Pharmaceutical industry

Overview and trends:

• India is the 3rd largest pharmaceutical market in the world by value and 14th by value. It is also the
largest producer of vaccines accounting for 60% of all vaccines.
• Indian pharma will reach US$ 130 billion by 2030, growing at a 22% CAGR
• Indian drug & pharma exports stood at US$ 24.60 billion in FY22 and US$ 24.44 billion in FY21.
• Medical device market is expected to grow to US$ 25 billion by 2025
• India is the second-largest contributor of global biotech and pharmaceutical workforce.
• Indian healthcare sector, one of the fastest growing, is expected to cross US$372 billion by end of 2022
• The Indian biotechnology industry was valued at US$ 70.2 billion in 2020 and is expected to reach
US$ 150 billion by 2025.

Value chain:

R&D Active ingredients Manufacturing

• Identify disease • Based on R&D, figure • Milling
• Select the target cells out the active • Granulation
• Administration mode ingredient formulation • Drug Blending
• Drug development • Sourcing API from • Drug coating
and clinical research suppliers • Tablet pressing

Final dispensing Distribution

• Providing correct form • Transportation
and dosage to the right and handling of
patient in a timely medicines from
manner manufacturer to
• Inform about potential retailer/ hospital/
interactions doctor

Costs incurred and value added in components of value chain:

Key performance Indicators:
• R&D cost on drug development → Total expense that a company invests in its R&D sector as
compared to the total number of drug discoveries during that period
• Lead, takt and cycle time → Measure the efficiency of pharma operations
o Cycle time: average time taken to complete production of 1 unit (optimal time of delivery)
o Takt time: average time taken between starting production of 1 unit and the next unit (rate at
which drugs should be produced to meet customer demands)
o Lead time: average time taken between receiving and delivering an order
• Product quality complaint rate → measures the number of customer complaints regarding product
quality with respect to the total number of products distributed within a fixed period
• Sales growth and health/ safety KPIs as regulated by governments

Risks in the industry:

• Pharmaceutical fraud:
Pharmaceutical fraud remains a major challenge for the industry — and it was possibly even worse
during COVID-19. Industry observers have predicted that misconduct during the pandemic will lead to
higher-than-average health care fraud recoveries this year.

• Supply chain disruptions:

The pandemic revealed significant weaknesses in the pharmaceutical logistics. The lean supply chains
cultivated by the industry are not resilient to sudden shocks or issues with production. As a result, long
manufacturing lead times and unpredictable demand are likely to cause problems. The supply chain
may also be vulnerable to intentional disruption by cybercriminals. Moreover, poor visibility and
transparency in the supply chain make a number of these challenges worse.

• Rising consumer expectations and difficulties managing brand health:

Pharmaceutical companies are under major scrutiny from customers, meaning brand management is
more important than usual. At the same time, consumers are expecting more from the pharmaceutical
industry, and it is becoming increasingly common for customers to carefully consider the dollar value a
medicine provides and shop around when buying medicine. Pharmaceutical companies will need to
manage growing consumer expectations and be prepared to respond to brand crises throughout the year
— like issues that may arise as supply chains continue to be disrupted by COVID-19.

Opportunities:

• Cost efficiency:
Low cost of production and R&D boosts efficiency of Indian pharma companies, leading to
competitive exports. India’s cost of production is 1/3rd that of US firms. Hence, the ability to produce
high-quality, low-priced medicines presents a huge opportunity for domestic businesses.

• Policy support:
In February 2021, the government approved a production-linked incentive (PLI) scheme for the
pharmaceuticals sector valid till FY 2029. This is predicted to increase investments and sales in the
sector, with enhanced exports. Additional outlay of $26.6B was announced in June 2021, to be utilised
over 5 years for the PLI scheme in 13 key sectors like active pharmaceutical ingredients, drug
intermediaries and key starting materials.

• Launch of patented drugs:

Following the introduction of product patents, several multinational companies are expected to launch
patented drugs in India. Growth in the number of lifestyle diseases in India could boost the sale of
drugs in this segment. Permission to import patent drugs from foreign players in the Indian market.

• Scope in generics market:

India’s generic drugs account for 20% of global exports in terms of volume, making it the largest
provider of generic medicines globally. The generics drug market accounts for around 70% of the
pharmaceutical industry. India supplies >40% generics to the US market