final pharma report_2010
TRANSCRIPT
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Indian Pharmaceutical Industry
ReportSubmitted on: September 04, 2010
Submitted By:
PGP/14/270 Chhavi Anand
PGP/14/277 Kritika Gupta
PGP/14/286 Pooja Gandhi
PGP/14/289 Preetha Subramanian
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Indian Pharmaceutical Industry
ContentsEXECUTIVE SUMMARY......................................................................................................... 3
GLOBAL SCENARIO OF PHARMACEUTICAL INDUSTRY.......................................................... 4
HIGH SALES GROWTH ...................................................................................................... 4
STRONG EMPHASIS ON R&D............................................................................................. 5
GEOGRAPHICAL PERFORMANCE OF THE GLOBAL PHARMACEUTICAL INDUSTRY............... 5
INDIAN SCENARIO................................................................................................................ 7
CHANGING DISEASE PATTERNS........................................................................................ 8
INSURANCE SECTOR ......................................................................................................... 8
EMERGING MARKETS......................................................................................................... 10
KEY SEGMENTS OF INDIAN PHARMACEUTICAL INDUSTRY .................................................. 11
GENERIC DRUGS: ........................................................................................................... 11
CRAMS ......................................................................................................................... 11
VACCINES ...................................................................................................................... 12
API MARKET .................................................................................................................. 12
THE OTC MARKET ......................................................................................................... 13
BIOSIMILARS .................................................................................................................. 14
REGULATORY LAWS AND POLICIES AFFECTING THE PHARMACEUTICAL INDUSTRY............ 16
REGULATORY FRAMEWORK OF INDIA ................................................................................ 17
OVERVIEW ..................................................................................................................... 17
THE DRUGS PRICE CONTROL ORDER (DPCO),1995 ...................................................... 17
PRICING REGULATIONS .................................................................................................. 17
POST-2005PERIOD......................................................................................................... 18
TARIFF STRUCTURE........................................................................................................ 18
SALES TAX ..................................................................................................................... 18OTHER POLICIES AFFECTING PHARMACEUTICAL SECTOR ............................................... 18
DRUG REGULATORY ENVIRONMENT IN INDIA IN TRANSITION ......................................... 19
EXISTING DRUG REGULATORY SYSTEM....................................................................... 19
PROPOSED NEW SYSTEM ............................................................................................. 19
CDAINDIAS NEW DRUG REGULATOR ......................................................................... 20
KEY PLAYERS IN THE INDIAN PHARMACEUTICAL INDUSTRY ............................................. 21
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KEY TRENDS...................................................................................................................... 25
CHANGING GROWTH FUNDAMENTALS OF DOMESTIC MARKET ........................................ 25
EXPANSION OF PRIVATE SECTOR HEALTHCARE DRIVING ACCESSIBILITY .................... 25
INCREASING PENETRATION OF MEDICAL INSURANCE .................................................. 26
RISING DISPOSABLE INCOME TO DRIVE DRUG CONSUMPTION.......................................... 26
FOCUS OF INDIAN COMPANIES SHIFTING FROM THE US .................................................. 26INCREASING QUEST FOR NEW CHEMICAL ENTITIES (NCE) ............................................ 26
BIG PHARMA COMPANIES JOIN OUTSOURCING QUEUE ..................................................... 27
INNOVATORS- JOINING HANDS WITH GENERIC COMPANIES ............................................. 27
KEY CONCERNS ................................................................................................................. 29
PRICING PRESSUREINTERRUPTING THE GROWTH OF KEY ECONOMIES.......................... 29
SWOTANALYSIS .............................................................................................................. 30
PORTERS FIVE FORCE ANALYSIS ....................................................................................... 31
REFERENCES ...................................................................................................................... 32
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Executive Summary
There has been a quantum leap in the global pharmaceutical sector in the last ten years. A similar trend
has been observed in the Indian pharmaceutical sector as well. The Indian pharmaceutical industry is
the 3rd largest in the world in terms of volume and 14th in terms of value. An especially important
indicator of its growth is that the industry is expected to double in the next two years. The mountingageing population, increase in income and a significant demographic shift are expected to be the
driving factors for the growth of this sector in the coming decade and making its presence felt
globally.
The Indian generic players are making their presence felt across regulated and semi regulated market
through merger & acquisition, alliances and agreement with big pharmaceutical MNCs. Shift from
process patenting to product patenting regime offers huge opportunity for the pharmaceutical MNCs as
it will not only position India as an important market to launch their block buster drugs, but also as a
strategic destination for conducting clinical trials. The alliance and partnerships model will help Indian
companies to foray into new markets and geographies as it would help them to capitalize on the on thelatter companys knowledge as well as understanding of the local market and technical know-how.
The increasing cost dried up research pipelines and increasing pricing pressures have led the
companies to outsource the R&D activities. The increasing outsourcing in the pharmaceutical industry
has led the Indian players focus on outsourcing opportunities from their international counterparts.
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Global Scenario of Pharmaceutical Industry
With a Compound Annual Growth Rate (CAGR) growing at almost 8% per year, the pharmaceutical
industry is one of the fastest growing industries in the global marketplace. If the CAGR continues to
grow at this pace, the global pharmaceutical market is expected to reach upwards to 1045 Billion in
2012. The growth is credited to previously untapped markets, the Asia Pacific market like India andChina, as being one of the most lucrative pharmaceutical markets of the future, as also the recent
growth in Latin American markets, such as Mexico and Brazil, as being key players in the
pharmaceutical industry, over the next 20 years. Many pharmaceutical consulting firms are suggesting
many other global trends that are factoring into this large boost in the pharmaceutical industry. Some
of these factors include growing market size, favorable government policies, expanding health
coverage, and new developments in drug developing technology, just to name a few
However, many life sciences consulting firms are pointing out, that as patents held to key drugs begin
to expire in the next ten years, it could hurt the growth of the North American pharmaceutical market.
Coupled with the growing prevalence of generic drugs all over the world, as well as dwindling drug
pipelines, and the development of less blockbuster drugs and less and less economic cooperation, these
factors may challenge the growth of the global marketplace in times to come.
The majority of the largest pharmaceutical companies are not diversified. They are either concentrated
exclusively on pharmaceutical products (Eli Lilly and AstraZeneca are good examples with virtually
100% of their revenues coming from sales of pharmaceutical products) or, although they develop and
manufacture other health care products, they still have pharmaceutical divisions as the core of their
business that provide more than 50% of their revenues. Other products manufactured by these
companies usually include medical devices, nutritional products, consumer healthcare products and
products for animal health.
Only two out of these 15 major pharmaceutical companies, Johnson & Johnson and Bayer have
revenues from sales of pharmaceutical products that are lower than 50% of their total sales.
Geographical headquarters of major pharmaceutical companies are approximately evenly distributed
between the U.S. and Western Europe with only one Asian company in the list.
High Sales Growth
According to IMS Health as restated in the 2004 AstraZeneca Annual Report, the United States, the
European Union and Japan comprise the three major pharmaceutical markets which together represent
88% of world sales; and the U.S. market alone accounts for about 47% of world sales. Not
surprisingly, all Big Pharma companies to a significant extent concentrate their resources on these
markets, especially on the U.S. market.At the same time, although the share of world pharmaceutical sales in developing countries at this
point of time is much lower, they show much faster growth rate than developed countries do. For
example, the China, 9th largest world market, showed a 26% sales increase in 2004, followed by
Thailand (16% growth) and Egypt (15%). Some Latin American countries, such as Mexico, Brazil,
Argentina and Venezuela also show much faster sales growth rate than average worldwide. Therefore,
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developing countries contain a significant potential for further expansion of pharmaceutical industry in
the future.
The pharmaceutical industry showed high sales growth rates in the recent past, and a number of factors
suggest that this trend will continue in the future.
Increased life expectancy:Advancements in science and technology, including those in the health care industry, life
expectancy in the developed countries has been steadily growing. As a result, growing
proportion of elderly people promises further growth of demand for healthcare products.
Access to healthcare:Moreover, according to various studies, a significant portion of elderly population does not
receive proper treatment. For example, even in the U.S., only about one third of the population
who requires medical therapy for high cholesterol is actually receiving adequate treatment. As
it is expected, the Medicare Prescription Drug Improvement and Modernization Act startingfrom the beginning of 2006 will increase access of senior citizens to the prescription drug
coverage, thus increasing pharmaceutical sales.
Growing EconomiesAlthough developing countries at the moment have a small portion of world pharmaceutical
sales, these countries also have a significant potential for the pharmaceutical industry in the
future. Fast growing economies in Asia, South America and Central & Eastern Europe suggest
an increasing solvency of population and make these markets more and more attractive for
Big Pharma companies. Further reforms of legislation systems in the countries of theseregions, especially regarding patent protection issues, will inevitably result in growing
pharmaceutical sales.
Strong emphasis on R&D
One of the distinctive characteristics of the Big Pharma companies is a very high level of
investments in research and development. On average, it takes about 10-15 years, and millions of
dollars to develop a new medicine. According to industry statistics, only about one in ten thousand
chemical compounds discovered by pharmaceutical industry researchers proves to be both medically
effective and safe enough to become an approved medicine, and about half of all new medicines fail in
the late stages of clinical trials. Not surprisingly, according to Research and Development in Industry:
2001 report of the National Science Foundation, in 2001 the pharmaceutical industry had one of the
highest R&D expenditures as percentage of net sales.
Geographical performance of the global Pharmaceutical Industry
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USA: The largest generic market and the most sought after target for Indian companies involved in the
generic business, is the US. As more companies gained the expertise to file for FDA approval, the
number of ANDAs approved increased dramatically. In 2005, the number increased to 52 and
subsequently increased year-on-year, to reach 132 in 2008. In 2009, the total number of ANDA
approvals was 125. In the first quarter of 2010, a further 20 were approved.
UK: Over 80% of prescriptions in the mature UK market are written generically. The UK has always
been a focus for Indian companies with 9 companies running 11 manufacturing sites. Between January
2009 and January 2010, Indian companies had more than 260 marketing authorisations approved by
the UKs Medicines and Healthcare Regulatory Agency (MHRA) for a wide range of products. During
this period, Ranbaxy received 55 approvals; Dr. Reddys received 54; Aurobindo received 39; and,
Lupin received 25.
Europe: Beyond the UK and Germany, significant European markets have been slow to adopt a
vigorous generics drugs policy. However, pressure on governments to cut costs in the face of
burgeoning drugs bills and economic recession, are seeing countries such as France, Italy and Spainexploring the increased use of generics. A number of Indian companies are either monitoring them
from the sidelines or have already identified growth potential; Ranbaxy, for example is established in
France, Germany, Italy and Spain.
Source: ICRA Report, February 2010
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Indian Scenario
The Indian pharmaceutical industry is the 3rd largest in the world in terms of volume and 14th in terms
of value. More significant is the fact that it is expected to grow by over 100% in next two yearsaccording to an IBEF report to become a USD 20 billion market by 2015.
The current industry CAGR is pegged at 13% driven by increasing expenditure of healthcare;
changing disease profile; rising disposable income levels and growing penetration of health insurance
besides regulatory reforms. New product introductions contribute to around 6-8% of the total growth,
with the rest being contributed by a combination of volume and price increase. Tier II cities (with
population less than 1 lakh) and rural areas currently account for 40% of the market, and are expected
to grow much faster than the rest of the country.
The organized sector consists of 250-300 companies, the top 10 companies of which control about
30% of the market and the rest control 70% of the market.However, the total sector is estimated atnearly 20,000 businesses, some of which are extremely small. There are over 20,000 pharmaceutical
firms, 60,000 distributors and 700,000 to 800,000 retailers involved. Approximately 75 percent of
India's demand for medicines is met by local manufacturing. However, the leading players continue to
retain their market share owing to their strong distribution reach, strong field force and new product
launches. While the domestic branded formulations business continues to offer high gross margin,
many of the innovator companies are now aggressively targeting this segment, which is likely to
increase the competitive pressures.
The profitability indicators of leading formulations companies have remained fairly stable over the
past six quarters except for marginal fluctuation during October-March 2009, which was largely on
account of spike in input material prices and foreign currency fluctuations during the same period. Inspite of competition, profitability in the domestic branded business remains healthy supported by new
product launches; investments on branding; increasing presence in chronic segments and above all an
efficient operating cost structure.
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Changing Disease Patterns
Its also likely that India will require different types of drugs in the future. Like almost every other
emerging economy, India is experiencing epidemiological changes. Amongst therapeutic areas,
chronic segments such as anti-diabetics, CVS, CNS and oncology have been growing at fairly strong
rates owing to changing lifestyle patterns and have been the key drivers of growth. Thanks to greateraffluence and better hygiene, the population is ageing; by 2028, an estimated 199 million Indians will
be 60 or older, up from about 91 million in 2008. Besides that, it has the largest pool of diabetic
patients, for example, with more than 41 million people suffering from the disease. The pattern of
demand for medicines is shifting accordingly. In 2001, anti-infective and gastrointestinal drugs and
vitamins accounted for 50% of the domestic market. By 2012, they are expected to account for just
36%. Conversely, drugs for cardio-vascular problems, disorders of the central nervous system and
other chronic diseases will account for 64% of total sales, up from 50% in 2001.
Insurance Sector
India currently spends 4.5 to 5.0 percent of its GDP on health care, but public spending accounts for
just 0.9 percent, putting the nation among the 20 lowest-spending countries worldwide. The balance
of spending is also iniquitous; while the poorest 20 percent of the population has double the mortality
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rates, malnutrition and fertility of the richest quintile, the latter group receives about three rupees for
every one rupee spent on the former. Two-thirds of what the government spends on health care goes to
secondary and tertiary care rather than basic services. Ninety-four percent of all private health
spending is out of pocket, mostly at the time of the incident, and more than 40 percent of hospitalized
people borrow money or sell assets in order to cover their expenses. The remaining 6 percent ofspending is provided by insurance -3.7 percent social, 1.6 percent employer-sponsored and 0.7 percent
private insurance. Just 15 percent of the population has some form of insurance; an estimated
800,000,000 people in India have none. The health insurance market was opened up to the private
sector in 2000 and, since then, growth has been fast. A 40 percent compound annual growth rate
(CAGR) is forecast for the health insurance sector over the coming years, making it a significant
driver of the domestic pharmaceutical industry.
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Emerging Markets
Brazil: Brazil is perhaps the most notable emerging generic market in recent years. According to the
Brazilian generic industry association, Pr-Genricos, prices of generic medicines have to be at least35% cheaper than prices of original medicines but, in practice, they are up to 50% cheaper. In 2009,
generic medicines represented 19.4% of the pharmacy sector by volume, increasing 19.0% over the
previous year to 330.0 million units. In value terms, pharmacy sales of generic medicines increased by
24.0% to R$4.5 billion (US$2.2 billion). Indian companies have been present in the Brazilian market
for several years. In 2008, Indian pharmaceutical exports to Brazil were valued at around US$166
million per year and made up a significant part of all trade between India and Latin America.
Australia: Due to low prices of branded products, Australia is not yet a major market for generics. A
number of leading drugs are due to lose patent protection, but price competition tends to be muted for
off-patent drugs. The government is, however, currently looking at ways to boost generic consumption
in an effort to rein in the overall drugs bill. The market is beginning to attract Indian companies, a
number of which have gained approval from the Therapeutic Goods Administration for their
manufacturing facilities and a range of products.
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Key segments of Indian pharmaceutical industry
Generic Drugs:
The Indian pharmaceutical industry is a leading producer of high quality, low cost generic drugs. India
now produces more than 20% of the worlds generics and has a significant market share in the US$80
billion world Generic market and is expected to increase it to 50% by 2010. After the recession,
demand for generic drugs has significantly soared due to the low cost factor. The generic drugs market
in India is projected to grow at a CAGR of around 16.3% during FY 2011-FY 2013.
India is conveniently placed, with the advantage of cost competitiveness, ability and experience in
reverse engineering, availability of skilled scientific and engineering personnel and the capability to
produce raw materials for a wide range of drugs from the basic stage. Moreover, around US$70 billion
worth of drugs are expected to go off patent in the US over the next three years, and India is well-
positioned to take a substantial share of the resulting new generics markets.India tops the world in exporting generic medicines worth US$ 11 billion and currently the Indian
pharmaceutical industry is one of the worlds largest and most developed. The European and African
countries have been added as new destinations for exports. The US and East Asian countries will
remain a vital importing destinations for Indian generic products. In future, the exports are expected to
pick up pace as healthcare reform in the US and other countries will inflate demand for generic drugs.
Indias generic houses are now entering into strategic alliances with global pharmaceutical companies
to strengthen their generic portfolio and jointly market these drugs globally. Mr. Anand Sharma,
Union Minister of Commerce and Industry and Lim Hng Kiang, Minister for Trade and Industry,
Singapore, have signed a 'Special Scheme for Registration of Generic Medicinal Products from India'
in May 2010, which seeks to fast-track the registration process for Indian generic medicines in
Singapore.
CRAMs
India is a major destination for contract research and manufacturing services, owing to its low costs,
(as drug development and manufacturing can be done in India at 40% of the expenses in the US and
Europe) skilled manpower and manufacturing capability, with a number of USFDA-approved plants
operating in the country. API manufacturing, clinical research and basic research are the major
facilities currently offered by domestic service providers. The pharmaceutical outsourcing in India is
expected to grow to around US$7 billion by 2013, as global firms seek to leverage advantages relatedto cost and quality the country possess. The MNC pharmaceutical and biotech companies spend
significant portion of their R&D budgets on the outsourcing services offered by CRO (Contract
Research Organization) industry, which was approximately $ 15 billion in 2007 and is expected to
grow at 15% over the next few years to touch US$20 billion by 2010.
Crams is the fast growing segment in Indian pharmaceutical sector. During 2004-08 the segment has
grown at a remarkable rate of 39%. The growth in this sector is mainly due to the acquisitions and
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global outsourcing. Indian Crams segment is divided into contract research and contract
manufacturing. Globally, the outsourcing trends are expected to grow further with the contract
manufacturing market size at US$ 45 billion (US$ 29 billion from Dosage Forms and US$ 16 billion
from APIs) whereas the
Contract research market size is estimated to be at ~ US$ 38 billion (US$ 11 billion from Drug
Discovery and US$ 27 billion from Clinical Research).
Vaccines
Vaccines are another prominent area of growth. India is one of the largest vaccine producers in the
world, with many new vaccines set to be launched in the next five years. The vaccines segment was
around US$780 million in March 2008, growing at a compounded annual growth rate (CAGR) of
15%. India currently exports vaccines to about 150 countries. It also meets around 40-70% of the
World Health Organization (WHO) demand for the DPT and the BCG vaccine and almost 90% of its
demand for the measles vaccine. The Serum Institute of India is a leading player which produces and
supplies low-cost, lifesaving vaccines for children and adults.
API mark et
India plays an important part in the global API market as it ranks fourth in the world in terms of API
output. The API output value of India was $4.1 billion in 2007 and the sector is set to grow at a CAGR
of 24.07 per cent from 2008 to 2020. The API industry in India meets around 70 per cent of the
country's demand for bulk drugs, drug intermediates & chemicals and is registering a growth of around
18-19 per cent annually.
India currently has about 3,000 API factories and 5,000 reagent factories. The key API producers
include Ranbaxy, Dr Reddys, Cipla, Cadila Healthcare and Matrix. These companies produce more
than 400 types of APIs and around 10,000 types of reagents, satisfying over 90 percent of Indian
domestic demand. Pharmaceutical companies such as Dr Reddys, Wockhardt and Sun
Pharmaceuticals are also producing APIs. The API export of India will enjoy a rapid growth in the
coming years and will increase to $12.75 billion in 2012 from $3.75 billion in 2007.
Other Services (5%)
Contract research
(29%)
Contract
Manufacturing(66%)
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Several factors make India an attractive alternative for sourcing active ingredients. The low-cost
innovations and manufacturing coupled with skilled manpower and cutting-edge R&D has helped in
the growth of Indian API market. Moreover Indian firms are able to tackle complex synthesis in
relatively shorter periods with cost-efficiency. The factors that favor Indias pharmaceutical industry
in general include stability of supply, high quality of products and firm governmental policies.
The size of the pharmaceutical chemicals industry is estimated to be around Rs 35000 crore, of the
total Rs 78,000 crore Indian pharmaceutical industry turnover. Out of the total API business, around
Rs 18000 crore comes from exports.
Even though the API units are doing well, they are looking for assistance from the government in
terms of environmental protection norms. The manufacturing of intermediates requires large-scale
chemical activities which goes against the current environment norms. At present India relies on China
for almost 60 to 70 per cent of its intermediate needs despite the competition between the two
countries in API sector. India and China have to work closely for mutual benefits through partnershipsand collaborative approaches.
The OTC market
The global OTC market over the past eight years has grown rapidly and is expected to continue.
Globally, the Indian pharmaceutical industry ranks third in terms of volume and 14th in terms of
value. Currently, India ranks 11th in terms of the OTC market size globally. In 2009, the Indian OTC
market was estimated to be worth $1.8 billion with an annual growth rate of 18%.
Some pharmaceutical players with prominent OTC franchises include Johnson & Johnson and
GlaxoSmithKline, Pfizer and Merck & Co.
OTC or non-prescription medicines in India continue to grow faster than the global average of
approximately 5% despite being perceived as less effective than prescription drugs. This sustainable
growth is driven by strong socio-economic drivers, primary drivers being the historically low per
capita spend on OTC, the widespread prevalence of untreated common ailments, greater penetration of
OTC drugs in rural areas, increasing medical costs, rising consumer confidence in the ability of OTC
drugs to control common ailments and increased advertising by manufacturers. Indian consumers are
also placing more emphasis on prevention and wellness, which should contribute to continued
increases in sales of OTC vitamins and minerals. Profitable OTC drugs for some of Indias largestpharmaceutical companies include artificial sweeteners, emergency contraceptive pills and nutritional
supplements. The popularity of Ayurvedic therapies should also contribute to the sales of related OTC
formulations. Some of the leading OTC brands in India are registered as Ayurvedic Medicines
because of their plant-based natural active ingredients and there being no price controls on Ayurvedic
Medicines.
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Currently about half of OTC sales come from chemists, while grocery stores and general stores
account for over a third of the sales. Pharmaceutical companies are also targeting post offices to sell
OTC drugs in rural India. This move could substantially increase the access of OTC drugs, especially
in areas where there are no pharmacies.
OTC proprietary drugs are regulated by the Drugs and Cosmetics Act and the Drugs and Cosmetics
Rules. Only a few OTC active ingredients, e.g. acetylsalicylic acid and ephedrine and its salts, fall
under the current DPCO price control. Counterfeits of popular OTC drugs are however a major issue.
Indias regulatory framework permits advertising for OTC products, and consumers can buy them
without a doctors prescription.
Some global pharmaceutical companies are already launching OTC products in India or buying OTC
products. Novartis India launched Calcium Sandoz as an OTC supplement in 2000 and has now come
out with Otrivin nasal drops in a spray form. Pfizer has launched Listerine, Benadryl, Caladryl and
Benylin in India, which were later sold to Johnson and Johnson. In the future, India may also serve as
a manufacturing location for OTC products destined for other markets.
Biosimilars
The global pharmaceutical market is seeing rapid increase in penetration of biologic drugs. These
drugs accounted for more than 10% of the global pharmaceutical markets revenues in 2007, up from
almost nil a decade ago. The global biosimilars market is expected to be worth $19.4 billion by 2014,
growing at a CAGR of 89.1% from 2009 to 2014. The early commercialization and high absorption
rate of biosimilars products has made Asia the dominant market in 2008 occupying 34.1% share of the
global biosimilars product market.
In a short term, biosimilar market growth will be driven by drug classes including erythropoietin,filgrastim, human growth hormone (HGH) and insulin. Gradual expiry of patents will create
significant market opportunities for developers through to 2016. Between 2012-19, the market will see
a patent expiry of a whopping $60 billion of biotech drugs.
In India biosimilars spell big opportunities especially for companies like Dr Reddys Labs, Ranbaxy,
Biocon, Shantha Biotech and Intas Biopharmaceuticals, who are actively involved in the space. The
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Indian biosimilars market in 2008 was about $200 million, with an expectation to reach about $580
million by 2012.
The interest in biosimilars has been spurred on by multiple factors. Firstly, under the Trade Related
Intellectual Property Rights (TRIPS) agreement, pre-1995 product patents were exempted thus
granting some biologicals, the rights to continue manufacturing.
Secondly, biotechnology drugs (besides insulin) are free from the governments price control act,
allowing independence in price setting. Also there seem to be signs of acceptance of locally
manufactured biosimilars among healthcare professionals within the country.
The upcoming oncology market is one of the prime targeted areas for many companies. The current
size of the Indian oncology market is about $18.60 million, which is expected to be over about $50
million by the end of 2010.
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Regulatory Laws and policies affecting the Pharmaceutical industry
Regulatory Control of Pharmaceutical sector
Source: Adapted from Dun & Bradstreet (D&B) 2007
Major Pharmaceutical policiesDrug Policy 1986
Pharmaceutical Policy 2002National Pharmaceuticals policy
Quality
Control
IPR
Control
PriceControl
On prices On margin
Bulk Drugs Formulations
GMP Issues
GoverningPolicies
Amended
Patent Issues
Patent Act, 1970Product Patent,
2005
EssentialCommodities
Act,1955
Drugs andCosmetics Act, 1940
Schedule M
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Regulatory Framework of India
Overview
Over three decades ago, Indian government introduced price controls with the objective ofmaking medicines affordable.
India is a signatory to GATT and is committed to the implementation of TRIPS. The country introduced product patents from 2005 onwards. Introduction of product patents without relaxing price controls will hurt the
competitiveness of the Indian companies in the long term.
FDI limit through automatic route has been raised from 51 per cent to 74 per cent in March2000 and further to 100 per cent in May 2001.
A foreign pharmaceutical player can enter Indian market through following ways:
Importing Drugs In To India Imports constitute only 5 per cent of the total market. Foreign companies cannot promote subsidiaries for marketing their products in India. Entry through joint venture/subsidiary Foreign company is allowed to invest up to 100 per cent in any new or existing
pharmaceuticals company in India under automatic approval route. In such cases, RBI
needs to be informed only after the capital has been remitted into India.
The Drugs Price Control Order (DPCO), 1995 The order lists price controlled drugs, procedures for determining drug prices, method of
implementing prices fixed by Government and penalties for contravening provisions
among other things.
Now only 74 out of 500 commonly used bulk drugs are under statutory price control. Prices excluding local taxes of scheduled bulk drugs are fixed to provide a post tax return
of 14 per cent on net worth or a 22 percent return on capital employed.
Pricing Regulations
Price Approval is given by NPPA (National Pharmaceutical Pricing Authority).
NPPA fixes the ceiling price of scheduled drugs. Manufacturer must file a price list of all the prices fixed with the State Drug Controllers, dealers and Government along with NPPA official price notification reference. Packages of formulations (the outer container) must bear the retail price (whether fixed by
NPPA or not).
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Post-2005 Period
In 2005, India amended its patent laws to comply with the World Trade Organizations(WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights(TRIPS), an
international treaty mandating minimum standards for trade and intellectual property
protection. These amendments allowed, for the first time, patent protection in India for
pharmaceutical products. The earlier law provided patent protection only for the process ofmaking the drug, not for the drug itself.
January 1, 2000, companies were granted Exclusive Marketing Rights (EMRs) for theirproducts that have been patented in any other WTO signatory country.
Patents of outside companies will be protected through EMR in India. EMR will not begiven for items based on Indian system of medicine (Ayurvedic or Unani) or if the items
are already in the public domain.
Indian residents are permitted to apply for patent abroad without permission of theController.
Tariff Structure
Life-saving drugs are allowed at zero tariffs. Bulk drug, intermediaries and formulation imports attract a basic customs duty of per cent To encourage research, the excise duty on drugs and materials for clinical trials has been
exempt from excise duty, which had hitherto been levied at 16 per cent.
Basic customs tariff rate now ranges from 0 to 40 per cent plus additional duty of 2 percent.
Sales Tax
The rate of sales tax is same for both Indian and imported items. Sales and local taxes vary from 4 to 10 per cent of the price depending on item and location
Other Policies affecting Pharmaceutical sector
For licensable drugs and pharmaceuticals manufactured by recombinant DNA technologyand specific cell/tissue targeted formulations, FDI needs prior government approvals
The industry is undergoing consolidation due to recent legislation and policy updates: Manufacturing unit should adhere to good manufacturing practices (GMP) outlined in
Schedule M of the Drugs and Cosmetics Act Manufacturing units are required to comply with the WHO and international standards of
production
Source: India Pharmaceuticals and Healthcare Report Q2 2008, Business Monitor International
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Drug regulatory environment in India in transition
Existing drug regulatory system
India has a bifurcated drug regulatory system. Regulatory functions are divided between the Centre and state authorities Existing infrastructure at the Centre and the state is inadequate to perform the assigned
functions of drug administration with efficiency and speed.
Proposed new system
The Central Cabinet approved the formation of the Central Drug Authority (CDA) inJanuary 2007
Proposed organizational structure of the CDA would be analogous to the US FDA It would be a strong, well equipped, empowered, independent and professionally managed
body
It is expected to facilitate up-gradation of the national drugs regulator, uniformity oflicensing, and enforcement and improvement in drug regulations
Efficiency and efficacy of drug administration is expected to be much after this transition
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CDA Indias new drug regulator
Existing Proposed
Central Government
State Government
Drug Controller General ofIndia (expert committees)
Responsibilities:
Broad policy issues
State Drug Authorities(State drug controllers and foodand drug inspectors)
Responsibilities:
Licensing andmonitoringmanufacturing
Legal cell Spurious Drug
monitoring
Pharmacies
Central Drug Administration
Three joint drug controllers Two deputy drug controllers Six Assistant drug controllers 50 drug inspectors 5 technical experts 1 administrative officer 1 accounts officer
Responsibilities:
Regulatory affairs andenvironment New drugs and clinical trials Biological and
biotechnological products
Medical devices anddiagnostics
Imports Organizational services Training and empowerment Quality control affairs Legal and consumer affairs
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Key Players in the Indian Pharmaceutical Industry
Competition is mainly from the domestic manufacturers and imports from China because of the low
manufacturing cost. With the new patent regulations the industry expects to see a major structural shift
with the entry of foreign pharmaceutical manufacturers. There are five government-owned companies
the Indian public sector. These companies are the Indian Drugs and Pharmaceuticals, HindustanAntibiotics Limited, Bengal Chemicals and Pharmaceuticals Limited, Bengal Immunity Limited and
Smith Stanistreet Pharmaceuticals Limited. Some of the major Indian private companies are Alembic
Chemicals, Aurobindo Pharma, Biocon, Cadila Healthcare, Cipla, Dr. Reddys, IPCA Laboratories,
Jagsonpal Pharma, J.B. Chemicals, Kopran, Lupin Labs, Lyka Labs, Piramal Healthcare, Matrix
Laboratories, Orchid Chemical and Pharmaceuticals, Sun Pharmaceuticals, Ranbaxy Laboratories,
Torrent Pharma, TTK Healthcare, Unichem Labs, and Wockhardt. The foreign companies in India
include Abott India, Astra Zeneca India, Aventis Pharma India, Burrough-Wellcome,
GlaxosmithKline, Merck India, Novartis, Pfizer Limited, and Wyeth Ledele India.
Comprehensive analysis of some of these companies is tabulated below.
Company Name Ranbaxy
Company Profile Ranbaxy is among the top 100 pharmaceuticals in the world
and that it is the 15th fastest growing company. It is
consolidating its position to become the top 5 generics
producer in the World, with the purchase of French firm RGP
Aventis in 2003. It keeps a dedicated research facility staffed
with over 1100 scientists. They currently have two molecules
in Phase II trials and 3-5 in pre-clinical testing.
The Company is aggressively pursuing its internationalizationstrategy it has also gained market leadership in India,
leveraging its strong brand building skills.
Sales revenue/ Turnover Companys Global Sales were at USD 1,340 Million. Overseas
markets accounted for around 80% of global sales. The
Companys largest market, USA with the sales of USD 380
Million, while Europe and BRICS (Brazil, Russia, India,
China, South Africa) countries contributed USD 194 Million
and USD 477 Million to global sales
Future prospects By 2012, Ranbaxy hopes to be one of the top 5
generics producers in the world. The Company will
focus on increasing its momentum in the generics
business in its key markets of US, Europe, BRICS
and Japan through organic and inorganic routes.
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Company Name Dr. Reddys
Company Profile The company was Founded in 1984 with USD
160,000
Sales Revenue/Turnover Dr. Reddys is a vertically integrated, global
pharmaceutical company with proven research
capabilities and presence across the pharmaceutical valuechain. They manufacture Active Pharmaceutical Ingredients
(API) and Finished Dosage forms. In addition, the drug
discovery arm of the company conducts basic research in the
areas of diabetes, cardiovascular, inflammation and bacterial
infection. Dr. Reddys was the first Asia-Pacific
pharmaceutical outside of Japan and the sixth Indian company
to be listed on the New York Stock Exchange. 58 per cent of
Dr. Reddys revenues come fromgeneric drugs. Dr. Reddys
has long been a research-oriented firm. It had set up a New
Drug Development Research (NDDR) in 1993 and out-licensed its first compound just four years later. Dr. Reddys
has since out licensed two more molecules and currently has
three others in clinical trials. Revenues for fiscal 2007 were
USD 1.51 billion.
Future Prospects Open to brand acquisitions. Bulk prices havent bottomed out
as yet
Company Name Nicholas Piramal
Company Profile Nicholas Piramal started its existence with the 1988
acquisition of Nicholas Laboratories and grew through a series
of mergers, acquisitions and alliances. The company has
formed a name for itself in the field of custom manufacturing.
It cites its 1700-person global sales force as core strength. It is
well-poised for the challenge of surviving in the aftermath of
product patent protection. The company has respected
intellectual property rights since its inception.
Sales Revenue/Turnover The company grossing USD 350 million per year
Future Prospects Nicholas Piramal is well-poised for the challenge
of surviving in the aftermath of product patent protection. It
decided to make its own intellectual
property and opened a research facility inMumbai with hopes of launching its first drug in
2010 at a cost of USD 100,000.
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Company Name Cipla
Company Profile In 1935, The Chemical, Industrial & Pharmaceutical
Laboratories was set up, which came to be popularly known as
Cipla. It was officially opened on September 22, 1937 when
the first products were ready for the market. Today they have
31 world-class manufacturing facilities spread across thecountry, with dedicated plants for Oncology products,
Hormones, Inhalers, Carbapenems, and Cephlosporins, among
others. They more than meet the stringent international
standards, such as that of US FDA, MHRA-UK, TGA
Australia, Bfarm-Germany MCC-South Africa, WHO, TPD-
Canada. Cipla produces one of the widest range of products
and dosage forms in the world today, everything from
metered-dose inhalers, pre-filled syringes, trans-dermal spray
patches, lyophilized injections, nasal sprays, medical devices,
and thermolabile foams. Whether it is constantly extending ourproduct range or consistently introducing innovations, the
mission is always to make the life of the patient better.
Sales Revenue/ Turnover Revenue in 2004 totaled USD 552 million (using
Rs 43.472 = USD1) about 75 per cent of which
was derived in India.
Future Prospects Cipla started with a vision to build a healthy
India. And along the way realized, that in their
own small way, they could contribute to making the world a
healthier place. They will continue to
bring a smile on as many faces as they can to heal the world as
much as they can.
Company Name Biocon India
Company Profile Biocon India is incorporated as a joint venture between Biocon
Biochemicals Ltd. of Ireland and an Indian entrepreneur, Kiran
Mazumdar-Shaw in 1978. Biocon is Indias premier
biotechnology company. Headquartered in Bangalore Biocon
has evolved from an enzyme company to a fully integrated
biopharmaceutical enterprise, focused on healthcare. Biocon
strategically focuses its activities on its bio-pharma businessverticals that include APIs, biologicals and proprietary
molecules. Biocon Limited and its two subsidiary companies,
Syngene International Limited and Clinigene International
Limited form a fully integrated biotechnology enterprise
specializing in biopharmaceuticals, custom research and
clinical research.
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Sales Revenue/Turnover Total Revenues are Rs 9.9 billion.
Future Prospects Consistent with their long-term growth strategy,
Biocon remains committed to building biotherapeutics
franchise through their own R&D efforts. To further enhance
their IP and technology platforms, they have made an
investment of Rs. 764 million in R&D, which is a 76%
increase over the previous fiscal.
Turnover of some of the major companies has been graphically represented below.
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Sales Turnover
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Key Trends
Changing growth fundamentals of domestic market
Expansion of private sector healthcare driving accessibility
Medical value travel has led to an investment spurt in the private healthcare services in thecountry
There has been accelerated investment from the private sector in healthcare facilities acrosstier-I and tier-II cities in the country
Estimated one million beds would be added by 2012 taking the total beds available in thecountry to over two million**
Estimated US$ 69.7 billion would be invested by private sector in healthcare infrastructureby 2012
Number of patients visiting Indian hospitals is expected to rise by 30 per cent to 22 millionby 2015
** Source: E&Y FICCI Healthcare Report
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Increasing penetration of medical insurance
Penetration of medical insurance would grow at a higher pace due to increasing influx offoreign players
Favorable regulatory changes such as permitting Foreign Direct Investment (FDI) of 51 percent in the stand-alone health insurance companies and setting the minimum capital
requirement at US$ 5.4 million would drive growth in this segment. Indian middle class with its increasing purchasing potential is expected to become a major
buyer segment
Increasing penetration of customized insurance plans would drive the affordability,influencing the consumption of medical and healthcare products
Rising disposable income to drive drug consumption
High purchasing potential of the burgeoningFocus of Indian companies shifting from the US
Pricing pressures and shrinking margins in the generics space and the increasing litigationinstances in the US are compelling Indian companies to consider opportunities beyond US
Indian companies have invested more than US$ 1.2 billion in the European markets
Increasing quest for New Chemical Entities (NCE)
Indian pharmaceutical companies striving to move up the value chain and make place forthemselves in the innovator league
Enhanced level of investment in R&D capabilities and infrastructure by the industry andthe Government
Dr. Reddys Laboratories NCE Balaglitazone is Indias the first indigenously developedmolecule to enter the Phase III trial.
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Growing R&D pipeline of Indian companies presents significant in-licensing opportunitiesfor global companies.
Big pharma companies join outsourcing queue
India emerging as a big global destination for contract manufacturing,unlike R&Doutsourcing. Some of the reasons why India is emerging as an inviting destination foroutsourcing drug production
Over 80 per cent of the 38 big and medium-sized pharma companies across the world ratedIndia higher than China, Eastern Europe, Puerto Rico, Singapore and Ireland.
Offers a significant cost-quality proposition in end-to-end research and development, withpotential savings of over 60 per cent as compared to the US, coupled with a strong supply
of skilled manpower and capital efficiency
Has close to 100 manufacturing facilities approved by the US Food and DrugAdministration (FDA), the largest after the US
Drug production outsourcing industry to grow over 43 per cent annually, thrice the globalgrowth rate
Diminishing numbers of new drugs, as against existing drugs going off-patent, highresearch and development costs, and pressure to reduce healthcare costs are forcing Big
Pharma to rope in strategic partners to contain manufacturing and drug development
expenses
Innovators- joining hands with generic companies
Over the last few years the global pharmaceutical industry has witnessed innovatorcompany entering into alliances with generic companies thus clearly signaling their plans
of venturing in the generic space.
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*Acquisition is yet to complete.A$ means Australia dollar.E- Estimated value.
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Key Concerns
Pricing pressure interrupting the growth of key economies
The main concern for the global generic market is the increased pricing pressure. The lowentry barrier of the segment has led to an increase in the number of players resulting in anincrease in the level of competition.
Generic pharmaceutical companies compete based on their comparatively low cost andtherefore do not mount sizable sales campaigns. Because these companies do not rely on
sales representatives, heavy advertising, and relationships with referral
sources (i.e., physicians), some of the most stringent compliance concerns in thepharmaceutical industry publicized over the past 10 years do not impact the generic
pharmaceutical companies to the same extent as their proprietary competitors.
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SWOT Analysis
Strengths- Low cost manpower in scienceand technology
- Non infringing process of AcivePharmaceutical ingredients (API)
- Increasing liberalization of
government policies- Excellent clinical trial centers
Weakness- Low investment in R & D
- Fragmentation of installedcapacities
- Low share of India in worldpharmaceutical industry
- Non availability of intermediariesfor bulk drugs
Opportunities
- Increasing income levels- Growing health awareness
- With globalization, exportpotential is increasing
- Large number of patent expiry
- New markets opening
Threats
- Strict registration process- Competition from other genericdrug manufacturers
- Non tariff barriers imposed bydeveloped countries
- Counterfeit drug industry
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Porters five force Analysis
Bargaining power of suppliers:
-- Numerous suppliers lead to lowswitching costs
--Volume benefits occur
-- Suppliers can go for forwardintegration
-- Raw material costs consist majorportion of total expenses
Threat of new entrants:
-- High number of domestic andinternational players in the market
-- Economies of scale exist
-- Advent of product patent regimesupportive for entry of pharmaceuticalMNCs
-- High degree of development costinvolved
Bargaining power of buyer
-- End consumers do not have muchbargaining power as practitioners act asgatekeepers
-- Buyers are less price sensitive
-- Highly fragmented market so buyerconcentration v/s industry is low
Threat of Substitutes
-- Biotechnology is a threat to syntheticpharma products
-- Generics are the biggest threats topropreitary drugs
-- Increased popularity of alternativemedicinal techniques poses a threat forthe OTC market
Competitors
-- Highly competitive industries with top 10companies controlling about 30 % of the Indianmarket
-- High fixed and exit costs add to the competition
-- Companies tend to establish facilities in lower laborcost areas, leading to increased competition
-- Major players are large multinationals with hugeworking capital
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References
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Indian Pharmaceutical Industry- Worlds Destination !!, report by KRChoksey, 2009 Global Pharma looks to India: Prospects for growth, report by PWC 2010 Pharmaceuticals: The next big opportunity (biosimilars), report by IIFL 2010 India Pharma 2015-A Mckinsey Report http://www.kpmg.fi/Binary.aspx?Section=174&Item=2888 http://www.icra.in/files/PDF/SpecialComments/2010-February-%20Pharma.pdf http://www.ibef.org/industry/pharmaceuticals.aspx http://www.duke.edu/web/soc142/team2/segments.html http://www.smartconsultinggroup.com/blog/articles/emerging-trends-in-the-
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