BMI report Aranca Research.

c. Gender wise, the female population spends more on medicines due to various healthissues such as strokes, malnutrition, maternal mortality and breast cancer.

d. The educated people do know their health issues and aware of various diseases, theydo consult their doctors for their health issues.

Geographic:

FIGURE3.2. State-wise Pharmaceutical Manufacturers in India (Domestic

Manufacturers)


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The above chart gives the information on state wise the number of pharmaceutical

manufacturers in India in 2012. We can see the production is highest in Maharashtra (state

particular) and followed by Gujarat, most of the other goods are manufactured at other states

(Rest of India). These two states accounts for about 45% of the pharmaceutical manufacturersin India.

Foreign trade in Pharmaceutical Products

While focusing on the foreign trade we can get to know the current position of Indian

products being exported and their foreign market. India majors exports include products such

as drug intermediates, active pharmaceutical ingredients etc. The top five countries that India

exports pharmaceutical goods are USA, Germany, Russia, UK and China. India exports grew

at CAGR 16.5% to Rs. 415 billion in the drugs and pharmaceutical products.

FIGURE3.3. Indian Pharmaceutical Industry Export Growth


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Import of Pharmaceutical Products

FIGURE3.4. Indian Pharmaceutical Industry Import Growth

In the year 2012 (upto Dec 11), India imported drugs and pharmaceutical products for

Rs.102.2 bn. Import of pharmaceutical products recorded for about CARG 17.6% during2002-2012. The imports of these goods were freely permitted other than the goods that were

restricted from foreign trade policy. Narcotics and psychotropic components were restricted

in importing by the Indian Government.

Micro Segmentation:

This helps us to find out characteristics of our segment that we want to target by identifying

their characteristics and their nature towards consumption patterns. They are categorized as

behavioural, psychographic and personal characteristics. It is very difficult to find the micro

segmentation apart from the consumption pattern because the market segmentation differs inindividual perspective on various diseases and the products with good combination of

chemicals and ingredients used in a particular product. Thus manufacturers need to find the

exact product that they need to create for the market chosen. It is majorly dependent on how

consumers are brand loyal to a particular drug, these are cases were certain times customers

take non- prescribed medicines. Thus, the market can be segmented on the below criteria to

identify even from the smallest group or market available. It certainly it tells us the scope for

entry into a market.

1. It should be defendable for example, if the segment is characterized by only mature,identical products currently involved in a price war between the competitors, it may


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not be a sound strategy to enter and defend this undifferentiated and extremely price

sensitive market.

2. It should be actionable because the market segment chosen will be responsive to amarketing action because it has the authority (for prescribers) to select the pharma

product in promotion.3. It should be substantial: i.e., infectious patients in a large underdeveloped countryare a prime market segment for a generic marketer; on the other hand, a rare inhabitat

disease may not be a main cause (diseased person) for extensive R&D investments.

4. It should be measurable by way ofhospital who treat inpatients, and the treatmentsused are monitored by an independent marketing research agency

Threat of substitutes

Demand for pharmaceutical products continues to grow and the industry continues to thrives.

Threat of substitutes is very limited in this sector but the advancement in the area of bio-technology could prove to be a threat for the pharmaceutical industry

3.3. SWOT Analysis

Strengths:

1. India with a population of close to a billion is a severely untapped market. Indias per

capita expenditure on health care is US$ 93 million.

2. Increase in urbanization and also increase in the number of lifestyle diseases has opened

up a huge market for lifestyle drugs and medication.

3. Indian manufacturers are the lowest cost producers of drugs in the world. With a ever

growing labor force the nation can produce drugs at a much cheaper rate.

Weaknesses:

1. The National Pharma Pricing Authority which decides the different pricing constraints and

sets prices of various drugs leads to decrease in profit for the firms. The companies, which

are lowest cost producers, are at advantage while those who cannot produce have to stop

production or else bear losses.

2. Due to low barriers to entry, Indian pharmaceutical sector is highly fragmented. This

makes Indian pharmaceutical market highly competitive on the money front. This forces the

firms to compete in terms of price and not value.

3. Low investment in the research and development has been one of the major issue of

concern very less focus is been given in this area and it is an issue of concern as this could

curb the growth of Indian pharmaceutical sector.


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Opportunities:

1. The industy is now product patent oriented and is estimated to transform pharmaceutical

industry fortunes in the long term.

2. In many developed countries a large number of drugs are going off patent, India has anopportunity to capture this market.

Threats:

1. China and Israel are countries that produce low cost drugs, Indias pharmaceutical industry

is constantly threatened by these countries. However on the quality basis India is far ahead of

these countries.

2. Outdated marketing and sales method has been an issue of concern for the Indian

pharmaceutical industry.

3. 4.POLICY FRAMEWORK (PEST analysis)

3.4.1.Political

Under the political factors the changes that we can notice in the pharmaceutical industry is,

the financial ministers announcement on the increase in the excise duty to 6% from 5% on

formulations and to 12% from 10% on bulk drugs which expects the price of the drugs to be

increased in the coming days (Crisil). This would not have major impact on the

Pharmaceutical Industry because these duties and payments would be impacted to the

consumers who will pay for it.

At the same time the 5% concession on basic custom duty has been extended to six life-

saving drugs and to bulk drugs used to manufacture these drugs. This does not create much

impact, its neutral because these drugs account for small proposition in the Indian Pharma

market.

Policy Framework:

1. Delay in approval of clinical trails: About 15% of the worlds population consists of

Indians and has 20% of the global diseases but only 2% of global clinical trials take place inIndia. The growth of clinical research organisations and lack of development in the industry

is because of the improper regulatory framework which affects the clinical trails delay.

During the year 2011 the new drug approvals have fallen by 56.25% from 224 in 2010. (data

of Drug ControllerGeneral of India). From 2011, DCGI have given the authority to ten

members New Drug Advisory Committee to approve any new drugs in the market which was

being innovated but in 2012 year, the NDAC has approved only nine drugs for clinical trials.

In order to conduct clinical trails India finds its competitive advantage when compared to

other countries. As there are lot of delays in the regulatory framework it helps in increasing

the cost compared to the other countries. This helps theclinal research organisations(CRO) to


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penetrate to other markets like Malaysia and Poland.The Pharmaceutical industry is expected

to grow generously with immense opportunities where strong infrastructure and legal

approvals would be implemented faster in India.

2. Marketing code being enforced in the pharmaceutical industry. Th department of

pharmaceuticals has formed strict rules concerning marketing practices that help the industry

with their marketing efforts. The Department of pharmaceuticals lays strict codes to the most

common and well-known areas of violation, like exaggerated claims; audiovisual promotions

and sponsorships by pharmaceutical companies. This codes were given so as to certain

guidelines on the marketing process in pharmaceutical industry, like they have imposed a rule

were the pharmaceutical companies are not allowed to give free gifts such as sops to doctors

in order to prescribe their medicines. These implementations would be reviewed again, but in

future if the codes are not being effectively implemented by the Pharmaceutical Association

it is expected to pass certain statutory codes for marketing and selling practices.

Other Government Initiatives

1. According to the Pharmaceutical vision 2020 created by The Department ofPharmaceuticals, the main target and focus is on developing India as leading market

for innovating new drugs. For this the government plans to provide world class

infrastructure, provide scientists and chemists for the research and development.

2. Any firm that invests more than Rs. 100 Crore, the government takes care after 50%of the capital expenditure this is called Private-Public Partnership.

3. Under the 11th plan Indian Government plan to set up a Commission calledPharmacopeialCommission. This commission was to help and support othermedication treatments such as Yoga, Homeopathy, Ayurveda and other treatments.

3.4.2.Economic

1. FDI in Pharmaceutical:

1. The Ministry of Commerce and Industry allowed 100% FDI in 2001 November. The FDI

was allowed where FDI was allowed 100% to invest in existing pharma sector through the

Foreign Investment Promotion Board (FIPB) approval route. This investment in automatic

route was allowed majorly in the Greenfields investments in the pharma sector.

2. The pharma sector contributes 1.71% of the GDP in India but it has 12% growth 2012,

(IMS research). The growth is expected to grow at 16%-17% in 2012-2013 about USD 33-

34 bn.

3. Pricing Policy: The pricing for essential medicines is monitored and controlled by The

National Pharmaceutical Pricing Authority (NPPA) in the Indian market through the Drug

Price Control Order (DPCO). The National Pharmaceutical Pricing Policy seeks to increase

their price control from eighteen percent to thirty five percent by expanding the control fromseventy four to 348 drugs in the National List of Essential Medicines (NLEM) including 654


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formulations of specified strength, while excluding combinations. This proposal is being

made to shift from cost- based pricing to market based pricing by using the weighted average

price of all brands in a segment with more than 1% of market share by volume. This has been

expected to create an impact of 2.3% in the pharmaceutical industry, by the All India and

Chemist Association.

4. The Government has held the authority of fixing the maximum sale price of any mass drug

according to public interest.

5. The burden of taxes is very high. Taxes such as excise duty, custom duty, service tax,

professional tax, license fees, royalty, pollution clearances tax, hazardous substance license,

income tax etc. make up about 40-45% of the cost.

6. More than 70% of India's population lives in rural areas, where education levels are fairly

low and public health communications is weak; besides, more than 700 million Indians do

not have ample hygiene.

7. The Government of India has setup NHRM National Rural Health Mission from 2005-

2012 where they are focusing on rural population to be provided sufficient healthcare

facilities and to protect the poor with low cost on their medical expenses. It focuses to

strengthen the rural hospitals, utilizing the proper resources and develop infrastructure for

hospital in the rural areas

3.4.3 Social

Focusing on the social factors the income of the people has been increasing yearly. The

standard of living of the people has been increasing but still the health diseases have been

being more prone to spread in the coming years and in the present year.


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FIGURE3.5 .Various Spread of Diseases in India

From the above chart we can find the how the health disease has been spreading over the

years. The reason is India does not have proper (poor) sanitation and other public hygiene

issues. India is having the worlds largest diabetic patients with 41 million people this is

expected to reach 73 million in 2020. The disease profile changed rapidly in the year 2010.

The growth in nervous system disorder medication grew at 22% which is the rapid growth in

the recent years. The anti-diabetic segment grew at 29% in July 2010.

Considering the Indian Population, the middle class of the population is being increasing; this

increases the disposable income of the people. The middle class population has grown to 153

million people in 2010 from 25 million people in 1996. The middle class population is

expected to increase to 34% if it continues with the same literacy and growth rate. Indians

spend 7% of their disposable income on healthcare (2005), it is expected to reach 13% by

2025. Thus, we can identify the growth in Healthcare and demand for medicines.


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FIGURE 3. 6. Growth in Middle Class Income Population

Source: Economic Times (2009), PwC Analysis.

FIGURE 3.7 Growth in Disposable Income

Other Social factors:

1. Traditional methods of treatment by bare bones such as magic/tantric are stillprevalent in India.

2. People dont go for injection because of their lack of knowledge. Only recently hasthe perception of vaccination penetrate the rural parts of India.

3. In India, transmittable and parasitic diseases accounted for a majority of thecommunicable disease burden (about 45.1%); diarrhea diseases and tuberculosis were

the prominent ones


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a. In addition, HIV/AIDS is emerging as a highly communicable disease for theIndian population; Indians are estimated to have more sufferers of HIV/AIDS

than the vast preponderance of countries in the world, barring Nigeria and

South Africa.

b.

As per UN estimates, in 2007, India was said to have 5.7 million peoplesuffering from HIV; it is supposed that the use of fake drugs and injections is

worsening this situation.

3.4.4.Technology Factors

Medical Technology

The medical technology sector contributes 2.75 billion USD (2008) to the India healthcare

revenue. It is expected to reach 14 billion USD by the year 2020 at 14% growth rate

according to NIPER Ahmedabad. The medical equipment segment contributes 55% of the

market share medical technology sector.

Figure3.8 Segment and Share in Medical Technology

Source: Economic Times (2009), PwC Analysis.

Medical Equipment

They include:

1. CT Scan mission, MRI, SPECT.

2. Diagnostic equipment.

3. Equipments used for therapy like linear accelerators, gamma knife and cath labs.

Medical Implants


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They include:

1. Cardiac Missions such heart valves, stents, pacemakers.

2. Orthopaedic missions for knee, hip, spine, etc.

3. Eye missions such as lenses for eye checks we do to know eye site (to identify concave orconvex)

4. Ear missions such as cochlear implants.

5. Dental missions.

Medical Disposable and Furniture

They include:

Medical disposable:Surgical masks, Syringes, Medical drapes etc.

Medical furniture: patient beds, patient trolleys, wheel chairs.

mHealth (Mobile Health)

The Telecom regulatory Authority of India estimates at there are a 913 million mobile

subscribes in India in august 2012. The mobile phone offers helps the pharma companies to

improving awareness, enhancing compliance and performing authentication.

1. The direct link between the medical representatives and physicians have been reducing

steadily as the mhealth feature helps the pharma companies describe and promote their

products through text messages were the physicians are educated about the product with its

description.

2. The mhealth has a feature to provide reminders to the patients about their medication

schedules. The patients receive SMS on what time they should take their medicines and also

the medicine they should take on basis of the symptoms that the patients face.

3. Since there should not be counterfeit in drugs in response the pharma companies provides

special codes on the medicine packages to stop the counterfeited drugs. In process the

customer or buyers can cross check by providing the codes or photoshot the codes on the

product to the companies to check if the medicine is a correct or counterfeited product.

Impact on R & D

In concern to technology factors in India that involves in developing new drugs and

medicines India is being lagging. India need to focus on the medical or drug devices as well

as drug delivery systems. This is because as Indian biotechnology systems and

nanotechnology used is being dependent on the foreign capital resources. This has a direct

impact on the prices of the drug and medicines, as the cost of manufacturing is high it has an

impact on the product prices. Thus, to reduce it the India needs many biotechnology

graduates who need to code the devices and develop devices. As far as concerned India isperforming well in its IT industry, there would be better developments if the IT companies


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could help the pharmaceutical industry in developing devices that can help in Pharmaceutical

Industry. The Indian companies are majorly moving to biologics, the injection therapies are

still being continued. Therefore injection technologies can be introduced, such as auto-

injectors and patch pumps, can provide easier and less painful drug administration. But

certain measure such as investments in R&D have helped in unearthing of life cutback drugssuch as Humane-Insulin, Hepatitis B vaccines, AIDS drugs and may others, large production

in drugs have certainly reduced the cost to manufacture it and newer drug liberation systems

created development in the pharmaceutical industry.

3.5.BUSINESS DIVERSIFICATION

Diversification: A process of entering into a new and unrelated business which is entirely

different from the companys present business.

Standalone: A company which is specialized in a particular business in a sector and they

dont want to diversify their business.

Conglomerate: A company which has one or more businesses in different sectors under one

roof.

3.5.1. Ranbaxy:

Ranbaxy is a standalone company. Ranbaxy is Indian pharmaceutical company started in

1937. Ranbaxy export their products to 125 countries with ground operations in 46 and

manufacturing facilities in 7 countries.

Ranbaxy manufactures various products such as valocyclovir , amoxycilin etc.

3.5.2. GlaxoSmithKline Pharmaceuticals Ltd.:

GSK is a conglomerate company. GSK is a London based company. GSK provides services

globally in Pharmaceutical, vaccines, biologics.

Products: Medicines and Vaccines.

The GSK India manufactures medicines which are precribed, vaccines, and consumerhealthcare products. Their prescription medicines range from therapeutic areas such

as anti-infective, dermatology, gynecology, diabetes, cardiovascular diseases and

respiratory diseases; some of the leading GSK brands in India include Augmentin,

Calpol, Ceftum, Phexin and Betnesol.Varilrix, Havrix, Rotarix, Hiberix, and Cervarix

are some of the leading vaccines offered in India.They also deal with consumer health

care products and oral care products such as Horlicks, Maltova, Boost ,Viva and

Sensodine .


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3.5.3.Cipla ltd

Cipla is a standalone company. Cipla is an Indian pharmaceutical company. Cipla also offers

services like consulting, engineering, project appraisal, quality control, know-how transfer,

support, and plant supply in pharmaceutical sector.

Products: pharmaceuticals and diagnostics

Broad categories of the drugs produced by Cipla:

1. Antibiotics2. Anti-bacterial3. Drugs meant for asthma treatment4. Anthelmintics5. Anti-ulcerants6. Drugs meant for cancer treatment.7. Corticosteroids8. Nutritional medicine9. Heart related drugs

3.5.4. Piramal Heath Care:

Piramal health care is a standalone company. Piramal is an Indian based company and is

second largest Pharmaceutical Company in India with a presence in the cardio-vascular

segment, the antibiotics and respiratory segments, pain management, neuro-psychiatry and

anti-diabetics segments and biotechnology.

TABLE3.4. Piramal Products

DIVISION NAME THERAPY AREA

CONSUMER PRODUCTS NSAIDS/Pain

Gastro

Dermat

PIRAMAL CRITICAL CARE Inhalation Anesthesia

Intravenous Anesthesia

Regional Anesthesia

Muscle Relaxant

Plasma Volume Expander

Source: Piramal Healthcare Products Overview


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3.5.5. ZydusCadila

Cadila is a conglomerate company. ZydusCadila is an Indian based company. Now the

company operates with the name Cadila Healthcare Ltd., under the aegis of the Zydus

group.They deal with herbal care products, OTC (over the counter) products.

Products: Pharmaceuticals and diagnostics.

They also deal with consumer products such as:

Sugar free Gold Sugar free Natura Sugar free D Lite Nutralite (healthy drink)

They also deal with skin care products:

Everyuth.3.5.6. Sun Pharmaceuticals Ltd.:

Sun Pharma is a standalone company. Sun Pharma is an Indian based company. Sun Pharma

manufactures both pharmaceuticals and active pharmaceutical ingredients (API).

Products: Pharmaceuticals.

Table 3.5. Products of SunPharma


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3.5.7. Pfizer

Pfizer is a standalone company. Pfizer is a US based company. Pfizer is ranked number 1 in

sales in the world. Pfizer has its Headquarters in Mumbai in India.6 Pfizer brands which are

available in Indiais among the Top 100 pharmaceutical brands. They also have products for

animal health.

Products: Pharmaceuticals.

3.6.MERGER AND ACQUISITION

Merger and acquisition is the phenomenon where an organization adopts a strategy where itbuys, sells or combines with similar companies or different companies that will help the

company grow at a faster rate.

Pharmaceutical companies in India and across India might have their own motives that may

lead to mergers. These motives may include factors such as lack of r&d , patents that are

about to expire, products that are recalled due to manufacture or formulation defects, to

enhance market share and also may be done to increase product quality.

Over the years the Indian pharmaceutical industry has witnessed a lot of mergers and

acquisition, this could primarily be due to the following reasons:

The Indian population consists of competent skilled and unskilled labour The pharmaceutical industry in the nation is capable of producing cost efficient bulk

drugs.

State of the art educational institutes. Low budget allocation for r&d Countries commitment to free market economy

TABLE3.6. Summary of M&A transaction

Particulars 2009 2010

Total number of

deals

563 548

Deals with available

transactional value

314 309

Total transaction lost 161.2 billion USD 51.6

Largest deal Acquisition of Wyeth by pfizer Acquisition of

ratiopharma bytivo pharma


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Top 5 deals and % of

total deal value

78.5% 38.8%

TABLE3.7. Recent Mergers and Acquisitions.

Recent Mergers and Acquisition.

Abbot and Piramal healthcare

In the year 2010 Abbot labs merged with piramal pharmaceuticals with a total transaction

value of 3712 million USD. This has helped them earn the leadership in the Indian

pharmaceutical industry and also since the merger a acceleration in their growth has been

observed.

Mylan and Matrix labs.

Source :i rd vol 4 2012 257

S.NUMBER YEAR AQUIRER TARGET

COMAPNYCOMPANY COUNTRY

1 Aug

06

Mylaninc. USA Matrix labs

2 June

08

Daiichi Sankyo.ltd Japan Ranbaxy labs

3 Aug

08

Fresenius Kabiag Germany Dabur Pharma

4 June

09

Pfizer animal healthcare USA Ventex animal

healthcare

5 June

09

Vetoquinol France Wockhardt(animal)

6 July

09

Abbot labs USA Wockhhardt(nutrition)

7 July

09

Sanofi Aventis France Shanta biotech

8 Dec

09

Hospira USA Orchid chemical

9 Mar

10

Reckitt bekinser U.K Paraspharmeceuticals

10 May

10

Abbot labs. USA Piramal healthcare

Source:ijprd , vol 4 page 257


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This merger took place in the year 2006 and included a total transaction cost of 3424 million

USD.Mylan labs purchased 51% shares in matrix labs, and since then their revenues have

grown from 17281 million USD to 32191 million USD. In October 2011 they rebranded and

are named Mylan ltd.

Impact of mergers and acquisition in India

Number of regulated drugs have decreased since the 1970s Multinational countries might sieze to produce drugs unless they are allowed to sell

them at high prices.

Multination countries might not concentrate on supplying drugs to the masses andrather concentrate on producing drugs that help solve western lifestyle related

diseases

The condition of R&D in the pharmaceutical industry will surely improve as moreresource are made available from mncs.

3.7.INDUSTRIALEXPORSURE

3.7.1.Import

Import in India has shown a considerable decrease in the last couple of years , this maybe a

sign that the Indian pharmaceutical industry is becoming self-sufficient.

A trend has been observed these years that imports are primarily occurring to enhance the

quality of drugs already present in the nation and economic consideration and not due to

shortage in supply of domestic produce. Manufactures are now free to produce drugs that areconsidered legal by the authorities and are not suppressed under unnecessary legal pressure.

Table3.8. Value and growth percentage of import

Year Value of import(crore) Gowth%

2002-2003 2865 -

2003-2004 2956 3.18

2004-2005 3139 6.192005-2006 4515 43.84

2006-2007 5866 29.92

2007-2008 6734 14.79

2008-2009 8649 28.43

2009-1010 9959 15.15

2010-2011 10937 9.82

Source: Annual report (department of Pharmaceuticals) GOI


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FIGURE3.9.Value of import of medicinal and pharmaceutical products

3.7.2. Export

There has been considerable growth in amount of export from the nations pharmaceutical

industry. This is proof that India pharmaceutical produce is matching up to international

quality and and increase the number of patents that have been awarded to the Indianindustry

and also generic drugs that the pharma industry produces is becoming increasingly aceeptable

worldwide.

Tab 3.9. Value and growth percentage of export

Year Value of export(crore) Gowth %

2002-2003 12826 -

2003-2004 15213 18.61

2004-2005 17228 13.25

2005-2006 21330 23.23

2006-2007 25166 20.90

2007-2008 29354 14.37

2008-2009 39821 35.66

2009-1010 42456 6.62

2010-2011 47551 12



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FIGURE 3.10. Value of export of drugs and pharmaceutical and fine chemicals.

Figure 3.11. Comparison between percentage of import and export of drugs and

pharmaceutical in India

3.8 RESEARCH AND DEVOLOPMENT IN PHARMACEUTICAL

INDUSTRY





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Since independence the Indian pharmaceutical industry has been striving towards improving

the standard of research and development that is involved in formulating and testing of drugs.

But the industry has still to go a long way in order to meet its global competitors.

Due to lack of finances and proper fund allocation India has not been able to conduct

complete and accurate research concerning new chemical entities. The industry therefore

either imports or outsourse its techonology that is needed to develop the drugs.

TABLE3.10. R&d licencing deals

Indian firm Partner Molecules

Dr Redddys Novo nordisk DRF 2593(DIABETES)

Novartis DRF 4158 (DIABETES)

Novo nordisk DRF(DIABETES)Ranbaxy Bayer Ciproxr

Schwarz Rbx 2258 (bph)

Torrent Novartis Age breaker(diabetic)

Glen mark Forest Grc 3886

The Indian pharmaceutical industry is technologically sound and totally self-reliant, the

pharmaceutical industry in India has low costs of production, shockingly low Research &

Devolopment expenditure. Indian pharmaceutical industry today is ranked third, in terms of

technology, quality and range of medicines manufactured.

The industry today produces an wide range of pharmaceutical formulations, which accounts

for bulk drugs and drugs ready for consumption

As per industry calculation , the Indian industy is said to be worth 12.26 us billion dollors

.This industry is growing at the rate of 10-11% CAGR, with a turnover of 21.04 billion, about65% of this revenue is from exports. It spends around 18 % of this revenue on research and

development activities. Moreover, Indian pharmaceutical off-shoring industry is expected to

become a US$ 2.5 billion opportunity by 2012, due to low Research & Development costs

and a high-talent pool.

3.9. MARKETING INCENTIVES OF PHARAMCEUTICAL INDUSTRY

Marketing initiatives



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Traditionally, the promotion and advertisement of Pharmaceutical products were directed

mainly to the doctors, and minimal advertising being directed towards the pharmacists.

Generic versions of a certain drugs were made available by the manufacturers because of the

patents expiration on certain drugs in the mid 1980s and 1990s. These drugs were priced

lower than brand owned products and hence gave the pharmacists the legal right by passingof laws to substitute generic drugs for brand owned drugs.

Direct-to-consumer advertising

Two pharmaceutical companies initiated direct-to-consumer advertising (DTC) duringthe mid 1980s until now. Pfizer led the way marketing field with its healthcare series

based ads to the general public. Merrell Dow was not far behind, using DTC ads to

inform the public that doctors had come up with a new treatment to assist smokers

who wanted to stop smoking.

Only the drugs which are categorized under OTC category can be promoted and canbe advertised rest all drugs cannot be advertised as it is against the law.

The drugs can also be advertised through magazines and newspapers which had theproduct and its name and also mentioned its use. Radio and Television restricted the

advertising because it was not possible to include the prescription summary on air.

3.10.FUTURE OUTLOOK

Past 3 -4 years have recorded a steady growth of 13 14% in the Indian Pharmaceutical

Industry which considerably is very significant compared to 9% in 2005. It is also stated in

the report that the five new opportunities will make Indian Pharmaceutical Industry attain

45% of market by 2020. A growth of nearly $10 billion is expected. The main reason for this

growth is Metro and Tier1 market which have also grown at a steady rate of 14% in the last

five years. These markets will be the accountable for a $33billion share by 2020. These are

also considered as the results of rapid urbanization and improved medical infrastructure.

Rural market is also considered to be a very potential market as it is going to account for 25%

of Indian Pharmaceutical Industry by 2020 whiles the Tier2 markets are expected to drop

by 5% from 20%. While growth in the pharmaceutical industry will be driven by rising

affordability, the industry will have to give proper attention on being more proactive in

improving the accessibility and acceptance of modern medicines especially in rural areas.

Department of Pharmaceutical states that a total $103 billion worth of global generic drugs

are at the risk of losing their patents by 2012 and it is considered that India will be the

country which will be most leveraged on this opportunity mainly because of two main

reasons, competitive advantage of established manufacturing facilities and skilled workforce.Analogue preparation, analytical chemistry and structural drug design are certain services in


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which India leads and these services are expected to help India in exploiting opportunities in

the field of contract research.

McKinsey & Co. state that Indian Pharmaceutical Industry is expected to have a $55 billion

market in 2020 according to their latest report. It also states that if aggressive growth efforts

are implemented then it may reach to a whopping $70 billion. The main reasons for this

massive growth are:

Some of the other facts that support the statement Indian Pharmaceutical Industry has a bright

opportunity are:

US Clinical trials are much costlier ($300 - $350 million each) when compared toIndia (US $25 million).

The amount of money spent on customs is nearly 30 50 % less than otherpharmaceutical companies.

More services compared to global companies. In India the cost of investigational is new drug is around $10 15 million whereas it

is $100 - $150 million in US.

But there are also a lot of challenges that are faced by the Indian Pharmaceutical Industry.

The most volatile challenge faced by the Indian Pharmaceutical Industry is its unstable

pricing policy of drugs which is imposed by the government at various levels. Prices of a lot

of essential drugs are controlled by the government even though there is a rise in the prices of

its raw materials which has created a lot of stress on the manufacturing companies and

harshly affecting their R&D initiative.

3.11. COMPARISON OF INDIAN PHARMACEUTICAL INDUSTRY

WITH OTHER INDUSTRIES OF THE WORLD

Indias share of value-added nearly doubled 1980-00; it has become 7.11% from 3.79%. The

size of Indian pharmaceutical industry was expected as of 2000 to be 43 times the size of

Austrias, 36 times the size of Norways and 10 times the size of Australia. It was even larger

than Austria, Belgium, Canada, Norway and Netherlands combined together.

Compared to the selected 29 countries India stands way ahead of 15 countries in terms of

growth performance during the period of 2000-04. But in-spite of such a growth in export it

still fails to achieve the industry standard growth rate of 60% which was noticed during the

period 2000-04 in the global pharmaceutical export. Even though India has failed to match

the global pharmaceutical growth rate but it has maintained a favourable positive balance of

payment in pharmaceuticals.


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TABLE3.11. Comparison of Indias output with that of the world

1980 1985 1990 1991 1995 2000

Austria 0.58 0.53 0.66 0.67 0.65 0.7

Belgium 1.61 1.37 1.28 1.24 1.55 1.74

Canada 1.36 1.95 2.15 1.96 1.76 1.44

Denmark 0.44 0.58 0.61 0.63 0.75 1

Finland 0.31 0.32 0.25 0.25 0.21 0.17

France 7.24 6.89 6.11 5.97 6.18 5.98

Germany 5.49 4.55 4.12 7.05 6.37 5.88

India 3.79 3.61 3.89 4.18 5.52 7.11

Italy 9.19 8.39 7.77 6.8 5.21 5.59

Japan 22.4 20.89 19.83 18.09 16.54 13.29

Korea 2.6 3.02 3.53 3.39 3.89 3.85

Mexico 2.66 2.59 2.77 2.42 2.95 3.41

Netherlands 1.06 1.48 0.74 0.79 1.12 1.04

UK 6.92 6.71 6.93 6.42 5.75 5.19

USA 29.46 32.61 34.9 35.62 37.34 39.62

Indian companies such as Ranbaxy are constantl focusing on capturing the U.S. generic

market. The Indian bio-tech sector is at par to that of the U.S. They are filled with small new

comers whereas the majority of the markets are controlled by a few powerful companies.

Pharmaceutical companies in India and USA have understood the potential effect that bio-technology could have on their pipelines and have capitalized on the opportunity by

exploring into the field themselves.. The Indian pharmaceutical industry is on its toes and

trying to capitalize on the expiring patent opportunities in the west.

Growth and market size

Indian Pharmaceutical Industry has turned out to be the fastest upcoming industry in the

global market though there was no break through innovation till the 90s. There were ten

countries that were above India in the early 80s which was reduced to only three by 1989

90. The reasons for this rapid rise were the efficient planning of policies and growing generic

world market.


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India has been successful in reducing their imports over the years and now has concentrated on

exports which have steadily increased. A negative policy of Rs. 53 crores has been improved to a

positive Rs. 5129 crores as of 1999 00. The export has also grown at a rate of 44% during 2000

04. India stands ahead of 15 countries from the selected 29 countries in terms growth performance

during 200004 but yet it fails to achieve the industry standard growth of 60% which was observed

then. But though it doesnt make its mark to match the global pharmaceutical growth rate it stillmaintains a positive BoP in pharmaceuticals. The export to import ratio for India has increased from

1.75 in 1990 to 3.4 in 2004.

CHAPTER 4

CONCLUSION


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4.1. CONCLUSION:

The regulatory policy and the patent policy under the government must be made more

suitable for the development of the pharma industry. The domestic market pharma companies

as well as Indian MNCs have to develop new business models considering the regula tory

framework and policy created by the Indian Government. It has to change its strategies and

bring in customized strategies depending on the markets and understanding their scope forbusiness for growth and sustainability.

India has great opportunity to build the pharmaceutical industry as there are strong labour

resources such as doctors and pharmacist. As per the growth expected India requires 7,00,000

doctors by 2020 (industry estimates) and thus the demand for medicine and drugs also would

increase. The contract research adopted by the foreign players to reduce their operational and

clinical costs has been increasing, the employment in the pharmaceutical industry is expected

to increase at a rapid growth.

The Pharmaceutical Industry will become the major contributors to the Indian economy in thefuture years. The domestic and Indian MNCs are tending to increase as the scope for

business is very high. The exports are expected to increase and to become major global

players in healthcare sector. Thus India would become a healthcare hub by 2020. .


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Agrawal, Dua, Garg, Sara and Taneja (2007). Challenges and Opportunities for theIndian Pharma Industry.Health Administrator Vol: XX Number 1&2: 109-113 .

Chaudhri (2007).Research and Development in Indian Pharmaceutical Industry From vision to decisionpharma 2020 , PWC REPORT Greene (2007),the emergence of Indias pharmcaceutical industry and implication of

U.S generic drug market.

India, Department of Pharmaceuticals,Annual Report 2010-2011 Ittumalla(2012) .Indian healthcare and foreign direct investment:opportunities and

challenges

Vummaneni (2012) .mergers and acquisition in Indian pharma .Ijprd , Vol 04 (257-267

The Indian pharmaceutical industrycollaboration for growth , KPMG Report 2006

research on pharma

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