A Report ON Industry Analysis Indian Pharma Sector INDUSTRY ANALYSIS SIZE OF 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 pharmaceutical industry is estimated to be worth $ 4. 5 billion, growing at about 8 to 9 percent annually. It is highly fragmented with more than 20,000 registered units.
It meets around 70% of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectables. There are approximately 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). In terms of the global market, India currently holds a 3. 2% share. The Pharma Industry in India produces around 20% to 24% of the global generic drugs. The Indian Pharmaceutical Industry is one of the biggest producers of the active pharmaceutical ingredients (API) in the international arena.
The Indian Pharma sector leads the science-based industries in the country. The pharmaceutical sector has the capacity and technology pertaining to complex drug manufacturing. Around 40% of the total pharmaceutical produce are exported. 55% of the total exports constitute of formulations and the other 45% comprises of bulk drugs. The Indian Pharma Industry includes small scaled, medium scaled, large scaled players, which totals nearly 300 different companies. There are several other small units operating in the domestic sector. Top 10 Pharmaceutical Companies in India: RANK 1 2 3 4 5 6 7 8 9 10 COMPANY Ranbaxy Laboratories Dr.
Reddy’s Laboratories Cipla Nicholas Piramal Aurobindo Pharma GlaxoSmithKline Lupin Laboratories Sun Pharmaceutical Industries Cadila Healthcare Wockhardt REVENUE 2004 (Rs Crore) 4,461 1,933 1,842 1,387 1,260 1,228 1,180 1,110 1,091 980 2 INDUSTRY SEGMENTATION: With respect to product, industry is segmented into two parts: Ethical (Prescribed) Drugs: A prescription drug is a licensed medicine that is regulated by legislation to require a prescription before it can be obtained. Over the Counter Drugs: Over-the-counter (OTC) drugs are medicines that may be sold directly to a consumer without a prescription from a health care professional.
Ethical drugs account for about 60% of total industry sales, with OTC products representing the balance. The ethical sector can be further segmented into: ? ? Brand/Trade Name Drug – A drug that has a trade name and is protected by a patent and hence can be produced and sold only by the company holding the patent. Generic Drug – A generic drug is a drug which is produced and distributed without patent protection. The generic drug may still have a patent on the formulation but not on the active ingredient. A generic drug must contain the same active ingredients as the original formulation.
Generics are lessexpensive equivalents of brand-name prescribed drugs. EXTERNAL ANALYSIS: External Analysis of the industry done based on Porter’s Five Forces Model. Porter’s Five Forces Model 3 1. Competitive Rivalry within the Industry: Pharmaceutical industry is one of the most competitive industries in the India with as many as 20,000 different players fighting for the same pie. The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% (2006) market share and the top 5 players together have about 18% (2006) market share.
High growth prospects make it attractive for new players to enter in the industry. Another major factor that adds to the industry rivalry is the fact that the entry barriers to pharmaceutical industry are very low. Many small players that are focused on a particular region have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way. The product differentiation is one key factor which gives competitive advantage to the firms in any industry. However pharmaceutical industry product differentiation is not possible since India has followed process patents till date, with loss favoring imitators.
Consequently product differentiation is not a driver, cost competitiveness is. However, companies like Pfizer and GlaxoSmithKline have created big brands over the years which act as product differentiation tools. Earlier it was easy for Indian pharmaceutical companies to imitate pharmaceutical products discovered by MNCs at a lower cost and make good profit. But today the scene is different with the arrival of patent regime which has forced Indian companies to rethink its strategies and to invest more on R&D, also contact research has assumed more importance now. 2.
Bargaining Power of Customers: The unique feature of pharmaceutical industry is that the end user of the product is different from the influencer. The consumer has no choice but to buy what doctor says. However, when we look at the buyer’s power, we look at the influence they have on the prices of the product. In pharmaceutical industry, the buyers are scattered and they as such do not wield much power in the pricing of the products. However, government with these policies, plays an important role in regulating pricing through the NPPA (National Pharmaceutical Pricing Authority). . Bargaining Power of Suppliers: The pharmaceutical industry depends upon several organic chemicals. The chemical industry is again very competitive and fragmented. The chemicals used in the pharmaceutical industry are largely a commodity. The suppliers have very low bargaining power and the companies in the pharmaceutical industry can switch from their suppliers without incurring a very high cost. However, what can happen is that the supplier can go for forward integration to become a pharmaceutical company.
Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies who turned themselves into pharmaceutical companies. 4. Threats of New Entrants (Barriers to Entry): Pharmaceutical industry is one of the most easily accessible industries for an entrepreneur in India. The capital requirement for the industries is very low, creating a regional distribution network is easy, since the point of sales is restricted in this industry in India. However, creating brand awareness and franchisee among doctors is the key for long term 4 survival.
Also, quality regulations by the government may put some hindrance for establishing new manufacturing operations. The new patent regime has raised the barriers to entry. But it is unlikely to discourage new entrants, as market for generics will be as huge. 5. Threat of Substitutes: This is one of the great advantages of the pharmaceutical industry. Whatever happens demand for pharmaceutical products continues and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an ongoing concern, pharmaceutical industry seems to have an infinite future.
However, in recent times the advances made in the field of biotechnology, can prove to be a threat to the synthetic pharmaceutical industry. The barriers to entry will increase going forward . the change in the patent regime has made sure that new proprietary products come up with making imitation difficult. The players with huge capacity will be able to influence substantial power on the fringe players by their aggressive pricing thereby creating hindrance for the smaller players. Economics of scale will play an important part too. Besides this the government will have a bigger role to play.
The industry is an attractive industry for a new entrant, and also an attractive industry for a current player, as the type of product itself makes it a safe ground to play for them. SWOT ANALYSIS: Strengths: ? English-speaking manpower and fair protection of intellectual property rights. ? Skilled scientists/technicians/management personnel at affordable cost leading to low cost of innovation/manufacturing/expenditure to run GMP compliance. ? India has filed a number of non-infringing process patents. Weakness: ? Low investments in innovative R&D – a major weakness of Indian pharmaceutical industry. Lack of strong linkages between industry and academia. ? Inadequate regulatory framework or compliance and enforcement regime, reflected in occurrences such a production of spurious or low quality drugs. ? Sales and marketing knowledge is inadequate. Opportunities: ? US$40 billion worth of drugs in the U. S. A and US$25 billion worth of drugs in Europe are expected to go off patent soon. ? Licensing deals with MNCs for NCEs (New Chemical Entities) and NDDS (New Drug Delivery Systems) offer new opportunities for Indian manufacturers. ? India can become a niche player in global pharmaceutical R&D and possibilities exist for expansion of biotechnology generics (also known as bio-similars) and biopharmaceuticals. Threats: ? Product patent regime poses serious challenge to domestic industry unless it invests in research and development. ? Drug Price Control Order puts unrealistic ceilings on product prices and profitability. ? Lowering of tariff protection has increased competition in domestic markets resulting in erosion of profitability. Mergers and acquisitions may completely change the direction of India’s pharmaceutical movement neutralizing its thrust on generics and cost competitiveness. VALUE CHAIN: Value Chain of Pharmaceutical Industry A value chain involves all the components or process which is required for a raw material or fundamentals to be transformed into something that can give value to the consumer. Discovery stage primarily has lots of R&D and new molecule discovery. At this stage we hardly think of prices or market of drugs, it’s all about getting a cure for some illness.
In the Development stage, when the molecule is synthesized, Target Specific Formulation is carried out, which involves getting the drug ready for commercial use by adding additional chemicals to minimize side effects. Once that is done a four phase clinical trial is carried out on specimens, to test the quality and effectiveness of the drug. In manufacturing stage, government approvals for marketing the drug are taken and all other regulatory formalities for it is done. Structuring and planning supply chain is also done for the new drug. Since drugs are specialized products, both Marketing and Sales are carried out by trained professionals.
Marketing is done where doctors are targeted. It’s the uniqueness of pharmaceutical industry, incentives are given to doctors, but consumption of the product is done by the patients. Marketing team are the ones who keep track of the sales and targets, based on which target for next quarter is set. 6 PHARMACEUTICAL REGULATORY BODIES IN INDIA: National Pharmaceutical Pricing Authority (NPPA) is an organization of the Government of India which was established, to fix/revise the prices of controlled bulk drugs and formulations and to enforce prices and availability of the medicines in the country, under the Drugs (Prices Control) Order, 1995.
The organization is also entrusted with the task of recovering amounts overcharged by manufacturers for the controlled drugs from the consumers. It also monitors the prices of decontrolled drugs in order to keep them at reasonable levels. Central Drugs Standard and Control Organization (CDSCO) controls the quality of drugs imported into the country. CDSCO helps in co-ordination of activities of the State/UT drug control authorities. It is the authority that decides whether or not to approve any proposed new drugs to be imported, domestic demand and the ability of domestic players to cater to that.
CDSCO after rigid inspection and analysis decides whether any pharmaceutical company should be allowed to manufacture a drug or not. It is the central licensing approving authority. Department of Chemicals & Petrochemicals (DCP) provides impartial and prompt services to the public in matters relating to chemical, pharmaceutical and petrochemical industries. It takes steps to speedily redress of grievances received. It is a regulatory body that formulates policies and initiates consultations with Industry associations and amends them whenever required.
PHARMACEUTICAL INDUSTRY AND PATENTS : The Patents Act 1970 did not differentiate between Process and Product patents for medicines, food and chemicals. Price Control Order, 1970 put a cap on the maximum price that could be charged and ensured that life saving drugs is available at reasonable prices. The Act of 1970 safeguards the interests of the inventor and consumer in an even-handed manner. Post 1970, strong and highly competitive domestic pharmaceutical industry was in the grip of a rigid price control framework.
On April 20 1972, Indian Patent Act 1972 was a red-letter day for India. This Act abolished product patents and allowed process patents for seven years only. In 1971, MNCs had an over 70 per cent share of the Indian pharmaceutical industry. But in 2007, in a reversal of roles, Indian companies commanded 83 per cent, thanks to the 1972 Act. The Patents Amendment Act 2005, made the 1972 Act more stringent. According to the 2005 amendment, an invention in order to be patentable, should: ? involve an inventive step capable of industrial application ? nvolve technical advances as compared to the existing knowledge or having economic significance or both; and ? not be obvious to a person skilled in art. This section prevents frivolous inventions from being patented. 7 FUTURE OF INDIAN PHARMACEUTICAL INDUSTRY: Looking at the growth curve of Indian pharmaceutical industry and the Indian economy as a whole, the future looks very bright for pharma sector. India is fast becoming a lucrative hub for R&D. Clinical trials in India cost US$ 25 million each, whereas in US they cost between US$ 300-350 million each.
Indian pharmaceutical companies are spending 30-50% less on custom synthesis services as compared to its global costs, which brings down the final cost of medicine making it more accessible. In India investigational new drug stage costs around US$ 10-15 million, which is almost 1/10th of its cost in US (US$ 100-150million). However there are some issues and challenges that the industry and government should take care of. Indian pharmaceutical companies are fast falling prey to merger and acquisitions by international big players (e. g. Ranbaxy), steps should be taken to prevent that. Attrition rate in the industry is high mainly because of low pay, and students prefer mainstream engineering and medicine over pharmacy or bio-tech. So, companies should make the industry attractive and retain skilled workforce. CONCLUSION: India is a very small player in world pharmaceutical market, but as mentioned above the ground is set for a rapid growth in the sector. Cheap skilled workforce, attractiveness towards industry and a steady demand in the market will help India take a respectable position in the global pharma market.
International pharmaceutical companies are fast being attracted towards India for R&D and clinical trials, because of presence of proper infrastructure, technology and most importantly highly skilled workforce needed for the job. Government should act rigidly in terms of proper pricing and licensing policies for the growth of the industry and patent laws to protect them. There are immense opportunities for pharmaceutical players both at the domestic as well as the global level, but along with opportunities are challenges which need to be overcome in order to achieve sustainable growth in the future. ? 8
