Pharmaceutical Industry

Subject - Pharmaceutical Industry Presentation(ppt)

Dear All,
I am working for a MNC in the pharamaceutical indutry. I have been asked to prepare a
presentation on the 'Trends in Pharamaceutical Industry in India'. My superior intends to use
this presentation while giving guest lectures to various B.Pharma, M.Pharma students. Can
you'll please suggest the points i need to cover? Or can anyone share a similar presentation if
they have one?

Regards,
Neha.
ankitchaturvedi
Subject - Re: Pharmaceutical Industry Presentation(ppt)
Dear Neha,

INTRODUCTION
India's pharmaceutical market currently stands ninth in the world market for pharmaceuticals with a
1.5% share. The market was valued at more than $3 billion last year (1998. At its annual growth rate
of 15% (almost double the world's 6% annual growth rate), this market is expected to reach $6 billion
by 2001 and should more than double to $13.3 billion in 2006. India's official OTC market currently
stands at over $130 million, and the industry's heart disease sector is expected to grow from $90
million now to more than $350 million in 2005.

Current demand in the Indian pharmaceutical sector stands at about $4 to $5 billion, and is forecast to
increase at an annual rate of 15 - 20% in the future. Nevertheless, average per capita expenditure on
pharmaceuticals in India is only $3 -- compared to $412 in Japan, $222 in Germany and $191 in the
US. This is due in part to the prevalence of alternative healing methods in India, such as ayurvedic
medicine and homeopathy, but also because prices for drugs have been kept artificially low by the
Indian government. In fact, India's pharmaceutical industry is one of the most highly regulated
industries in the country. Price controls have a strong effect on profitability in the industry, and weak
patent protection poses a long-term threat to investment in India's drug market. Foreign firms also find
it difficult to operate in India due to arbitrary Bureau of Industrial Cost and Pricing (BICP) pricing
changes, arbitrary local FDA decisions, high import duties (about 42%) and complex import
procedures.
However, while the pharmaceutical sector in India will most likely stay regulated in the short term,
there are plans for reform. The sheer size and growth of India's domestic pharmaceutical industry is
making it increasingly difficult for the government to regulate prices for every single firm, and pressure
from the World Trade Organization is also speeding up discussions within the national government to
improve patent protection. As a result, foreign pharmaceutical firms can expect improved market
opportunities in India's enormous drug market over next several years.

MARKET STRUCTURE OF THE INDIAN PHARMACEUTICAL INDUSTRY

The Indian pharmaceutical industry is highly fragmented -- there are now more than 20,000 domestic
manufacturers of end-use pharmaceuticals, particularly because of the industry's low capital
requirement and the lack of product patents. Only about 300 of these are in the organized sector. This
structure causes intense competition, especially in the bulk drug markets, with profitability falling as
demand expands.
For value purposes, drugs in India are generally classified into two categories -- bulk drugs and
formulations. Due to India's low overhead costs, bulk drugs comprise the largest sector in the
country's pharmaceutical market. India’s bulk drug sector also makes up about 6% of the international
bulk drug market. Drug intermediates are used as raw materials for the production of bulk drugs,
which are either sold directly or retained by companies for the production of formulations.
Formulations can be subdivided into generic drugs and branded or "ethical" drugs, the latter of which
are made under process patent and sold under a separate brand name. Expected short-term growth
for the two types of drugs has been 20% for bulk drugs and 15% for formulations.
The import of finished pharmaceuticals is almost negligible, and confined to very specific types like
anti-cancer drugs. In 1994, the import of drugs, pharmaceuticals and intermediates was estimated at
$450 million, and included the following: antibiotics, penicillin and its salts, erythromycin and its
preparations, vitamins and provitamins, vaccines (polio, human and veterinary), preparations
containing insulin, caustic and other hormones, and tetracycline and its preparations.

Essential drugs comprised of antibiotics, antibacterial, anti-TB, anti-parasitic, and cardiovascular

constitute a major portion of turnover of the industry. Indian companies dominate this class of drugs
with a market share of 71%. Multinational companies are reluctant to enter these markets as most of
them are under government price controls.

REGULATORY ENVIRONMENT
There are two major government agencies responsible for drug regulation and control:
1) the Drugs Controller of India (DCI), and
2) the State Food and Drug Administrations (FDAs).
The DCI, under the Ministry of Health, has five main functions:
1) Controlling the quality of imported drugs,
2) Coordinating the activities of State FDAs,
3) Enforcing new drug legislation,
4) Granting approval to new drugs, and
5) Controlling the quality of imported drugs.

State FDAs, on the other hand, monitor the drug manufacture, sale, and testing by companies in their
jurisdiction. There are also two main statutory bodies formed by Parliament:
1) the Drugs Technical Advisory Board, whose technical experts advise the Central and State
Governments on special technical matters involving drug regulation, and
2) the Drugs Consultative Committee, where Central and State drug officials ensure that drug control
measures are enforced uniformly in all states.
Current Reforms: Maharashtra FDA
The most powerful state-FDA is located in the western state of Maharashtra, where the country's
pharmaceutical industry has been concentrated for the past 46 years. Over 50% of manufactured
drugs in India are currently produced in Maharashtra, and Maharashtra's FDA therefore plays a large
role in determining national policy on the import and local manufacture of pharmaceuticals in India. It
monitors drug quality and safety through pre- and post-licensing checks, as well as through periodic
inspections and drawing drug samples from companies from time to time.

Maharashtra's FDA underwent some major changes over the past few years to improve its efficiency
and raise its credibility. Under the present Commissioner, Anil Kumar Lakhina, the Indian FDA has
revamped its structure, introduced a new drug management system, and instituted a new electronic
drug renewal application procedure via its website. It has also started codifying all pharmacopoeial,
patent and proprietary combinations of drugs -- there are currently 50,000 drugs all licensed by the
FDA and 4,300 of them have already been codified.

Drug Application Procedures

Foreign pharmaceutical firms looking to export drugs to India must first obtain a license from DCI,
which is granted upon assurance that the firm's manufacturer abroad complies with Indian production
and safety standards. These standards are becoming more harmonized with international Good
Manufacturing Practice (GMP) and ISO requirements. Next, before any drugs are released for import
into India, the importer must submit the following documents to the Central Drug Control Organization:
1) documents of import (Bills of Entry),
2) protocols test and analysis,
3) a sample of the product(s) label, and
4) a drug sample.

The drug sample is tested by the government, which in turn releases a consignment to the importer if
the test results approve the drug as meeting "standard quality." Importers are also permitted to import
drugs for experiment, test research or clinical trial under a test license.
Companies looking to manufacture drugs locally must go through a "preparatory" or Pre-Licensing
Phase to show that their manufacturing facilities are up to standard. After being granted a license, the
manufacturer must also produce a test batch of drugs that is approved by the government for safety.

All companies must also follow specific labeling requirements. Both importers and local manufacturers
must label every product with the following information:
1) name of the drug;
2) a correct statement of the net content of the drug;
3) content of active ingredients;
4) name and address of the manufacturer;
5) batch or lot number preceded by the words "Batch," "B," "Lot No.," or "Lot";
6) manufacturing license number (if applicable);
7) number of the license under which the drug is imported (if applicable); and
date of manufacture and expiration date, which must not exceed 60 months. Pharmaceutical
companies must have their label and pack insert approved by the DCI before the drug is marketed.
The specific requirements for drug approval and renewal of imported and locally manufactured drugs
are available from the Maharashtra FDA. As mentioned above, drug renewal applications are now
accepted via the web, but until computer signatures are legitimized, new drug applications will still
have to be completed in hardcopy.

PRICE CONTROL
Since 1961, pharmaceuticals in India have fallen under heavy price regulation. Domestic drug prices
in India are among the lowest in the world; the Organization of Pharmaceutical Producers of India
(OPPI) says that year-on-year price increases for pharmaceuticals in the country are lower than the
wholesale price index each year and considerably lower than the CPI. This applies to both controlled
and decontrolled drugs, where increases were just 1.1% and 3.6% respectively for 1997 over 1996.
This has severely affected the profitability of the industry, especially since the prices of basic raw
materials and the costs of packing have shot up over the past five years. Pharmaceutical
manufacturers have also suffered from high transaction costs, including obstacles and difficulties
associated with administrative processes, dishonesty of public agents, delays in obtaining finance,
and transportation bottlenecks.

Price controls are implemented under a Drug Price Control Orders (DPCO). Under Section 3 of the
Essential Commodities Act, there have been four major revisions of DPCOs in 1970, 1979, 1987 and
1995. In 1995, the DPCO was revised twice -- once on January 6th and again on July 19th -- to
coordinate the price descriptions of controlled and decontrolled formulations. Drugs falling under
DPCO are generally either of the following:
1) those that have a minimum annual turnover of Rs 4 crore (US$1 million), and
2) those of popular use in which there is a monopoly situation (a monopoly in India exists if for any
bulk drug, with an annual turnover of US$250,000 or more, there is a single formulator with a market
share of 90% or more).

For drugs where there is "sufficient" market competition, i.e. where there are at least five bulk drug
producers and at least 10 formulators, and where none has more than a 40% market share in retail
trade, price control is not mandated by the government. Such drugs not falling under government
price control are called "decontrolled" drugs.

Aside from lowering profitability and constraining the market, there are many administrative problems
with DPCOs that have been worsening as the Indian drug industry expands. The government often
fails to update the financial data on which it bases its criteria for inclusion, aggravated by the long time
lag between the collection of data and announcement of new pricing policy. As a result, basis data for
determining prices is at least three months old at the time of approval, and the price benchmarks used
end up being historical instead of prospective.
Furthermore, there are serious problems with the way the government calculates the fixed prices for
many drugs. For example, it does not take raw material price volatility or exchange fluctuations into
account when calculating prices. Also, the government determines drug prices solely upon cost, not
quality, of production (no distinction in pricing is made, therefore, between a drug produced under
Good Manufacturing Practices (GMP) and one that is not).

The DPCO has also been gradually losing importance due to the emergence of a large number of
manufacturers in the bulk drug industry. Thus, to improve its efforts at drug price control, the
government set up the National Pharmaceutical Pricing Authority (NPPA) in August 1997 to update
the list of bulk drugs covered under DPCO 1995 by inclusion or exclusion on the basis of established
criteria and guidelines. The NPPA was also authorized to fix and revise prices of controlled bulk drugs
and monitor the prices of decontrolled drugs and formulations and oversee the implementation of
DPCO 1995.

The government's stance on price control has been mixed. Although it has set up organizations like
NPPA, the number of drugs under price control has gradually been reduced over time (see Figure 1
below), and sources in India's Ministry of Health have stated that the price control system may
undergo further changes depending on the emergence of a much wider and much more assertive
medical insurance system in the country.