PEST ANALYSIS OF PHARMACEUTICAL INDUSTRY:

DEFINITION:
A PEST analysis is an investigation of the important factors that are changing
which influence a business from the outside.
PEST stands for: Political changes e.g. a change in government, or a change in
government policy. Economic changes Relate to changes in the wider economy
such as rises in living standards or the general level of demand, rises or falls in
interest rates, etc. Social changes Relate to changes in wider society such as
changes in lifestyles e.g. more women going out to work, changes in tastes and
buying patterns. Technological changes Relate to the application of new inventions
and ideas such as the development of the Internet and websites as business tools.
Pharma Industry
The robust growth in the pharmaceutical markets of emerging world economies
has outpaced the overall growth of the global pharmaceutical market. The
emerging markets are being driven by rapidly growing economies of these
countries, increasing per capita income, increasing prevalence of lifestyle diseases
due to rapid urbanization, and low-cost factors. Mainly due to strong performance
in the emerging pharmaceutical markets, the global pharmaceutical market is
expected to reach US$ 1,020 Billion by the end of 2012. This research study
provides extensive and coherent information about pharmaceutical markets in
emerging countries. It also gives a detailed statistical and analytical review on the
demographics, macroeconomic indicators, disease profile, key drivers and
restraints of the emerging pharmaceutical markets
The Indian pharmaceutical industry is one of the fast growing sectors of the Indian
economy and has made rapid strides over the years. From being an import
dependent industry in the 1950s, the industry has achieved self-sufficiency and
gained global recognition as a producer of low cost high quality bulk drugs and
formulations. Leading Indian companies have developed infrastructure in over 60
countries including developed markets like US and Europe. In the recent past,
several pharmaceutical companies have demonstrated that they possess the ability
to engage in commercially viable research and development activities and become
significant players in the international market.
Indian pharma industry has always been a leading industrial sector of the country,
with a paralleled dominance of both domestic and foreign pharma companies. The

Indian Pharmaceutical Industry (IPI) is the 3rd largest in the world in terms of
volume and 14th largest in terms of value.
As a result of the vast potential held by the domestic industry, t has been growing
at a healthy rate of 15% CAGR over the last 5 years. Total market size includes the
domestic market and export-import market. Export market constituted 40% of the
total IPI sales of Rs.25, 196.48 Crore in FY2011 and approximately 55% of the
total exports constitute of formulations while the other 45% comprised bulk drugs.
According to this new research report Indian Pharma Sector Forecast 2014,
Indian pharmaceutical industry is projected to show double-digit growth in near
future owing to a rise in pharmaceutical outsourcing and rising investments by
multinational companies. A large percentage of pharma products produced in India
are exported, which has led the leading players to expand their reach into the
Western nations. Due to the investments in R&D and the quest for more and more
ANDA filings, the clinical trials market is expected to grow at blistering pace in
coming years. For comprehensive outlook of the industry, the authors have done
extensive research on various segments of the Indian pharma industry, such as the
domestic & export market, branded & generics drugs, formulations & bulk drugs,
etc.
The baseline for optimistic future outlook of the pharmaceutical market is
improvement in the access to medicines to the Indian population. The focus of the
industry will shift towards capitalizing the potential of tier-III and rural areas.
Emerging sectors, such as bio-generics and pharma packaging will also pave way
for the pharmaceutical market to continue its upward trend during the forecast
period (FY 2012- FY 2014).
Over the next 5 years, the Indian pharma industry (IPI) is expected to grow
optimistically given its manufacturing prowess coupled with a large domestic
market having strong macroeconomic growth, expansion of healthcare
infrastructure, rising incidence of chronic diseases and healthcare penetration to the
extended urban and rural regions. The export market is expected to have a robust
growth based on significant patent expiries in regulated markets along with
premium pricing vis--vis domestic sales in addition to volume growth.
The Indian pharmaceutical industry has a unique amalgamation of three critical
factors which make it so attractive for investment thereby adding impetus to
growth.

- The process patent regime

- Price controls
- Exemptions to Small Scale Industries (SSIs)

The new trends

Increased generic penetration.
Outsourcing in the fields of R&D
The Fields of Bio-technology
FMHG (Fast Moving Health Goods).
Non-allopathic medication.
Exports of bulk-drugs
The Key Players
The Key Players in the Indian Pharmaceutical Industry are:

Glaxo Smithkline Pharmaceuticals Ltd

Merck Ltd
Nicholas Piramal Healthcare
Novartis India Ltd
Pfizer Ltd
Ranbaxy Laboratories Ltd
Torrent Pharmaceutical Ltd
Cipla Ltd

The future
In India, medicines represent between 10 to 15% of total health care costs. This
will not rise substantially when product patents are introduced, for two reasons.
First, over 90% of the medicines in the Indian market are now off-patent globally.
Second, for most of those that would be patentable, there are close alternatives
available which provide effective competition.

According to a Mckinsey study IPI is likely to more than triple to US$ 20 billion
by 2015 from current US$ 6 billion to become one of the leading pharmaceuticals
markets in the next decade.
The industry has a bright future.

PEST ANALYSIS

To understand the implications of the environment on any industry it is imperative

to study the four cardinal influencers on the industry namely Political, Economic,
Social and Technological factors. It is rather unfortunate that in India these factors
have a rather disproportionate influence on the functioning of a commercial
organization. From the days of independence the business environment has been
overly regulated by a handful of bureaucrats, middlemen, businessmen and
politicians. Its only a decade since the country has seen an emergence of a
political thought that encourages free enterprise. A welcome change indeed!

Political Factors

1. Today there is political uncertainty in the air. A combination of diverse

political thought have got together to cobble together a rag-tag coalition, that
is riddle with ideological contradictions. Therefore, any consistent political
or economic policy cannot be expected. This muddies the investment field.
2.

The Minister in charge of the industry has been threatening to impose even
more stringent Price Control on the industry than before. This is throwing
many an investment plan into the doldrums.

3.

Drugs price control order which is the bible for the industry has in effect
worked contrary to the stated objectives. DPCO nullifies the market forces
from encouraging competitive pricing of goods dictated by the market. Now
the pricing is determined by the Government based on the approved costs
irrespective of the real costs.

4.

Effective January, 2005 the country goes in for the IPR (Intellectual Property
Rights) regime, popularly known as the Patent Act. This Act will impact the

Pharmaceutical Industry the most. Thus far an Indian company could escape
paying a patent fee to the inventor of a drug by manufacturing it using a
different chemical route. Indian companies exploited this law and used the
reverse-engineering route to invent a lot of alternate manufacturing methods.
A lot of money was saved this way. This also encouraged competing
company to market their versions of the same drug. That meant that the
impurities and trace elements found in different brands of the same
substance were different both in qualification as well as in quantum.
5.

In Pharma industry there is a huge PSU segment which is chronically sick

and highly inefficient. The Government puts the surpluses generated by
efficient units into the price equalization account of inefficient units thereby
unduly subsidizing them. On a long term basis this has made practically
everybody inefficient.

6.

Effective the January, 2005 the Government has shifted from charging the
Excise Duty on the cost of manufacturing to the MRP thereby making the
finished products more costly. Just for a few extra bucks the current
government has made many a life saving drugs unaffordable to the poor.

7.

The Government provides extra drawbacks to some units located in

specified area, providing them with subsidies that are unfair to the rest of the
industry, bringing in a skewed development of the industry. As a result
Pharma units have come up at place unsuitable for a best cost manufacturing
activity.

8.

100% foreign direct investment (FDI) is allowed under the automatic route
in the drug and pharmaceuticals sector including those involving use of
recombinant technology

Economic Factors

1.

India spends a very small proportion of its GDP on healthcare (A mere 1%).
This has stunted the demand and therefore the growth of the industry.

2.

Per capita income of an average Indian is low (Rs. 16,365), therefore,

spending on the healthcare takes a low priority.

3.

The incidence of Taxes are very high. As a schedule of drugs declared by the
state government the VAT rates are 5% and 13.5%

4.

The number of Registered Medical practitioners is low. As a result the reach

of Pharmaceuticals is affected adversely.

5.

There are only 50, 00,000 Medical shops. Again this affects adversely the
distribution of medicines and also adds to the distribution costs.

6.

India is a high interest rate regime. Therefore the cost of funds is double that
in America. This adds to the cost of goods.

7.

Adequate storage and transportation facilities for special drugs is lacking. A

study had indicated that nearly 60% of the Retail Chemists do not have
adequate refrigeration facilities and store drugs under sub-optimal
conditions. This affects the quality of the drugs administered and of course
adds to the costs.

8.

India has poor roads and rail network. Therefore, the transportation time is
higher. This calls for higher inventory carrying costs and longer delivery
time. All this adds to the invisible costs. Its only during the last couple of
years that good quality highways have been constructed.

Socio-cultural Factors

1.

Poverty and associated malnutrition dramatically exacerbate the incidence of

Malaria and TB, preventable diseases that continue to play havoc in India
decades after they were eradicated in other countries.

2.

Poor Sanitation and polluted water sources prematurely end the life of about
1 million children under the age of five every year.

3.

In India people prefer using household treatments handed down for

generations for common ailments.

4.

The use of magic/tantrics/ozhas/hakims is prevalent in India.

5.

Increasing pollution is adding to the healthcare problem.

6.

Smoking, gutka, drinking and poor oral hygiene is adding to the healthcare
problem.

7.

Large joint families transmit communicable diseases amongst the members.

8.

Cattle-rearing encourage diseases communicated by animals.

9.

Early child bearing affects the health standards of women and children.

10.

Ignorance of inoculation and vaccination has prevented the eradication of

diseases like polio, chicken-pox, small-pox, mumps and measles.

11.

People dont go in for vaccination due superstitious beliefs and any sort of
ailment is considered as a curse from God for sins committed.

Technological Factors

1.

Advanced automated machines have increased the output and reduced the
cost.

2.

Computerization has increased the efficiency of the Pharma Industry.

3.

Newer medication, molecules and active ingredients are being discovered.

As of January 2005, the Government of India has more than 10,000
substances for patenting.

4.

Ayurveda is a well recognized science and it is providing the industry with a

cutting edge.

5.

Advances in Bio-technology, Stem-cell research have given India a step

forward.

6.

Humano-Insulin, Hepatitis B vaccines, AIDS drugs and many such

molecules have given the industry a pioneering status.

7.

Newer drug delivery systems are the innovations of the day.

8.

The huge unemployment in India prevents industries from going fully

automatic as the Government as well as the Labour Unions voice complains
against such establishments.

Legislation
The pharmaceutical industry has many regulatory and legislative restrictions. There
is also a growing culture of litigation in many countries. The evolution of the

internet is also stretching the legislative boundaries with patients demanding more
rights in their healthcare programmer.
Environmental
There is a growing environmental agenda and the key stake holders are now
becoming more aware of the need for businesses to be more proactive in this field.
Pharma companies need to see how their business and marketing plans link in with
the environmental issues. There is also an opportunity to incorporate it within their
Corporate Social Responsibility programmer. Marketing and new product
development should identify eco opportunities to promote as well
Conclusion
India will emerge as one of the Top 5 global markets for pharmaceutical products
by 2020, driven by huge domestic demand and increased consumer spending on
drugs, according to a study by city-based Ikon Marketing Consultants The
global pharma market is expected to grow at 7% to 8% over the next five years,
reaching an anticipated $1.7 trillion in 2020." He noted that the Indian consumer
currently spends nearly 1% of his total income on drugs and pharmaceuticals,
which will not change significantly in the current decade.
Treatment for chronic diseases like asthma, cancer, diabetes, heart ailments, and
osteoporosis and kidney ailments will likely to constitute more than half of
India's pharma market by the end of the decade," Motiwala said. Emerging areas
such as bio pharmaceuticals, bio generics, bio similar and pharma packaging are
also going to contribute significantly to the industry's growth, the study says.
According to the study, metros and Tier-1 markets, which have been growing at
14-15 per cent in the last five years, will drive growth in the industry. They
account for 60 per cent of the Indian pharmaceutical market today and look set to
continue growing to a market size of $33 billion by the end of the decade,
Motiwala said. Rural areas, on the other hand, will constitute 25 per cent of the
total market, by 2020, up from 20 per cent at present