THE INDIAN PHARMA INDUSTRY

UNDER THE PRODUCT PATENT REGIME

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INTRODUCTION
Pharmaceutical Industry in India is one of the largest and most advanced among the developing countries.

The Indian pharmaceutical industry has come a long way from waiting for imports of bulk drugs from global players to breaking new grounds in medical research worldwide.
Indian pharmaceutical industry is ranked 4th in volume terms and 13th in value terms globally. Around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and vaccines is met by Indian pharmaceutical industry . The Pharmaceutical industry in India is fragmented with over 3,000 small/medium sized generic pharmaceutical manufacturers.

GROWTH OF THE INDUSTRY.

Worth of the pharmacy industry -$ 6billion.

Accounts for-1%of the world's pharma industry in value terms and 8% in volume terms.
Revenues generated US $ 7.6 billion and have grown at an average rate of 10% over last five years. For sustaining growth, Indian drug-makers will, therefore, be forced to look at newer avenues such as entering niche segments, building relationships with global pharma for joint research and development and widening distribution networks through marketing alliances. Indian Pharmaceutical Industry has witnessed a robust growth from US$ 11.4 billion in 2010 to US$ 13 billion in 2011 with a scorching pace of growth of 15%. The Indian pharmaceuticals market looks poised to grow to $55 billion in 2020, according to a new McKinsey & Company report India Pharma 2020: Propelling access and acceptance, realising true potential. This will be a quadrupling of the market from the $12.6 billion the industry made in 2009. The report states that the pharma market has the further potential to reach $70 billion by 2020 if aggressive growth efforts are embraced.

While growth in the pharmaceuticals market has thus far been driven by rising affordability, the industry needs to be more proactive in enhancing accessibility and acceptance of modern medicine,.

ROLE OF PHARMACEUTICAL INDUSTRY IN INDIAS GDP

It ranks 4th in the world, pertaining to the volume of sales. The estimated worth of the Indian Pharmaceutical Industry is US$ 6 billion.

The growth rate of the industry is 13% per year.

The current revenues are estimated at US$5.5 billion and it is expected to grow at a compounded annual growth rate of 19% and touch US$ 25 billion in revenue by 2015.

FOREIGN TRADE OF IPI

Exports have been the major growth enabler of the Indian pharmaceutical industry in recent years. India exports pharmaceutical products, APIs and intermediates to more than 200 countries across the world. Traditionally, Russia, Germany, Nigeria and Indias neighboring countries like Sri Lanka, Nepal, and the Middle East were the major markets for Indian pharmaceutical exports. Most of these markets are not highly regulated and are considered to be low-value markets. Remarkably, the proportion of exports in domestic turnover has been increasing over the years, despite the growing domestic demand. Currently, exports constitute 48% of estimated turnover of the industry as compared to nearly 35% during CY02.

Over the years, India has shown better regulatory awareness and superior technical skills, which has enabled Indian companies to penetrate the high-value markets like the US and EU. Exports of pharmaceutical products (finished products as classified under heading 30 of ITC-HS code) to the US grew by an impressive 33% to Rs 23 bn and by a whopping 62% to Rs 35 bn to the EU during FY04FY06. Regulated markets, though difficult to penetrate due to stringent regulations, are known to give better value and margin to exporters

ROLE OF GOVERNMENT
The main role of government is to patenting, controls the price and checking the quality of the drugs. Indian patent Act of 1970, provided process patent for 5-7 years. It extended product patent protection to areas which include drugs, foods and chemicals. It deleted the provisions related to EMR(Exclusive marketing rights) as this system had become reduntant and put in a transitional provision for safeguarding EMRs already granted.

The GOI introduced the Drugs Price control Order (DPCO) in 1970.
The DPCO stipulated price ceilings for controlled categories of bulk drugs and their formulations.

In 1987, GOI liberalized the profitability norms of pharmaceuticals industries.

In 1995, DPCO had been revised and besides the same structure it stipulated a uniform Maximum Allowable Post-manufacturing Expenses (MAPE). The pharma policy of 2002 reduced the number of drugs under price control to 28 and opened up industry to 100% foreign investment. It established Pharmaceutical Research and Development Support Fund(PRDSF). Under the Union Budget 2005-2006, a 150% tax deduction for expenditure on inhouse R&D facilities for companies in the field of pharma industries. The budget also made a proposal to provide equity support for knowledge-based industries like pharma industries through SME growth fund of Rs. 5 billion.

RESEARCH AND DEVELOPMENT

In 2001-02, clinical research was a Rs 3 billion market and it is expected to reach to reach Rs 40 billion by 2010. Statistics showed that Indian pharma companies have invested around 6% of their sales revenue in R&D in 2009-10. Although this was low in comparison to the expenditure by MNC (13%). Between 1996- 2002, the annual recurring R&D expenditure increase 32.3% on a yearly basis. In 2005, the Department of Science and Technology (DST), under the Ministry of Science and Technology, set up the Rs. 1500 million pharmaceuticals Research and Development(PRDF).

SWOT ANALYSIS
STRENGTH
Availability of Cheap raw material (most economical raw material in the world after China)

WEAKNESS

Bad brand image of Indian Pharmaceutical Products in USA, UK & other western countries which is hampering exports

Lack of Research & Development (R&D) orientation of Indian Pharmaceutical Companies

Fragmentation of installed capacities. Low technology level of Capital Goods of this section. Non-availability of major intermediaries for bulk 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.

Availability of professional manpower with good technical expertise Low cost of production. Large pool of installed capacities Efficient technologies for large number of Generics. Large pool of skilled technical manpower. Increasing liberalization of government policies.

OPPORTUNITY

THREAT

Very lucrative high profit making market with high chances of growth Increased awareness amongst people about Health Products Aging of the world population.

Entry of other foreign competitors in the Indian market Other Business Risks Containment of rising health-care cost.

Growing incomes. Growing attention for health.

High Cost of discovering new products and fewer discoveries.

Stricter registration procedures.

New diagnoses and new social diseases.

Spreading prophylactic approaches Saturation point of market is far away.

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.

New therapy approaches

New delivery systems.

KEY PRODUCTS
Medicines Medical equipments Surgical goods Operation accessories I.V. fluids Injections

KEY PLAYERS
Ranbaxy Dr.Reddy's Cipla Lupin Nicholas Piramal Sun Pharmaceuticals GSK Cadila Healthcare Aurobindo Wockhardt

Ques.1) To what extent has the competitive advantage of being a low cost manufacturer of drugs helped the Indian Pharma industry? Can the Indian Pharma Industry maintains a sustainable competitive advantage as a low cost manufacturer? Ans.) There are some competitive advantages of Indian Pharma Industry such as follows:

India possess a skillful work force with high technical competence and managerial skills which helps in the effective functioning of the pharma industry. The development of cost-beneficial chemical synthesis for various drug molecules is excellent and cost effective. With a democratic set up, the country possesses a solid legal framework and strong financial markets. This has helped in establishing a cordial bridge between international industry and business community. India has a good network of world-class educational institutions in Information Technology. There is a free market economy and globalization in the country. Above all, India has a constantly growing 70+ million middle class market. The international pharmaceutical industry has discovered a wide range of opportunities in India. The process of consolidation, which has become popular in the world pharmaceutical industry, has also taken place in the Indian pharmaceutical industry. The Indian pharmaceutical industry which is worth US $ 3.1 billion is growing at the rate of 14 % annually.
Although India shifted to the product patent regime in 2005, the capabilities developed during the past two decades became a competitive advantage for the Indian pharma industry

Ques 2.) Discuss the role of government in making an industry globally competitive. Ans.) The GOI introduced the Drugs Price control Order (DPCO) in 1970 which effectively put price ceilings on certain mass-usage bulk drugs and their formulations to prevent profiteering by manufacture. In 1987, GoI liberalized the profitability norms of the pharma sector along with the liberalization in industrial licensing norms. The pharma policy of 2002 reduced the number of drugs under price control to 28 and opened up industry to 100% foreign investment. A PRDSF was established to boost the research and development and industrial licensing for bulk drugs, intermediates and formulations was abolished. The government have taken an active role to ensure the potential of the industry is realised. McKinsey suggests raising spending on healthcare to three per cent of GDP, increasing investments in rural and Tier-2 healthcare infrastructure, adopting measures to contain healthcare costs and increasing the number of doctors in the system as policy measures to aid the industry.

Ques 3.) Comment the ways in which Indian Pharma industry can push its global rank in terms of value. Ans.) The migration into a product patent based regime is likely to transform industry fortunes in the long term. The new patent product regime will bring with it new innovative drugs. This will increase the profitability of MNC pharma companies and will force domestic pharma companies to focus more on R&D. This migration could result in consolidation as well. Very small players may not be able to cope up with the challenging environment and may succumb to giants. The industry must implement the drug delivery management system in order to keep the eye on the distribution and channels of drugs. Large number of drugs going off-patent in Europe and in the US between 2005 to 2009 offers a big opportunity for the Indian companies to capture this market. Since generic drugs are commodities by nature, Indian producers have the competitive advantage, as they are the lowest cost producers of drugs in the world. The drug companies should adopt new innovative therapeutic products. Globalization. The drugs companies should focusses on the Clinical trials & research.

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