Indian Pharma Profile

INDIAN PHARMACEUTICAL INDUSTRY

The Indian Pharmaceuticals sector has come a long way, being almost nonexisting during 1970, to a prominent provider of health care products, meeting almost 95% of Country’s pharmaceutical needs and has shown tremendous progress in terms of infrastructure development, technology base creation and a wide range of production. Even while undergoing restructuring, it has established its presence and determination to flourish in the changing environment. The industry now produces bulk drugs belonging to all major therapeutic groups. Strong scientific and technical manpower and pioneering work done in process development have contributed to this. The Indian Pharma segment is spreading its business across the world by launching cost effective new products and giving tough time to large multinational companies. The cash rich top ten pharma companies are also rewarding their investors handsomely by way of dividend or bonus shares and win shareholders confidence. Total production of bulk drugs and formulations during 1997-98 is estimated at Rs.26280 million and Rs.120680 million respectively. The growth rate has been around 15% for bulk drugs and 20% for formulations during 90s.

The performance on the export front is also

noteworthy, clocking a growth rate of more than 20% in 1997-98. Nevertheless, the scope to increase the volume of exports is tremendous. The Indian economy is 4th largest in the world in terms of Purchase Power Parity (PPP) and 13th in terms of value with an 8% annual economic growth rate. India has the 3rd largest scientific and technical manpower in the world. Currently the Indian Pharma Industry is valued at approximately $ 8.0 billion. Pharmaceutical industry in India is one of the largest and most advanced among developing countries. Indian pharmaceuticals industry has over 20,000 units. Around 260 constitute the organized sector, while others exist in the small-scale sector. It

provides employment to millions and ensures that essential drugs at affordable price are available to mass population of India.

Indian pharmaceutical industry has attained wide ranging capabilities and complex field of drugs manufacture and technology. The pharma market is about $6.5 billion compared to the total world market of $395 billion. IPI has grown at a Compound growth rate (CAGR) of 7% in last 6 years.

Market Share of MNCs & Local Companies The exports constitute almost 40% of the total production of pharmaceuticals in India. India’s pharmaceutical exports are to the tune of $3.5bn currently, of which formulations contribute nearly 55% and the rest 45% comes from bulk drugs. The export revenue now contributes almost half of the total revenue for the top 3 Pharma majors: Dr Reddy’s, Ranbaxy and Cipla. The other major exporters are Wockhardt Limited, Sun Pharmaceutical Industries Ltd. and Lupin Laboratories. The formulations and exports are largely to developing nations in CIS, South East Asia, Africa, and Latin America. In the last 3 years generic exports to developed countries have picked up.

THREAT FROM CHINA

China is becoming a major competitor to India, especially in exports of active pharmaceutical ingredients (APIs). China’s pharmaceutical industry ranks no.7 in the world and is expected to become the world’s 5th largest by 2010. China’s domestic drug sales have been estimated at about US$8 billion in 2003 and the exports are growing at the rate of about 20% per annum. The reasons for Chinese competitive advantage are:  The electricity costs are lower in China as compared to India. The power costs range from Rs.1.50 to 2.50 per KWH as against Indian cost of Rs.4.5 to 6.0 per KWH.  Labour

charges

are

40%

lower

in

China

than

India.

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More favourable labour policies like policy of hire and fire in China



On the whole China is more cost competitive in manufacturing sector.

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China has already implemented clear intellectual property laws and data exclusivity rules that take it one step ahead of India in attracting foreign players. In 1992, a pact was signed with US, which heralded the Product patent regime coming in force in China.

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China has established a large number of profit oriented research and development institutions, which are today independent of government funding in contrast to institutions in India, which are mostly dependant on government funding.

 The Chinese government provides an income tax holiday of 100 per cent for the first two winning years (profit making years) and 50 per cent for the next three years. 

The companies are also allowed duty free import of capital equipment.



Lower turnaround time for ships at Chinese ports make it conducive as a base for exports.

THE ENABLING FRAMEWORK REQUIRED

The Indian pharmaceutical industry is highly regulated, essentially on three aspects:  Patents  Price  Product quality The various legislations that govern the Indian Pharmaceutical Industry are:  The Indian Patents Act 1970 (and the amendments thereafter)  Drug Price Control Order (soon to be replaced by Pharmaceutical Policy 2002)  The Drugs and Cosmetics Act 1940 The legal framework for the industry should be such so as to increase the strengths of the industry, mitigate the weaknesses, void off the threats and cash in on the opportunities.

SWOT ANALYSIS: Strengths  Cost Competitiveness  Well Developed Industry with Strong Manufacturing Base  Access to pool of highly trained scientists, both in India and abroad.  Strong marketing and distribution network  Rich Biodiversity  Competencies in Chemistry and process development. Weaknesses  Low investments in innovative R&D and lack of resources to compete with MNCs for New Drug Discovery Research and to commercialize molecules on a worldwide basis.  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.  Licensing deals with MNCs for NCEs and NDDS.  Marketing alliances to sell MNC products in domestic market.  Contract manufacturing arrangements with MNCs  Potential for developing India as a centre for international clinical trials  Niche player in global pharmaceutical R&D.  Supply of generic drugs to developed markets. Threats  Product patent regime poses serious challenge to domestic industry unless it invests in research and development  R&D efforts of Indian pharmaceutical companies hampered by lack of enabling regulatory requirement. For instance, restrictions on animal testing outdated patent office.  Drug Price Control Order puts unrealistic ceilings on product prices and Profitability and prevents pharmaceutical companies from generating investible surplus.  Lowering of tariff protection  The new MRP based excise duty regime threatens the existence of many small scale Pharma units, especially in the states of Andhra Pradesh and Maharashtra, which were involved in contract manufacturing for the larger, established players.