Pharma Industry

Overview of Indian pharmaceutical industry
A
PROJECT REPORT
ON
OVERVIEW OF INDIAN
PHARMACEUTICAL INDUSTRY
Submitted To:
University of Mumbai
In Partial Fulfillment of award of
Master in Management Studies Degree
Submitted By:
1
CERTIFICATE FROM PROJECT GUIDE
This is to certify that, a student of MMS (Marketing), , has worked under my

guidance and supervision and successfully completed the project. This Project
has the requisite standard and to the best of my knowledge no part of it has
been reproduced from any other summer project report, monograph or book.
Project Guide:
Date: 30th March, 2009
2
DECLARATION
The information submitted is true and original to the best of my knowledge.
Signature of the Student:
3
ACKNOWLEDGEMENT
The work that I have presented today to you stands as a testimony to the
sincere efforts put in by me and to the guidance and help given to me by so
many people directly or indirectly, for whom I would like to thank from the
abyss of my heart.
The joy of completion is never complete till the fruits are shared with the ones
who helped me to achieve my aim to some extent.
I would like to express my sincere gratitude to my project guide Prof.

Subramanian for giving guidance and taking active interest throughout my
project work.
My heartfelt thank to for providing me with the infrastructure for the project
work and also to the entire faculty whose knowledge has immensely
contributed in the preparation of the project.
4
TABLE OF CONTENT
TOPIC Page No.

Sr.No.
1 EXECUTIVE SUMMARY 5
2 HISTORY 8
3 THE INDIAN PHARMACEUTICAL INDUSTRY 11
4 SECTOR’s INVOLVED 13
5 TYPES OF DRUG SYSTEMS IN INDIA 14
6 TYPES OF PRODUCTS 16
7 FACTS & FIGURES 18
8 FUNCTIONS OF A PHARMACEUTICAL COMPANY 22
9 MAJOR PLAYERS 26
10 SWOT 29
11 MICHAEL PORTER’S FIVE FORCES MODEL OF INDIAN 35

PHARMACEUTICAL INDUSTRY
12 TRENDS AND STRATEGIES 39

13 MARKETING OF PHARMASEUTICAL PRODUCTS 40
14 RESEARCH AND DEVELOPEMENT 44
15 INTELLECTUAL PROPERTY RIGHTS & DPCO 56

16 CONCLUSION 61
17 FUTURE FOR THE PHARMACEUTICAL INDUSTRY 62
18 BIBLIOGRAPHY 63
5
Executive summary:
The Indian pharmaceutical industry valued at $12 billion has portrayed tremendous
progress with reference to infrastructure development, technology base creation and a wide
range of production. The domestic market in India is estimated to be at US$ 12 billion by
2010. The pharmaceutical industry produces bulk drugs belonging to major therapy groups.
India ranks 4th worldwide accounting for 8 per cent of the world's production (In terms of
Volume) and 13 in terms of value. The industry has developed Good Manufacturing
Practices (GMP) facilities for the production of different dosage forms. The pharma
industry exports drugs and pharmaceuticals worth over $ 3.8 billion. It ranks 17th in terms
of export value of bulk actives and dosage. Indian exports cover more than 200 countries
including the highly regulated markets of USA, Europe, Japan and Australia. Certain bulk
drugs &their formulations are subject to price control under DPCO. Presently, under
DPCO, 1995 there are 74 bulk drugs and their formulations under price control covering
approximately 40% of the total market.
Research & Development is the key to the future of pharmaceutical industry. The R & D
expenditure by the Indian pharmaceutical industry is around 1.9% of the industry’s
turnover. However, now that India is entering into the Patent protection area, many
companies are spending relatively more on R & D.
Success factors of the Indian pharmaceutical industry can be enumerated as

Low cost based, skilled labour force and good manufacturing facilities, Understanding of
International regulatory framework & Research & development.
The driving force that will change the character and shape of the pharmaceutical industry
will be the impending Product Patent regime. At present, under the Indian Patents Act,
1970, there is no Product Patent protection for pharmaceuticals. There is only Process
Patent protection.
6
India should go ahead &accept product patent, as it will lead to Development of Science
and Technology, attract Foreign Investments in Technology and Research, retain scientific
talent in India.
7
“Indian pharmaceutical industry can be defined as a success
story providing employment to millions and ensuring that
essential drugs are available at affordable prices to the vast
population of Indian sub-continent”
-RICHARD GESTER
(Economist)
8
History:
The earliest drugstores date back to the middle Ages. The first known drugstore was
opened by Arabian pharmacists in Baghdad in 754, and many more soon began operating
throughout the medieval Islamic world and eventually medieval Europe. By the 19th
century, many of the drug stores in Europe and North America had eventually developed
into larger pharmaceutical companies.
Most of today's major pharmaceutical companies were founded in the late 19th and early
20th centuries. Key discoveries of the 1920s and 1930s, such as insulin and penicillin,
became mass-manufactured and distributed. Switzerland, Germany and Italy had
particularly strong industries, with the UK, US, Belgium and the Netherlands following
suit.
Legislation was enacted to test and approve drugs and to require appropriate labeling.
Prescription and nonprescription drugs became legally distinguished from one another as
the pharmaceutical industry matured. The industry got underway in earnest from the 1950s,
due to the development of systematic scientific approaches, understanding of human
biology (including DNA) and sophisticated manufacturing techniques.
Numerous new drugs were developed during the 1950s and mass-produced and marketed
through the 1960s. These included the first oral contraceptive, "The Pill", Cortisone, blood-
pressure drugs and other heart medications. MAO Inhibitors, chlorpromazine (Thorazine),
Haldol (Haloperidol) and the tranquilizers ushered in the age of psychiatric medication.
Valium (diazepam), discovered in 1960, was marketed from 1963 and rapidly became the
most prescribed drug in history, prior to controversy over dependency and habituation.
Attempts were made to increase regulation and to limit financial links between companies
and prescribing physicians, including by the relatively new US FDA. Such calls increased
9
in the 1960s after the thalidomide tragedy came to light, in which the use of a new
tranquilizer in pregnant women caused severe birth defects. In 1964, the World Medical
Association issued its Declaration of Helsinki, which set standards for clinical research and
demanded that subjects give their informed consent before enrolling in an experiment.
Phamaceutical companies became required to prove efficacy in clinical trials before
marketing drugs.
Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary center
of pharmaceutical production without patent protection.
The industry remained relatively small scale until the 1970s when it began to expand at a
greater rate. Legislation allowing for strong patents, to cover both the process of
manufacture and the specific products came in to force in most countries. By the mid-
1980s, small biotechnology firms were struggling for survival, which led to the formation
of mutually beneficial partnerships with large pharmaceutical companies and a host of
corporate buyouts of the smaller firms. Pharmaceutical manufacturing became
concentrated, with a few large companies holding a dominant position throughout the
world and with a few companies producing medicines within each country.
The pharmaceutical industry entered the 1980s pressured by economics and a host of new
regulations, both safety and environmental, but also transformed by new DNA chemistries
and new technologies for analysis and computation.[citation needed] Drugs for heart
disease and for AIDS were a feature of the 1980s, involving challenges to regulatory bodies
and a faster approval process.
Managed care and Health maintenance organizations (HMOs) spread during the 1980s as
part of an effort to contain rising medical costs, and the development of preventative and
maintenance medications became more important. A new business atmosphere became
institutionalized in the 1990s, characterized by mergers and takeovers, and by a dramatic
increase in the use of contract research organizations for clinical development and even for
basic R&D. The pharmaceutical industry confronted a new business climate and new
10
regulations, born in part from dealing with world market forces and protests by activists in
developing countries. Animal Rights activism was also a problem.
Marketing changed dramatically in the 1990s, partly because of a new consumerism.

[citation needed] The Internet made possible the direct purchase of medicines by drug
consumers and of raw materials by drug producers, transforming the nature of business. In
the US, Direct-to-consumer advertising proliferated on radio and TV because of new FDA
regulations in 1997 that liberalized requirements for the presentation of risks. The new
antidepressants, the SSRIs, notably Fluoxetine (Prozac), rapidly became bestsellers and
marketed for additional disorders.
Drug development progressed from a hit-and-miss approach to rational drug discovery in

both laboratory design and natural-product surveys. Demand for nutritional supplements
and so-called alternative medicines created new opportunities and increased competition in
the industry. Controversies emerged around adverse effects, notably regarding Vioxx in the
US, and marketing tactics. Pharmaceutical companies became increasingly accused of
disease mongering or over-medicalizing personal or social problems.
There are now more than 200 major pharmaceutical companies, jointly said to be more
profitable than almost any other industry, and employing more political lobbyists than any
other industry. Advances in biotechnology and the human genome project promise ever
more sophisticated, and possibly more individualized, medications.
11
THE INDIAN PHARMACEUTICAL INDUSTRY:
The Indian Pharmaceutical Industry today is in the front rank of India’s science-based
industries with wide ranging capabilities in the complex field of drug manufacture and
technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth
$ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world,
in terms of technology, quality and range of medicines manufactured. From simple
headache pills to sophisticated antibiotics and complex cardiac compounds, almost every
type of medicine is now made indigenously.
Playing a key role in promoting and sustaining development in the vital field of medicines,
Indian Pharma Industry boasts of quality producers and many units approved by
regulatory authorities in USA and UK. International companies associated with this sector
have stimulated, assisted and spearheaded this dynamic development in the past 53 years
and helped to put India on the pharmaceutical map of the world.
The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered
units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical
companies control 70% of the market with market leader holding nearly 7% of the market
share. It is an extremely fragmented market with severe price competition and government
price-control.
12
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.
For the first time in many years the international pharmaceutical industry is finding great
opportunities in India. The process of consolidation, which has
become a generalized phenomenon in the world pharmaceutical industry, has started taking
place in India. The Pharmaceutical Industry, with its rich scientific talents and research
capabilities, supported by Intellectual Property Protection regime, is well set to mark its
place as a Sunrise Industry.
13
Sector’s involved
14
330 organized players contribute to 70% of total sales.
Types of drug systems in India
Ancient civilization allowed India to develop various kinds of medical and pharmaceutical
systems. In addition to the allopathic system, which is prevalent in the United States, Japan,
and Europe, the following types of medical and pharmaceutical systems are used by the
Indian people: ayurvedic, unani, siddha, and homeopathy .
Ayurveda
Ayurveda translates as the “science of life.” It encompasses fundamentals and philosophies
about the world and life, diseases, and medicines. The knowledge of ayurveda is compiled
in Charak Samhita and Sushruta Samhita. The curative treatment lies in drugs, diet, and
general mode of life. Siddha. The siddha system is one of the oldest Indian systems of
medicine. Siddha means “achievement.” Siddhas were saintly figures who achieved healing
through the practice of yoga. The siddha system does not look merely at a disease but takes
into account a patient’s age, sex, race, habits, environment, diet, physiological constitution,
and so forth. Siddha medicines have been effective in curing some diseases, and further
work is needed to truly understand why this system works. Unani. The unani system
originated in Greece and progressed to India during the medieval period. It involves
promotion of positive health and prevention of disease. The system is based on the humoral
theory, i.e., the presence of blood, phlegm, yellow bile, and black bile. A person’s
15
temperament is accordingly expressed as sanguine, phlegmatic, choleric, or melancholic.

Drugs derived from plant, metal, mineral, and animal origin are used in this system.
Homeopathy
Homeopathy flourished in Germany in the seventeenth and eighteenth centuries. In India, it
is one of the commonly used methods to treat diseases. Physicians in the time of
Hippocrates (400 BC) first observed that some substances produce symptoms of conditions
that they were then used to treat. On the basis of this finding, a homeopathic medicinal
agent, which can produce artificial symptoms in healthy human beings, can cure a similar
set of symptoms of natural diseases. It normally uses a single medicine, and the dosage is
minimal—just enough to cure the disease.
Yoga and Naturopathy

Yoga and naturopathy are ways of life. In naturopathy, one applies simple laws of nature. It
advocates proper attention to eating and living habits. It also involves hydrotherapy, mud
packs, baths, massage, and so forth. Yoga consists of eight components: restraint,
observance of austerity, physical postures, breathing exercises, restraining of the sense
organs, contemplation, meditation, and samadhi. Increasing interest exists in revisiting
these ancient drug systems. The Department of Indian Systems of Medicines and
Homeopathy was established in 1995 as a separate department in the Ministry of Health
and Family Welfare. One of the organization’s goals is to prepare standards for ayurvedic,
unani, sidhha, and homeopathy drugs. Good manufacturing practices for ayurvedic drugs
are at the final stage. The department is actively pursuing a proposal to establish a
medicinal-plant board to enhance the availability of quality raw materials, prepare a
database of medicinal plants, and collect information from ancient texts.
16
Types of products:
17
Specialty Pharma: Industry Landscape
Convergence is changing traditional market segments.

Although much of specialty pharma consists of hybrid players, the sector can be segmented
into three subcategories
Specialty Marketing
 Improve market visibility and branding of smaller and mid-size proprietary
products, and exploit revenue synergies
 Strength of sales and marketing infrastructure drives growth
 Reduced technology, market, and litigation risk
 May be dependent on one or two products or product platforms
Drug Delivery
 Create more effective delivery mechanisms for existing drugs and solutions for
product life cycle management for branded companies
 High R&D spend and technology risk
 Develop strategic alliances and partnerships for access to pipeline candidates and
therapeutic area platforms
 IP drives continued industry leadership
Generics
 Market generic versions of branded drugs
 Record numbers of drugs coming off patent
 First to file—first to market gains all important 6-month market exclusivity
 Litigation costs continue to rise
 Highly regulated industry
18
FACTS & FIGURES

Globally, India is
 4th in terms of volume (8% of world’s production)
 13th in terms of value
 Manufactures over 400 bulk drugs & 60,000 formulations
 Highly fragmented with 30,000 players
 330 companies holds 70% of the market share
 Witnessing a growth rate of about 10% over the last few years.
 Domestic consumption 57% Export revenues 43%.
 Between 2007-08 and 2011-12, the Indian domestic pharmaceutical market is
expected to grow at a CAGR of nearly 16%.
 The size of the domestic pharmaceutical market is larger than export market.
However, owing to the growth of global generics market, stringent price controls in
the domestic market, and better margins, the export market is growing much faster
than the domestic market.
 Traditional branded generics presently dominate the Indian pharmaceutical market
but the future will see strong growth in the specialty branded generics and patented
drug segments.
 Drugs for diabetes and cardiovascular diseases are expected to see the fastest
growth among all therapy areas during 2007-2011.
 The retail pharmaceutical market in India is presently highly unorganized; however,
a vast opportunity exists for the organized market.
19
 Over the last few years, Cipla, Ranbaxy and GlaxoSmithKline are controlling the
top three positions in the Indian pharmaceutical market.
Table I: Health statistics of India (6).
Subject Year of Reference

Particulars
Population May 2000
1000 million
2050
* 1533 million*
Crude birth rate(per 1000 population) 1998
* 26.4
Crude death rate (per 1000 population) 1998
* 9.0
Expectation of life at birth: male 1996–2001
62.4
Expectation of life at birth: female 1996–2001
63.4
Number of medical colleges in India 1999–2000
167
Total admission capacity for medicine 1998–1999
17,000
Number of pharmacy institutions imparting
degrees in pharmacy 1999–2000
112
Number of pharmacy institutions imparting
diplomas in pharmacy 1999–2000
325
Total admission capacity for pharmacy 1997–1998
5610
Number of doctors registered 1994–1995
489,189
Number of hospitals 1994–1995
13,692
Number of qualified nurses 1998–1999
607,376
Health statistics of India

20
Table I summarizes the health statistics of India (6). India is the second largest country in
the world, with a population of approximately 1 billion. The population is expected to grow
to about 1.5 billion by 2050. Life expectancy at birth for males and females is 62.4 and
63.4 years, respectively, which is much lower than that of the United States. The total
admission capacities for medical and pharmacy institutions of higher learning are 17,000
and 5610, respectively. India has approximately 14,000 hospitals. The number of registered
doctors and nurses is about 490,000 and 600,000, respectively.
Table II: Value of production of bulk drugs and formulations in India

during the past decade (6).
BULK DRUGS
Formulations
Value Value in Value
Value in
Year Rs. in Cr $ Millions** % Growth Rs. in Crores
Millions** Growth
1991–92 900 1 83.7 24.0 4800
979.6 25.0
1992–93 1150 234.7 27.8 6000
1224.5 25.0
1993–94 1320 269.4 14.8 6900
1408.2 15.0
1994–95 1518 309.8 15.0 7935
1619.4 15.0
1995–96 1822 371.8 20.0 9125
1862.2 15.0
1996–97 2186 446.1 19.9 10494
2141.6 15.0
1997–98 2623 535.3 20.0 12068
2462.9 15.0
1998–99 3148 642.5 20.0 13878
2832.3 15.0
21
1999–00* 3777 770.8 16.7 15860

3236.7 12.5
2000–01* 4344 886.5 15.0 17843
3641.5 12.5
* Estimated.
**Currency exchange rate: Rs 49 _ US $1.00 or Rs 1 crore _ $0.204082 million.
Table III: Total value of imports and exports of drugs and

pharmaceuticals from 1991–1992 to
1999–2000 (6).
Total Imports Total Exports
Rupees % Growth over Rupees %

Growth over
Year in Crores $ Million Previous Year in Crores $ Million
Previous Year
1991–92 807.4 164.8 — 1489. 5 304.0

—
1992–93 1137.4 232.1 41 1541.5 314.6
3
1993–94 1440.0 293.9 27 1991.7 406.5
29
1994–95 1527.0 311.6 6 2465.3 503.1
24
1995–96 1867.0 381.0 22 3443.2 702.7
40
1996–97 1039.2 212.0 - 44 4340.0 885.7
24
1997–98 1447.1 295.3 39 5353.0 1092.5
23
1998–99 1446.8 295.3 _0.02 6153.0 1255.7
15
1999–2000 1502.0 306.5 4 6631.0 1353.3
8
Currency exchange rate: Rs 49 _ US $1.00 or Rs 1 crore _ $0.204082 million.
Table IV: Exports of formulations and basic and crude drugs

with value and growth percentages from 1990–1991 to
1998–1999 (6).
Formulations Basic Drugs Crude
Drugs
Year Rupee $ in % Rupee $ in % Growth Rupees $ in % Growth

in Millio Growt s in Million over pr in Millio over
Crore n h pr Crores s yr Crores ns Previous
s y Year
22
90-91 985.5 210.1 118 157.8 32.2 -55 111.3 22.7 27

91-92 508.7 103.8 -26 838.7 171.2 431 142.1 29 28
92-93 965.5 197.0 90 409.5 83.6 -51 166.5 34.0 17
93-94 1310. 267.5 36 530.8 108.3 30 150.1 30.6 -10
94-95 8 307.2 15 760.1 155.1 43 199.7 40.8 33
95-96 1505. 417.3 36 1132. 231.2 49 265.5 54.2 33
96-97 5 492.8 18 9 339.7 47 260.7 53.2 ----
97-98 2044. 597.3 21 1664. 452.0 33 211.4 43.1 -19
98-99 8 632.9 6 5 585.8 30 181.2 37.0 -14
2414. 2214.
8 8
2926. 2870.
8 4
3101.
4
FUNCTIONS OF A PHARMACEUTICAL COMPANY:
FOUR MAJOR FUNCTIONS:
1. Research and Development

2. Regulators
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3. Production
4. Quality
5. Marketing
Research and Development:
1. Drug Discovery
2. Drug Development
Drug Discovery: It is the process by which potential drugs are discovered or designed. In
the past most drugs have been discovered either by isolating the active ingredient from
traditional remedies or by serendipitous discovery. Modern biotechnology often focuses on
understanding the metabolic pathways related to a disease state or pathogen, and
manipulating these pathways using molecular biology or Biochemistry. A great deal of
early-stage drug discovery has traditionally been carried out by universities and research
institutions.
Drug development: It refers to activities undertaken after a compound is identified as a

potential drug in order to establish its suitability as a medication. Objectives of drug
development are to determine appropriate formulation as well as to establish safety.
Regulators:
This department is responsible for getting approval or license for the particular drugs
manufactured by their company. Every drug has to be approved by the central body before
it is marketed to the customers. Regulators are doing the following activities in a pharma
company
1. Keeping in touch with doctors in the government hospitals regularly

2. Introducing the newly developed drugs to the doctors, then drugs will be given to
the patients by doctors’ prescription.
3. Doctors will analyze the patients normalcy, after they have the drugs
4. As per the patients improvements, a separate report will be prepared for the drug
and will be given to the regulatory department.
5. These report will be submitted before the DCD (Drug Control Department) by
regulatory department
6. As per the doctor’s report drug will be licensed by the DCD.
About DCD: The Drugs Control Organization was functioning, as a subordinate office
under Directorate of Health Services till January 1986 and Director Health Services was
24
the Ex-officio Drugs Controller. Thereafter, The Drugs Control Organization became an
independent Department with Drugs Controller as Head of Department.
The Drugs Control Department of Delhi State is enforcing the provisions of following
statutes, enacted by Government of India:
1. Drugs & Cosmetics Act, 1940 and Rules made there under.
2. Drugs & Magic Remedies (Objectionable Advertisements) Act, 1954.
3. Drugs (Prices Control) Order, 1995.
i. Inspection for grant / renewal of licences for the manufacture of allopathic drugs
including whole human blood / blood components / Blood products, surgical
dressings, diagnostic reagents/ Kits, disposable syringes/needles/perfusion sets,
repacking of drugs, homoeopathic medicines and cosmetics.
ii. Inspection for grant / renewal of licences for retail and wholesale of drugs including
homoeopathic medicines. No licence for sale of Ayurvedic /Unani / siddha
medicines and cosmetics is required.
iii. Collection of samples of drugs & cosmetics from mfg./ sale premises for test /
analysis to check their quality being manufactured and sold in Delhi.
iv. Inspections and raids with a view to detect offences under the Act specially
movement and sale of spurious drugs/ cosmetics.
v. Investigations of cases of contraventions under the Act.
vi. Inspections of the premises licensed for manufacture and sale of drugs, with a view
to ensure that conditions of the licenses are complied with.
vii. Launching of prosecutions against persons / firms found contravening the

provisions of the Act.
Production:
Once the drug is approved by the DCD, Regulatory dept will give the MFR (Master
Formulation Record) to the Production Department. As per the MFR, following important
processes will be taken in a pharmaceutical company to produce tablets.
1. Dispensing Of Raw materials
2. Drying
3. Sifding
4. Plending
5. Slugging
25
6. Multimill
7. Compression
8. Package
Dispensing of Raw materials: With the help of R & D, the required raw materials will be
purchased by the materials department to the purpose of production.
Drying: In which chemical component will be completed dried to remove the water
contents.
Sifdying: Small dust particles will be removed from the raw materials by these process.
Slugging: In this process, the chemical components will be made as round shaped particles
for further process.
Multimill: Here the round shaped particles will be broken and make it as powder.
Compression: These processed chemical substances will be compressed to get the desired
shape such as vowel or round. Now tablets will be ready for packaging process.
Packaging: There are two types of process
Strip Packing: Here drugs will be packed by aluminium foils
Blister Packing: Tables will be covered by PVC (Poly Vinyl Chloride) foils.
Then foils will be packed in Carton, each carton will have leaflet with adequate
information.
Quality:
Quality Assurance: This division will ensure the following things with the help of R&D.
1. Weight,
2. Hardness
3. Thickness
4. Friability ( Tendency to loose weight)
5. Disintegration (Dissolving power in the water; Maximum 15 minutes for all the
drugs to be dissolved in the water)
Quality Control: Three most important steps are taken in this quality control
26
1. Stability: It is the test to identify the expiry date for a drug and will keep the drugs
still it gets expired.
2. Analysis: HPLC (High Pressure Liquid Chromatography) it’s used to separate,

identify, and quantify drugs. HPLC utilizes a column that holds chromatographic
packing material (stationary phase), a pump that moves the mobile phase(s) through
the column, and a detector that shows the retention times of the molecules.
3. UV Spec: Drugs will be tested by sparking the Ultra Violet rays.
Marketing Division:
Every Pharmaceutical company will have their own marketing and sales strategies to
introduce the drugs into the market. Drugs will be pushed into the market through doctors
normally. Doctors will be approached by sales professionals often. Apart from that they
will take care of retail, distributor and wholesale sales.
MAJOR PLAYERS
Market leaders in terms of revenue

The following is a list of the 20 largest pharmaceutical and biotech companies
ranked by healthcare revenue. Some companies (eg, Bayer, Johnson and Johnson
and Procter & Gamble) have additional revenue not included here. The phrase Big
27
Pharma is often used to refer to companies with revenue in excess of $3 billion,

and/or R&D expenditure in excess of $500 million.
Revenue Rank 2006

Total Net
Reven Healthcar income/
ues e R&D (loss)
(USD 2006 2006
Comp million (USD mill (USD mill Employee
any Country s) ions) ions) s 2006
Johnson and
1 Johnson USA 53,324 7,125 11,053 138,000
2 Pfizer USA 48,371 7,599 19,337 122,200
3 Bayer Germany 44,200 1,791 6,450 106,200
Glaxo United
4 SmithKline Kingdom 42,813 6,373 10,135 106,000
Switzerla
5 Novartis nd 37,020 5,349 7,202 102,695
Sanofi-
6 Aventis France 35,645 5,565 5,033 100,735
Hoffmann– Switzerla
7 La Roche nd 33,547 5,258 7,318 100,289
UK/Swed
8 AstraZeneca en 26,475 3,902 6,063 98,000
9 Merck & Co. USA 22,636 4,783 4,434 74,372
Abbott
10 Laboratories USA 22,476 2,255 1,717 66,800
11 Wyeth USA 20,351 3,109 4,197 66,663

Bristol-
Myers
12 Squibb USA 17,914 3,067 1,585 60,000
Eli Lilly and
13 Company USA 15,691 3,129 2,663 50,060
14 Amgen USA 14,268 3,366 2,950 48,000
Boehringer
15 Ingelheim Germany 13,284 1,977 2,163 43,000
Schering-
16 Plough USA 10,594 2,188 1,057 41,500
Baxter
17 International USA 10,378 614 1,397 38,428
28
Takeda
Pharmaceutic
18 al Co. Japan 10,284 1,620 2,870 15,000
19 Genentech USA 9,284 1,773 2,113 33,500

Procter &
20 Gamble USA 8,964 n/a 10,340 29,258
29
Top 10 Indian Players
Top 10 Pharmaceuticals in India, 2008

Rank Company Revenue 2008 Revenue 2008
(Rs crore) (USD millions)
1 Ranbaxy 4,461 1,026
2 Dr.Reddy’s 1,933 444

Laboratories
3 Cipla 1,842 423
4 Ashwin Dalvi 1,387 319

India
5 Aurobindo Pharma 1,260 290
6 GlaxoSmithKline 1,228 282
7 Lupin Laboratories 1,180 271
30
8 Sun 2,375 550

Pharmaceutical
Industries
9 Cadila Healthcare 1,091 251
10 Wockhardt 980 225
SWOT ANALYSIS:
It is often said that the pharma sector has nocyclical factor attached to it. Irrespective of
whether the economy is in a downturn or in an upturn, the general belief is that demand for
drugs is likely to grow steadily over the longterm. True in some sense. But there are risks.
The SWOT analysis of the industry reveals the position of the Indian pharma industry in
respect to its internal and external environment.
Strengths
 Low cost - Indian manufacturers are one of the lowest cost producers of drugs in
the world. With a scalable labor force, Indian manufactures can produce drugs at
40% to 50% of the cost to the rest of the world. In some cases, this cost is as low
as 90%.
 Strong technical skills – Indian pharmaceutical industry posses excellent chemistry

and process reengineering skills. This adds to the competitive advantage of the
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Indian companies. The strength in chemistry skill helps Indian companies to

develop processes, which are cost effective.
 Large untapped market - Indian with a population of over a billion is a largely

untapped market. In fact the penetration of modern medicine is less than 30% in
India. To put things in perspective, per capita expenditure on health care in India is
US$ 93 while the same for countries like Brazil is US$ 453 and Malaysia US$189.
 Huge market for lifestyle drugs – The growth of middle class in the country has
resulted in fast changing lifestyles in urban and to some extent rural centers. This
opens a huge market for lifestyle drugs, which has a very low contribution in the
Indian markets.
 Growth of middle class - The growth of middle class in the country has resulted in
fast changing lifestyles in urban and to some extent rural centers. This opens a huge
market for lifestyle drugs, which has a very low contribution in the Indian markets.
 Competent workforce - Indian manufacturers are one of the lowest cost producers
of drugs in the world. India has a pool of personnel with high managerial and
technical competence as also skilled workforce. It has an educated work force and
English is commonly used. Professional services are easily available.
With a scalable labor force, Indian manufactures can produce drugs at 40% to 50%
of the cost to the rest of the world. In some cases, this cost is as low as 90%.
 Information Technology - It has a good network of world-class educational

institutions and established strengths in Information Technology.
 Globalization - The country is committed to a free market economy and
globalization. Above all, it has a 70 million middle class market, which is
continuously growing.
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 Consolidation - For the first time in many years, the international pharmaceutical
industry is finding great opportunities in India. The process of consolidation, which
has become a generalized phenomenon in the world pharmaceutical industry, has
started taking place in India.
Weaknesses
 Poor R&D expenditure - Compared to the global pharmaceutical industry, Indian

R&D expenditure is still minuscule, which could have a negative effect in the long
run, especially in Product Patent regime. The average R & D spends in India,
though growing at a CAGR of 18% over last five years, is just 1.9% of sales, as
against 9-10% spend by global pharma companies.
 Tag of being “Copy Cats” – Majority of the Indian companies is dependent on

replicating drugs developed by MNCs, hence Indian companies are viewed in not
so good light.
 Price Regulation - The Indian pharma companies are marred by the price
regulation. Over a period of time, this Over a period of time, this regulation has
reduced the pricing ability of companies. The NPPA (National Pharma Pricing
Authority), which is the authority to decide the various pricing parameters, sets
prices of different drugs, which leads to lower profitability for the companies. The
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companies, which are lowest cost producers, are at advantage while those who
cannot produce have either to stop production or bear losses.
 Slow growth - Indian pharma market is one of the least penetrated in the world.
However, growth has been slow to come by. As a result, Indian majors are relying
on exports for growth. To put things in to perspective, India accounts for almost
16% of the world population while the total size of industry is just 1% of the
global pharma industry.
 Low entry barriers - Due to very low barriers to entry, Indian pharma industry is
highly fragmented. This makes Indian pharma market increasingly competitive.
The industry witnesses price competition, which reduces the growth of the
industry in value term. To put things in perspective, in the year 2003, the industry
actually grew by 10.4% but due to price competition, the growth in value terms
was 8.2% (prices actually declined by 2.2%)
 Labour laws - Outdated and restrictive labour laws are hampering all the industries
in India and making it unviable for the MNCs to set up production base in India.
 Lack of product patent - Indian pharmaceutical sector has been marred by lack of
product patent, which prevents global pharmaceutical companies to introduce new
drugs in the country and discourages innovation and drug discovery.
 Highly fragmented - Due to very low barriers to entry, Indian pharma industry is
highly fragmented with about 300 large manufacturing units and about 18,000 small
units spread across the country. This makes Indian pharma market increasingly
competitive. The industry witnesses price competition, which reduces the growth of
the industry in value term. To put things in perspective, in the year 2003, the
industry actually grew by 10.4% but due to price competition, the growth in value
terms was 8.2% (prices actually declined by 2.2%).
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Opportunities
 Off patent drugs - Large number of drugs going off-patent in Europe and in the US
between 2005 to 2009 (approx. $80 billion) 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.
 Expansion - Opening up of health insurance sector and the expected growth in per
capita income are key growth drivers from a long-term perspective. This leads to
the expansion of healthcare industry of which pharma industry is an integral part.
 Outsourcing - Being the lowest cost producer combined with FDA approved
plants; Indian companies can become a global outsourcing hub for pharmaceutical
products.
 Impact of the Health Insurance Sector - Opening up of health insurance sector and
the expected growth in per capita income are key growth drivers from a long-term
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perspective. This leads to the expansion of healthcare industry of which pharma

industry is an integral part.
 Innovation - 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.
Threats
 Transition from “Process” patent to “Product” patent – This is the major threat
Indian pharma industry is facing. Indian companies especially medium and small
sized do not have capabilities to develop new molecules, and they may succumb to
the giants.
 Counterfeit drugs – The extent of the problem of counterfeit drugs is unknown.

Counterfeiting is difficult to detect, investigate, and quantify. So, it is hard to know
or even estimate the true extent of the problem. What is known is that they occur
worldwide and are more prevalent in developing countries. It is estimated that
upwards of 10% of drugs worldwide are counterfeit, and in some countries more
than 50% of the drug supply is made up of counterfeit drugs
 Other low cost countries - Threats from other low cost countries like China and
Israel exists. However, on the quality front, India is better placed relative to China.
So, differentiation in the contract manufacturing side may wane.
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 VAT - The short-term threat for the pharma industry is the uncertainty regarding
the implementation of VAT. Though this is likely to have a negative impact in the
short-term, the implications over the long-term are positive for the industry.
Michael Porter’s Five Forces (5f) Model Of Indian

Pharmaceutical Industry
Today's business environment is extremely competitive and in economics parlance where

perfect competition exists, the profits of the firms operating in that industry will become
zero.
However, this is not possible because, firstly no company is a price taker (i.e. no company
will operate where profits are zero). Secondly, they strive to create a competitive advantage
to thrive in the competitive scenario. Michael Porter, considered to be one of the foremost
gurus' of management, developed the famous five-force model, which influences an
industry.
Here, we apply this model for the Indian pharmaceutical industry.
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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% market share, and
the top five players together have about 18% 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.
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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 to 4 times. For smaller companies, it
would be even higher.
Many smaller players that are focused on a particular region have a better hang of the
distribution channel, making it easier to succeed, albeit in a limited way.
An important fact is that pharmaceutical industry 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 laws favoring imitators.
Consequently, product differentiation is not the driver, cost competitiveness is. However,
companies like Pfizer and Glaxo have created big brands in over the years, which act as
product differentiation tools. This will enhance over the long term, as product patents come
into play from 2005.
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 pharma industry, the buyers are scattered and they as such does not wield much power in
the pricing of the products. However, government with its policies plays an important role
in regulating pricing through the NPPA (National Pharmaceutical Pricing Authority).
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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.
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 amongst doctors is the key for long-
term survival. Also, quality regulations by the government may put some hindrance for
establishing new manufacturing operations.
Going forward, the impending new patent regime will raise the barriers to entry. But it is
unlikely to discourage new entrants, as market for generics will be as huge.
Threat of Substitutes
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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 on going concern,
pharmaceutical industry seems to have an infinite future.
However, in recent times, the advances made in the field of biotechnology, can prove to be
a threat to the synthetic pharmaceutical industry.
TRENDS AND STRATEGIES:
The Indian domestic pharmaceutical industry is increasingly becoming globally

competitive to counter the weaknesses and threats. The key trends and strategies being
adopted by the local pharmaceutical industry are:
 Increased R&D Focus
Driven by the imminent change to a product patent regime at home from 2005 the leading
pharmaceutical companies in India have been increasing their R&D budgets over the years.
Indian pharmaceutical companies are likely to double their expenditure on R&D over the
next 2 years.
 Exports driven growth
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Indian pharmaceutical companies are on a global beat. Currently, exports contribute more
than half the total revenues for most of the Indian pharmaceutical majors. Exports have
increased in recent years as Indian pharmaceutical companies have made deep inroads into
the regulated generic markets of the US and Europe, in addition to unregulated markets.
 MNCs showing growing interest in India
The share of MNCs in the Indian pharmaceuticals market is expected to increase with the
recognition of product patents in the country from 2005, as they will be able to freely
introduce top of the line, patented products in the domestic market. Moreover, with the new
price control order expected to be passed soon, DPCO coverage will be substantially
reduced and margins of most MNCs with strong brands will drastically improve. The
Indian Government’s decision to allow 100 per cent Foreign Direct Investment into the
drugs and pharmaceutical industry is expected to aid increased investment in R&D
infrastructure by MNCs in India.
Marketing of pharmaceutical products:
Pharmaceutical companies commonly spend a large amount on advertising, marketing and

lobbying. In the US, drug companies spend $19 billion a year on promotions. Advertising
is common in healthcare journals as well as through more mainstream media routes. In
some countries, notably the US, they are allowed to advertise direct to the general public.
Pharmaceutical companies generally employ sales people (often called 'drug reps' or, an
older term, 'detail men') to market directly and personally to physicians and other
healthcare providers. In some countries, notably the US, pharmaceutical companies also
employ lobbyists to influence politicians. Marketing of prescription drugs in the US is
regulated by the federal Prescription Drug Marketing Act of 1987.
To healthcare professionals
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Physicians, physician assistants, and nurse practitioners are perhaps the most important
players in pharmaceutical sales because they write the prescriptions that determine which
drugs will be used by the patient. Influencing the physician is often seen as the key to
prescription pharmaceutical sales. A medium-sized pharmaceutical company might have a
sales force of 1000 representatives. The largest companies have tens of thousands of
representatives. Currently, there are approximately 100,000 pharmaceutical sales reps in
the United States pursuing some 120,000 pharmaceutical prescribers. The number doubled
in the four years from 1999 to 2003. Drug companies spend $5 billion annually sending
representatives to physician offices. Pharmaceutical companies use the service of
specialized healthcare marketing research companies to perform Marketing research among
Physicians and other Healthcare professionals.
To insurance and public health bodies
Private insurance or public health bodies (e.g. the NHS in the UK) decide which drugs to
pay for, and restrict the drugs that can be prescribed through the use of formularies. Public
and private insurers restrict the brands, types and number of drugs that they will cover. Not
only can the insurer affect drug sales by including or excluding a particular drug from a
formulary, they can affect sales by tiering or placing bureaucratic hurdles to prescribing
certain drugs as well. In January 2006, the U.S. instituted a new public prescription drug
plan through its Medicare program known as Medicare Part D. This program engages
private insurers to negotiate with pharmaceutical companies for the placement of drugs on
tiered formularies.
To retail pharmacies and stores
Commercial stores and pharmacies are a major target of non-prescription sales and
marketing for pharmaceutical companies.
Direct to consumer advertising
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Since the 1980s new methods of marketing for prescription drugs to consumers have
become important. Direct-to-consumer media advertising was legalised in the FDA
Guidance for Industry on Consumer-Directed Broadcast Advertisements
Controversy about drug marketing and lobbying
There has been increasing controversy surrounding pharmaceutical marketing and

influence. There have been accusations and findings of influence on doctors and other
health professionals through drug reps, including the constant provision of marketing 'gifts'
and biased information to health professionals; highly prevalent advertising in journals and
conferences; funding independent healthcare organizations and health promotion
campaigns; lobbying physicians and politicians (more than any other industry in the US;
sponsorship of medical schools or nurse training; sponsorship of continuing educational
events, with influence on the curriculum; and hiring physicians as paid consultants on
medical advisory boards.
To help ensure the status quo on U.S. drug regulation and pricing, the pharmaceutical
industry has thousands of lobbyists in Washington, DC that lobby Congress and protect
their interests. The pharmaceutical industry spent $855 million, more than any other
industry, on lobbying activities from 1998 to 2006, according to the non-partisan Center for
Public Integrity.
Some advocacy groups, such as No Free Lunch, have criticized the effect of drug
marketing to physicians because they say it biases physicians to prescribe the marketed
drugs even when others might be cheaper or better for the patient.
There have been related accusations of disease mongering (over-medicalising) to expand

the market for medications. An inaugural conference on that subject took place in Australia
in 2006.
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A 2005 review by a special committee of the UK government came to all the above
conclusions in a European Union context whilst also highlighting the contributions and
needs of the industry.
There is also huge concern about the influence of the pharmaceutical industry on the
scientific process. Meta-analyses have shown that studies sponsored by pharmaceutical
companies are several times more likely to report positive results, and if a drug company
employee is involved (as is often the case, often multiple employees as co-authors and
helped by contracted marketing companies) the effect is even larger. Influence has also
extended to the training of doctors and nurses in medical schools, which is being fought.
It has been argued that the design of the Diagnostic and Statistical Manual of Mental
Disorders and the expansion of the criteria represents an increasing medicalization of
human nature, or "disease mongering", driven by drug company influence on psychiatry.
The potential for direct conflict of interest has been raised, partly because roughly half the
authors who selected and defined the DSM-IV psychiatric disorders had or previously had
financial relationships with the pharmaceutical industry. The president of the organisation
that designs and publishes the DSM, the American Psychiatric Association, recently
acknowledged that in general American psychiatry has "allowed the biopsychosocial model
to become the bio-bio-bio model" and routinely accepted "kickbacks and bribes" from
pharmaceutical companies.
Developing world
The role of pharmaceutical companies in the developing world is a matter of some debate,
ranging from those highlighting the aid provided to the developing world, to those critical
of the use of the poorest in human clinical trials, often without adequate protections,
particularly in states lacking a strong rule of law. Other criticisms include an alleged
reluctance of the industry to invest in treatments of diseases in less economically advanced
countries, such as malaria; Criticism for the price of patented AIDS medication, which
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could limit therapeutic options for patients in the Third World, where the most people have
AIDS.
In September 2008 the Open Source Drug Discovery Network was launched in India to
combat infectious diseases common to developing countries.
Research and development:
Drug discovery is the process by which potential drugs are discovered or designed. In the
past most drugs have been discovered either by isolating the active ingredient from
traditional remedies or by serendipitous discovery. Modern biotechnology often focuses on
understanding the metabolic pathways related to a disease state or pathogen, and
manipulating these pathways using molecular biology or Biochemistry. A great deal of
early-stage drug discovery has traditionally been carried out by universities and research
institutions.
Drug development refers to activities undertaken after a compound is identified as a

potential drug in order to establish its suitability as a medication. Objectives of drug
46
development are to determine appropriate Formulation and Dosing, as well as to establish

safety. Research in these areas generally includes a combination of in vitro studies, in vivo
studies, and clinical trials. The amount of capital required for late stage development has
made it a historical strength of the larger pharmaceutical companies.
Often, large multinational corporations exhibit vertical integration, participating in a broad

range of drug discovery and development, manufacturing and quality control, marketing,
sales, and distribution. Smaller organizations, on the other hand, often focus on a specific
aspect such as discovering drug candidates or developing formulations. Often,
collaborative agreements between research organizations and large pharmaceutical
companies are formed to explore the potential of new drug substances.
The cost of innovation
Drug discovery and development is very expensive; of all compounds investigated for use
in humans only a small fraction are eventually approved in most nations by government
appointed medical institutions or boards, who have to approve new drugs before they can
be marketed in those countries. Each year, only about 25 truly novel drugs (New chemical
entities) are approved for marketing. This approval comes only after heavy investment in
pre-clinical development and clinical trials, as well as a commitment to ongoing safety
monitoring. Drugs which fail part-way through this process often incur large costs, while
generating no revenue in return. If the cost of these failed drugs is taken into account, the
cost of developing a successful new drug (New chemical entity or NCE), has been
estimated at about 1 billion USD (not including marketing expenses). A study by the
consulting firm Bain & Company reported that the cost for discovering, developing and
launching (which factored in marketing and other business expenses) a new drug (along
with the prospective drugs that fail) rose over a five year period to nearly $1.7 billion in
2003.
These estimates also take into account the opportunity cost of investing capital many years
before revenues are realized (see Time-value of money). Because of the very long time
needed for discovery, development, and approval of pharmaceuticals, these costs can
47
accumulate to nearly half the total expense. Some approved drugs, such as those based on
re-formulation of an existing active ingredient (also referred to as Line-extensions) are
much less expensive to develop. The consumer advocacy group Public Citizen suggests on
its web site that the actual cost is under $200 million, about 29% of which is spent on
FDA-required clinical trials. For me-too-drugs and for generics, the cost are even less.
Calculations and claims in this area are controversial because of the implications for
regulation and subsidization of the industry through federally funded research grants.
Controversy about drug development and testing
There have been increasing accusations and findings that clinical trials conducted or funded
by pharmaceutical companies are much more likely to report positive results for the
preferred medication.
In response to specific cases in which unfavorable data from pharmaceutical company-

sponsored research was not published, the Pharmaceutical Research and Manufacturers of
America have published new guidelines urging companies to report all findings and limit
the financial involvement in drug companies of researchers.US congress signed into law a
bill which requires phase II and phase III clinical trials to be registered by the sponsor on
the clinicaltrials.gov website run by the NIH.
Drug researchers not directly employed by pharmaceutical companies often look to

companies for grants, and companies often look to researchers for studies that will make
their products look favorable. Sponsored researchers are rewarded by drug companies, for
example with support for their conference/symposium costs. Lecture scripts and even
journal articles presented by academic researchers may actually be 'ghost-written' by
pharmaceutical companies. Some researchers who have tried to reveal ethical issues with
clinical trials or who tried to publish papers that show harmful effects of new drugs or
cheaper alternatives have been threatened by drug companies with lawsuits.
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R & D (Process):
The Key to success in this industry is research & development. R&D is the starting of the
industry value chain and is also the most important value creator. Companies that involve
in R&D do so in specific areas. They chose specific therapeutic areas to target based on
their strengths in the market, and the commercial potential.
Kinds of Research
BASIC R&D
This involves discovering new molecules from scratch. It is highly capital intensive in
nature as it relies on a great deal of automation. There are only a handful of Indian players
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that are able to conduct some form of basic research (Ranbaxy & DRL), and the top five
have announced plans. In the drug development process in any pharmaceutical company a
typical product takes 7-10 years, and $350-500 million internationally but the statistic
varies greatly with the disease type.
PROCESS RESEARCH OR REVERSE ENGINEERING

This entails research on the process by which the drug is made and making modifications
to the process. Here a company typically copies the molecule of another company and
develops a highly cost effective method of producing that molecule. It is much less
expensive to conduct since they do not need to conduct any discovery research or clinical
trials. Till now this has been the focus of most Indian players.
ANALOGUE OR DISCOVERY RESEARCH

Companies modify an existing molecule or a new one that has not been commercialized
after accessing international patent databases, to arrive at a new molecule.
BIOTECHNOLOGY RESEARCH
It aims at establishing the link between ones genes and the diseases one has and could one
day determine the best drug for an individual based on ones genetic makeup. Most of these
companies are however doing reverse engineering in the biotech area, and there is very
little basic biotech research in India.
NDDS RESEARCH
NDDS (New drug delivery system) entails delivering existing drugs in a novel method.
Indian companies are looking to research NDDS systems to new drugs being developed.
This takes 3 years, at a cost of between US $ 10 and 20 Million. An NDDS could fetch you
a patent if it is a new concept, and if it is n improvement it could give you market
exclusivity for 3 years in the US.
R&D In India
The Indian industry has attained cost advantages in process research used for generic drugs
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& value added generics production, which accounts for 60-80 percent of total sales. This
cost advantage is in the fact that:
- Most infrastructure facilities are much cheaper in India than in developed countries.
- Indian scientists can be attracted at much cheaper rates than their US counterparts.
The more value added basic research methodologies are being pursued by very few players
like Ranbaxy, Biocon & Dr. Reddys who are willing to take the risk of investing millions in
building research capabilities and developing molecules. In the absence of product patents
Indian companies ignored basic research and concentrated their R&D efforts toward
producing drugs through alternative processes. Consequently, total expenditure on R&D
was low (multinational pharmaceutical players spend about 13-16% of total sales on
R&D).
Investments made in R&D by the Indian pharmaceutical companies would yield 3-4
molecules a year, which is a very small number. There is very little private initiative to
invest in R&D. The government continues to bear the burden, with industry chipping in
with 10% to 12%. This also evident in the data of patent granted in the country where the
top firms granted patents are mostly MNCs. Indian industry instead mastered the art of
reverse engineering to gain competitive advantage, as the industry structure did not provide
incentives to invest in basic research.
Indian firms have invested very little in R&D in India due to:
- Lack of Product Patent protection: The delayed adoption of TRIPS in India is cited as the
major impediment to the possible investment by international companies in India.
- Inadequate profit base: The price control has squeezed the profit margins making it
difficult for Indian and international companies to cull out and invest sizable sums in R&D.
The profitability of Indian companies is also much lower than international levels. The pre-
tax profit margin of pharmaceutical companies in India is much less than 6% on sales in
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sharp contrast to the 18% profit margins common to international companies.
CHANGING SCENARIO OF INDIAN R&D
The acceptance of provisions of the agreement on TRIPS is expected to change the

orientation of Indian companies towards R & D. Indian companies have started investing in
complex R & D activities like novel drug delivery system and new drug discovery. The
advantages of conducting R & D in India are given below.
- Lower costs: R&D expenditure in India is far lower than in the developed countries. The
cost differentials are due to lower costs in machinery and human capital. The cost
advantages can only be exploited if the necessary funds required can be sourced. Following
India’s acceptance of the provision of Trade Related Intellectual Property Rights (TRIPS)
under the GATT agreement, investments are expected to start flowing into the area of basic
research.
- Population advantages: A larger population base would facilitate clinical trials for
diseases especially prevalent in developing countries. Indian R&D efforts could be directed
towards infectious diseases that are especially prevalent in Asian countries. Such R&D
activities will be targeted towards segments such as antibiotics, anti-parasitics and other
anti-bacterials.
Drug discovery in India—Trends and challenges
Buoyed by India's recent laws recognising international pharmaceutical patents, more than
a dozen Indian companies have launched new drug discovery programs or reinvigorated
existing ones. The key to the future of India's pharma industry will depend on its ability to
scale back its reliance on low-cost manufacturing and to foster innovation. A review of the
trends and challenges in the past few years
Drug discovery research and development in India comprises collaborative research, basic
drug discovery and development and contract services. Due to increasing cost of
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developing a new drug and risks involved in the process, companies are looking to mitigate
risks involved. One of the recent trends is the de-merger of R&D units to unlock values.
For Indian life sciences companies engaged in basic pharma research, the year 2007 was a
year of filing patent applications. Most of the filings came from companies from Mumbai,
Hyderabad and Bangalore which are engaged in chemical and biotechnology-based
research of new medicines. The trend in patent applications is a pointer to India's growing
stature, wherein Indian companies that were once cautious have proved themselves well
versed in the game of innovation.
Demerging of R&D Units
A recent trend of de-risking the business model along with unlocking value from the drug
discovery program has started making headlines. Drug majors including Ranbaxy
Laboratories, Sun Pharmaceuticals and Nicholas Piramal India Limited (NPIL) have
already hived off their R&D divisions into separate entities. Even Dr Reddy's Laboratories
(DRL) has followed the same path, but in a slightly different manner. The drug maker has
floated Perlecan Pharma in collaboration with ICICI Venture and CVC to take care of its
novel drug business. The reasons are many and interlinked and the benefits that research
driven companies are seeking by de-merging their R&D arm are noted below in brief.
 This is a move intended to boost investor sentiment as by carving out the

expenditure related to new drug R&D, the balance sheet looks much better.
Through the current de-merger initiatives, pharma companies can reduce R&D
costs and improve margins of their standalone business
 In all the cases, companies have restricted the hive off to new chemical entities
(NCEs) only. However, the drug delivery system clinical and the generic part will
remain intact with the parent (Glenmark Pharma is an exception). The rationale is
that generic and innovation are two totally different businesses, with different time
frames, certainty profiles and investments. The approach to the projects that
scientists need to take is also entirely different. De-mergers will provide greater
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flexibility and impetus to the drug discovery research programme while unlocking
significant value for the company and its shareholders
 Furthermore, costs escalate as new drug candidates mature (proceed to advanced
stages of clinical trials) and hence, funding becomes an important issue. New drug
research activity does not form part of the core operations of pharma companies,
which is why it becomes difficult to solely focus available resources and energy on
it
 A significant advantage is that promoters of these firms can sell either part or whole
of their stakes in the de-merged entities to raise funds for new R&D ventures or
simply to even recover their capital. Listing on stock exchanges also gives them
better visibility and helps to command better valuations. Of the de-mergers that
have happened so far, DRL has kept Perlecan Pharma unlisted and has licensed out
four products to a company for clinical development. SPARC is a full-fledged
research company that discovers and develops new drugs/delivery systems
 And last, creation of a separate company is an innovative way to mitigate risks
involved in the drug discovery business where, despite years of expensive research,
the success ratio is still small.
Partnering for drug discovery
Many Indian pharma companies have partnered for R&D and include large names like
Zydus Cadila, DRL, Ranbaxy, NPIL, Biocon, to name a few. Most companies have tied up
with other specialist research companies for development of new drugs on disease areas
like cancer, diabetes, malaria and nervous system disorders.
Similarly, DRL has partnered with ClinTec International for clinical trials and co-
development of its anti-cancer drug. ClinTec International will possess the marketing rights
for European markets while the commercialisation for the rest of the world and US markets
would be retained by DRL. It has also tied up with Torrent Pharma for the exclusive
marketing rights of its two hypertension drugs in Russia, where Torrent has a strong market
hold.
54
Business strategies comprising collaborative approach for drug discovery, strategic

sourcing and divesting of manufacturing assets with a buyback business are some of the
strategies increasingly used to work along with Indian MNCs. Co-opetition, denoting
collaboration and competition, whereby companies collaborate in identifying best practices
and sharing various steps in drug discovery to competing on generics, has been identified
by all leading MNC players and their Indian counterparts. To cite an example, GSK and
Ranbaxy have set up an early-stage partnership in drug research, under which GSK will
provide the Indian firm with leads, Ranbaxy will conduct lead optimisation and animal
trials, and GSK will take the drug through human trials. GSK will have exclusive rights to
sell any resulting product in developed-world markets, and the two firms will co-promote it
in India.
Challenges
Challenges facing the industry revolve around manpower and early stage funding. There is
severe paucity of trained personnel, the only solution being recruiting fresh graduates and
training them on the job. Such a situation leads to rampant poaching of trained people from
other companies.
R&D in the pharma industry is multi-faceted and draws upon the expertise of molecular
biologists, synthetic and analytical chemists, genomics and proteomics specialists,
pharmacologists and medical practitioners. Closely associated with these are regulatory and
quality assurance functions. However, according to industry sources, pharma companies
find a huge dearth of skilled resources in the critical areas of early stage drug discovery as
compared to chemistry or analytical chemistry wherein the talent is easily available.
A considerable challenge faced by the industry is venture capital (VC) funding, which in
India is severely limited. Funding pertains to private equity (PE) players that invest when
the candidate reaches the development phase. The focus is more towards the 'D' rather the
'R' in R&D. Most venture capitalists are unwilling to invest in biotech R&D. Rather, they
want to fund companies whose products and markets are clearly identified or
commercialisation of technologies already developed.
55
Government funding
Government grants are available, but they tend to be small and typically targeted to
government institutions or research bodies. There is little government support for private
sector R&D outside of that available from the Technology Development Fund, which
finances CSIR-approved projects. However, many state governments are setting up biotech
development funds of their own and earmarking significant amounts to invest in companies
located within their boundaries. An example is Gujarat Biotech Venture Fund (GVFL),
whose first investment under its biotech fund was providing an early stage funding of Rs 2
crore to Ahmedabad-based Celestial Biologicals, promoted by the Intas Group. GVFL,
formerly known as Gujarat Venture Finance Limited, is widely regarded as the pioneer of
venture capital in India.
The Small Business Innovation Research Initiative (SBIRI) set up in 2005 is the new
scheme launched by the Department of Biotechnology (DBT) to boost public-private-
partnership effort in the country. The distinctive feature of SBIRI is that it supports the
high-risk pre-proof-of-concept research and late stage development in small and medium
companies led by innovators with science backgrounds. The scheme covers all areas in
biotechnology related to healthcare, agriculture, industrial processes and environmental
biotechnology and biomedical devices and instruments.
The New Millennium Indian Technology Leadership Initiative (NMITLI) is the largest
public-private-partnership effort undertaken by the Government of India. In the six years of
its existence the programme has evolved 42 R&D projects covering diverse areas and
involving 287 partners (222 in the public sector and 65 in the private sector) with an
estimated outlay of Rs 300 crore. The role played by NMITLI is best illustrated by Bigtec.
In March 2008, NMITLI came in the news for funding Bigtec (a biotechnology start-up)
that had developed a hand-held diagnostic device. The Rs 6 crore NMITLI grant helped the
Bangalore-based Bigtec to miniaturise advanced medical technologies to create a so-called
lab-on-a-chip where biology, chemistry, electronics, optics, micro fluidics and software
converge in a hand-held device that can diagnose a pathogen in a fraction of the time taken
by a conventional system.
56
Way ahead
As per Ernst & Young's Global Pharmaceutical Center Thought Leadership Report,
Progressions 2006, India has been identified as an emerging hub for collaborative and
outsourced R&D. According to the report, many global companies are confronted by a
value crisis as they try to sustain a business model based on high costs of manufacturing,
R&D, marketing and sales, increasing regulatory scrutiny and reimbursement pressures.
Countries that can combine lower cost manufacturing with adequate regulatory protection
of intellectual property are well positioned to attract large pharma companies, India being a
prime example.
Industry insiders consider a negation of the cost advantage within the next ten to fifteen
years and are preparing for the next logical step in the evolutionary ladder—progression up
the value curve. The enabling environment for innovation being put in place and a
proactive government doing its utmost to promote this sector, has formed a unique
spiraling effect.
To thrive in the long term, Indian companies will need to make the transition towards
innovative R&D-driven enterprises and will need to find creative solutions around
challenges such as insufficient VC and indifferent PE markets. Indian companies would
need to find ways to strike a balance between making high investments in innovation to
help drive future growth, while still generating short term revenue growths, in order to
partake the high risk drug development market. This would result in more collaborative
drug discovery and development deals with innovator companies across the value chain.
57
INTELLECTUAL PROPERTY RIGHTS:
India's new product patent regime is the result of the WTO's Doha Round of negotiations in
2001. Final agreement was reached on TRIPs ground rules for patent protection among
WTO member countries, stating that both processes and products should be protected.
Subsequently, on March 22, 2005, India's
Parliament approved the Patents (Amendment) Act 2005, bringing in a system of product
patents backdated to January 1, 2005. The new regime protects only products arriving on
the market after January 1, 1995, abolishing the previous process patent system established
by the 1970 Patent Act.
Since the introduction of product patents the MNCs have largely returned, the most recent
being Merck & Co, which inaugurated its wholly owned subsidiary MSD India Pvt Ltd in
July 2005 after being absent for approximately 20 years. While the firm did not plan to set
up manufacturing facilities in India within the near future, it was looking at R&D prospects
58
in the country, beginning with clinical trials. The granting of patents to New Chemical
Entities or New Medical Entities involving one or more inventive steps. The industry is
also waiting to see whether the government will follow international guidelines governing
compulsory licensing, the process by which the TRIPs agreement permits governments, in
special cases, to waive the patent on a particular medicine. Elsewhere in the world, the
trade treaty allows compulsory licenses to be issued in response to a national emergency,
but in India they may currently be invoked due to factors such as the reasonability of a
product's price, and its potential for export and local manufacturing, among other issues.
The industry must have high levels of confidence in the country's regulatory framework. A
major drawback is that India offers no data protection (although it is provided by China,
which also has a good patents protection regime and a bigger domestic market than India).
A further disincentive is that drug prices on the Indian domestic market are the lowest in
the world.
 Misconceptions and Facts
Several myths have been propounded by the anti-Patent lobby. Most of these are based on
conjecture and are unsupportable on facts. The two most frequently employed are "High
Prices" and "Impact on Local Industry". Both of these are addressed below:
 Myth of ‘High Priced Medicines after Change in Patent Laws’
A myth is propagated that after introduction of Patent Act, in compliance with TRIPs
provisions, the prices of medicines will accelerate and medicines will become unaffordable
for people.
59
This fear is due to a lack of understanding of how the transition to a Patent Regime works
and how pharmaceutical prices are determined. Patents can never be awarded
retrospectively. Patents can only apply to new discoveries. The transition provisions of
TRIP’s ensure that patents in India will only be granted for totally new discoveries, post 1 st
January 1995.
Only items for which no patent has ever been granted in any other WTO country before 1 st
January, 1995 or for which no application was pending for a patent in any other WTO
country as on 1st January 1995 will ever be patentable in India. This means that any
medicinal product already available in the Indian market on the date of coming into force
of the new law, cannot, and will not, ever be patented in India.
It should be noted that it takes anywhere between 8-12 years for a new drug to be granted
registration by Drug Authorities of any country after which marketing permission is given.
This registration period comes out of the overall patent life of the medicines, which is now
almost universally 20 years from the date of application. A discoverer thus enjoys at best
only 8-12 years of Exclusive Marketing for recovering the cost of research. The number of
new drugs registered worldwide each year is between 25-35.
 What this essentially means is:
A. Within the transition period (1995-2004) allowed for India, not more than a handful
of new drugs will actually qualify for any form of exclusivity.
B. Even after India commences granting patents, by the time patented products
become a significant proportion of those already available locally; it will be another
10-15 years i.e. 2015-2020.
DPCO:
Drugs and formulations have been subjected to price control for more than three decades
now. The economic reforms initiated by the Government of India in July 1991, trickled
down to the Pharmaceutical Industry only in 1994 and that too partially. Price control in a
large number of industries has already been abolished.
60
The main objectives of the Drug Policy after the modifications in the Policy of 1986
announced in September 1994 are to ensure availability, at reasonable prices of essential
and life saving and prophylactic medicines of good quality; strengthening the system of
quality control over drug production and promoting the rational use of drugs in the country;
creating an environment conducive to channelizing new investment into the pharmaceutical
industry to encourage cost-effective production with economic sizes and introducing new
technologies and new drugs; and strengthening the indigenous capability for production of
drugs.
The Drugs Price Control Order (DPCO), 1995 is an order issued by the Government of
India under Section 3 of the Essential Commodities Act, 1955 to regulate the prices of
drugs. The Order provides the list of price-controlled drugs, procedures for fixation of
prices of drugs, method of implementation of prices fixed by Government and penalties for
contravention of provisions among other things. For the purpose of implementing
provisions of DPCO, powers of the Government have been vested in the National
Pharmaceutical Pricing Authority (NPPA). Drugs are essential for health of the society.
Drugs have been declared as essential and accordingly put under the Essential
Commodities Act. Only 74 out of 500 commonly used bulk drugs are kept under statutory
price control. All formulations containing these bulk drugs either in a single or combination
form fall under the price control category. However, the prices of other drugs can be
regulated, if warranted in public interest.
The NPPA was established on 29th August 1997 as an independent body of experts
following the Cabinet Committee’s decision in September 1994 while reviewing the Drug
Policy. The Authority has been entrusted with the task of fixation/revision of prices of
pharmaceutical products (bulk drugs and formulations), enforcement of provisions of the
Drugs (Prices Control) Order and monitoring the prices of controlled and decontrolled
drugs in the country.
 RESEARCH & DEVELOPMENT
61
Research & Development is the key to the future of pharmaceutical industry. The
pharmaceutical advances for considerable improvement in life expectancy and health all
over the world are the result of a steadily increasing investment in research. R & D in the
pharmaceutical industry in India is critical to find answers for some of the diseases peculiar
to a tropical country like India and also for finding solutions for unmet medical needs.
The R & D expenditure by the Indian pharmaceutical industry is around 1.9% of the
industry’s turnover. This obviously is very low when compared to the investment on R & D
by foreign research based pharma companies. They spend 10 – 16% of the turnover on R
& D. However, now that India is entering into the Patent protection area, many companies
are spending relatively more on R & D.
There is considerable scope for collaborative R & D in India. India can offer several
strengths to the international R & D community. These strengths relate to availability of
excellent scientific talents who can develop new synthetic molecules and plant derived
candidate drugs. Industrial R & D groups can also carry out limited primary screening to
identify lead molecules or even candidate drugs for further in vivo screening, pre-clinical
pharmacology, toxicology, animal and human pharmacokinetics and metabolic studies
before taking them up for human trials. In such collaborations, harmonised standards of
screening can be assured following established good laboratory practices. When it comes
to clinical evaluation at the time of multi-center trials, India would provide a strong base
considering the real availability of clinical materials in diverse therapeutic areas. Such
active collaboration will be mutually beneficial to both partners. According to a survey by
the Pharmaceutical Outsourcing Management Association and Bio/Pharmaceutical
Outsourcing Report, pharmaceutical companies are utilising substantially the services of
Contract Research Organisations (CROs). Indian Pharmaceutical Industry, with its rich
scientific talents, provides cost-effective clinical trial research. It has an excellent record of
development of improved, cost-beneficial chemical syntheses for various drug molecules.
Some MNCs are already sourcing these services from their Indian affiliates.
62
Conclusion
Porter’s five forces model gives a fair idea about the industry in which a company operates
and the various external forces that influence it.
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 have used to analyze 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. Though consolidation within the current big names is not ruled out. Smaller fringe
63
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 will see
new proprietary products coming up, making imitation difficult. The players with huge
capacity will be able to influence substantial power on the fringe players by their
aggressive pricing which will create hindrance for the smaller players. Economies of scale
will play an important part too. Last but not the least, in a vast country of India's size,
government too will have bigger role to play.
India has the capability to become a global pharma hub by exporting domestically
produced generic products and positioning itself as an off shoring destination for clinical
and pre-clinical research and other support services. There is tremendous potential in the
Indian pharma market itself. Consumer spending on healthcare went up from 4 per cent of
GDP in 1995 to 7 per cent in 2007. That number is expected to rise to 13 per cent of GDP
by 2015.
Future of the Pharmaceutical Industry
 For the first time, the seven largest markets will contribute to just 50 percent of
growth, while seven emerging markets—Brazil, China, India, Mexico, Russia,
Indonesia, and Turkey—will contribute to nearly 25 percent of growth worldwide.
 With market value of about US$ 45billion in 2005, the generic sector is expected to
grow to US$ 100billion in the next few years.
 Clinical Research Outsourcing (CRO), a budding industry valued over US$ 118
million per year in India, is estimated to grow to US$ 380 million by 2010
 The future of Indian pharmaceutical sector is very bright because of the following
factors:
 Clinical trials in India cost US$ 25 million each, whereas in US they cost between
US$ 300-350 million each.
 Indian pharmaceutical companies are spending 30-50% less on custom synthesis
services as compared to its global costs.
64
 In India investigational new drug stage costs around US$ 10-15 million, which is
almost 1/10th of its cost in US (US$ 100-150million)
 Treatment to prevention, from generalised to personalised medicine, from
distribution chain to direct consumer sales and from multilateral to unilateral
regulatory regime.
Bibliography
Websites
 www.ficci.com
 www.kpmg.com
 www.pharmaceutical-drug-manufacturers.com
 www.pharmbiz.com
 www.wikipedia.com
Books
1. C.K. Kothari (Research Methodology)

2. Philip Kotler (Marketing Management)
3. Indian Journal of Marketing
65
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Overview of Indian pharmaceutical industry

CERTIFICATE FROM PROJECT GUIDE

This is to certify that, a student of MMS (Marketing), , has worked under my

Date: 30th March, 2009

The information submitted is true and original to the best of my knowledge.

Signature of the Student:

I would like to express my sincere gratitude to my project guide Prof.

TOPIC Page No.

5 TYPES OF DRUG SYSTEMS IN INDIA 14

7 FACTS & FIGURES 18

8 FUNCTIONS OF A PHARMACEUTICAL COMPANY 22

11 MICHAEL PORTER’S FIVE FORCES MODEL OF INDIAN 35

12 TRENDS AND STRATEGIES 39

15 INTELLECTUAL PROPERTY RIGHTS & DPCO 56

Success factors of the Indian pharmaceutical industry can be enumerated as

“Indian pharmaceutical industry can be defined as a success

story providing employment to millions and ensuring that

essential drugs are available at affordable prices to the vast

population of Indian sub-continent”

Marketing changed dramatically in the 1990s, partly because of a new consumerism.

Drug development progressed from a hit-and-miss approach to rational drug discovery in

THE INDIAN PHARMACEUTICAL INDUSTRY:

330 organized players contribute to 70% of total sales.

Types of drug systems in India

temperament is accordingly expressed as sanguine, phlegmatic, choleric, or melancholic.

Yoga and Naturopathy

Specialty Pharma: Industry Landscape

Convergence is changing traditional market segments.

FACTS & FIGURES

Table I: Health statistics of India (6).

Subject Year of Reference

Health statistics of India

Table II: Value of production of bulk drugs and formulations in India

1999–00* 3777 770.8 16.7 15860

Table III: Total value of imports and exports of drugs and

Rupees % Growth over Rupees %

1991–92 807.4 164.8 — 1489. 5 304.0

Currency exchange rate: Rs 49 _ US $1.00 or Rs 1 crore _ $0.204082 million.

Table IV: Exports of formulations and basic and crude drugs

Year Rupee $ in % Rupee $ in % Growth Rupees $ in % Growth

90-91 985.5 210.1 118 157.8 32.2 -55 111.3 22.7 27

FUNCTIONS OF A PHARMACEUTICAL COMPANY:

FOUR MAJOR FUNCTIONS:

1. Research and Development

Research and Development:

Drug development: It refers to activities undertaken after a compound is identified as a

1. Keeping in touch with doctors in the government hospitals regularly

6. As per the doctor’s report drug will be licensed by the DCD.

v. Investigations of cases of contraventions under the Act.

vii. Launching of prosecutions against persons / firms found contravening the

1. Dispensing Of Raw materials

Packaging: There are two types of process

Strip Packing: Here drugs will be packed by aluminium foils

4. Friability ( Tendency to loose weight)

2. Analysis: HPLC (High Pressure Liquid Chromatography) it’s used to separate,

3. UV Spec: Drugs will be tested by sparking the Ultra Violet rays.

Market leaders in terms of revenue

Pharma is often used to refer to companies with revenue in excess of $3 billion,

Revenue Rank 2006

11 Wyeth USA 20,351 3,109 4,197 66,663

19 Genentech USA 9,284 1,773 2,113 33,500

Top 10 Indian Players

Top 10 Pharmaceuticals in India, 2008