Overview of Indian Pharma IndustryThe Indian Pharma industry is one of the fastest growing sectors with approximately 20,000 manufacturing units. The industry that is highly price sensitive ranks thirteenth in the global pharmaceutical market in value terms and fourth in volume terms. The country has tremendous export potential in the areas like custom synthesis, R&D, clinical trials, and Bioinformatics.The industry produces 60,000 finished medicines and roughly 400 bulk drugs, which are used in formulations with about 20% of the manufacturers in the bulk drugs segment.India has approximately 1% share of global pharma industry, which is worth US$406 billion. This implies that there is a huge market waiting to be unfolded.Progress Of Indian Pharmaceutical Industry1950 - Formulations: MNC Based1960 - Formulations: Indigenous production based on imported drugs1970 - Formulations + bulk: Production based on indigenously produced drugs and imported drugs1980 - Formulations + bulk: Production based on indigenous drugs mainly bulk drugs1990 - Formulations + bulk: Indigenous production serving domestic and bulk drugs export marketSource: Pharmabiz.com (Article by Dr. Laxman Prasad)
Industry Structure and SizeIndustry StructureThe Indian Pharma industry is highly fragmented and can broadly be classified in to two categories: organized and unorganized sector.The organized sector contributes about 70% of the total revenues and consists of 260 units in both manufacturing as well as formulation segment. This sector can further be divided into Indian and multinational companies.The unorganized sector is highly fragmented and contributes about 30% of the total revenues. This segment consists of around 20,000 manufacturing units. Very few entry barriers helped small companies set up shop and operate on very low cost. Apart from this the loan and licensing system adopted by the organized players due to low cost of production helped flourish the unorganized sector further. Industry SizeThe Indian pharma industry is worth US$ 8 billion with domestic sales contributing highest to the revenues. The industry is growing at a constant pace of around 8% over the last five to six years. Bulk drugs account for 22% and the formulations account for 78% in the total production of the industry. The industry consist of large number of players, with no player having a market share of more than 6% and the total direct & indirect employment in the industry accounting for over three million.Global consultancy firm McKinsey estimates that the Indian pharma industry would have sales of around US$ 25 billion by 2010 from current US$ 8 billion. Indian players largely dominate the pharma industry and in the year 2003 the market share of Indian companies was almost 73% as compared to 27% share of the MNCs. This scenario is likely to change in the next few years, as more and more global companies are likely to select India as their base due to its lower manufacturing and R&D costs and the new patent regime adopted my the Indian government.The industry is a major contributor to the export revenues and India’s current pharma exports are around US$3.5 billion, which constitute almost 42% of the total pharma market.The major exporters in the country are Cipla, Dr Reddy’s, Ranbaxy, Lupin Laboratories, Wockhardt Ltd., and Sun Pharmaceutical Industries Ltd. Similarly the major export destinations are countries like US, South East Asia, Africa, and Latin America. In the year 2003 US alone accounted for 17% of the total exports revenues followed by Germany and Russia, which were the next major contributors. The figure below demonstrates the regional break up of Indian pharma exports in the year 2003.
Future of Indian Pharmaceutical IndustryPrior to January 2005 India followed a process patent regime, which allowed Indian companies to do reverse engineering and produce duplicated versions of patented drugs at a lower cost. The new patent regime that has been passed has brought India at par with WTO in terms of patent rules as a result Indian companies can no longer copy the patented drugs.Though post product patent regime, the companies that thrive primarily on developing duplicate versions of patented drugs will take a hit, in the long run the change in the patent regime coupled with government’s decision to allow 100% FDI in Indian pharma sector will boost the industry further leading to growth in R&D & innovations. Opportunities for India are:• Market for generic drugs The global market for generic drugs is around US$36 billion and is expected to grow upto US$ 55 billion by 2008. Around the year 2007-08 drugs worth millions of dollar will go off patent that is they will become generic drugs. As India is most cost-effective producer of generic drugs it is expected that it can garner a large share of this market.Indian drug firms can now tap the export markets in the United States and Europe, where drugs worth tens of billions of dollars are set to go off patent, making way for generics.• India set to become global R&D hubDue to the lower cost of manufacturing and R&D in India, many foreign companies would either tie up with Indian companies through joint venture or M&A or set up their own units to reduce huge R&D costs incurred on developing a new drug. India is already gaining recognition in clinical research outsourcing (CRO) as quite a few numbers of companies are outsourcing their clinical research functions to India.• Greater number of new drugs introducedDue to the new patent regime passed, large MNCs that earlier shied away from Indian markets due to the fear of duplication of their drugs are expected to introduce more and more new drugs in India. SWOT Analysis Of Indian Pharmaceutical IndustrySTRENGTHS:• Lower manufacturing costs • Process reengineering skills• Talented workforce• Good R&D infrastructure• Largest number of US FDA approved plants outside US• Huge untapped marketWEAKNESS:• Lack of adequate government regulations• Low share in global market• Large number of unorganized players• Less spending on R&D compared to MNCs• Counterfeit market• Suffer due to price regulations • Low innovation cultureOPPORTUNITIES:• Potential to tap global generic drug market due to some drugs going off patents in few years• Poised to become hub for R&D and CRO• 100% FDI allowed by government • Opening up of health insurance segment• High potential for life style drugs• Introduction of product patent regime will encourage innovation & drug discoveryTHREATS:• Threat to companies failing to invest in R&D post product patent regime• Threats from other low cost countries like Israel and China • Threat to smaller companies due to entry of large MNCs – fear of consolidation through M&A• No longer reengineering of under patent drugs allowed – leading to decline in product launches in domestic market