The Indian pharmaceutical industry

India currently represents U.S. $6 billion of the $550 billion global pharmaceut
ical industry and its share is increasing at 10 percent a year.
India's potential to further boost its already-leading role in global generics p
roduction, as well as being an offshore location of choice for multinational dru
g manufacturers seeking to curb the increasing costs of their manufacturing, R&D
and other support services, presents an opportunity worth an estimated $48 bill
ion in 2007.

Pharmaceutical production costs are almost 50 percent lower in India than in Wes
tern nations, while overall R&D costs are about one-eighth and clinical trial ex
penses around one-tenth of Western levels. India's long-established manufacturin
g base also offers a large, well educated, English-speaking workforce. The indus
try provides one of the highest rates of intellectual capital per dollar worldwi
de.

Opportunities
Generics
Prescription drugs worth $40 billion in the U.S. and $25 billion in Europe are d
ue to lose patent protection by 2007-08. It is forecast that Indian companies wi
ll likely take around 30 percent of the increasing global generics market. Curre
ntly, the Indian industry is estimated to account for 22 percent of the generics
world market. Low production costs give India an edge over other generics-produ
cing nations.

Biotechnology generics
Companies based in India and China could be among the first to bring biogenerics
(generic versions of biological products) to the regulated markets.

Biotechnology
In 2003-04, biopharmaceuticals accounted for 60 percent of India's total biotech
nology market. Investment in the sector was up 26 percent. The domestic biopharm
aceuticals sector grew 38.5 percent.

Outsourcing IT
As an information technology leader, India, with access to specialist skills and
24/7 work hours, is becoming the destination of choice for contract research, i
ncluding drug discovery. Companies have been expanding their activities in India
to new business segments such as bioinformatics and life sciences.

Contract manufacturing
The global pharmaceutical market is estimated to represent huge opportunity for
India in 2007, in terms of:
* manufacturing outsourcing ? the supply of active pharmaceutical ingredient
s and intermediates
 * development outsourcing ? conducting preclinical and clinical trials
* customized chemistry services ? contract research services for compounds p
re-launch.

Contract research
India is regarded as a R&D hotspot , where:
* companies are able to tap into existing scientific and technical expertise
networks
* there are good links to academic research facilities
* the environment supports innovation
* it is easy to commercialize.

Costs of pharmaceutical innovation in India are estimated at one-seventh of thei

r levels in Europe and the country's clinical research industry is currently gro
wing 40 to 50 percent annually and may be worth as much as U.S. $1 billion to In
dian firms in 2008.

Challenges
Patents/intellectual property rights
India has only recently begun protecting product patents, backdated to 1 January
, 2005. Since the introduction of product patents multi-national companies have
largely returned to India.

Pricing issues
The prices of certain drugs, accounting for around 40 percent of the retail phar
maceutical market, are controlled by the Drug Price Control Order of 1995. The g
overnment's 2002 Pharmaceutical Policy would have reduced the numbers of price-c
ontrolled drugs still further but this proposal is currently under judicial revi
ew.

Regulatory reforms
There have been calls for the government to:
* focus more on health care spending
* stop the pressure to reduce drug prices
* provide incentives to allow companies to make additional profits that can
be used for more research
* provide tax incentives to attract more foreign investment.

The government is currently drafting a National Pharmaceuticals Policy and is al

so starting to develop an infrastructure for clinical trials.

R&D spending
Local Indian pharmaceutical manufacturers need to significantly increase their R
&D expenditure. At two percent of sales these are currently far below the global
 level of 10 to 20 percent.

Domestic market
India currently spends just 4.5 to 5.0 percent of its GDP on health care, and pu
blic spending accounts for just 0.9 percent, putting the nation among the 20 low
est-spending countries worldwide.

Indian companies as global players

Drug manufacturers are currently some of the most aggressive overseas investors
of all Indian industries. They are pursuing foreign acquisitions due to their ne
ed to:
* improve global competitiveness
* move up the value chain
* create and enter new markets
* increase their product offering
* acquire new products
* consolidate their market shares
* compensate for continued sluggishness in their home market.

The value of Indian industry purchases has grown from $8 million in 1997 to $116
million in 2004. This rise is expected to continue.