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The pharmaceutical industry in India ranks third in the world in terms of volume and contributes 10% to the global pharmaceutical production. According to the Department of Pharmaceuticals, the Indian pharmaceutical industry is pegged at Rs 810 bn, which includes domestic sales and exports. The industry is the fourteenth-largest in the world in terms of value and accounted for 1.5% of the global pharmaceutical market. The industry has a lower share in the global market because Indian products are available at a price that is 5-50% lower than that in the developed countries. According to the Department of Pharmaceuticals, the sector employs about 340,000 persons and an estimated 400,000 doctors and 300,000 chemists are serving its 1 bn-plus market.

India is a globally-acknowledged source of high quality affordable medicines with a rich vendor base. It is emerging as not only a global manufacturing base of the pharmaceutical industry, but also as the hub for contract research, clinical trials, biotechnology and clinical data management services.

The Pharmaceutical Value Chain

The domestic pharmaceutical industry is quite fragmented with the top five companies constituting only 22% of the market share. Unlike the global pharmaceutical industry, where the top 10 companies account for 40% of the global pharmaceutical sales, in India, the top 20 companies account for 57% of the domestic market share. The Indian pharmaceutical industry comprises around 250 large units and about 80,000 small scale units that operate across the pharmaceutical value chain ranging from new drug discovery to marketing and distribution.

Manufacturing

According to the Department of Pharmaceuticals, the Indian pharmaceutical industry grew from merely USD 30 mn in 1980 to USD 19 bn in 2008. The robust growth of this industry can be attributed to factors such as low cost advantage, skilled manpower, technical strengths, and increasing number of companies adhering to good manufacturing practice (GMP) compliances. Due to these attractions, major global pharmaceutical companies outsource manufacturing to India. The industry today manufactures most products in the pharmaceutical product spectrum and caters to 70% of the domestic bulk drugs and pharmaceuticals demand.

Contract Manufacturing

The Indian pharmaceutical industry has emerged as a global hub for pharmaceutical manufacturing and most of its producers and manufacturing units are approved by regulatory authorities in the US and the UK. According to the Organisation of Pharmaceutical Producers of India, the country has more US FDA certified plants than any other country outside North America. Traditionally, the contract manufacturing activity in India has been characterised by manufacturing low value-high volume intermediates, APIs etc. However, the industry is increasingly shifting its focus towards niche areas such as oncology and other high-potency APIs. Contract manufacturers are also enhancing their focus on antibody drug conjugates. Increased outsourcing activities in areas of finished product/ dosage form, injectables manufacturing etc have also presented new opportunities for contract manufacturers in the Indian pharmaceutical industry.

Research and Development

R&D forms one of the most crucial activities in the pharmaceutical industry. The R&D activity in the Indian pharmaceutical industry gathered pace largely with the enactment of the Product Patent Act in 2005. The patent enforced a royalty fee for all generic drugs manufactured during 1995-2005, thereby encouraging R&D activity for new and innovative drugs. Research and development are conducted in the form of new drug discovery, contract research or clinical trials.

New Drug Discovery

The New Drug Discovery Research (NDDR) activity has to keep pace with emerging new diseases and prevalent diseases, which are becoming resistant to existing drugs. Pharmaceutical companies need to make huge capital expenditure for NDDR. There are at least 10 companies in India that are into drug discovery in the areas of infection and metabolic disorders such as diabetes, inflammation, cardiovascular diseases etc. Indian drug makers have been increasing their focus on NDDR and currently make up for 25% of all the Abbreviated New Drug Applications globally.

Contract research/Clinical trials

The Indian pharmaceutical industry is developing itself to become a global hub for contract research, bio-technology, clinical trials and clinical data management. The industry has significant opportunity for contract research services in formulation development, bioequivalence testing, stability studies centres, etc along with chemistry services such as analogue preparation, analytical chemistry, combinatorial chemistry, structural chemistry, structural drug design, computer aided drug design, high throughput screening and assay development among others. Clinical trials constitute approximately 70% of the total R&D costs. The Indian market provides a benign environment for clinical trials with low cost scientific manpower and R& D cost. According to the Department of Pharmaceuticals, the Indian pharmaceutical industry offers high cost advantage of up to 50% for clinical trials as compared with western countries due to which many global clinical organisations have shifted their focus to India. According to the Central Drug Standard Control Organisation, the total number of clinical trials grew two folds to 350 trials in 2008 from 170 trials in 2006 as many small players ramped up their research activities and expanded their operation.

Marketing & Distribution

Pharmaceutical companies in India have been traditionally marketing and distributing their own products; however, the advent of the product patent regime in 2005 changed their strategy. The Indian pharmaceutical companies that were primarily engaged in reverse engineering the patented products and manufacturing their own version were unable to do so under the new product patent regime effective from 2005. The regime also led to the advent of multinationals with patented products in the Indian pharmaceutical Industry; however, these multinationals lacked the expertise and insights on the Indian consumer while the Indian pharmaceutical companies had already developed great expertise and insights into pharmaceuticals marketing in India. Thus, these companies started signing marketing contracts with the multinationals for marketing the products manufactured by these multinationals in the domestic market. This trend added the pharmaceutical marketing sector in the Indian pharmaceutical industry value chain. Over a period, the pharmaceutical marketing companies added greater value to their service offerings.

The pharmaceutical marketing companies provide the following key benefits:

Performance of the industry

Domestic market grows by 8.9% in 2008-09

The Indian pharmaceutical industry has been on a growth trajectory since 1970, when the Indian Patent Act came into effect. The abolishment of the Act encouraged the growth of the generic drug market in India. The inherent strength of the domestic pharmaceutical industry in terms of low cost advantage and technical strength led to increased demand in the domestic as well as export markets.

The domestic pharmaceutical market was worth Rs 554.5 bn in FY09. During FY06-FY09, the market witnessed a robust double-digit growth and almost doubled by Rs 250 bn during FY06 to FY09. The performance of the domestic industry was buoyed by introduction of new drugs and arrival of global pharmaceutical companies after the product patent act came in to effect in 2005. Despite the slowdown, the Indian pharmaceutical industry managed to grow at 8.9% during FY09.

Exports continue to outpace domestic industry

The Indian pharmaceutical industry is an export-oriented industry and almost 40% of the industry sales as exports. The pharmaceutical exports were worth Rs 384.3 bn and the pharmaceutical industry is one of the major export earners for India. Pharmaceutical exports have more than doubled from Rs 152.1 bn to Rs 384.3 bn during FY04-FY09. According to the Department of Pharmaceuticals, the trade balance between exports and imports increased from Rs 21.6 bn in FY97 to Rs 298.9 bn in FY09.

Growth in pharmaceutical exports also outperformed the country’s total export growth in FY09 with a yearly growth of 25%; whereas the country’s total exports of all commodities increased by around 17% during the same period. The major pharmaceutical products exported from the country are drug intermediates, APIs, finished dosage formulations (FDFs), bio-pharmaceuticals and clinical services. The top five pharmaceutical export countries are US, Germany, Russia, UK and China.

The demand for Indian pharmaceutical exports has been strong over the last few years. Apart from the low-cost advantage, India also has the highest FDA approval for the drugs manufactured outside the US. It currently accounts for 25% of every abbreviated new drug application (ANDP); more than 25% of Drug Master Files in the US are from India. Indian companies have received 31% of all tentative approvals in December 2008.

Imports

The Indian Pharmaceutical Industry imports bulk drugs and intermediates and formulations; however, imports form a small proportion of the trade for the industry. Most imports are made due to quality and economic considerations rather than due to non-availability from domestic sources.

Import of drugs and pharmaceuticals is freely allowed in the country but few bulk drugs and intermediates are restricted in the country due to applicability of the Narcotic and Psychotropic Substances Act.

Investment

The pharmaceutical industry has been able to attract significant investments in terms of FDI as well as domestic investment. The industry received investments worth Rs 21.4 bn in the form of FDI between April 2007 and April 2009. Out of 36 countries that contributed to FDI in India, 5 countries, led by Mauritius (56.4%), Singapore (11.2%), USA (5.8%), UAE (4.7%) and Canada (4.0%), accounted for over 82% of FDI in drugs and pharmaceuticals1.

According to the Ministry of Commerce and Industry, domestic investment in the industry is estimated at Rs 31.34 bn. As far as the domestic industrial proposals are concerned during August 1991-March 2008, the total Industrial Entrepreneur Memorandum (IEMs) filed (including Letter Of Intent (LOI) & Direct Industrial Licenses (DIL))add up to Rs 3,125.7 bn in drugs and pharmaceutical sector, according to the Ministry of Commerce and Industry.

SMEs in the Indian Pharmaceutical Industry

According to the Confederation of Indian Industries, there are around 80,000 small-scale units engaged in the areas of pharmaceutical formulations and bulk drugs. The present decade has opened up newer opportunities for the SMEs in the field of CRAMS, clinical research etc. They are expected to play a definitive role in the transitional global pharmaceutical environment, where a sizeable number of drugs are expected to go off patent in the coming few years. The Indian pharmaceutical SMEs are prepared to take on challenges posed by the global pharmaceutical companies despite the slow improvement in investment climate and R&D initiatives.

The Indian pharmaceutical SMEs are opening up to various unexplored avenues, such as:

The Indian government has been making every attempt to support SMEs through several incentives. One such effort is the development of SMEs clusters in various parts of the country.

Government initiatives for promoting the Indian pharmaceutical industry

The Department of Pharmaceuticals, under the Ministry of Chemicals and Fertilisers, formulates policies and implements programmes for achieving growth and development of the Indian Pharmaceutical Industry. The areas of responsibilities for the department include Pharmaceutical Research and Development (R&D), education, training and capacity building in pharmaceutical sector, related environment and hazard management, as well as promoting higher exports for greater share in the global market.

The Union government in the Eleventh 5-Year Plan focused on reviving Pharmaceutical PSUs for manufacturing critical bulk and formulation drugs, setting-up of more institutes like the National Institute of Pharmaceutical Education and Research, introducing interest subsidy scheme for Schedule “M” compliance etc. The Planning Commission approved a Budgetary Support of Rs 13,960 mn for various schemes of the pharmaceutical sector during the Eleventh plan period. In FY09, an expenditure of Rs 1,098.3 mn was incurred under various schemes of the Pharmaceutical sector.

The government has taken various policy initiatives for the pharmaceutical sector:

In a bid to promote new drug research in the country, the government is planning to create a special purpose vehicle (SPV) with insurance cover that will be used to fund new drug research. The Department of Pharmaceuticals is also planning to create drug research facilities and centres that can be used by private companies for such research work on a pay-and-use basis.

Outlook

According to Department of Pharmaceuticals, an estimated USD 103 bn worth of global generic drugs are at the risk of losing their patents by 2012. Indian pharmaceutical companies with their established manufacturing capabilities and skilled manpower can easily leverage on this opportunity. India is significantly ahead in chemistry services such as analogue preparation, analytical chemistry and structural drug design, which will provide the country with ample avenues in the field of contract research.

However, the industry also faces lot of challenges that can dampen its growth prospects. One such key challenge is the uncertainty in the pricing policy of drugs imposed by the Indian government at various levels of the industry. The pressure on prices of a number of essential drugs despite an increase in the price of raw material has taken a toll on the bottom lines of manufacturing companies, thereby hampering its R&D initiatives. A significant boost in certain critical areas such as regulatory infrastructure and new drug discovery programme can place India among the top pharmaceutical industries in the world.

1 Third Round up of development in the pharmaceutical sector, July 2009-Department of Pharmaceuticals.