Indian Pharmaceutical Industry

The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.

Playing a key role in promoting and sustaining development in the vital field of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world.

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price control.

The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of pharmaceutical formulations.

Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharmaceutical products has been done away with. Manufacturers are free to produce any drug duly approved by the Drug Control Authority. Technologically strong and totally self-reliant, the pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime is well set to take on the international market.

Competent workforce: India has a pool of personnel with high managerial and technical competence as also skilled workforce. It has an educated work force and English is commonly used. Professional services are easily available.

Cost-effective chemical synthesis: Its track record of development, particularly in the area of improved cost-beneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs.

Legal & Financial Framework: India has a 53 year old democracyand hence has a solid legal framework and strong financial markets. There is already an established international industry and business community.

Information & Technology: It has a good network of world-class educational institutions and established strengths in Information Technology.

Globalisation: The country is committed to a free market economy and globalization. Above all, it has a 70 million middle class market, which is continuously growing.

Consolidation: For the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India.

THE GROWTH SCENARIO

India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per year. It is one of the largest and most advanced among the developing countries.

Over 20,000 registered pharmaceutical manufacturers exist in the country. The domestic pharmaceuticals industry output is expected to exceed Rs260 billion in the financial year 2002, which accounts for merely 1.3% of the global pharmaceutical sector. Of this, bulk drugs will account for Rs 54 bn (21%) and formulations, the remaining Rs 210 bn (79%). In financial year 2001, imports were Rs 20 bn while exports were Rs87 bn.

STEPS TO STRENGTHEN THE INDUSTRY

Indian companies need to attain the right product-mix for sustained future growth. Core competencies will play an important role in determining the future of many Indian pharmaceutical companies

in the post product-patent regime after 2005. Indian companies, in an effort to consolidate their position, will have to increasingly look at merger and acquisition options of either companies or products. This would help them to offset loss of new product options, improve their R&D efforts and improve distribution to penetrate markets.

Research and development has always taken the back seat amongst Indian pharmaceutical companies. In order to stay competitive in the future, Indian companies will have to refocus and invest heavily in R&D.

The Indian pharmaceutical industry also needs to take advantage of the recent advances in biotechnology and information technology. The future of the industry will be determined by how well it markets its products to several regions and distributes risks, its forward and backward integration capabilities, its R&D, its consolidation through mergers and acquisitions, co-marketing and licensing agreements.

Domestic Trade

More than 85% of the formulations produced in the country are sold in the domestic market. India is largely self-sufficient in case of formulations. Some life saving, new generation under-patent formulations continue to be imported, especially by MNCs, which then market them in India. Overall, the size of the domestic formulations market is around Rs160bn and it is growing at 10% p.a.

Exports Trade

Over 60% of India’s bulk drug production is exported. The balance is sold locally to other formulators. India’s pharmaceutical exports are to the tune of Rs87bn, of which formulations contribute nearly 55% and the rest 45% comes from bulk drugs. In financial year 200, exports grew by 21%. India’s pharmaceuticals imports were to the tune of Rs20.3bn in FY2001. Imports have registered a CAGR of only 2% in the past 5 years. Import of bulk drugs have slowed down in the recent years.

 The exports of Pharmaceuticals during the year 1998-97 were Rs 49780 million. From a meager Rs 46 crores worth of Pharmaceuticals, Drugs and Fine Chemicals exports in 1980-81, pharmaceutical exports has risen to approximately Rs 6152 Crores (Prov.1998-99), a rise of 11.91% against the last year exports. Amongst the total exports of India, the percentage share of Drugs, Pharmaceuticals and Fine Chemicals during April-October (2000-2001) was 4.1%, an increase of 7%.

 Future Prospects

As per WTO, from the year 2005, India will grant product patent recognition to all new chemical entities (NCEs) i.e., bulk drugs developed then onwards. The Indian Government's decision to allow 100 percent foreign direct investment into the drugs and pharmaceutical industry is expected to aid the growth of contract research in the country. Technology transfer to 100 percent Indian subsidiaries of MNCs is expected only in 2005.

Indian pharmaceutical interests in making a mark on the global scene got a boost when Dr. Reddy's licensed two of its anti-diabetic molecules to Novo Nordisk and when Ranbaxy licensed its Novel Drug Delivery System (NDDS) of ciprofloxacin to Bayer. MNCs in India faced the problem of having a very high DPCO coverage, weakening their bottom lines as well as hindering their growth through the launch of new products. DPCO coverage is expected to be diluted further in the near future benefiting the MNCs. New legislation is also expected in the OTC segment increasing the number of brands in the Over the Counter (OTC) segment.

The Indian pharmaceutical industry is also getting increasingly U.S. FDA compliant to harness the growth opportunities in areas of contract manufacturing and research. Indian companies such as Ranbaxy, Sun Pharma, and Dr. Reddy's are increasingly focusing on tapping the U.S. generic market, projected to be around $18 billion by 2004.

Research & Development

The pharmaceutical advances for considerable improvement in life expectancy and health all over the world are the result of a steadily increasing investment in research. There is considerable scope for collaborative R & D in India. India can offer several strengths to the international R & D community. These strengths relate to availability of excellent scientific talents who can develop combinatorial chemistry, new synthetic molecules and plant derived candidate drugs.

R & D in the pharmaceutical industry in India is critical to find answers for some of the diseases peculiar to a tropical country like India and also for finding solutions for unmet medical needs. Industrial R & D groups can carry out limited primary screening to identify lead molecules or even candidate drugs for further in vivo screening, pre-clinical pharmacology, toxicology, animal and human pharmacokinetics and metabolic studies before taking them up for human trials. In such collaborations, harmonized standards of screening can be assured following established good laboratory practices.

The R & D expenditure by the Indian pharmaceutical industry is around 1.9% of the industry’s turnover. This obviously, is very low when compared to the investment on R & D by foreign research-based pharma companies. They spend 10 - 16% of the turnover on R & D. However, now that India is entering into the Patent protection area, many companies are spending relatively more on R & D.

When it comes to clinical evaluation at the time of multi-center trials, India would provide a strong base considering the real availability of clinical materials in diverse therapeutic areas. Such active collaboration will be mutually beneficial to both partners. According to a survey by the Pharmaceutical Outsourcing Management Association and Bio/Pharmaceutical Outsourcing Report, pharmaceutical companies are utilizing substantially the services of Contract Research Organizations (CROs).

Indian Pharmaceutical Industry, with its rich scientific talents, provides cost-effective clinical trial research. It has an excellent record of development of improved, cost-beneficial chemical syntheses for various drug molecules. Some MNCs are already sourcing these services from their Indian affiliates.

The Pharmaceutical and Biotechnology Industry is eligible for weight deduction for R&D expense upto 150%. These R&D companies will also enjoy tax holiday for 10 years. A promotional research and development fund of Rs.150 crores is set up by the Government to promote research and development in the pharmaceuticals sector.

India is gaining in importance as a manufacturer of pharmaceuticals. Between 1996 and 2006, nominal sales of pharmaceuticals were up 9% per annum and thus expanded much faster than the global pharmaceutical market as a whole (+7% p.a.). Demand in India is growing markedly due to rising population figures, the increasing number of old people and the development of incomes. As a production location, the country is benefiting from its wage cost advantages over western competitors also when it comes to producing medicines.

Since the end of the 1980s India has been exporting more pharmaceuticals than it imports. Over the last ten years the export surplus has widened from EUR 370 m to EUR 2 bn. At 32% in 2006, the export ratio was about twice as high as in 1996 and will likely rise further in the coming years (Germany: 55% at present).

Legal changes in India in 2005 made it considerably more difficult to produce “new” generics. Foreign pharmaceuticals, which enjoy 20 years of patent protection, can no longer be copied by means of alternative production procedures and sold in the domestic market. Hence, a reorientation was required in India’s pharmaceutical industry. It now focuses on drugs developed in-house and contract research or contract production for western drug makers.

The sector’s development is slowed by major infrastructure problems. These are, above all, qualitative and quantitative shortcomings in the energy and transport sectors.  Up until 2015, we expect pharmaceutical sales to rise by 8% p.a. to just under EUR 20 bn, compared with an increase of 6% in the world as a whole and 5% in Germany. But even then, India’s share in the world pharmaceutical market would only come to slightly over 2% (Germany: 7%). In Asia, India looks set to lose market share, as other Asian countries are registering even stronger growth.

Compiled into an article by CA. Aparna RamMohan (Chartered Accountant). You can reach me at caaparnasridhar@gmail.com