INDIAN PHARMACEUTICAL INDUSTRY

The Indian Pharmaceuticals sector has come a long way, being almost non-
existing 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.

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

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

 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.

 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.