 Analysis of structure, market share, degree of competition:

Indian pharmaceutical industry is divided in four Categories:

Active Pharmaceutical Ingredient: It refers to the biologically active component of a

formulation. Certain drug may have more than one API and the proportion would vary from

drug to drug. More than 60% of the APIs are imported from other countries.

Contract Research and Manufacturing Services: CRAMS is an outsourcing process that

involves outsourcing of research and product manufacturing services at a lower cost.

Formulations: Formulation is the final process in which different chemical substances along with

the API are combined to produce the final product (medicine) which we consume. The process also
involves studying the compatibility of each substance involved in drug manufacturing and studying
the impact/reaction of final drug by conducting trials

Biosimilars: A Biosimilar is a biological medicine similar to another biological medicine that

is already in use. Biological sources, such as bacterium are used to make these medicines.

They can consist of relatively small molecules such as human insulin or complex molecules.

Biosimilars can be manufactured by new companies only after the patent expiry of the

original biological product. A medical product made using biotechnology is called a

biological product.

Demand and Supply:

The Indian Pharmaceutical Industry is placed in a favourable position when it comes to the economic
drivers. It is one of the major exporters of generics and is amongst the fastest growing industries in
India. In this section we try to analyse few of the key drivers of the Indian Pharmaceutical Industry,
starting with the key demand drivers.

Key Demand Drivers:

The demand for the overall pharmaceutical industry is currently at an all-time high, and projections
are that they will continue to stay so. There are quite a few reasons as to why it happens. Firstly, in
the overall healthcare and medical fraternity, there has been an increase in the number of fatal
diseases, which has led to an increased demand from the pharmaceutical industry to be able to cater
to. Moreover, along with the increase in the number of fatal diseases, due to the changing of
lifestyles and livelihood, there has been an increase in the number of stress like cardiac diseases,
obesity etc. These are trends which are also predicted to stay and thus drive the pharmaceutical
industry. Few of the other overall trends that we observe include, the better use of technology and
diagnostic facilities and increase in the

accessibility of drugs.We can categorise the major demand drivers into four segments. They are as
follows
Accessibility - Medical facilities due to greater push from the population at large, are

constantly made more accessible. For that to happen, plans are at place to spend over $200 billion
dollars on building the infrastructure needed over the next decade. More than 150.000 beds are to
be added and new business models are expected to penetrate tier 2 and tier 3 cities as well. Lastly,
there's also an increase in demand from the international communities, which challenges Indians to
export more and make it's drugs more accessible

Acceptability - There has been increasing awareness and acceptability for pharmaceutical drugs.
This is primarily becausé of increased levels of education. This has also lead to the widespread
acceptance of biologics and preventives medicines. The Over the Counter (OTC) is boosting due to
greater propensity shown by patients to self-medicate, while lastly, medical tourism is also on a
rise, as Indian medical and pharmaceuticals are perceived as few of the best in the world, thereby
leading to influx of patients from abroad.

Growing Health Insurance Coverage - Over the past few years, non-life insurance has been on a
steady rise and predictions are that these will continue over the next 5-10 years as well. Adoption
of these insurances has been quick and are increasing at a n ever increasing rate. These health
insurance plays a key role in the growth and demand of healthcare services in India Epidemiological
Factors - Due to growth in population, changing of livelihood and lifestyles, and increasing
prevalence and awareness of lifestyle diseases, there's a constant demand at present, and
predicted for the future as well, of drugs. Key Supply Drivers While we have noted the key drivers
for the Demand side of the industry, let us now look at the supply side of the industry. From the
supply side we have 5 broad segments of drivers.

They are the following:

Launching of Patient Drugs - India is pegged at a unique position in terms of the world
pharmaceutical industry whereby large multinational corporations are in vesting heavily in the
country so as to develop and launch patented drugs in India. This is driven heavily due to the
changé in lifestyles of Indians which has led to the rise in chronie diseases and other lifestvie
related diseases. Thus, the sale of drugs for this category has also been on a high and is expected to
remain so in the future. Also, with the approval of the High court, India can now be seen as a global
leader in exports of patent drugs Enhancement of Medical Infrastructure - There has been an
increasing push across all over the industry to enhance its infrastructure so as to reach the rural
markets, bring down cost of production and give better and more affordable services to the poor.
Also, overall infrastructure is undergoing an overhaul so as to cope with the covid-19 setback and
enhance its contactless and online experience for the patients. Scope in the generic market -
Overall generic market is a hug for global export, making 20% of global exports in terms of volume.
It's the largest generic medicines provider in the world and 70% market comprises drugs from the
Indian pharmaceutical industry., Growth in Over-the-Counter (OTC) drugs - Over the past 8 years,
from 2008 to 2016, the India OTC market has grown at a CAGR of 16.3% to $6.6 billion. This trend is
expected to continue, and the growth is expected to increase even further, due to the increased
penetration

of chemists especially in the rural sector. Expiry of patents - Lastly, the expiry of patents is an
important factor contributing to the increase in supply of drugs. It is estimated that about 120
drugs go off patent over the 10years. It is expected to record a revenue of anything between $80 to
$250.

COVID:
The coronavirus disease (Covid-19) and subsequent lockdown has caused disruptions across all
firms. The jolt stop due to the pandemic has led many pharma companies to suspend their hiring
process. Internally, increments have been put on hold as well and are yet to be finalised. However,
as of now, no layoffs have been considered by the companies. However, compared to other
industries, on an overall perspective, there is expected to be a positive impact on growth in the
pharma industry. This is evidenced by the current performance of pharma stocks in April 2020 as
compared to Q3 for FY 2019-20. Depending on the portfolio and size of the company, stock prices
have increased anywhere between 20-30%, which is consic

a high growth rate in the industry. Nevertheless, steps are still being taken by pharmaceutical
companies to "trim the fat",working on a lean mechanism to combat the dire scenarios. Some of
the initiatives taken do so include restructuring capital expenditure, renegotiation of plant lease
and other adopting digital strategy for conducting business meetings as well as innovatively using
current assets to generate supplementary sources of income Like every other pandemic before,
COVID-19 has learnings that need to be implemented the pharma industry. On the proactive front,
there needs to be preventive measures like stronger surveillance, early warning systems and data
collection. There is also need for a more resilient healthcare infrastructure to be able to cater to a
densely populated country India. This can be achieved by investing in R&D systems for cutting edge
research and us the latest data science tools for speedy analysis, through frugal innovation.

It is imperative to have strong government intent along with efficient budgeting in order implement
and sustain the above strategies. Emphasis has to be laid upon creating a more dynamic structure
with improved skill development, capacity planning and infrastructure.This can be done by re-
evaluating the current structures. We need to identify and fill the gap through integrating the
pharma industry with newer areas like Al, ML, data science and

digital presence. Also, these factors can only be complementary if the current research and
surveillance is overhauled to make it more relevant with contemporary technology and innovation.

Degree of Competition:

In the pharmaceutical sector, it can be easily argued that the Indian market is extremely
competitive with over 500 companies retailing more than 2500 formulations. Thus, this is one
which identifies with a differentiated oligopoly in terms of its market structure. What should be
noted is that the equilibrium price and quantity in this market structure has monopoly at one end
and perfect competition at the other but finally results in between both. Let us discuss the
characteristics of this market structure -

Small Number of Big Firms - The sector has a few players which are big and dominate the market.
They have the ability to affect the profitability and the market shares. They do not collude and
differentiate their products. Also, few firms are there because of barriers to entry Differentiated
Products - It has similar products produced by various players but they are differentiated on various
aspects like design, packaging and promotion which allows the companies to charge higher prices
for their products. Moreover, a brand loyalty is built upbecause of the differentiation.

High Barriers to Entry - It has a few big players in the market and thus, have market

control. The barriers which is faced to enter this industry is-

Patent and copyrights - There are patents given to be the sole producer of specific
drugs which have been innovated to recover investments. Thus, no other firm can

enter the space in that tenure.

Brand Loyalty - Medicines is a thing in which once a consumer trusts, they don't tend

to shift brands easily. This makes new entrants face a barrier.

High initial investment - Pharmaceutical industry is one which requires a high initial investment.
This discourages new entrants to enter easily.

Access to information - Since old companies may not release the information of a

drug which might be further required by new entrants, searching and replication acts a

costly alternative to enter the industry, making it a barrier.

Degree of Competitiveness - The Indian pharmaceutical industry in India, having a

differentiated oligopoly where different firms are making different drugs, taking into consideration
4 players shows a HHI Index of 429.92 Each company despite of having as similar infrastructure and
production facility is working on a specific product where it is still able to be the price maker in its
own segment. That is the reason why no key player in the industry has a market share more than
15%. Even if a merger and acquisition takes place, the

firm will not be able to have a pricing power. There is thus low concentration in the market. In this
market, the products have a downward sloping demand curve with product differentiation in place,
leading to them gaining market power. Moreover, there exist market imperfections which allows
the companies to exploit the market by increasing the prices of the products. This is also possible
since drugs are a necessity and not a luxury product,

leaving the patients with no choice and creating a derived demand for the product.

Challenges:

Even after a promising future for the pharmaceutical industry, it is still facing some of the
challenges which need to be addressed. There are some diseases which are still incutable, andthe
industry needs to develop their drugs. Continuous innovation and improvement in the industry
have led to an increase in more customer expectations which again builds pressure on R&D. Since
the past some years the scientific productivity has become dull and stagnant, which requires some
kind of motivation to gain the pace. There are some management cultural issues that are slowing
down the much-required changes in the industry. Health care players are now increasingly
scrutinizing the pharma-economic performances of drugs.