SECTORIAL ANALYSIS OF THE

INDIAN PHARMACEUTICAL
INDUSTRIES
HISTORY OF INDIAN
PHARMACEUTICAL
INDUSTRY
 The Indian pharmaceutical industry is the world's
second-largest by volume and is likely to lead the
manufacturing sector of India.
 India's bio-Pharma industry clocked a 17 percent
growth with revenues of Rs.137 billion ($3 billion) in
the 2009-10 financial year over the previous fiscal.
 Bio-pharma was the biggest contributor generating 60
percent of the industry's growth at Rs.8,829 crore,
followed by bio-services at Rs.2,639 crore and bio-agri
at Rs.1,936 crore
 The first pharmaceutical company are
Bengal Chemicals and Pharmaceutical Works,
which still exists today as one of 5 government-
owned drug manufacturers, appeared in Calcutta
in 1930.
 The government started to encourage the growth
of drug manufacturing by Indian companies in the
early 1960s, and with the Patents Act in 1970,
enabled the industry to become what it is today.
 GROWTH OF INDIAN
PHARMACEUTICAL INDUSTRY


India is the world's fourth largest Pharmaceutical market in

terms of volume and thirteenth in terms of value.
 The Indian Domestic Formulation industry registered a CAGR
of 14% during FY2003-08 from around US $3.9bn in FY2003
to US $7.7bn in FY2008 outpacing the Global Pharma Industry
growth rate of 7%.
 Going ahead, the Indian Domestic Formulation market is
expected to register robust CAGR of 12.2% over FY2008-13E
to US $13.7bn. By CY2015, India is expected to rank among
the Top-10 global Pharmaceutical markets
 

This growth is expected to be driven by socio-economic factors such

as rising income levels, increasing affordability, gradual penetration
of health insurance and organised retail chains, increasing
healthcare awareness in rural markets, increased willingness to pay
for treatment in rural areas and rising prevalence of Chronic and
Lifestyle diseases.
 
Before we start the analysis lets look a little back in the industry’s last six years
performance. The Industry is a largely fragmented and highly competitive with a
large number of players having interest in it. The following chart shows the breakup
of the growth (YoY) of Indian pharmaceutical industry in last six years.
 KEY POINTS REGARDING INDIAN
PHARMACEUTICAL INDUSTRIES
 
 Supply
 Higher for traditional therapeutic segments, which is typical of a developing market. Relatively lower for lifestyle
segment.

 Demand
 Very high for certain therapeutic segments. Will change as life expectancy, literacy increases.

 Barriers to entry
Licensing, distribution network, patents, plant approval by regulatory authority.

 Bargaining power of suppliers

Distributors are increasingly pushing generic products in a bid to earn higher margins.

 Bargaining power of customers

High, a fragmented industry has ensured that there is widespread competition in almost all product segments.
(Currently also protected by the DPCO).

 Competition
 High. Very fragmented industry with the top 300 (of 24,000 manufacturing units) players accounting for 85% of sales
value. Consolidation is likely to intensify.
 SWOT ANALYSIS OF INDIAN
PHARMACEUTICAL INDUSTRIES
 STRENGTHS
 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.
 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.
 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%.
 Indian pharmaceutical industry posses excellent chemistry and process
reengineering skills. This adds to the competitive advantage of the Indian
companies. The strength in chemistry skill help Indian companies to develop
processes, which are cost effective.
 Weakness:
 The Indian pharma companies are marred by the price regulation.
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.

 Indian pharma sector has been marred by lack of product patent,

which prevents global pharma companies to introduce new drugs in
the country and discourages innovation and drug discovery. But this
has provided an upper hand to the Indian pharma companies.

 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.
 Opportunities
 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.
 Large number of drugs going off-patent in Europe and in the US
between 2005 to 2009 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.
 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.
 Indian companies can become a global outsourcing hub for
pharmaceutical products.
 Threats:
 There are certain concerns over the patent regime regarding
its current structure. It might be possible that the new
government may change certain provisions of the patent act
formulated by the preceding government.
 Threats from other low cost countries like China and Israel
exist. However, on the quality front, India is better placed
relative to China. So, differentiation in the contract
manufacturing side may wane.
 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.
  
FACTS ABOUT THE INDIAN PHARMACEUTICAL INDUSTRIES

 The Indian Pharmaceutical industry is highly fragmented with

about 24,000 players (around 330 in the organised sector). The
top ten companies make up for more than a third of the market.
The revenues generated by the industry are approximately US$
7.6 bn and have grown at an average rate of 10% over last five
years.
 In the recent past, Indian companies have targeted international
markets and have extended their presence there. While some
companies are exporting bulk drugs, others have moved up the
value chain and are exporting formulations and generic products.
 India also offers excellent exports opportunities for clinical
trials, R&D, custom synthesis and technical services like
Bioinformatics
INDIAN PHARMACEUTICAL INDUSTRIES ARE

 Scaling new orbits

 Focusing on challenges to realise true potential
 Global Generics
 Domestic Formulations
 - Contract Research and Manufacturing Services (
 Clinical Research Services:
 - New Chemical Entity (NCE) discovery and
development:
 - Biopharmaceuticals:
RECENT TRENDS IN THE PHARMACEUTICAL INDUSTRY

 The global pharmaceutical market is expected to earn

over a trillion dollar in revenues by 2012 and according
to "Global Pharmaceutical Market Forecast to 2012",
our new research report, the market will witness a
number of changes impacting its course of growth.
 These include the shift of growth from the developed
markets to the emerging ones, increasing focus on
biotech-based drugs, fewer new drug approvals, and a
strong growth in the prevalence of generics.
 Top 10 Pharmaceuticals in India, as of 2007
Revenue
Revenue 2007(USD millio
Rank Company 2007(Rs crore) ns)
1 Ranbaxy Laboratories 4,461 1,026

2 Dr. Reddy's Laboratories 1,933 444

3 Cipla 1,842 423
4 Piramal Healthcare 1,387 319
5 Aurobindo Pharma 1,260 290
6 GlaxoSmithKline 1,228 282
7 Lupin Laboratories 1,180 271

8 Sun Pharmaceutical Industries 1,110 255

9 Cadila Healthcare 1,091 251
10 Wockhardt 980 225
USD 1 = Rs 43.5
Source: Pharmaceutical Sales Busters, India Business Insight, 31-Dec-07