Introduction to Indian Pharma Sector

India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry
supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand
in the US and 25 per cent of all medicine in UK.

India enjoys an important position in the global pharmaceuticals sector. The country also has a
large pool of scientists and engineers who have the potential to steer the industry ahead to an
even higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat
AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

India is among the top six global pharmaceutical producers in the world. Indian vaccines are
exported to 150 countries. India produces 40-70 per cent of the WHO demand for DPT & BCG
and 90 per cent of measles vaccine. Approximately 70 per cent of the patients in developing
countries receive Indian medicines through NGOs like The Clinton Foundation, Bill & Melinda
Gates Foundation, Doctors Without Borders, the UNCTAD etc.

India's pharmaceutical exports stood at US$ 16.4 billion in 2016-17 and are expected to grow by
30 per cent over the next three years to reach US$ 20 billion by 2020. Presently there are 10,500
manufacturing units and over 3,000 pharma companies in India, growing at an exceptional rate.
India has about 1,400 WHO GMP approved manufacturing units. India has been accredited with
approximately 1,105 CEPs, more than 950 TGA approvals and 584 sites approved by the
USFDA. Globally more than 90 per cent of formulations approvals for Anti-retroviral (ARVs),
Anti-tubercular & Anti-malarial (WHO pre-qualified) have been granted to India.Manufacturing
costs in India are approximately 35-40 per cent of those in the US due to low installation and
manufacturing costs. India ranks amongst the top global generic formulation exporters in volume
terms.

Pharmaceutical exports registered a year-on-year growth of 11.44 per cent to reach US$ 12.91
billion in FY16, as per data from the Ministry of Commerce and Industry. The country's
pharmaceutical industry accounts for about 1.4 per cent of the global pharmaceutical industry in
value terms and 10 per cent in volume terms.

The Government of India has announced a host of measures to create a facilitating environment
for the Indian pharmaceutical industry. The policies of the Government of India are aimed at
building more hospitals, boosting local access to healthcare, improving the quality of
pharmaceuticals and improving the quality of medical training. The Government of India is
committed to setting up robust healthcare and delivery mechanisms. India is well placed to
become one of the major drivers in providing healthcare to all while controlling the ever-
increasing healthcare spend of both developed and developing nations.
History

Indian pharmaceutical history began from Gupta period which was existed from approximately
320 to 550 CE. Charak Samhita and Sushruta Samhita are the two foundational texts of
Ayurrvedic therapy having critique on medicine, pharmaceutics and surgery. Indians were
dependent only on the indigenous form of medicine before British rule. The use of this therapy
is still being studied and used not only in India alone but also in rest of the world.

In India Allopathic medication was started in British rule. But production of such medicines was
not in the country. Foreign countries use to make the final products in their units using the raw
materials imported from India and exported those medicines to India again. It was 1982 when
few of the Indian scientists like P C Ray, T K Gajjr, and A S Kotibhaskar laid a foundation for a
pharmaceutical industry. In 1901 Acharya P C Ray started first Indian Pharmaceutical Industry,
Bangal Chemical in Calcutta. Within few years some more Indian entrepreneurs came forward
to form the pharmaceutical industries. In 1907 Alembic Chemical Works in Baroda, in 1919
Bengal Immunity were started. This was considered as a foundation of Indian pharmaceutical
industry. This initial achievement of drug industry could meet 13% of countries medicinal
requirement. During the Second World War (1939-1945) there was a huge fall in supply of drugs
from foreign companies. As a need number of pharmaceutical companies started in India. This
includes Unichem, Chemo Pharmaceuticals, Zandu Pharmaceutical work, Calcutta Chemicals,
Standard Chemicals, Chemical Industrial and Pharmaceutical Laboratories (Cipla), East India
Pharmaceutical Works etc. With the establishment of such new pharmaceutical industries before
independence, almost 70% of the countries requirement was achieved.
From 1950s global pharmaceutical sector observed a tremendous growth. Numerous new drugs
were developed and produced on scale. These included the first oral contraceptive, "The Pill",
Cortisone, blood-pressure drugs and other heart medications. MAO Inhibitors, chlorpromazine
(Thorazine), Haldol (Haloperidol) and the tranquilizers ushered in the age of psychiatric
medication. Valium (diazepam), discovered in 1960, was marketed from 1963 and rapidly
became the most prescribed drug in history, prior to controversy over dependency and
habituation. The countries like Germany, Switzerland, UK and some extent US are the major
countries contributed for the global growth. A systematic approach in medicine was started that
include treating the symptoms to treating the diseases itself. Industries were focused on research
and development rather in building more and more production units as the industry observed
invention and commercialization the newly invented drugs like Penicillin and other synthetic
drugs.

On the other hand the Indian pharmaceutical sector was not a part of the global revolution. The
capital, new technologies were major factors affected on the growth of Indian sector. It was
recognized that participation of foreign capital and enterprise, particularly as regards industrial
technique and knowledge, will be of value to the rapid industrialization of the country. Hence
government of India tried to attract multinational companies to invest in India. As a result of
liberalizations in government policies, many foreign companies invested in Indian sector. With
the government efforts and investment of global entrepreneurs, Indian pharmaceutical sector
could achieve the growth of Rs 35 crore in 1952 from Rs 10 crore in 1947.

This growth was mainly contributed by manufacturing the bulk drugs rather than final product.
When Government of India observed that in the pharmaceutical sector the multinational
companies (MNCs) were behaving just like trade agents, i.e. importing drugs and marketing in
India and were not engaged in activities that would build domestic competence, a new strategy
with the lead role assigned to the public sector firms was devised for building up the pharmaceutical
industry. The Industrial Policy Resolution of 1956 classified industries into three categories
based on their priorities. “Schedule A” industries were exclusively reserved for the public sector
and “Schedule B” consisted of industries, where the public sector would play a lead role and
the private sector was expected to supplement the efforts of the State. “Schedule C” consisted
of the remaining industries whose future development was left to the private initiatives. The
pharmaceutical industry fell under Schedule B. Private industry was also encouraged, though
strictly regulated through industrial licensing. In the licensing policy, government
made it mandatory for the multinational unites to produce the final drug in their units from the
basic stage. The licensing was granted under the supervision of The Directorate General of
Technical Development for setting up the new units or expansion of the existing units keeping
into an account of the medicinal need of the country.

As a result of this policy many MNCs expanded their units and many new Indian companies
established. With this the Indian pharmaceutical sector could achieve the growth up to Rs 100
crore in 1962.
In pursuit of these policies, the Government of India established five public sector companies
in India of which two played very important roles- Hindustan Antibiotics Ltd. (HAL) and Indian
Drugs and Pharmaceuticals Ltd (IDPL) in 1954 and 1961 respectively. IDPL was established
in with technical assistance from USSR and HAL with the technical assistance of World Health
Organisation (WHO) and United Nations International Children’s Emergency Fund (UNICEF).
The two companies played a major role in building up technical competence in the industry as
well in establishing a strong bulk drug industry in the country.

HAL is the first drug manufacturing company to be set up in the public sector by government
of India with the social objective of providing affordable drugs throughout the country. Initially
it was started with manufacturing Penicillin. It is the first company in India to commence bulk
production of Streptomycin sulphate, Penicillin-G, 6-APA and Ampicillin. It is only Indian
company in pharmaceutical segment to discover two new molecules namely Hamycin and
Aurofungin.

The two companies played a major role in building up technical competence in the industry as
well in establishing a strong bulk drug industry in the country. IDPL and HAL created a new
environment and confidence that India could manufacture bulk drugs in a major way. The
university system in India at that time did not provide the specialized training required by the
pharmaceutical industry. IDPL and HAL not only encouraged the university system to impart
specialized training required for the pharmaceutical industry by creating a demand for skilled
labor but also sparked industrial developed in upstream and downstream business by generating
demand for specialized capital and other
services. It was this dynamism that led to the creation of a bulk drug manufacturing industry in
Hyderabad where the synthetic drug plant of IDPL is located

IDPL started its three units in the country with main objective of creating self sufficiency in
respect of essential life saving medicines to free the country from dependency on imports and
to provide medicines to the millions at affordable price and not to make millions from the
medicines. IDPL was basically conceived and established as a part of health care infrastructure
and has played a pioneering infrastructural role in the growth of Indian drug industry base.

These two companies also made considerable efforts in the adaptation and assimilation of
technologies supplied by their sponsors to meet Indian requirements. Modifications were
required due to technological imperfection and due to the physical and economic climate in
which the technology was being implemented. Efforts were also made for the exchange of
technologies between the two firms. The government insisted that the technologies developed in
the laboratories of IDPL and HAL from time to time, be shared with each other. When it was
found that the technology agreements with their sponsors were prohibiting the transfer of
technologies between the two firms, the government found a way out by making scientists from
each company work in the other. When Merck & Co. of United States (US), which provided the
technology to the streptomycin unit of HAL, objected to the sharing of the technology with IDPL
and the USSR strongly objected to the application of technology of Merck & Co. in IDPL, the
Government appointed a senior technologist of HAL to work in IDPL’s antibiotics plant. The
technologies available in these firms were spilled over to the private sector by way of movement
of scientists and technicians from public sector companies to the private sector. Some of the
founders of private sector bulk drug manufacturing companies had earlier worked in public sector
or companies, for example Dr. Anji Reddy, the founder of Dr. Reddy’s Laboratories, had worked
in IDPL
Market Size
The pharmaceutical sector was valued at US$ 33 billion in 2017. The country’s pharmaceutical
industry is expected to expand at a CAGR of 22.4 per cent over 2015–20 to reach US$ 55 billion.
India’s pharmaceutical exports stood at US$ 17.27 billion in FY18 and have reached US$ 10.80
billion in FY19 (up to October 2018). Pharmaceutical exports include bulk drugs, intermediates,
drug formulations, biologicals, Ayush & herbal products and surgicals.
Indian companies received 304 Abbreviated New Drug Application (ANDA) approvals from the
US Food and Drug Administration (USFDA) in 2017. The country accounts for around 30 per cent
(by volume) and about 10 per cent (value) in the US$ 70-80 billion US generics market.
India's biotechnology industry comprising bio-pharmaceuticals, bio-services, bio-agriculture, bio-
industry and bioinformatics is expected grow at an average growth rate of around 30 per cent a
year and reach US$ 100 billion by 2025.

Investments and Recent Developments

The Union Cabinet has given its nod for the amendment of the existing Foreign Direct Investment
(FDI) policy in the pharmaceutical sector in order to allow FDI up to 100 per cent under the
automatic route for manufacturing of medical devices subject to certain conditions.
The drugs and pharmaceuticals sector attracted cumulative FDI inflows worth US$ 15.83 billion
between April 2000 and June 2018, according to data released by the Department of Industrial
Policy and Promotion (DIPP).
Some of the recent developments/investments in the Indian pharmaceutical sector are as follows:

 Between Jul-Sep 2018, Indian pharma sector witnessed 39 PE investment deals worth US$
217 million.
 Investment (as % of sales) in research & development by Indian pharma companies*
increased from 5.3 per cent in FY12 to 8.5 per cent in FY18.
 In 2017, Indian pharmaceutical sector witnessed 46 merger & acquisition (M&A) deals
worth US$ 1.47 billion
 The exports of Indian pharmaceutical industry to the US will get a boost, as branded drugs
worth US$ 55 billion will become off-patent during 2017-2019.
Government Initiatives
Some of the initiatives taken by the government to promote the pharmaceutical sector in India are
as follows:

 In October 2018, the Uttar Pradesh Government announced that it will set up six pharma
parks in the state and has received investment commitments of more than Rs 5,000-6,000
crore (US$ 712-855 million) for the same.
 The National Health Protection Scheme is largest government funded healthcare
programme in the world, which is expected to benefit 100 million poor families in the
country by providing a cover of up to Rs 5 lakh (US$ 7,723.2) per family per year for
secondary and tertiary care hospitalisation. The programme was announced in Union
Budget 2018-19.
 In March 2018, the Drug Controller General of India (DCGI) announced its plans to start
a single-window facility to provide consents, approvals and other information. The move
is aimed at giving a push to the Make in India initiative.
 The Government of India is planning to set up an electronic platform to regulate online
pharmacies under a new policy, in order to stop any misuse due to easy availability.
 The Government of India unveiled 'Pharma Vision 2020' aimed at making India a global
leader in end-to-end drug manufacture. Approval time for new facilities has been reduced
to boost investments.
 The government introduced mechanisms such as the Drug Price Control Order and the
National Pharmaceutical Pricing Authority to deal with the issue of affordability and
availability of medicines.

Road Ahead
Medicine spending in India is projected to grow 9-12 per cent over the next five years, leading
India to become one of the top 10 countries in terms of medicine spending.
Going forward, better growth in domestic sales would also depend on the ability of companies to
align their product portfolio towards chronic therapies for diseases such as such as cardiovascular,
anti-diabetes, anti-depressants and anti-cancers that are on the rise.
The Indian government has taken many steps to reduce costs and bring down healthcare expenses.
Speedy introduction of generic drugs into the market has remained in focus and is expected to
benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes,
lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.
Regulatory Environment
To end the dominance of foreign drug companies, the Indian government enacted a
series of policies designed to foster self-sufficiency in the production of basic drugs. Because
these measures lowered barriers to entry, thousands of medium and small Indian
pharmaceutical companies entered the market challenging the MNCs for control. These
actions laid the foundation for today’s highly competitive domestic industry that is capable
of offering some of the lowest drug prices in the world.
These policies ended India’s dependence on expensive foreign drugs, fostered the development
of a competitive pharmaceutical industry, and guaranteed the Indian public access to
inexpensive drugs. Nonetheless, the Indian pharmaceutical industry also became one of the
country’s most heavily regulated. The industry currently faces restrictions on imports, high
tariff rates, ration requirements, and equity ceilings for foreign participation.

The Patent Act, 1970: The Act’s stated objective was to foster the development of an
indigenous Indian pharmaceutical industry and to guarantee that the Indian public had access
to low-cost drugs.7 The Act replaced intellectual property rights laws left over from the
British colonial era and ended India’s recognition of Western-style “product” patent
protection for pharmaceuticals, agricultural products, and atomic energy. Product-specific
patents were disregarded in favor of manufacturing “process” patents that allowed Indian
companies’ to reverse engineer or copy foreign patented drugs without paying a licensing
fee. This allowed the domestic industry build up considerable competencies and offer a large
number of cheaper “copycat” generic versions legally in India at a fraction of the cost ofthe
drug in the West, as long as they employed a production process that differed from that used
by the patent owner. The Act protected process patents for 7 years instead of the usual 15
years needed to develop and test new drugs.

Drug Price Control Order, 1970 (DPCO): The order was introduced when most of
India’s drugs were under strict price controls. Since its introduction, the number of bulk drugs
under price controls gradually declined from 347 in 1987 to 163 in 1994 to 74 in 1995.8 In
2005, the government capped prices on 74 bulk drugs and 260 formulations that account for
approximately 25 percent of India’s retail pharmaceutical market (attachment).9 Trade
margins for these drugs were capped at 8 percent for retailers and 16 percent for wholesalers.
The National Pharmaceutical Pricing Authority, founded in 1997, is responsible for
monitoring prices using the DPCO to fix ceiling prices on drugs and ensure that no Indian
company in a monopoly position takes advantages of its monopolistic position by
profiteering. In June 2006, the National Pharmaceutical Policy 2006 (Part A) proposed to add
price controls on 354 specific drugs listed as essential medicines.10 The new policy will cap
margins on generic drugs at 15 percent for wholesalers and 35 percent for retailers. It will
also enforce a 5 percent price cut on more than 75 commonly-used medicines resulting from
import duty reductions of 5 to 7.5 percent on certain active pharmaceutical ingredients
(APIs).11 The NPPA controls ceiling prices for controlled bulk drugs in all intra-industry
transactions as well as the retail ceiling prices for controlled formulations.

Patents (Amendment) Act 2005:12 To meet its TRIPs obligations, India amended
its patent law on March 22, 2005, abolishing its “process” patents law and reintroduced
Western style “product” patents for pharmaceuticals, food, and chemicals.13 This action
effectively ended 36 years of protection for Indian pharmaceutical companies and stipulated
that Indian companies selling copycat drugs must pay foreign patent holders a “reasonable”
royalty for copies sold in the Indian market. The amendment made reverse engineering or
copying of patented drugs illegal after January 1, 1995. The Act allowed for only two types
of generic drugs in the Indian market: off-patent generic drugs and generic versions of drugs
patented before 1995. At present, nearly 97 percent of all drugs manufactured in India are off
patent and therefore will not be affected by this Act. It also introduced a provision establishing
compulsory licenses for exports to least developed countries with insufficient pharmaceutical
manufacturing capacities.
The Amendment grants new patent holders a 20-year monopoly starting on the date the patent
was filed and, without a compulsory license, no generic copies can be sold during the duration
of the patent. The WTO also required India to establish a “mailbox” where patent applications
could be filed between January 1, 1995 and 2005. The Act encouraged significant numbers
of foreign pharmaceutical companies to participate in the Indian market and, in 2005, foreign
drug producers filed approximately 8,926 patent applications to cover their patented drugs
sold as generics in the Indian market. Roche (Switzerland) became the first foreign company
to win a patent under India’s new product patent regime and that patent, granted in March
2006 for a drug to treatment of hepatitis C (Pegasys), will be valid for 20 years from May 15,
1997. Pfizer (US) has submitted the largest number of patent applications (373) followed by
Johnson & Johnson (262) and Procter & Gamble (187). 14
Reports

Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various
vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK. India
contributes the second largest share of pharmaceutical and biotech workforce in the world. The
pharmaceutical sector in India was valued at US$ 33 billion in 2017. India’s domestic
pharmaceutical market turnover reached Rs 129,015 crore (US$ 18.12 billion) in 2018, growing
9.4 per cent year-on-year (in Rs) from Rs 116,389 crore (US$ 17.87 billion) in 2017.
With 71 per cent market share, generic drugs form the largest segment of the Indian pharmaceutical
sector. Domestic API consumption is expected to reach US$ 18.8 billion by FY22. The country
accounts for the second largest number of Abbreviated New Drug Applications (ANDAs) and is
the world’s leader in Drug Master Files (DMFs) applications with the US Indian Drugs &
Pharmaceuticals sector has received cumulative FDI worth US$ 15.83 billion between April 2000
and June 2018.

Indian drugs are exported to more than 200 countries in the world, with the US as the key market.
Generic drugs account for 20 per cent of global exports in terms of volume, making the country
the largest provider of generic medicines globally and expected to expand even further in coming
years. India’s pharmaceutical exports stood at US$ 17.27 billion in FY18 and US$ 13.94 billion
in FY19 (up to December 2018). In 2018-19, these exports are expected to cross US$ 19 billion.
31 per cent of these exports from India went to the US.

The Government of India plans to set up a US$ 640 million venture capital fund to boost drug
discovery and strengthen pharmaceutical infrastructure. The ‘Pharma Vision 2020’ by the
government’s Department of Pharmaceuticals aims to make India a major hub for end-to-end drug
discovery.

In Nov 2018, Cipla’s subsidiary in the United States has ordered two steps to acquire Avenue
Therapeutics Inc. for around an estimated Rs 1,563 crore ($215 million).
Indian pharmaceutical sector is expected to grow at a CAGR of 15 per cent in the near future and
medical device market expected to grow $50 billion by 2025

Under Budget 2019-18, allocation to the Ministry of Health and Family Welfare increased by 13.1
per cent to Rs 61,398 crore (US$ 8.98 billion).
Indian Drugs & Pharmaceuticals sector has received cumulative FDI worth US$ 15.90 billion
between April 2000 and September 2018.

The Contract Research and Manufacturing Services industry (CRAMS) – estimated at US$ 17.27
billion in 2017-18, is expected to reach US$ 20 billion by 2020.
The government has allocated Rs 31,745 crore (US$ 4.64 billion) towards the National Health
Mission under which rural and urban people will get benefited.
SWOT ANALYSIS OF PHARMA INDUSTRY
STRENGHTS:

 Low cost of production.

 Large pool of installed capacities.
 Efficient technologies for large number of generics.
 Large pool of skilled technical manpower.
 Increasing liberalisation of government policies.
OPPORTUNITIES:

 Aging of the world population.

 Growing incomes.
 Growing attention for health.
 New diagnoses and new social diseases.
 Spreading prophylactic approaches.
 Saturation point of market is far away.
 Spreading attitude for soft medication (OTC Drugs).
 Spreading use of Generic Drugs.
 Easier international trading.
 New markets are opening.

WEAKNESS:

 Fragmentation of installed capacities.

 Low technology level of capital goods of this section.
 Non-availability of major intermediaries for bulk drugs.
 Lack of experience to exploit efficiency the new patent regime.
 Very low key R&D.
 Very low level of Biotechnology in India and also for New Drug Discovery System.
 Lack of experience in International Trade.
 Low level of strategic planning for future and also for technology forecasting.

THREATS:

 Containment of rising health-care cost.

 High cost of discovering new products and fewer discoveries.
 Stricter registration procedures.
 High entry cost in newer markets.
 High cost of sales and marketing.
 Competition particularly from generic products.
 More potential new drugs and more efficient therapies.
 Switching over form process patent to product patent.
EXPORTS AND ADVANTAGE INDIA
 Pharmaceutical export from India stood at US$ 17.27 billion in 2017-18, and is expected
to grow by 30 per cent to reach US$ 20 billion by the year 2020.
 Exports of pharmaceutical* products together stood at US$ 10.80 billion during April-
October 2018.
 During April-October 2018, top importers of India’s pharmaceutical* products were USA
( US$ 3.21 billion), UK (US$ 383.30 million), South Africa (US$ 367.35 million), Russia
(US$ 283.33 million) and Nigeria (US$ 255.89 million).
 India is expected to rank amongst the top three pharmaceutical markets in terms of
incremental growth by 2020.
 India is the largest supplier of generic medicines globally (20 to 22 per cent of global export
volume)
 India has one of the lowest manufacturing costs in the world. It is lower than that of USA
and almost half of Europe.

PHARMACEUTICAL EXPORT PROMOTION COUNCIL

The Pharmaceutical Export Promotion Council (PHARMEXCIL) was established in 2004 by the
Ministry of Commerce and Industry, Government of India, to promote pharma exports.
Top 10 Publicly Listed pharmaceutical companies in India by Market
Capitalization

Rank Company Market Capitalization

1 Sun Pharmaceutical Industries Ltd. Rs.1.55 trillion

2 Lupin Ltd. Rs.680.31 billion

3 Dr. Reddy's Laboratories Rs.492.93 billion

4 Cipla Ltd Rs. 473.19 billion

5 Aurobindo Pharma Ltd Rs.412.83 billion

6 Zydus Cadila Rs.316.31 billion

7 Piramal Enterprises Rs.309.75 billion

8 Glenmark Pharmaceuticals Rs.253.30 billion

9 Torrent Pharmaceuticals Ltd Rs.227.42 billion

10 GLAXOSMITHKLINE Rs. 270 billion

ANALYSIS OF 10 LISTED PHARMACEUTICAL COMPANIES

Rank Company Price PE EPS

1 Sun Pharmaceutical Industries Ltd. 462.90 33.52 13.81

2 Lupin Ltd 770.95 36.77 5.56

3 Dr. Reddy’s Laboratories 2765.00 25.99 106.39

4 Cipla Ltd 520.20 31.30 16.62

5 Aurobindo Pharma Ltd 771.65 19.59 39.39

6 Zydus Cadila 1300.55 52.42 24.81

7 Piramal Enterprises 2592.05 9.62 269.52

8 Glenmark Pharmaceuticals 637.65 19.66 32.43

9 Torrent Pharmaceuticals Ltd 1897.00 39.34 48.22

10 GLAXOSMITHKLINE 1290.50 54.41 20.78