Pharmaceutical Industry in India

Pharmaceutical Industry in India

The Indian pharmaceutical industry, which is sized at USD 32 billion in 2012-13, has remained
on a strong growth trajectory, over the past few years. The countrys pharma industry accounts
for about 1.4 per cent of the global pharma industry in value terms and 10 per cent in volume
terms

Before the year 2005, process patents helped the Indian pharmaceutical sector flourish, amid a
fast growing generics industry. According to the law on process patents, the Indian companies
could produce the already existing drugs but through some innovative processes. So the foreign
companies were skeptical about introducing their products in India. However the Indian
companies took advantage of this situation and developed new efficient processes to produce the
already existing drugs and also developed some new drugs through reverse engineering and
marketed these products in India.

Up to 1970:
In the year 1950, the government felt the need to achieve self reliance in the pharmaceutical
sector and set up the Hindustan Antibiotics Limited in 1954 which soon followed by the setting
up of Indian Drugs and Pharmaceuticals Limited (IDPL) in 1961.Soon these established
themselves as major players.

1970 to 1979:
To speed up the indigenization process and achieve self reliance in this sector, the government
introduced two landmark regulations in the year 1970, as follows:
-Indian Patent Act, 1970: This act granted patents for the manufacturing process unlike the
global practice to grant patents for the drugs. So our indigenous companies were encouraged to
develop the drugs through better chemistry processes and thus strengthened their positions.
-Drug Price Control Order (DPCO),1970: The DPCO governed prices of all bulk drugs to ensure
availability of these drugs at affordable prices.

The introduction of these regulations and the consequent strengthening of the Indian players led
to decrease in share of production by the MNCs in the Indian market. This situation was further
aggravated by the FERA act of 1974 which required the MNCs to reduce their equity holdings.
Also many small scale industries came up during this period.

1979 to 1987:
In the year 1979, the government lowered the number of products under price control to 163
from 347 in 1979.Also the government allowed the pharmaceutical companies to have higher
markup price over the production costs. The emboldened Indian companies started to invest in
research and development and developed new drugs. Government research institutes such as
Central Drug Research Institute (CDRI) and Council of Scientific and Industrial Research
(CSIR) also added to the research activity.After establishing themselves in the Indian market,
Indian companies like Ranbaxy, Lupin, Torrent and Dr Reddy's started exporting their drugs.
The export share of the total bulk drug production increased from 5 percent in 1980-81 to 19
percent in 1986-87.


1987 to 1994:
During this period, the domestic players continued to grow. The number of new drugs increased
and the price of the drugs reduced drastically. The export of bulk drugs produced by Indian
players increased tremendously.
The liberalization of the Indian economy in 1991 gave impetus to the foreign companies as it
reduced the tariff barriers and led to the reduction of the FERA regulation.
These reforms also helped the Indian players as it led to the introduction of new bulk drugs due
to reduced tariff and non-tariff barriers

1995 to 2001:
In 1995, the government further amended the DPCO, by lowering the number of drugs under
price control from 146 to 74.The governments commitment to introduce the product patent in the
year 2005 encouraged the MNCs to again start investing in this industry in India.

2001-2004:
During this period, several players continued to invest in the research and development activities.
The government's move on product patents and its decision to grant exclusive marketing rights
(EMRs) heightened MNCs' interest in the domestic market.

After 2005:
As per its commitments to the WTO, the Indian government passed an ordinance to introduce
the product patent regime w.e.f. January 2005. This helped in the integration of India into the
global pharmaceutical market and rendered duplicating of post-1995 patented drugs illegal.
While this discouraged process re-engineering of products patented post 1995, the amendment
aimed at gradually enhancing confidence of large global players on Indian companies.

Major Segments

Active pharmaceutical ingredients (APIs)
India is expected to supplant Italy as the second largest producer of APIs globally
Drug companies from India filed 49 per cent of the overall Drug Master Filings (DMF)
filed in the US in 2012

Contract research and manufacturing services (CRAMS)
Fragmented market with more than 1,000 players
CRAMS industry is estimated to have reached USD7.6 billion in 2012, up from USD3.8
billion in 2010

Formulations
Largest exporter of formulations in terms of volume with 14 per cent market share and
12th in terms of export value
Domestic market size is currently valued at USD11.2 b

Biosimilars
Biosimilars revenues are expected to touch USD550600 million by 2013 from USD200
million in 2008
The government plans to allocate USD70 million for local players to develop biosimilars

























Major Players in Pharmaceutical Industry
SUN PHARMA
Sun Pharma was set up in 1983. It has a manufacturing facility for tablets and capsules
.The first API plant was set up at Panoli in 1995.
It has in total 26 manufacturing facilities over 4 continents and employs more than
14,000 people. Much of the sales (70%) its sales come from international markets.
It ranks among top 5 Indian pharmaceutical companies and more than half of the sales are
from North America. It has a strong player in generics market.
Currently it has 256 approved products and 391 have been filed for approval.
Below is the timeline for this company.
Year Details
1983 Started operations in Calcutta
1987 Marketing operations started on nationwide basis
1995 First API plant was built
2004 Niche Brand in the US was acquired
2012 Acquired controlling stake in Taro and also full control on Caraco

DR REDDYS
Dr Reddys began its operations in 1984 as an API manufacturer. Its presence is there in almost
all therapeutic segments. It has partnered with GlaxoSmithKline (GSK) to gain access to
emerging markets.
Generics contribute more than 70% of its revenue in 2013.
It is among top 3 Indian Pharma companies and is a global leader in supply of generic APIs.
There are 18 manufacturing sites worldwide along with 4 technology development centres.
This company stands apart from other Indian companies in that it is the fastest Indian company
to cross $2 billion revenues and first company in Asia-pacific outside of Japan, to be listed on
NYSE.
Below is the timeline for this company.
Year Details
1984 Dr Reddys Laboratories began its operations in Hyderabad
1986 Produced first API and was listed on BSE.
1993 Dr Reddys Research Foundation was established
2005 Roches API business in Mexico was acquired
2011 Joint Venture with FUJIFILM to develop and manufacture generic drugs in Japan






LUPIN
Lupin is a pharma player known for providing wide range of quality, affordable generic
and branded formulations and APIs.
It is one of the largest producers of TB drugs in the world.
Most of its revenues in FY12 came from advanced market formulations.
Among pharma companies, it ranks third in India and 14th in the world. Also it is a
global leader in anti-TB segments.
Below is the timeline.
Year Details
1968 Started operation
1980 Started a formulations plant and R&D centre at Aurangabad
1989 Lupin Chemicals (Thailand) was established and this is a joint venture.
2001 Started supply of Cephalosporin to alliance partners in US
2011 Irom Pharma was acquired; enters into joint development agreement with Medicis Enter


CIPLA
Cipla was established in 1935 and has over 34 manufacturing units.
Cipla has outperformed its rivals by offering patented anti-AIDS drugs at affordable
prices.
It is present in over 170 countries and has employee strength of over 20,000. It is the
sixth largest company in South Africa.
Cipla plans to invest $36 million in upgrading its plant in Durban and acquisition of
South Africa's Cipla Medpro for $512 million.
It is the third largest Indian pharma company and one of the worlds largest generic drug
companies.
Below is the timeline.
Year Details
1935 Cipla was established to make India self-sufficient in healthcare
1978 Created inhalation therapy to manufacture MDI
1994 Launched Deferiprone which is worlds first oral iron chelator
2001 Pioneered access to HIV and ARVs made available at less than a dollar
2012 Cancer treatment was made affordable with breakthrough in reducing cost of cancer drugs






Revenue

The Indian pharmaceuticals industry revenues are expected to rise at a CAGR of 17.8 per
cent to USD36 billion during 200816
During the same period, the revenues from prescription drugs are expected to expand at a
CAGR of 18.2 per cent to USD29 billion
Revenue from the Indian Pharmaceutical Industry ( USD Billion)

Source: Business Monitor International


Trade
The Ministry of Commerce targets to export USD25 billion worth of pharmaceuticals in 2016.
Indian drugs are exported to more than 200 countries in the world, with the US as the key market
India is the largest provider of generic medicines across the globe; Indias generic drugs account
for 20 per cent of global generic drug exports (in terms of volumes)
In terms of value, pharmaceutical products exports have increased at a CAGR of 26.1 per cent to
USD10.1 billion during FY0613

Trade data on the Indian Pharma Industry (USD Billion)

Source: Ministry of Commerce
Government Regulations and Initiatives

In India, the pharma industry is a semi-regulated market i.e. it has less stringent systems of
patent laws and less sophisticated regulatory systems for drug quality control. The Food and
Drug Administration (FDA) governs the pharma industry.

The Drugs and Cosmetics Act, 1940 (Drugs Act) and Drugs and Cosmetic Rules, 1945 (Drug
rules) regulate the import, manufacture, distribution and sale of drugs in India. Under the
provisions of these Acts, the Centre appoints the Drugs Technical Advisory Board (DTAB) to
advise the central government and the state governments on technical matters.
The responsibility to enforce the Drugs Act is entrusted with both the central government and the
respective state governments. Under the Drugs and Cosmetics Act, state authorities are
responsible for regulating the manufacturing, sale and distribution of drugs, whereas the central
authorities are responsible for approving new drugs and clinical trials, laying down the standards
for drugs, controlling the quality of imported drugs and coordinating the activities of state drug
control organizations.

The Drugs Controller General of India (DCGI) is the central body that co-ordinates the activities
of state drug control organizations, formulates policies and ensures uniform implementation of
the Drugs Act throughout India. It is also responsible for approval of licenses of specified
categories of drugs, such as blood and blood products, IV Fluids, Vaccine and Sera.

Regulations by Government

Indian pharmaceuticals industry is mainly regulated on the basis of patents, price and quality.

Patents:
Post 2005, India complied with the World Trade Organisation (WTO) to follow the product
patent regime [sale of re-engineered products (for drugs patented after 1995) is restricted].
However, enterprises, which had made significant investments and were producing and
marketing the concerned product prior to January 1, 2005 and which continue to manufacture the
product covered by the patent on the date of grant of the patent, are protected, and the patentee
cannot institute infringement suits against them, but would be entitled to reasonable royalty.

Drug Prices:
The Drug Price Control Order (DPCO) fixes the ceiling price of some APIs and formulations.
APIs and formulations falling under the purview of the legislation are called scheduled drugs and
scheduled formulations. The National Pharmaceutical Pricing Authority (NPPA) collects data
and studies the pricing structure of APIs and formulations and accordingly makes
recommendations to the Ministry of Chemicals and Fertilisers.

National Pharmaceutical Pricing Policy:
The new Pharmaceutical Policy, notified in 2012, intends to bring 348 essential drugs in the
National List of Essential Medicines (NLEM), under the purview of the DPCO. With this policy,
the market size of drugs under price control will increase from 15-20 per cent of the domestic
formulations market to 20-30 per cent. The policy also introduces a radical change in the
mechanism of control: shifting from the current cost-based control to a market-based price
mechanism.

Under the policy, the ceiling price for each drug under control would be fixed as the simple
average price of brands having more than 1 per cent market share (by value) in the sales (MAT -
Moving Annual Turnover) of that particular molecule. Thus, prices of brands which are higher
than this ceiling will need to be lowered. The ceiling prices will be allowed an annual increase as
per the Wholesale Price Index (WPI). Prices will be recalculated using MAT only once in five
years or when the NLEM is updated. Prices of drugs that were a part of the earlier policy, but do
not come under the current policy, would be frozen for a year and thereafter, allowed a
maximum annual increase of 10 per cent. A 10 per cent increase would also be the limit for
prices of drugs outside the government's price control.

Quality:
No drug can be imported, manufactured, stocked, sold or distributed in India unless it meets the
quality standards laid down in the Drugs Act. All companies have to comply with Schedule M of
the Act, which outlines various requirements for manufacturing drugs and pharmaceuticals by
applying cGMP (current Good Manufacturing Practice). cGMP has to be followed for control
and management of manufacturing and quality control testing of drugs.








Issues
Pressure for Low Prices:
The Indian market is highly competitive and its prices are now the lowest in the world, at almost
10 percent of U.S. prices. The issue of price controls, which will tie the industry down and not
allow it to accelerate the pace of growth and move forward. Instead, the government needs to
provide incentives and allow companies to make additional profits that they can plough back into
research.

R&D Spending:
At 2 percent of sales, the spending is currently far below the global level of 10 to 20 percent.
Moreover, the average for the leading Indian firms represented just 5.7 percent of their net sales
in fiscal 2009, compared to 14.5 percent for Merck &Co. and 15.6 percent at Sanofi-Aventis.










SWOT Analysis of Indian Pharmaceutical Industry
Strengths
Low labour cost aiding cost competitiveness
Strong manufacturing base
Well established R&D facility for new drug discovery and development
Availability of highly trained and skilled scientists
Efficient marketing and distribution network
India, being second highly populated country in world is rich in biodiversity
Indias expertise in reverse engineering and ability to develop new Chemical processes made the
pharmaceutical industry as one of the strongest

Weaknesses
Relatively low investment Research & Development
Low competitiveness for New Drug Discovery Research because of lack of resources
Scarcity of innovation culture in the industry
Inadequate regulatory standards
Low per capita medical expenditure in country
Image of Pharmaceutical industry abroad is affected due to production of spurious and low
quality drugs

Opportunities
Significant export potential
Licensing and collaboration with MNCs for New Chemical Entities and New Drug Delivery
Systems
India can become a niche player in global pharmaceutical R & D by developing its infrastructure
Prospective for developing India as a centre for International Clinical Trials
Increasing aging world population
Increasing incomes and buying power of people especially in rural areas has opened the great
opportunity for Indian pharmaceutical companies. Around 70% of the total population of India is
residing in rural areas
Growing awareness for health has increased spending on health related products

Threats
Patenting done by companies abroad poses serious challenges to domestic industries unless they
invest in R & D.
R & D efforts of Indian pharmaceutical companies hampered by lack of enabling regulatory
requirement. For example, restrictions on animal testing.
Pharmaceutical companies cannot earn investible surplus because of unrealistic ceilings on
product prices and profitability imposed by DPCO
Procedural hurdles hampering exports effort

Case Study
Novartis patent application and Indian patent laws (Gleevec):
The Indian Supreme Court's verdict on the Novartis patent application has garnered a lot of
attention as having set a stringent standard of nonobviousness for patents. The litigation is
pitched as a battle between big pharma and health aid groups in India.In pharmaceutical
chemistry, a different crystalline form of the same chemical substance is called a polymorph, of
which the patenting is prohibited specifically in India unless it also results in enhanced efficacy.
Soon Novartis pursued an appeal to the High Court of Chennai on the grounds that section 3(d)
was unconstitutional and in violation of India's obligations under TRIPS. The Chennai High
Court established that section 3(d) was indeed Constitutional and within the scope of the TRIPS
agreement based on the fact that the section deals with all technologies and does not limit itself
to pharmaceutical innovations.
Novartis expresses that "The Indian Supreme Court on April 1 denied a patent for the Novartis
breakthrough medicine Glivec (imatinib mesylate). Decision of such sort discourages
innovative drug discovery essential to advancing medical science for patients.'
The drug, considered a magic bullet for leukemia, was developed jointly by Dr Brian Druker,
director of the Oregon Health and Science University Knight Cancer Institute, in collaboration
with Nicholas Lydon of Novartis. It actually comprised of some public funding. Dr.Brian Druker
welcomed the ruling of the Indian supreme court and expressed that "The price of medications
should not be restricted to the extent that it inhibits future investment in new drugs. At the same
time, he also criticized the pharma majors' predatory pricing and the enormous profits they made
on many blockbuster drugs."
The interest and role of non-governmental organizations in India in access issues as far as
intellectual property is concerned is remarkable and distinguished. Further, the country's interest
in hearing and dispensing intellectual property issues has also become notable. The Novartis
litigation has showcased India's interest and ability as far as patents of pharmaceutical origin are
concerned. The case reinforces suspicions for the need of a higher bar in India to get a
pharmaceutical patent issued. It also proves that the power of lobby groups in businesses needs a
dose of local reality especially in countries in India. It must take exceptionally bad market
assessment to sell a drug for approximately $ 2400 for a month's supply (against a cost of $ 160
for the same from a generic manufacturer) in a country where the per capita income is estimated
at a low $ 1 to $ 10 per month for a vast majority of the society. As a perspective, an Indian
employee who earns $ 2400 per month would consider himself very well-employed. In fact, in
the lower middle class (forming about 300 to 400 million people), one would be considered
agreeably employed if they earned $ 2400 in a year. And, big pharma cannot hope to erase away
this ground reality with its lobby power.