BUSINESS SECTOR -

ANALYSIS - BSA

PHARMACEUTICALS

Group 3

MBA - II, 20-22 Batch

Session : 2020-2021

Date : 20.11.2021
 INTRODUCTION
India is the largest provider of generic drugs globally. Indian pharmaceutical sector supplies over 50% of global
demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK. Globally, India
ranks 3rd in terms of pharmaceutical production by volume and 14th by value. The domestic pharmaceutical industry
includes a network of 3,000 drug companies and ~10,500 manufacturing units.

In the process of industrialization, pharmaceuticals have been a favourite sector for policy makers in the developed
as well in many developing countries, including India. This special policy preference has been due to the criticality of
the pharmaceutical products for the health security of the populace as well as for developing strategic advantages in
the knowledge‐based economy.

The phenomenal progress made by the industry over the last three decades has instilled a strong belief in the
government and the pharmaceutical companies in India that the country has a competitive strength and it should be
enhanced by suitable policy measures and firm‐specific actions with regard to export, innovation, strategic alliances
and investment. The Pharmaceutical Policy 2002 echoes the same sentiment and has shifted the focus of the policy
from self‐reliance in drugs manufacturing to the objective of enhancing global competitiveness.
 PAST TRENDS
Cost Efficiency: Low cost of production and R&D boost efficiency of Indian pharma companies, leading
to competitive export.

• Economic Drivers: High economic growth along with increasing penetration of health insurance to push
expenditure on healthcare and medicine in India,

Policy support: In June 2021, Finance Minister Ms. Nirmala Sitharaman announced an additional outlay of Rs.
197,000 crore (US $26,578.3 million) that will be utilised over five years for the pharmaceutical PL scheme in 13
key sectors such as active pharmaceutical ingredients, drug intermediaries and key starting materials.
Increasing Investments: The foreign direct investment (FDi) inflow in the Indian drugs and pharmaceuticals sector
stood at US$ 18.12 billion between April 2000 and June 2021.
In the post‐independence period, Indian pharmaceutical industry exhibited four stages of growth.

● In the first stage during 1950s–60s, the industry was largely dominated by foreign enterprises and it
continued to rely on imported bulk drugs notwithstanding its inclusion in the list of ‘basic industries’ for
plan targeting and monitoring.

● The second growth stage of the industry took place in the 1970s. The enactment of the Indian Patent Act
(IPA) 1970 and the New Drug Policy (NDP) 1978 during this stage are important milestones in the
history of the pharmaceutical industry in India. The enactment of the process patent contributed
significantly to the local technological development via adaptation, reverse engineering and new process
development.

● In the third stage of its evolution, domestic enterprises based on large ‐scale reverse engineering and
process innovation achieved near self ‐sufficiency in the technology and production of bulk drugs
belonging to several major therapeutic groups and have developed modern manufacturing facilities for
all dosage forms like tablets, capsules, liquids, orals and injectables and so on.

● The growth momentum unleashed by the strategic policy initiatives continued in the fourth stage of the
evolution of the industry during 1990s. The production of bulk drugs and formulations have grown at very
high rates and the share of bulk drugs in total production has gone up to 19 per cent in 1999–2000 from
a low of 11 per cent in 1965–66.
 DEMAND SUPPLY MECHANISM - DEMAND
● The pharmaceutical packaging market is forecast to reach $9.5 billion by 2024, growing at a CAGR of 6.5%.

● The market growth can be attributed to the growth of pharmaceutical industry in the emerging economies,
growing demand for drug delivery devices and blister packaging.

● Pharmaceutical packaging keeps complex generics from being debased by outer poisons and microbial
exercises, to guarantee the safety, and at the same time broadening the time span of usability of the drugs.

● Drug manufacturers are bound by global compliance laws enforced by regulatory authorities, which retain that
packaging is a key component in the drug delivery system up to the final purchase point.

● The development of advanced manufacturing processes, technological innovations and integrations of companies
have fuelled the pharmaceutical industry.

● As economies grow, and health care provision and insurance mechanisms expand, demand for local and
imported pharmaceutical products is on the rise. Research from consulting firm McKinsey & Company highlights
that emerging markets have been outspending Germany, France, Italy, the UK and Spain (the EU5) on
pharmaceuticals for several years, with a total market size of $281bn compared with the EU5’s $196bn in 2014.

● Even in the most newly opened markets, drug companies have seen growth: forecasts for Myanmar, for instance,
indicate that pharmaceuticals could quickly grow into a $1bn industry.
 DEMAND SUPPLY MECHANISM - SUPPLY
● The pharmaceutical supply chain is the means through which prescription medicines are manufactured
and delivered to patients. But the supply chain network is actually very complex, requiring a number of
steps that must be taken to ensure medications are available and accessible to patients.

● An ineffective supply chain could also disrupt the healing processes of patients and produce negative
effects on public health, a Kaiser Family Foundation report found.
At the most basic level, there are five-steps in the pharmaceutical supply chain to ensure that drug
inventory is readily available for distribution to providers and patients, according to an Avalere report.

Those five steps are:

1. Pharmaceuticals originate in manufacturing sites
2. Are transferred to wholesale distributors
3. Stocked at retail, mail-order, and other types of pharmacies
4. Subject to price negotiations and processed through quality and utilization management screens by
pharmacy benefit management companies.
5. Dispensed by pharmacies; and ultimately delivered to and taken by patients.
● Pharmacies are the final step before drugs reach the patient, and arguably the most vital step
because they serve as the information link between PBMs, drug manufacturers, and wholesale
distributors.

● Pharmacies purchase drugs from wholesalers or directly from manufacturers. After purchasing
products, pharmacies must maintain an ample stock of drug products and provide information to
consumers about the safe and effective use of prescription drugs.

● The vital players of the pharmaceutical supply chain network allow it to run smoothly and efficiently.
Those players include manufacturers, wholesale distributors, pharmacies, and PBMs.

● All businesses with an efficient supply chain follow a four step process, including demand
management, inventory management and distribution, secondary production planning and scheduling,
and primary manufacturing, according to a report from researchers at Imperial College of Science,
Technology, and Medicine.

● The global information analytics business touched on various challenges of this process, such as lack
of coordination, inventory management, absent demand information, human resource dependency,
order management, temperature control, and shipment visibility.
 COMPETITIVE SCENARIO

With the arrival of global patent regime and widespread liberalization measures at the individual country,
bilateral, regional and multilateral levels, the issue of competitiveness is critical for understanding the
strengths and weaknesses of a country in the global marketplace.

The competitive strength of an industry in the global market can be seen in several ways. One simple way
is to compare the relative size and growth performance in value ‐added.

A stronger growth performance exhibited by a particular industry in cross country comparisons indicates
rising level and strength of production, which may drive the sector to emerge as a global player.

Most of the studies on cross–country and industry level comparisons of competitiveness also emphasized
on the productivity level. In order to achieve a relatively higher growth performance among countries, one
country in the particular sector is required to produce relatively more output per input combination over
time and among competing countries. Innovation is an important source of cross–country differences in the
productivity performance.
Price competition among generics is an important feature of the Indian pharmaceutical industry. While
generally this leads to low prices, instances of high prices and high dispersion of prices for a particular
molecule may exist even when the number of suppliers of the same drug is high.

A specific feature of the Indian market is prevalence of branded generics, which is not found in most
developed markets. Thus, there is interbrand competition at the intra-molecule level. This sometimes
creates artificial differentiation, and firms spend advertising and marketing resources to increase consumer
expenditure on their products (Bhattacharjea & Sindhwani, 2014), and are thus able to charge high prices
for their products even when they have high market shares.

The phenomenon of branded generics dilutes price competition. Firms have also traditionally used
combination of drugs (drug cocktails) to differentiate themselves from the competition.

Beyond price controls, there are also numerous issues that arise in competition, such as trade practices,
marketing practices, mergers and acquisitions by companies, and the Competition Commission of India
(CCI) is the appropriate regulatory authority for those industry-related matters.

Thus, the pharmaceutical industry is a highly regulated market, with different regulatory authorities
controlling different aspects of this industry.
 RECENT DEVELOPMENTS
• In recent years within 2020 to 2021 the development of the coronavirus vaccine has dominated the
pharmaceutical industry over the past year.
• It has developed the and changed the face of pharmaceutical industry.
• It has developed in the following ways:

• Coronavirus Vaccine Development – The development of vaccines like covaxin and covishield has
strengthen the role and existence of the pharmaceutical industry.

• Digital transformation of the industry – The digital transformation of the industry is something that
continues year on year, with technological innovations set to impact drug development and the supply
chain.  There is an opportunity for machine learning and artificial intelligence in the supply chain to
shorten the production cycle.  Through 2021 we expect to see more organisations experimenting with
technology and data to improve efficiency and streamline the supply chain.
• Growth is biosimilar adoption: The popularity of biosimilars has been growing since 2018 and
market share has increased significantly. A biosimilar is a biological medicine that is highly similar and
clinically equivalent to existing biological medicine. For the improvement of the outcomes of patients,
it is important that biosimilar medicines reach the market around the world to make medication more
affordable and accessible. According to leading manufacturers, CSI has handled more biosimilar
products for oncology indications for clinical trial use, than any other company in Europe.

• Investment in improvement of breakthrough therapies: The pharmaceutical industry is

experiencing pressures on pricing, the cost of drug development and changing business models. To
fight against that, it is expected that organisations will look to invest in innovative breakthrough
therapies to diversify their portfolios.

• Increasing global market presence: The research, development, and manufacturing capabilities
that are growing in Japan and there is a growing development taking place to compete with some of
the most established markets, such as the US. Japan is one of the most rapidly growing
pharmaceutical markets in the world, organisations are turning their attention to the country.
 FUTURE OUTLOOK

1. The future of pharma is about embracing technology and a much broader definition of medicines.

2. The future I see with the pharmaceutical industry is individualizing care. Instead of making medications for
diseases, they will make medications that work for the individual patients taking us and our specific needs into
account.

3. There must be a biological component taken into consideration in pharma advancements. The growth of
pharmacogenomics will become a critical need.

4. The future of pharma is primarily being driven by consumer engagement. We now know that patients who
are more informed about their condition and involved in their treatment decisions, will in most cases, have
better health outcomes.

5. Worldwide prescription drug sales are forecast to reach $1.2 trillion by 2024, reflecting 6.4% CAGR from
2018-2024. Growth is driven by increased contribution from orphan drugs as they will grow to 20% of the
prescription drug market.
6. A major focus of Pharma going forward will be a move toward instituting new manufacturing technologies
to produce biologic drugs and vaccines. The goal of harnessing these technologies will be to avoid the
relatively high production cost and low efficiency inherent in conventional methods of drug production.

7. The future of Pharma is digitization and consolidation. The Pharma industry as a whole is moving toward
consolidation with more and more manufacturers, PBMs, pharmacies merging with one another to achieve
control over data and market share.

8. The future of pharma is curing previous incurable diseases with new Cell and Gene Therapies. Cell and
Gene Therapies rely on the administration of genetic material to modify or manipulate the expression of a
gene product or properties of living cells.

9. Pharma will become increasingly reliant on digital tools and data-driven strategies from drug development
through commercialization. For example, the increasing use of advanced data analytics and deep learning
will allow Pharma to more effectively design and implement clinical trials that result in more personalized and
consumable therapies that benefit patients and providers.