India: Indian Pharma Industry: A Success Story

Introduction:

Ranbaxy is world's second largest manufacturer of cefaclon (world's largest selling anti-biotic)

Lupin is world's largest producer of ethambutol, an anti-TB drug.

Dr. Reddy's Lab is second largest producer of ranitidine, an anti-ulcerant.

MNC's market share in India has fallen from 71% in 1971 to 35% now.

Above facts only underline the fact that the Indian Pharmaceutical Industry has arrived and with a BANG!

India ranks 5th in volume terms and 14th in value terms in drug producing countries. CAGR of Indian Pharmaceutical industry is 15.8%.

Overview:

Currently, this industry has 20,053 units with total production at Rs. 197.37 bn. Products of the pharma industry can be classified in to bulk drugs and formulations having 19.1% and 80.9% share of the market respectively. This sector is both organised and unorganised, organised sector accounting for 70% of total sales.

The WTO Impact:

The TRIPs agreement mandates that patent protection be extended to pharmaceutical products, hitherto unavailable in India. India has to comply with this provision before year 2005.

Many pharma companies viz. Ranbaxy, Dr. Reddys, Cipla have stepped up R&D expenditure on pharmaceutical research which would make them more self-sufficient ahead of WTO deadline of year 2005.

Indian Government recognising the growth potential of Pharma Industry has allowed weighted deduction of 150% on expenditure in R&D, biotechnology, clinical trials, regulatory approval and filing of patents.

Survival of the Fittest:

The competition in the sector is fierce and the future growth depends largely on R&D investments, intellectual assets management and mergers and alliances with foreign majors (this paves way to utilise their research expertise).

Another dominant theme these days is acquisition of brands. Mega mergers in pharma industry: Glaxo-Wellcome, Ciba-Sandoz (formed Novartis), Pfizer-Warner Lambert etc...

Companies are also entering into co-marketing alliances for select products. (e.g. Ranbaxy and Glaxo have co-marketing alliance for anti biotic Cephalexin)

The Difficulties:

Intellectual Asset Management: Lack of legal expertise to create and manage intellectual assets viz. Patents, Trademarks etc...

The Drug Price Control Order, 1995: This order prescribes ceilings on bulk and formulation drugs, thus constraining margins on these products.

Extensive use of Traditional Treatment Method: Nearly 70% of Indian Population still supplements and often even replaces pharma drugs with traditional medicines.

Lack of Health Insurance in India: This forces patients to bear the costs of healthcare themselves. Poor consumer education makes the situation worse.

Absence of product patents: This prevents most Indian companies from investing heavily in product research and development.

Conclusion:

India is all set to become Pharma Super Power in the times to come. But, other than being technically sound in the pharma market, following factors shall also play an extremely important role in shaping the future of Indian Pharma Industry:

Lapsing product patents: In next 10 years, estimated 60 major products with sales over $40 bn will lose patent protection.

Funds for R&D: This will depend largely on company's ability to discover, patent and market new and innovative products.

Year 2005: Introduction of Product Patents.

Tax exemptions on R&D expenditure.

Deregulation of Insurance Sector.

Product list and price changes under DPCO, 1995.

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