Interim Report

On

An In Depth Study
of
Pharmaceutical Industry In India

Date of Submission
December 12, 2009

Submitted To: Submitted By:

Prof. Prerna Sharma Mohit Aggarwal
Faculty, IBS-Chandigarh 08BS0001762
Name of the Student: Mohit Aggarwal Id. No.: 08BS0001762 (08PMP02176)
Mobile No: +91-9216001333 E-mail Id: mohitaggarwal007@gmail.com

Project Proposed
An In Depth Analysis of Pharmaceutical Industry in India

Abstract

The Marketing Research Project on ‘ An In Depth Study of Pharmaceutical Industry

in India’ is based on market research of the industry. It comprises collection of
secondary data from internet and references from Library. The Data collected will be
analyzed by the use of various statistical tools available like Descriptive tool,
Correlation analysis etc
The project has provided me a deep insight of the Pharmaceutical Industry in India
and the current market scenario of the industry. This experience has exposed me to
the basic fundamentals driving the pharmaceutical market.

Introduction:

The Indian Pharmaceutical industry has been witnessing phenomenal growth in recent
years, driven by rising consumption levels in the country and strong demand from
export markets.This segment of Industry has shown tremendous progress in terms of
infrastructure development, technology base and wide range of products. The industry
now produces bulk drugs belonging to all major therapeutic groups requiring
complicated manufacturing processes and has also developed excellent GMP (Good
Manufacturing Practices) compliant facilities for the production of different dosage
forms. The strength of the industry is in developing cost effective technologies in the
shortest possible time for drug intermediates and bulk activities without
compromising on quality. This is realized through the country's strengths in organic
chemicals' synthesis and process engineering. India is today recognized as one of the
leading global players in pharmaceuticals. Europe accounts for the highest share of
over 23% of Indian Pharma exports followed by North America and Asia. Exports to
USA have crossed the land mark figure of US $1 billion during 2006-07.
Internationally recognized as amongst the lowest-cost-producers of drugs, India holds
fourth position in terms of volume and thirteenth position in terms of value of
production in pharmaceuticals. It is estimated that by the year 2010, the Indian
pharmaceutical industry has the potential to achieve over Rs.1,00,000 crore
production of formulations and bulk drugs.

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

Objectives of the Project

The objective of the research project is:
• To know about the working of Pharmaceutical Industry in India
• Analysis of trends of sales of pharmaceutical products in India
• To study the Growth of Pharmaceutical Industry in India
• To know about the factors driving sales in the domestic & international
market
• To know about the competitiveness of Indian Pharmaceutical Industry with
other countries of the world
• Analysis of the financials of major players of Indian Pharmaceutical Industry

Methodology
The basic knowledge about the workings of Pharmaceutical Industry has to be
gathered thorough the secondary data available on the internet and the documents
available in the institute library. The quantum of information on this subject matter is
enormous and updated. The secondary sources such as internet and news articles
cover almost all major players. Although the project does not entitle for a primary
research but for the validity and reliability of the research and better perception of the
subject a primary research will be undertaken in few firms.

Data Collection:

Secondary Source: those, which have already been collected by someone

else and which have already been through the statistical process and thus are
available on internet sites and any other media for that matter. The secondary
data was collected from internet and references from Library.

Analytical Tools
The methodology adopted would include an Exploratory research. The Data collected
will be analyzed by the use of various statistical tools available like Descriptive tool,
Correlation analysis etc.

Main Text:

India's pharmaceutical market currently stands ninth in the world market for
pharmaceuticals with a 1.5% share. The market was valued at more than $3 billion
last year (1998. At its annual growth rate of 15% (almost double the world's 6%
annual growth rate), this market is expected to reach $6 billion by 2001 and should
more than double to $13.3 billion in 2006. India's official OTC market currently
stands at over $130 million, and the industry's heart disease sector is expected to grow
from $90 million now to more than $350 million in 2005.

Current demand in the Indian pharmaceutical sector stands at about $4 to $5 billion,

and is forecast to increase at an annual rate of 15 - 20% in the future. Nevertheless,
average per capita expenditure on pharmaceuticals in India is only $3 -- compared to
$412 in Japan, $222 in Germany and $191 in the US. This is due in part to the
prevalence of alternative healing methods in India, such as ayurvedic medicine and
homeopathy, but also because prices for drugs have been kept artificially low by the
Indian government. In fact, India's pharmaceutical industry is one of the most highly
regulated industries in the country. Price controls have a strong effect on profitability
in the industry, and weak patent protection poses a long-term threat to investment in
India's drug market. Foreign firms also find it difficult to operate in India due to
arbitrary Bureau of Industrial Cost and Pricing (BICP) pricing changes, arbitrary local
FDA decisions, high import duties (about 42%) and complex import procedures.
However, while the pharmaceutical sector in India will most likely stay regulated in
the short term, there are plans for reform. The sheer size and growth of India's
domestic pharmaceutical industry is making it increasingly difficult for the
government to regulate prices for every single firm, and pressure from the World
Trade Organization is also speeding up discussions within the national government to
improve patent protection. As a result, foreign pharmaceutical firms can expect
improved market opportunities in India's enormous drug market over next several
years.
The pharmaceutical industry is a very unique and spectacular industry, with an
impressive evolution along the 20th and the beginning of the 21st centuries, as well as
facing a challenging future. The situation in the industry at the global level has
spectacularly changed in the past two decades, leading to new strategies and new
portfolios, especially for the major pharmaceutical companies worldwide. The current
pharmaceutical industry characterizes as a mature and stable industry that is
constantly affected by mergers and acquisitions, as well as by new scientific
discoveries. Therefore, it becomes very essential to understand the global scenario
and the current trends in the pharmaceutical industry for the companies to operate in a
single market and serve the mankind across the globe.

MARKET STRUCTURE OF THE INDIAN PHARMACEUTICAL INDUSTRY

The Indian pharmaceutical industry is highly fragmented -- there are now more than
20,000 domestic manufacturers of end-use pharmaceuticals, particularly because of
the industry's low capital requirement and the lack of product patents. Only about 300
of these are in the organized sector. This structure causes intense competition,
especially in the bulk drug markets, with profitability falling as demand expands.
For value purposes, drugs in India are generally classified into two categories -- bulk
drugs and formulations. Due to India's low overhead costs, bulk drugs comprise the
largest sector in the country's pharmaceutical market. India’s bulk drug sector also
makes up about 6% of the international bulk drug market. Drug intermediates are
used as raw materials for the production of bulk drugs, which are either sold directly
or retained by companies for the production of formulations. Formulations can be
subdivided into generic drugs and branded or "ethical" drugs, the latter of which are
made under process patent and sold under a separate brand name. Expected short-
term growth for the two types of drugs has been 20% for bulk drugs and 15% for
formulations.

The import of finished pharmaceuticals is almost negligible, and confined to very

specific types like anti-cancer drugs. In 1994, the import of drugs, pharmaceuticals
and intermediates was estimated at $450 million, and included the following:
antibiotics, penicillin and its salts, erythromycin and its preparations, vitamins and
provitamins, vaccines (polio, human and veterinary), preparations containing insulin,
caustic and other hormones, and tetracycline and its preparations.

Essential drugs comprised of antibiotics, antibacterial, anti-TB, anti-parasitic, and

cardiovascular constitute a major portion of turnover of the industry. Indian
companies dominate this class of drugs with a market share of 71%. Multinational
companies are reluctant to enter these markets as most of them are under government
price controls.

The Domestic Pharma Industry

The domestic Pharma Industry has recently achieved some historic milestones
through a leadership position and global presence as a world class cost effective
generic drugs' manufacturer of AIDS medicines. Many Indian companies are part of
an agreement where major AIDS drugs based on Lamivudine, Stavudine, Zidovudine,
Nevirapine will be supplied to Mozambique, Rwanda, South Africa and Tanzania
which have about 33% of all people living with AIDS in Africa. Yet another US
Scheme envisages sourcing Anti Retrovirals from some Indian companies whose
products are already US FDA approved.
Many Indian companies maintain highest standards in Purity, Stability and
International Safety, Health and Environmental (SHE) protection in production and
supply of bulk drugs even to some innovator companies. This speaks of the high
quality standards maintained by a large number of Indian Pharma companies as these
bulk actives are used by the buyer companies in manufacture of dosage forms which
are again subjected to stringent assessment by various regulatory authorities in the
importing countries. More of Indian companies are now seeking regulatory approvals
in USA in specialized segments like Anti-infectives, Cardiovasculars, CNS group.
Along with Brazil & PR China, India has carved a niche for itself by being a top
generic Pharma player.
Increasing number of Indian pharmaceutical companies have been getting
international regulatory approvals for their plants from agencies like USFDA (USA),
MHRA (UK), TGA (Australia), MCC (South Africa), Health Canada etc. India has
the largest number of USFDA - approved plants for generic manufacture. Considering
that the pharmaceutical industry involves sophisticated technology and stringent
"Good Manufacturing Practice (GMP) requirements, major share of Indian Pharma
exports going to highly developed western countries bears testimony to not only the
excellent quality of Indian pharmaceuticals but also its price competitiveness. More
than 50% share of exports is by way of dosage forms. Indian companies are now
seeking more Abbreviated New Drug Approvals (ANDAs) in USA in specialized
segments like anti-infective, cardio vascular and central nervous system groups

Exports

According to the Quick Estimates of Directorate General of Commercial Intelligence

and Statistics (DGCIS), Pharmaceuticals exports (valued in US dollar terms)
registered an impressive growth rate at 30.7% terms during April-October,2008
compared to the corresponding period of the last year. This growth further increases
to 38.5% when valued in rupees terms. Exports on account of Pharmaceuticals have
been consistently outstripping the value of corresponding imports during 1996-97 to
2007-08. The trade balance increased from Rs. 2157 crores in 1996-97 to Rs. 13893
crores in 2007-08. Exports of pharmaceuticals registered a growth at the rate of
16.22% during 2007-08. The share of exports of Pharmaceuticals products to the total
national exports have been in excess of 2% during each of last 12 years ending 2007-
08. It has exhibited a long-term upward trend from 2.01% in 1996-97 to 2.55% in
2007-08.

Key Strengths
• Strong manufacturing base
• Cost competitiveness
• Network of laboratories and R&D infrastructure
• Highly trained pool of scientists and professionals
• World-class quality products
• Strong marketing and distribution network
• Strong process development skills
• Potential ground for clinical trials
 • Fast growing health care industry
• Rich biodiversity
• Growing biotechnology industry
• Highest Quality approvals from USFDA, EDQM, MHRA etc.
• Ranks 4th in the world, accounts 8% by volume and 2% by value.
• Very strong in Indian medicine systems of Ayurvedic, Homoepathy, Unani,
Siddha and Herbals medicines
• An excellent center for clinical trials.

Origins and Evolution

The modern pharmaceutical industry is a highly competitive non-assembled global

industry. Its origins can be traced back to the nascent chemical industry of the late
nineteenth century in the Upper Rhine Valley near Basel, Switzerland when dyestuffs
were found to have antiseptic properties. A host of modern pharmaceutical companies
all started out as Rhine-based family dyestuff and chemical companies e.g. Hoffman-
La Roche, Sandoz, Ciba-Geigy (the product of a merger between Ciba and Geigy),
and Novartis etc. Most are still going strong today.

Over time many of these chemical companies moved into the production of
pharmaceuticals and other synthetic chemicals and they gradually evolved into global
players. The introduction and success of penicillin in the early forties and the relative
success of other innovative drugs, institutionalised research and development (R&D)
efforts in the industry. The industry expanded rapidly in the sixties, benefiting from
new discoveries and a lax regulatory environment. During this period healthcare
spending boomed as global economies prospered. The industry witnessed major
developments in the seventies with the introduction of tighter regulatory controls,
especially with the introduction of regulations governing the manufacture of
‘generics’. The new regulations revoked permanent patents and established fixed
periods on patent protection for branded products, a result of which the market for
‘branded generics ‘emerged.

Branded companies are the innovative companies that carry out the Research and
Development (R&D) of new drugs (or contract this process). Initially, their products
are protected by patents. The clinical test data, used for the approval of the drugs, is
usually protected as well. Generic companies produce drugs that they have not
developed themselves. Normally these drugs are not protected by patents anymore.
However, many branded companies have divisions or subsidiaries that produce
generics as well. With regard to the products of these companies, three categories of
drugs are commonly distinguished.
• Prescription drugs. These have to be prescribed or administered by healthcare
professionals.
• Over the counter (OTC) drugs, also called self-medication drugs. These can be
purchased without a prescription.
• Vaccines. These are usually regarded as a separate category next to
pharmaceuticals. In contrast to pharmaceuticals, vaccines are not based on chemical
compounds but on live bacteria and viruses. The production process of vaccines is
therefore quite different and far more complicated.

Current Industry Scenario

The global pharmaceutical industry in the year 2007 was estimated to be around
USD712 billion. According to the Pricewaterhouse Coopers estimates, the value of
Pharmaceutical Industry by the year 2020 would reach to 1.3 trillion. In the year 2005
the global pharmaceutical sales was USD 602 bn, which increase to USD 643 bn in
2006 and registered a modest 6.5% growth in 2007. But due to recent recession and
economic crisis it has seen a little slump for the year 2008. In spite of difficult market
conditions and patent expiry of several blockbuster drugs, the global pharmaceutical
markets expanded to $750 billion in 2008 biotechnology drugs/biologics accounted
for $87 billion and generics for $80 billion of the global market.

The three top therapeutic categories were CNS drugs at $118 billion, cardiovascular
drugs at $ 105 billion and Cancer drugs at $70 billion of sales. In biologics the top
three categories were monoclonal antibodies at $33 billion, Vaccines at $25 billion
and TNF inhibitors at $18 billion sales in 2008. Lipitor still remains the world best
selling drug with projected sales of $13.3 billion as its 12% sales decline in the USA
was offset by higher international revenues and weak dollar. It was followed by
Plavix and Enbrel. It is the first time that a biologic product has taken the 3rd top
selling medicinal brand. Four biologics made the top ten best selling list and seven
biologics made the top twenty lists in 2008. Patent expiry resulted in loss of sales of
last year best sellers like Risperdal, Fosamax, Prevacid, Protonix and Norvasc.
Regulatory action by FDA (black box warning, restricted use and labelling
changes) resulted in loss of sales for Avandia as well as Aranesp and other
erythropoietin brands. Tamiflu loss of sales was due to lack of demand to renew the
stockpile for future avian flu pandemic. Seven brands had sales greater than $ 5
billion and fourteen drugs with sales more than $ 4 billion in the year 2008. Analysis
of blockbuster brands sales and marketing data provides a better evaluation of the
R&D performance of companies concerned.

Current Market Structure

The current global pharmaceutical market is dominated by US as always. It accounts

for about 45% of global sales followed by the EU accounting for roughly 20% and
Japan that accounts for 10% of global pharmaceutical sales. The rest of the world
including India constitutes only 21% of the global market in terms of sales.

Source: IMS Health MIDAS, 2007.

Therefore it is very important for Indian pharma companies to establish their foothold
in these biggest markets. In addition a lot of molecules are going off patent globally
which provides a lot of opportunity for Indian generic manufacturers. In the year
2008, around 20bn USD worth drugs were expected to go off patent. Comparing
these figures with the size of Indian pharma industry, the Indian pharma industry
accounts a miniscule 1.5 to 1.8% of total global pharmaceutical market.

The global pharmaceutical sales have shown a rising trend since 2000. The sales
figure has increased more than twice in the year 2008 as could be seen clearly from
the chart given below.

Chart 3.1: Global pharmaceutical sales till 2008

Source: IMS Health Market Prognosis

Chart 3.2: Growth in Sales over previous year

 Source: IMS Health Market Prognosis

Thus it can be concluded that the global pharma industry is growing at a tremendous
pace but the growth percent over the previous years has been declining. In 2008 the
growth percentage was only 5.5 over 2007 as compared to 2003 when it was 10.3%.
This growth in the pharma sector can be attributed to the various structural and
mainly the technological changes that have been taking place in the industry all this
years.

Major Players in the Market

The pharmaceutical industry is characterized by a high level of concentration of

multinational companies dominating the industry. Table below contains information
about the top 10 pharmaceutical companies across the globe that are sorted in the
order of their 2008 revenues sales of pharmaceutical products in terms of US dollars.

Table 3.1: Sales of top 10 global pharma companies

Sl.No. Company Name Sales(in million $)
01 Johnson & Johnson 63,747
02 Pfizer 48,296
03 Roche 45,617
04 Novartis 44,821
05 AstraZeneca 31,601
06 Sanofi-Aventis 27,568
07 GlaxoSmithKline 24,352
08 Merck 23,850
09 Wyeth 22,834
10 Eli Lilly & Co. 20,378
Source: Wright Investor’s Service

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.
 Chart 3.3: Sales of top 10 global pharma companies

Source: Wright Investor’s Service

From the chart it can be inferred that Johnson & Johnson was the leader in terms of
sales in the global market in 2008 followed by Pfizer and Roche. Whereas w.r.t
market share, Pfizer continues to lead with a market share of 6.2 percent. GSK comes
in second with 5.4 percent, and Roche boasts a third-place with 4.3 percent. That's all
going to change, though, as only two of today's top 10 are expected to post industry-
beating growth: Roche and Novartis. The global pharma market is poised for
compound annual growth of 5.5 percent over the next four years, to $929 billion
according to a report published by URCH. Roche is expected to rack up 6.2 percent
and Novartis 6.1 percent. Johnson & Johnson and Merck are expected to generate
only "stagnant growth" through 2012, URCH Publishing predicts.

According to a Ernst&Young, global pharmaceutical market, are counting on

emerging markets to extend the life of mature products as well as to develop new
markets for their ethical products. Current global financial conditions and the threat
of a broad recession have accelerated the timetable for implementing change, as the
industry confronts lower corporate stock prices and an increasingly cost-averse
customer. The emergence of a middle class with growing disposable incomes in
rapidly expanding countries with large populations, such as Brazil, Russia, India,
China, Korea and Mexico, represents tens of millions of new customers who will
demand improved healthcare.

Industry Trends

Structural changes

The pharmaceutical industry is currently undergoing a period of very significant

transformation. The majority of “Big Pharma” companies are generating high returns
which provide them with excess cash for further rapid growth – whether organic, or
through mergers and acquisitions. In pharmaceutical industry size of the company on
its own is a significant advantage. Besides economies of scale in manufacturing,
clinical trials and marketing, bigger companies can get a competitive advantage by
allowing investments in more research and development (R&D) projects which in
turn diversify their future drugs portfolio and make them much more stable in the
long term. As the result, top-companies in the industry were active participants of
mergers and acquisitions (M&A).

Another form of structural change in the industry was establishing of new strategic
alliances and joint ventures. So far as the research and development process for each
drug take many years and requires significant investments, and the outcome of these
investments of time and financial resources remains unclear until the final approval of
the drug, “Big Pharma” companies are constantly looking for synergies that they can
get from cooperation with their competitors. For example, cooperation of Sanofi-
Aventis and Bristol-Myers Squibb resulted in production of Plavix, which is currently
one of the top-selling products for each of these companies.

Yet another trend is selling off low-profitability or non-core businesses. “Big

Pharma” companies in order to maintain strong sales growth and meet profitability
expectations of their shareholders actively engage in these activities. For example, in
2003 Merck sold its low-profitability Medico Health Solutions that helped to increase
its profitability margin. Massive sales of non-pharmaceutical businesses by Takeda
also were compatible with its strategy to concentrate its financial resources on its core
pharmaceutical business.

Major factors of future growth

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. Some of these
factors are:
 Due to numerous advancements in science and technology, including those in
the health care industry, life expectancy in the developed countries has been
steadily growing. As the result, growing proportion of elderly people promises
further growth of demand for healthcare products.

 According to various studies, a significant portion of elderly population in the

United States and other countries does not receive proper treatment. For
example, only about one third of the U.S. 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 starting from the beginning of 2006 will increase access of senior citizens
to the prescription drug coverage, thus increasing pharmaceutical sales.

 Although 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
these regions, 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. More detailed information on this issue is provided in the second part of
this paper.

3.9 Patent system

The patent system plays a crucial role in the pharmaceutical industry because of the
importance of product innovation and the substantial R&D costs involved in
developing a new drug. Patents give their owners the legal right to exclude others for
a time from making, using or selling a product or process arising from an invention,
and are typically granted for a period of 20 years. In the pharmaceuticals sector,
companies can acquire patent protection once basic research has led to the
identification of a promising NCE. A patent is then filed and may be granted, but the
drug might typically be halfway through its patent period by the time it has
progressed through the various stages of research and development and is ready to be
launched onto the market.

Patent protection may allow a firm to exercise market power to some degree in
pricing a drug. The profits that can potentially be earned during the patent period are
crucial in providing incentives for pharmaceutical firms to undertake R&D, given the
large amount of expenditure and the long lead times involved in new drug
development.

Drug lifecycle
The diagram below shows the typical length of time that it takes for a new drug to go
through the various stages of its life cycle.

Chart 2.4: Various Stages of Drug Lifecycle

Source: Office of Fair Trade

It is possible in the diagram to distinguish between components of the production

process that can be considered 'international' (namely can be located anywhere in the
world for supply to any given country) and those that are 'national' (that is need to be
located in the country in question). As the diagram moves from left to right and
becomes lighter, so the activities become increasingly 'national' in scope.

More formally, the term 'international' is used to denote those stages of a drug's
lifecycle for which:
• The activity can be located anywhere in the world where a suitable environment
exists
• Once the costs of that activity have been incurred somewhere in the world, they do
not have
to be incurred again in order to make the product available in other countries.
R&D is an 'international' activity in this sense of the term, as it can be located
wherever a suitable research environment exists, and once a drug has been developed
the R&D cost does not need to be incurred again to make the drug available in other
countries. In addition, some of the costs of global manufacturing facilities may also
represent an 'international' cost element.

The different stages shown in the chart above normally follow the patent application
and are described in the next few paragraphs. Even before patent application a
considerable amount of time and money may have been spent on basic research to
identify suitable entities for investigation, although much basic research is carried out
in universities and publicly-funded institutes.

Pre-clinical trials precede any testing on humans, and involve rigorous testing of
selected NCEs in laboratories and animals. There are very high attrition rates8 at this
stage of development: less than one per cent of compounds successfully make the
transition from pre-clinical trials to clinical studies in humans.

Clinical trials are carried out in humans. Three stages are carried out before drugs
receive marketing authorisation, namely:

• Phase I: trials in 20-100 healthy adults to test the drug's safety. 70 per
cent of investigational new drugs (INDs) proceed successfully through
Phase I.

• Phase II: trials in 100-300 patient volunteers to determine the safety and
efficacy of the drug. A third of INDs make it through both Phase I and II,
and

• Phase III: trials on larger groups of patients (typically 1,000–3,000), to

gain further data on safety and efficacy. Around 25 per cent of INDs
progress through all three phases to a regulatory review.
Marketing authorization must then be obtained before drugs can be launched onto
the market. Even after the preclinical stage, with its high attrition rate, only a small
proportion of drugs proceed successfully to marketing approval.

After the drug reaches the market, Phase IV pharmacovigilance trials begin. These
seek to identify any adverse drug reactions and continue throughout the lifetime of
the drug.

As discussed earlier, generic manufacturers are able to enter the market and sell
generic copies of the drug after a drug's patent (and any supplementary protection
certificate) has expired.

In general it is clear that only a small fraction of drug entities will on average achieve
a stage where commercialisation is valuable. For each new successful drug, there are
many which prove unsuccessful.

BACKGROUND ANALYSIS

The Indian Pharmaceutical Industry has come a long way from being almost non-
existent in the 1970’s to being one of the largest and most advanced
Pharmaceutical industries in the world. The domestic Pharmaceutical output has
increased at a CAGR of 13.4.Currently the Indian Pharmaceutical Industry is
valued at $ 8 billion (approx).Globally the industry ranks 4th in terms of volume
and 13th in terms of value. It provides employment to millions and ensures that
essential drugs are available to the vast population of India at affordable prices.
Indian Pharmaceutical Industry has attained wide ranging capabilities in the
complex field of drug manufacture and technology developed through a range of
governmental incentives and the industry has been declared a knowledge based
industry. This Industry is a highly organized sector and is extremely fragmented
with severe price competitions and governmental price control. The major players
in the Industry are Ranbaxy, Dr. Reddy’s Laboratories, Cipla, Sun Pharmaceutical
Industries, Lupin Lab, Glaxo SmithKline Pharmaceutical, Cadila Healthcare,
Aventis etc.
RELEVANCE FOR GROWTH
India has the highest number of manufacturing plants approved by US FDA,
which is next only to that in the US. More than 85% of the formulations produced
in the country are sold in the domestic market. Over 60% of India's bulk drug
production is exported. India holds the lion's share of the world's contract research
business as activity in the Pharmaceutical market continues to explode, over 15
prominent contract research organizations (CROs) are now operating in India
attracted by her ability to offer efficient R&D on a low-cost basis. Thirty five per
cent of business is in the field of new drug discovery and the rest 65 per cent of
business is in the clinical trials arena. India offers a huge cost advantage in the
clinical trials domain compared to Western countries. India got a major boost with
the signing of Trade Related Intellectual Property Rights (TRIPS) under the
General Agreement on Tariffs and Trade (GATT) in January 2005 with which it
began recognizing global patents. The acceptance of patent laws and the rise of
contract research and manufacturing sourcing (CRAMS) have led to the
diversification of revenue streams, enabling the Indian Pharmaceutical Industry to
experience high market growth.

EXPORT PROFILE
Exports constitute a substantial part of the total production of Pharmaceutical in
India. The formulations contribute nearly 55% of the total exports and the rest
45% comes from bulk drugs. Pharmaceutical exports clocked $7.2 billion in
2007-08, accounting for six per cent of the country’s total exports. Indian
companies export drugs to over 200 countries, but the top 25 markets, which
includes the US, Germany, Russia, China and few European and African
countries, account for about half of the total. Indian drug makers exported
medicines worth Rs 31,608 crore during April 2008-January 2009 and exports
shot up 30.7% as compared to last year due to a weak Indian currency and
increased demand for low-cost generic medicines. US is the largest importer of
drugs followed by Russia and Germany.
FOREIGN PARTICIPATION

Drugs and Pharmaceuticals ranks 8th in India’s top 10 FDI-attracting sectors. The
government of India has allowed foreign direct investment up to 100% through
the automatic route in the drugs and Pharmaceuticals industry of the country, on
the condition, that the activity should not fall into the categories that require
licensing. Pharmaceutical industry accounts for about 2.91% of total FDI into the
country. The FDI in Pharmaceutical sector is estimated to have touched US$ 172
million, thereby showing a compounded annual growth rate of about 62. The
Industry has received almost Rs 2141 crore investment from 36 countries through
FDI between April 2007 to April 2009 with most of the fund infusion directed to
healthcare and biotech ventures. Out of the total investment, almost 82 per cent of
the FDI in Pharmaceutical sector was from five countries - Mauritius, Singapore,
USA, UAE and Canada. The increase in FDI Inflows to Drugs and
Pharmaceuticals industry in India has helped in the expansion, growth, and
development of the industry. This in turn has led to the improvement in the quality
of the products from the drugs and Pharmaceuticals. 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 as a
global leader.

DETAILED ANALYSIS OF THE PHARMACEUTICAL SECTOR

PHARMACEUTICAL GROWTH
The Indian Pharmaceutical industry has grown from a mere Rs. 1,500 crore turnover
in 1980 to over Rs. 78,000 crore in 2008 with about 10 per cent of share volume of
global production. High growth has been achieved through; the creation of required
infrastructure, capacity building in complex manufacturing technologies of active
production ingredients(APIs) and formulations, entering into drug discovery through
original and contract research and manufacturing (CRAM) and clinical trials and
product specific strategies of acquisition and mergers. The domestic sector had a
production turnover of Rs. 47,241 crore from about 10,000 small-scale and 300 large
and medium manufacturing units in 2008.
ROLE IN FOREIGN TRADE
Pharmaceutical exports have grown from Rs. 6,256 crore in 1998-99 to Rs. 30,759
crore in 2008. Exports of pharmaceuticals have been consistently outstripping the
value of corresponding Imports in the period 1996-97 up to 2007-08. Exports
registered a growth rate of 25 per cent in 2007-08 over 2006- 07. The sector attracted
FDI amounting to US$ 1,401.60 million during 2000-01 to September 2008, of
which, US$ 125.30 million occurred during April- September 2008.

YEAR EXPORT (Rs. in Crores)

1998-1999 6256.06
1999-2000 7230.16
2000-2001 8757.47
2001-2002 9751.20
2002-2003 12826.10
2003-2004 15213.24
2004-2005 17857.80
2005-2006 22578.98
2006-2007 24942.00
2007-2008 30,759.00

INVESTMENT
Investments in pharmaceutical sector are now expanding into areas of innovative
R&D focused outsourcing opportunities like clinical trials, data management services,
pharmaceutical informatics, lead discovery and optimization, Pharmaceutical co-
kinetics and Pharmaceutical co-dynamics and pre-clinical drug discovery in
combinatorial chemistry, chiral chemistry, new drug delivery Systems, bioinformatics
and phyto-medicines. The Indian drug discovery market has grown from US$ 470
million in 2005 to US$ 800 million in 2007.

REGULATORY ENVIRONMENT
There are two major government agencies responsible for drug regulation and
control:
1) the Drugs Controller of India (DCI), and
2) the State Food and Drug Administrations (FDAs).
The DCI, under the Ministry of Health, has five main functions:
1) Controlling the quality of imported drugs,
2) Coordinating the activities of State FDAs,
3) Enforcing new drug legislation,
4) Granting approval to new drugs, and
5) Controlling the quality of imported drugs.
State FDAs, on the other hand, monitor the drug manufacture, sale, and testing by
companies in their jurisdiction. There are also two main statutory bodies formed by
Parliament:
1) the Drugs Technical Advisory Board, whose technical experts advise the Central
and State Governments on special technical matters involving drug regulation, and
2) the Drugs Consultative Committee, where Central and State drug officials ensure
that drug control measures are enforced uniformly in all states.
Current Reforms: Maharashtra FDA
The most powerful state-FDA is located in the western state of Maharashtra, where
the country's pharmaceutical industry has been concentrated for the past 46 years.
Over 50% of manufactured drugs in India are currently produced in Maharashtra, and
Maharashtra's FDA therefore plays a large role in determining national policy on the
import and local manufacture of pharmaceuticals in India. It monitors drug quality
and safety through pre- and post-licensing checks, as well as through periodic
inspections and drawing drug samples from companies from time to time.

Maharashtra's FDA underwent some major changes over the past few years to
improve its efficiency and raise its credibility. Under the present Commissioner, Anil
Kumar Lakhina, the Indian FDA has revamped its structure, introduced a new drug
management system, and instituted a new electronic drug renewal application
procedure via its website. It has also started codifying all pharmacopoeial, patent and
proprietary combinations of drugs -- there are currently 50,000 drugs all licensed by
the FDA and 4,300 of them have already been codified.

Drug Application Procedures

Foreign pharmaceutical firms looking to export drugs to India must first obtain a
license from DCI, which is granted upon assurance that the firm's manufacturer
abroad complies with Indian production and safety standards. These standards are
becoming more harmonized with international Good Manufacturing Practice (GMP)
and ISO requirements. Next, before any drugs are released for import into India, the
importer must submit the following documents to the Central Drug Control
Organization:
1) documents of import (Bills of Entry),
2) protocols test and analysis,
3) a sample of the product(s) label, and
4) a drug sample.
The drug sample is tested by the government, which in turn releases a consignment to
the importer if the test results approve the drug as meeting "standard quality."
Importers are also permitted to import drugs for experiment, test research or clinical
trial under a test license.
Companies looking to manufacture drugs locally must go through a "preparatory" or
Pre-Licensing Phase to show that their manufacturing facilities are up to standard.
After being granted a license, the manufacturer must also produce a test batch of
drugs that is approved by the government for safety.

All companies must also follow specific labeling requirements. Both importers and
local manufacturers must label every product with the following information:
1) name of the drug;
2) a correct statement of the net content of the drug;
3) content of active ingredients;
4) name and address of the manufacturer;
5) batch or lot number preceded by the words "Batch," "B," "Lot No.," or "Lot";
6) manufacturing license number (if applicable);
7) number of the license under which the drug is imported (if applicable); and
date of manufacture and expiration date, which must not exceed 60 months.
Pharmaceutical companies must have their label and pack insert approved by the DCI
before the drug is marketed.
The specific requirements for drug approval and renewal of imported and locally
manufactured drugs are available from the Maharashtra FDA. As mentioned above,
drug renewal applications are now accepted via the web, but until computer
signatures are legitimized, new drug applications will still have to be completed in
hardcopy.

PRICE CONTROL
Since 1961, pharmaceuticals in India have fallen under heavy price regulation.
Domestic drug prices in India are among the lowest in the world; the Organization of
Pharmaceutical Producers of India (OPPI) says that year-on-year price increases for
pharmaceuticals in the country are lower than the wholesale price index each year and
considerably lower than the CPI. This applies to both controlled and decontrolled
drugs, where increases were just 1.1% and 3.6% respectively for 1997 over 1996.
This has severely affected the profitability of the industry, especially since the prices
of basic raw materials and the costs of packing have shot up over the past five years.
Pharmaceutical manufacturers have also suffered from high transaction costs,
including obstacles and difficulties associated with administrative processes,
dishonesty of public agents, delays in obtaining finance, and transportation
bottlenecks.

Price controls are implemented under a Drug Price Control Orders (DPCO). Under
Section 3 of the Essential Commodities Act, there have been four major revisions of
DPCOs in 1970, 1979, 1987 and 1995. In 1995, the DPCO was revised twice -- once
on January 6th and again on July 19th -- to coordinate the price descriptions of
controlled and decontrolled formulations. Drugs falling under DPCO are generally
either of the following:
1) those that have a minimum annual turnover of Rs 4 crore (US$1 million), and
2) those of popular use in which there is a monopoly situation (a monopoly in India
exists if for any bulk drug, with an annual turnover of US$250,000 or more, there is a
single formulator with a market share of 90% or more).
For drugs where there is "sufficient" market competition, i.e. where there are at least
five bulk drug producers and at least 10 formulators, and where none has more than a
40% market share in retail trade, price control is not mandated by the government.
Such drugs not falling under government price control are called "decontrolled"
drugs.

Aside from lowering profitability and constraining the market, there are many
administrative problems with DPCOs that have been worsening as the Indian drug
industry expands. The government often fails to update the financial data on which it
bases its criteria for inclusion, aggravated by the long time lag between the collection
of data and announcement of new pricing policy. As a result, basis data for
determining prices is at least three months old at the time of approval, and the price
benchmarks used end up being historical instead of prospective.
Furthermore, there are serious problems with the way the government calculates the
fixed prices for many drugs. For example, it does not take raw material price
volatility or exchange fluctuations into account when calculating prices. Also, the
government determines drug prices solely upon cost, not quality, of production (no
distinction in pricing is made, therefore, between a drug produced under Good
Manufacturing Practices (GMP) and one that is not).

The DPCO has also been gradually losing importance due to the emergence of a large
number of manufacturers in the bulk drug industry. Thus, to improve its efforts at
drug price control, the government set up the National Pharmaceutical Pricing
Authority (NPPA) in August 1997 to update the list of bulk drugs covered under
DPCO 1995 by inclusion or exclusion on the basis of established criteria and
guidelines. The NPPA was also authorized to fix and revise prices of controlled bulk
drugs and monitor the prices of decontrolled drugs and formulations and oversee the
implementation of DPCO 1995.

The government's stance on price control has been mixed. Although it has set up
organizations like NPPA, the number of drugs under price control has gradually been
reduced over time (see Figure 1 below), and sources in India's Ministry of Health
have stated that the price control system may undergo further changes depending on
the emergence of a much wider and much more assertive medical insurance system in
the country.
R& D IN INDIAN INDUSTRY
Though spending on R&D in relation to the GDP in the case of India has increased
over the years, the difference between the spending in R&D between India and the
developed world remains considerably high. India spends approximately 0.88 per cent
of its GDP on research and development. This is low compared to countries like
China which spend 1.42 per cent of its GDP on R&D and most developed countries
spend more than 2 per cent of their GDP.
During the period 2005-06, 74.1 per cent of the total R&D expenditure was met from
government sources and rest 25.9 per cent came from the private sector. The Central
Government was the highest contributor to R&D expenditure with a share of 57.5 per
cent, the State Government had a share of 7.7 per cent while the industrial sector
contributed 30.4 per cent, and the higher education sector 4.4 per cent. It is pertinent
to note that the industrial sector R&D contribution in developed countries is usually
more than 50 per cent. There are about 3,690 R&D institutions in the country. Under
the Central Government R&D expenditure, 86 per cent was
incurred by 12 major scientific agencies. The share of Defence Research and
Development Organisation (DRDO) amongst the 12 major scientific agencies was
34.4 per cent. During 2005-06, the industrial sector R&D units spent 0.55 per cent of
their sales turnover on R&D. In terms of sector-wise position, the drugs and
pharmaceuticals sector occupied highest position with a share of 37.4 per cent
followed by transportation and defence with 14.7 per cent and 6.9 per cent
respectively.
EVOLUTION OF INDUSTRY
In India, modern system of medicine is a 20th century phenomena, though the
traditional system of medicine has been in practice for many centuries.
Therefore, in discussing the evolution of the IPI, three points of time are very
relevant. These are: 1900-1970, 1970-1990 and the decade of 1990s.
The period 1900-1970 signifies the dominance of the multinationals in this field that
were basically importing bulk drugs and formulations from abroad. Most domestic
manufacturers were engaged in repacking the formulations produced by the
multinationals and production was concentrated in the hands of the multinationals.
Production of modern medicine by indigenous units started with the setting up of
Bengal Chemical and Pharmaceutical works in 1892, which was followed by the
establishment of Alembic Chemical works in 1907 and Bengal Immunity in 1919.
At this point in time, the Patents Act of 1911 was in practice, which facilitated
patenting all the known and possible processes of manufacturing of the said drug
besides patenting the drug itself. Hence, the indigenous firms were legally prevented
from manufacturing most of the new drugs during the life of the patent secured by the
latter, i e, for 16 years, which could be extended to a maximum of another 10 years if
the working of the patent had not been sufficiently remunerative to the patentee. This
gave them the monopoly power initially. The domestic firms were also forbidden
from processing a patented drug into formulations or importing it. However, the
Second World War and the introduction of sulpha drugs and penicillin gave on
impetus to the pharmaceutical industry. The policy instruments of independent India
emphasized on creating a strong public sector unit.
In the pharmaceutical front, specific areas of production were defined for the public,
private and the domestic sector. The setting up of the public sector units and the
technical institutes meant for creating technical skills in the country contributed to the
growth of the domestic industry. By 1952, a few drugs like tetanus anti-toxin, PAS
and Iodochlorhydroxyquinoline were produced in India from their basic stages .
However, the import content of the basic drugs was high due to which the prices of
the pharmaceutical products of India were the highest in the world.
The second period of 1970-1990 is very significant for the IPI since, a few important
changes that had implications on the growth of the IPI took place during this time.
 The Patent Act of 1911 was amended in 1970, which came into force in 1972. The
1970 Patent Act provides protection for the processes of manufacturing the drug for
seven years from the date of filing the application or five years from the date of the
grant of the patent. Under this Act only one process that was used in the actual
manufacturing could be patented. This change brought a renaissance to the
pharmaceutical industry of India. More units larger in size and capacity set up in the
1970s and 1980s started producing drugs, which were primarily imported till then.
The technical institutes that were set up in the early 1950s and 1960s resulted in
creating technical and engineering skills, which could easily adapt the technology
developed elsewhere, proved to be very advantageous for the industry. By 1972, over
100 essential drugs covering a wide spectrum of therapeutic groups like antibiotics,
sulpha drugs, anti leprotic drugs, analgesics, antipyretics, vitamins, tranquillisers,
photochemical and various other pharmaceutical chemicals were produced in India
from basic stages .
A significant increase in the production of bulk drugs and formulations is observed
before and after the 1970s. In the early 1970s, the government introduced the MRTP
Act the FERA, which aimed at reducing the concentration of economic power with
few units and controlling the flight of foreign exchange from the country. Basically
units, which were not bringing in any new technology were asked to reduce their
foreign equity and renewal of their licence was also subject to their bringing in new
technology. This resulted in the dilution of the foreign equity, which is reported in the
Table As a strategy to protect the domestic industry from competition, the FERA
companies were also not permitted to produce a list of drugs, which were delicensed
during the 1980s.
Ownership Pattern of Foreign Companies

Share of Foreign Number of Number of

Equity Companies in Companies in
(Per Cent) 1976-77 1981-82
Above 74 20 5
50-74 11 14
40-50 13 16
26-40 14 10
Below 26 6 3
Total 64 48
In the 1990s, several significant changes occurred in the pharmaceutical sector with
the introduction of trade liberalization measures. All those drugs, which were
reserved for the production by the public sector, were delicensed in two stages.
One immediate impact of this de-licensing of the drugs was that production increased
manifold besides increasing the competition among the domestic firms and from
foreign companies in the 1990s. The increased production had a positive impact on
exports and on the balance of trade.
The government also increased the automatic approval limit for foreign direct
investment in the pharmaceutical industry from 40 per cent to 51 per cent. This was
subsequently increased to 74 per cent in 1997. In 1994, government of India signed
the TRIPS Agreement.
The de-licensing of the drugs and the policy of the government to allow
subcontracting or loan licensing system resulted in an uneven growth of the domestic
pharmaceutical industry. About 70 per cent of the production in the pharmaceutical
sector is contributed by loan licensees. As of 2000, it is estimated that the total
number of units engaged in the production of pharmaceutical units is 24, 000
(including that of loan licensees). Out of which 1.25 per cent or 300 belong to the
organized sector and 23, 700 belong to the small and medium sector [GITCO 2000].
It is estimated that out of this 300 units only a few units will have the R & D facilities
that is recognized by the department of science and technology (DST), while most
others have sophisticated quality control laboratories, some of which even match the
international standards.
Most of the firms are engaged in the production of finished formulations that are in
the off patent segment. Lack of adequate funds for modernization, increased
competition from the private sector and high cost of production resulted in the decline
of the public sector in the 1990s.
For analyzing the current scenario--
PORTER’S FIVE FORCES MODEL
(a) INDUSTRY COMPETITION
Pharmaceutical industry is one of the most competitive industries in the country with
as many as 10,000 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.
Thus, the concentration ratio for this industry is very low. 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. The fixed cost requirement is low but the need for working
capital is high.
The fixed asset turnover, which is one of the gauges of fixed cost requirements, tells
us that in bigger companies this ratio is in the range of 3.5-4 times. For smaller
companies, it would be even higher. Many small players that are focussed on a
particular region have a better hang of the distribution channel, making it easier to
succeed, albeit in a limited way.
An important fact is that, pharmaceutical is a stable market and its growth rate
generally tracks the economic growth of the country with some multiple (1.2 times
average in India). Though volume growth has been consistent over a period of time
value growth has not followed in tandem.
The product differentiation is one key factor which gives competitive advantage to
the firms in any industry. However, in pharmaceutical industry product differentiation
is not possible since India has followed process patents till date, with loss favouring
imitators. Consequently product differentiation is not a driver, cost competitiveness
is. However, companies like Pfizer and Glaxo 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 the patent regime which has forced Indian
companies to rethink its strategies and to invest more on R&D. Also contract research
has assumed more importance now.
(b) BARGAINING POWER OF BUYERS
The unique feature of pharmaceutical industry is that the end user of the product is
different from the influencer (read doctor). 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, govt with its policies, plays an important role in regulating
pricing through the NPPA (national pharmaceutical pricing authority).
(c) 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.
(d) BARRIERS TO ENTRY
Pharmaceutical industry is one of the most easily accessible industries for an
entrepreneur in India. The capital requirement for the industry 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 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.
(e)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 thee field of biotechnology, can prove to be a threat to the synthetic
pharmaceutical industry.

CONCLUSIONS OF THE MODEL

This model gives a fair idea about the industry in which a company operates and the
various external forces that influence it. The industry seems to be operating in
monopolistic market structure. However, it must be noted that any industry is not
static in nature. It’s dynamic and over a period of time the model, which we have used
to analyse the pharmaceutical industry may itself evolve.
Going forward, we foresee increasing competition in the industry but the form of
competition will be different. It will be between large players (with economies of
scale) and it may be possible that some kind of oligopoly or cartels come into play.
This is owing to the fact that the industry will move towards consolidation. The larger
players in the industry will survive with their proprietary products and strong
franchisee.
In the Indian context, companies like Cipla, Ranbaxy and Glaxo are likely to be key
players. Smaller fringe players, who have no differentiating strengths, are likely to
either be acquired or cease to exist.
The barriers to entry will increase going forward. The change in the patent regime has
made sure that new proprietary products come up 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.
Economies of scale will play an important part too. Besides government will have a
bigger role to play.

SWOT ANALYSIS

STRENGTH WEAKNESS
• Availability of Cheap raw material • Bad brand image of Indian
(most economical raw material in the Pharmaceutical Products in USA,
world after China) UK & other western countries which
• Availability of professional is hampering exports
manpower with good technical • Lack of Research & Development
expertise (R&D) orientation of Indian
• Low cost of production. Pharmaceutical Companies

• Large pool of installed capacities • Fragmentation of installed

• Efficient technologies for large capacities.

number of Generics. • Low technology level of Capital

• Large pool of skilled technical Goods of this section.

manpower. • Non-availability of major

• Increasing liberalization of intermediaries for bulk drugs.

 government policies.
OPPORTUNITY
• Very lucrative high profit making
market with high chances of growth
• Increased awareness amongst
people about Health Prodcuts
• Aging of the world population.
• Growing incomes.
• Growing attention for health.
• New diagnoses and new social
diseases.
• Spreading prophylactic approaches.
• Saturation point of market is far
away.
• New therapy approaches.
• New delivery systems.
• Spreading attitude for soft
medication (OTC drugs).
• Spreading use of Generic Drugs.
• Lack of experience to exploit
efficiently the new patent regime.
• Very low key R&D.
• Low share of India in World
Pharmaceutical Production (1.2% of
world production but having 16.1%
of world''s population).
• Very low level of Biotechnology in
India and also for New Drug
Discovery Systems.
• Lack of experience in International
Trade.
9. Low level of strategic planning
for future and also for technology
forecasting.
THREAT
• Entry of other foreign competitors in
the Indian market
• Other Business Risks
• Containment of rising health-care
cost.
• High Cost of discovering new
products and fewer discoveries.
• Stricter registration procedures.
• High entry cost in newer markets.
• High cost of sales and marketing.
• Competition, particularly from
generic products.
• More potential new drugs and more
efficient therapies.
• Switching over form process patent
to product patent.
 • Globalization
• Easier international trading.
• New markets are opening.

Schedule
DATE STEPS
Sept 8, 2009 Introduction to project
Sept 15, 2009 Clear with Research Methodology
Nov 20, 2009 Data Collection
Dec 12 ,2009 Preparation of Interim Report
Feb 20, 2010 Analysis of Data
March 12, 2010 Preparation of Final Report

Limitation of the study

• The time period for the study is not sufficient

• Some companies want to keep their records confidential
• There are large numbers of small players in the market, records of that cannot be
traced corretly
• Research on Export market cannot be carried out fully due to resource limitation

References

www.indianbusiness.nic.in
www.kpmg.ie
www.pharmaceutical-drug-manufacturers.com
www.ficci.com
www.highbeam.com

Faculty Guide Name:

Prof. Prerna Sharma

Faculty, IBS- Chandigarh Signature of the Student