Indian Pharmaceutical Industry; Where Do We Stand in the Big Picture?
Reena S Kulkarni and Nikhil J Kavimandan 

The pharmaceutical industry forms a lifeline industry that plays a very central role in building a strong human capital of a country and is the sine qua non for the economic growth and development. With its huge size and phenomenal growth, the industry continues to enjoy consistently high return on invested capital, even after capitalizing the huge R&D investment. The world pharmaceutical market is estimated at USD 364 billion and expected to grow to USD 550 billion by 2005⁽¹⁾. With inflation adjusted compound annual growth rate of 20 per cent over the last two decades, growth of this market has significantly outstripped global economic growth. The US is the largest single homogeneous market currently generating around USD 182 billion in annual pharmaceutical sales, followed by Europe (USD 88 billion) and Japan (USD 48 billion)⁽¹⁾. With its huge entry barriers, complementarities in the portfolios of the companies which results into only a marginal competition between them, the market exclusivities given by IPR regimes creating significant periods of protection, and recently, consolidations sweeping across the pharmaceutical industry all over the world, this industry continues to be one of the largest creators of shareholder value.

Indian Pharmaceutical Industry in the Global Picture: 

The highly fragmented Indian pharmaceutical industry is largely self-sufficient especially in formulations. There are over 20,000 registered pharmaceutical manufacturers in India and leading 250 pharmaceutical companies control 70 per cent of the market and top 10 companies control around 31 per cent of the market. More than 60 per cent of the India’s APIs (Active Pharmaceutical Ingredients) production is exported; balance is sold locally to other formulators. Over 85 percent of the formulations produced in the country are sold in the domestic market.

 In spite of housing a large number of pharmaceutical players the Indian pharmaceutical industry accounts for a mere 1.3 per cent of the global pharmaceutical market⁽¹⁾. Where the annual drug expenditure per capita for Japan, Germany and United States stand approximately at USD 412, USD 222 and USD 191 respectively, expenditure in India is less than USD 10. The Indian pharmaceutical market however is becoming more and more self-reliant and is spreading its tentacles into the overseas market with its distinctive advantage of cost effectiveness. The Indian pharmaceutical industry often supplies essential drugs to the consumers at much lower prices than any of its counterparts in the world. For e.g. prices of cardio-vascular drugs in India such as Atenolol and Enalapril are 25-30 times less than the US prices. This cost effectiveness is of overriding importance especially in the countries where availability of inexpensive medicines is crucial to the healthcare for the masses.

Prominent Trends In The Indian Pharma Industry:

Some interesting trends have emerged recently in Indian pharmaceutical Industry as a result of a fierce competition between the pharma players and their efforts to gear up for the post 2005 scenario. These trends have in many ways revolutionized the way the pharma industry functions in India.

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Collaborations, Mergers and Acquisitions:

Collaboration has emerged as the survival kit in recent years. The mergers and acquisitions have given many companies the edge they need to have a firm hold on the market. Pfizer’s acquisitions of Pharmacia Corporation (resulting in a market share of 4.4 per cent), for instance, helped it to thrust Zydus Cadila (4.01 per cent) to the fifth spot ⁽²⁾. Such mergers are likely to continue in the near future. Indian giants like Ranbaxy, Lupin Labs, Dr. Reddy’s Labs, Cipla etc. have been striving to step into the global arena by acquisitions of small pharma companies in USA, Germany, Latin America etc., entering into joint ventures or in some cases giving marketing rights of their newly developed drug molecules. Dr. Reddy’s Labs for instance, gave marketing rights of anti-diabetic molecule to Novo Nordisk of Denmark. Dr. Reddy’s have also signed an agreement to acquire the UK-based BMS laboratories and its subsidiary Meridian Healthcare, to serve as a vehicle for entering European market and a springboard for their generic business.  More recently, marketing alliances between pharma majors for promotion of specific products has emerged as a novel strategy. Alliance between Glaxo, Cipla and Ranbaxy for joint co-marketing of Ranbaxy’s once-a-day formulation of Ciprofloxacin best exemplifies this paradigm shift. Such changes would continue to consolidate the ever growing pharmaceutical industry.

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Going Generic:

Given the skills in R&D, compliance with GMP and IPR, and the experience gained from international regulatory filings and patent challenges, the Indian research based pharmaceutical companies are now boldly accepting the inevitable patent battles with innovator companies in the western pharmaceutical market. There has been a continual increase in the sales of generic drugs (drugs that contain the same active ingredient as the original brand name pharmaceutical, but differ from the original in terms of non-active ingredients and can be marketed only after the expiry of the patent for the original drug). Thanks to the Hatch-Waxman Act of 1984, Indian research companies can enter the huge market of generic drugs in US with relative ease. Indian companies are now gearing up to file ANDAs (Abbreviated New Drug Applications) the moment a major product goes off patent. It is worth mentioning here that with its Fluoxetine capsule 40 mg, Dr. Reddy’s became the first Indian company to launch a generic drug with 180-day marketing exclusivity in the US and collected huge revenue of Rs. 3286 million in year 2001-02⁽³⁾. Leading Indian pharmaceutical companies including Sun Pharmaceuticals, Cipla, Ranbaxy, Dr. Reddy’s Labs, Lupin and Wockhardt have a presence in the over USD 20 billion US generic market.  Indian companies are expected to derive large revenues from the US generic market as major drugs go off patent in the coming years ⁽⁴⁾.

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CROs; Where Do We Stand?

Outsourcing of research and development has emerged as a global norm in the pharma industry. Desire to bring new products quickly into the market, aggressive competition, intricacies of product development and need for financial flexibility, are some of the reasons that drive companies towards outsourcing. In 1995, 35 per cent of the R&D funds for the big companies went to the outsourced research; a significant jump from the figure of around 15 per cent five years ago. The outsourcing trend is projected to grow to a massive 65 per cent in 2005⁽⁵⁾. India is an attractive destination for global CROs (Contract Research Organizations) due to availability of large number of naïve untreated patients and economic benefits that India offers for clinical trials. The cost of phase III clinical trial is around 40-50 per cent of the international cost. In spite of all these advantages, MNCs do not see India as a potential ground for conducting clinical trials. Improvement in the quality standards of trials and regulatory environment is the need of the hour.   In two significant moves in this regard, the Indian arm of Pfizer’s clinical research wing- the Clinical Research Division- has been given a clear consent by the pharma major to identify and evaluate CROs in India and explore the possibility of executing as many projects as possible through them and Optical pioneer Bausch & Lamb has commissioned the largest drug trial ever conducted by an MNC in India.

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Global Branding; the Way to Go?

The concept of entire globe-one market seems to be moving closer to reality. The global branding successes of some high-profile companies have prompted players like Novartis to make inroads into global branding by expanding their efforts to bring ideas from across the countries together. There has been a lot of talk about global branding but apart from the efforts Novartis has put into it, nothing much has been done so far. There is a pressing need for Indian pharmaceutical players to investigate what tangible benefits this can bring and take definitive steps in the right direction.

The Ways Ahead; Promises and Challenges: 

With the new patent regime to be honored after 2005, there will be a significant shift of R&D focus from process research to discovering new drugs and effective ways to deliver the newly discovered drugs. With the advances in biotechnology and combinatorial chemistry, discovery of potential molecules does not remain the bottleneck anymore; technology intensive areas like drug delivery at the exact site in the human body, timed release are going to assume importance. India currently contributes only to an extent of 0.1 percent of the global drug delivery market. With the market expected to increase to USD 74 billion, post 2005, it will offer immense scope for Indian pharma players.

Indian pharma majors would continue stepping up the R&D expenditure on pharmaceutical research, clinical research, novel drug delivery research and new drug discovery research. A significant number of progressive Indian companies have established that they have a distinct role to play in the global drugs market. Their successes have encouraged many mid-sized Indian companies to take positive steps towards increasing their R&D expenditure.

Government-academia-private sector tripartite collaborations would greatly propel the country’s research in the right direction. Indian government will have to play an important role in creating conducive atmosphere for bringing the pharmaceutical companies and researchers from academia on a common platform where they will reap mutual benefits from such collaborations and fuel the nation’s growth in this most happening sector of the industry.  Financial and infrastructural backing from the industry will hopefully bring our pharmaceutical research scientists at par with the dominant research community in the western world.

The pharmaceutical Industry is undergoing a facelift, and several regulatory changes will have significant impacts. Prominent among them will be considerable tax exemptions on R&D expenditure, deregulation of insurance sector and the introduction of exclusive marketing rights (EMRs).  Although factors like compliance with GMP and supply of quality products have been strongholds of the Indian pharma players in the world market, there is a lot that needs to be done. The tempo on new GMP guidelines has died down with all kinds of extensions given not to implement what is vital for the industry. The blame does not rest entirely on the enforcement agencies. The industry has to realize that it is only with strict compliance with the GMP guidelines and highest standards of design and infrastructure can it excel in the world market.

Western generic market will continue to attract the Indian research based companies. In the next five years, exports are likely to exceed turnover of the domestic market. The Indian drug industry earned Rs 11,000 crore through exports in 2002, which is an impressive 68 per cent of the domestic market.  It has achieved a vital stage where it can start growing outward at a faster pace. The industry has time and again proved to be the most competitive supplier of world-class quality products. India’s unmatchable price competitiveness would be its major strong point in the global arena. Pharmaceutics is expected to be one of the most happening sectors in the next decade and with all its encouraging attributes, India is ready to take on the challenge!

References:

(1) IMS Review

(2) Express Pharma Pulse, 18/07/2002.

(3) Dr. Reddy's Laboratories Limited, Annual Report 2001-2002. 

(4) Ahuja's World Patent & Trademark News, November 2000.

(5) Express Pharma Pulse, 11/04/2002.

Reena S Kulkarni¹ and Nikhil J Kavimandan ²,
¹SIES College Of Management Studies, Navi Mumbai.
²Department of Chemical Engineering, Purdue University, West Lafayette, IN, U.S.A.

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