Text Box: Indian Pharmaceutical Industry

Date Published: April 2007, Pages: 325, Tables: 31, Figures: 38

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Summary
Text Box: Sample Pages  RESEARCH AND DEVELOPMENT The Key to success in this industry is research & development.  R&D is the starting of the industry value chain and is also the most important value creator.  Companies that involve in R&D do so in specific areas. They chose specific therapeutic areas to target based on their strengths in the market, and the commercial potential. BASIC R&D This involves discovering new molecules from scratch. It is highly capital intensive in nature as it relies on a great deal of automation. There are only a handful of Indian players that are able to conduct some form of basic research (Ranbaxy & DRL), and the top five have announced plans. In the drug development process in any pharmaceutical company a typical product takes 7-10 years, and $350-500 million internationally but the statistic varies greatly with the disease type. PROCESS RESEARCH OR REVERSE ENGINEERING This entails research on the process by which the drug is made and making modifications to the process. Here a company typically copies the molecule of another company and develops a highly cost effective method of producing that molecule. It is much less expensive to conduct since they do not need to conduct any discovery research or clinical trials. Till now this has been the focus of most Indian players. ANALOGUE OR DISCOVERY RESEARCH  Companies modify an existing molecule or a new one that has not been commercialized after accessing international patent databases, to arrive at a new molecule. BIOTECHNOLOGY RESEARCH It aims at establishing the link between ones genes and the diseases one has and could one day determine the best drug for an individual based on ones genetic makeup.  Most of these companies are however doing reverse engineering in the biotech area, and there is very little basic biotech research in India. R&D IN INDIA The Indian industry has attained cost advantages in process research used for generic drugs & value added generics production, which accounts for 60-80 percent of total sales. This cost advantage is in the fact that: Most infrastructure facilities are much cheaper in India than in developed countries. Indian scientists can be attracted at much cheaper rates than their US counterparts. The more value added basic research methodologies are being pursued by very few players like Ranbaxy & Dr. Reddys who are willing to take the risk of investing millions in building research capabilities and developing molecules. On average, the Indian pharmaceutical firms spend 0.57 % of their turnover on R&D expenditure, compared to an average of 12-18 % spent by the top international pharmaceutical companies. Investments made in R&D by the Indian pharmaceutical companies would yield 3-4 molecules a year, which is a very small number. There is very little private initiative to invest in R&D. The government continues to bear the burden, with industry chipping in with 10% to 12%. This also evident in the data of patent granted in the country where the top firms granted patents are mostly MNCs. Indian industry instead mastered the art of reverse engineering to gain competitive advantage, as the industry structure did not provide incentives to invest in basic research. Traditionally the Indian pharmaceutical firms have not focused on R&D due to: Lack of Product Patent protection: The delayed adoption of TRIPS in India is cited as the major impediment to the possible investment by international companies in India. Inadequate profit base: The price control has squeezed the profit margins making it difficult for Indian and international companies to cull out and invest sizable sums in R&D.  The profitability of Indian companies is also much lower than international levels. The pre-tax profit margin of pharmaceutical companies in India is much less than 6% on sales in sharp contrast to the 18% profit margins common to international companies.
Text Box: Abstract Indian pharmaceutical industry is undergoing fast paced changes. The Indian Generics market is witnessing rapid growth opening up immense opportunities for firms. This is further triggered by the fact that generics worth over $40 billion are going off patent in the coming few years which is close to 15% of the total prescription market of the US. The Indian pharmaceutical companies have been doing extremely well in developed markets such as US and Europe, notable among these being Ranbaxy, Dr. Reddy’s Labs, Wockhardt, Cipla, Nicholas Piramal and Lupin. The companies have their strategies in place to leverage opportunities and appropriate values existing in formulations, bulk drugs, generics, Novel Drug Delivery Systems, New Chemical Entities, Biotechnology etc. The industry ranks fourth globally in terms of volume and in terms of value, it is ranked thirteenth. The industry has thrived so far on reverse engineering skills exploiting the lack of process patent in the country. This has resulted in the Indian pharmaceutical players offering their products at some of the lowest prices in the world. The quality of the products is reflected in the fact that India has the highest number of manufacturing plants approved by US FDA, which is next only to that in the US. Multinational companies have traditionally dominated the industry, which is another trend seeing a reversal. Currently, it is the Indian companies which are dominating the marketplace with the local players dominating a number of key therapeutic segments. The market is also very fragmented with about 30,000 entities and the organized sector consisting of about 300 entities. Consolidation is increasing in the industry with many local