INTRODUCTION

Chapter – 1

1.1 Introduction

”The Indian pharmaceutical industry is a success story providing employment for millions and
ensuring that essential drugs at affordable prices are available to the vast population of this sub-
continent”.
- Richard Gerster

The pharmaceutical industry in India is among the most highly organized sectors. Medicines play
an important role in health care delivery, Pharma industry can play a pivotal role to improve
healthcare. This industry plays an important role in promoting and sustaining development in the
field of global medicine. Due to the presence of low cost manufacturing facilities, educated and
skilled manpower and cheap labor force among others, the industry is set to scale new heights in
the fields of production, development, manufacturing and research. The only industry in which
patents are thought to play an important role in bringing new products to market is the
pharmaceutical industry.

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It
has expanded drastically in the last two decades. The leading 250 pharmaceutical companies
control 70% of the market with market leader holding nearly 7% of the market share. It is an
extremely fragmented market with severe price competition and government price control.

The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs,
drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and
injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the
core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These
units produce the complete range of pharmaceutical formulations, i.e., medicines ready for
consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and
Used for the production of pharmaceutical formulations.
Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the
drugs and pharmaceutical products has been done away with. Manufacturers are free to produce
any drug duly approved by the Drug Control Authority. Technologically strong and totally self-
reliant, the pharmaceutical industry in India has low costs of production, low R&D costs,
innovative scientific manpower, strength of national laboratories and an increasing balance of
trade. The
, with its rich scientific talents and research capabilities, supported by Intellectual Property
Protection regime is well set to take on the international market.

A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion,
growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of
technology, quality and range of medicines manufactured. From simple headache pills to
sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now
made indigenously.

The first pharmaceutical company are Bengal Chemicals and Pharmaceutical Works, which still
exists today as one of 5 government-owned drug manufacturers, appeared in Calcutta in 1930.
For the next 60 years, most of the drugs in India were imported by multinationals either in fully-
formulated or bulk form. The government started to encourage the growth of drug manufacturing
by Indian companies in the early 1960s, and with the Patents Act in 1970, enabled the industry to
become what it is today.

Playing a key role in promoting and sustaining development in the vital field of medicines,
Indian Pharma Industry boasts of quality producers and many units approved by regulatory
authorities in USA and UK. International companies associated with this sector have stimulated,
assisted and spearheaded this dynamic development in the past 53 years and helped to put India
on the pharmaceutical map of the world.

The Role of Pharmaceutical Industry in India GDP is immense. For the past few years the Indian
Pharmaceutical Industry is performing very well. The Indian Pharmaceutical Industry is one of
the biggest producers of the active pharmaceutical ingredients (API) in the international arena.
Around 40% of the total pharmaceutical produce is exported. 55% of the total exports constitute
of formulations and the other 45% comprises of bulk drugs.Liberalization, privatization and
globalization (LPG) have helped the Indian pharmaceutical companies to achieve international
recognition. It's remarkable to note that today several Indian Pharma companies are approved by
US FDA and are listed at NASDAQ.

The Indian pharmaceuticals industry has grown from a mere US$ 0.32 billion turnover in 1980 to
approximately US$ 21.26 billion in 2009-10.The country now ranks 3rd in terms of volume of
production (10% of global share) and 14th largest by value. The Domestic Pharma sector has
been expanding and has is estimated at US$ 11.72 billion (Rs 55454 crore) in 2008-09 from US$
6.88 billion (Rs 32575 crore) in 2003-04. Indian exports are destined to various countries around
the globe including highly regulated markets of USA, Europe, Japan and Australia.

India has also appeared as the preferred location for the pharmaceutical companies of the world
because of its towering growth scenario furnished by elderly population, alteration in disease
profile, developing patent system and socio-economic circumstances. India began to abide by the
World Trade Organization's Trade Related Aspects of Intellectual Property Rights (WTO-
TRIPS) agreement and acknowledged product rights after the revision of the Indian Patent Act in
January 2005. Indian firms are laying out strategies to benefit from the Japanese government
proposal to endorse generic drugs to minimize healthcare charges.

In the recent years, despite the slowdown witnessed in the global economy, exports from the
pharmaceutical industry in India have shown good buoyancy in growth. Export has become an
important driving force for growth in this industry with more than 50 % revenue coming from
the overseas markets. For the financial year 2008-09 the export of drugs is estimated to be $8.25
billion as per the Pharmaceutical Export Council of India, which is an organization, set up by the
Government of India. A survey undertaken by FICCI, the oldest industry chamber in India has
predicted 16% growth in the export of India's pharmaceutical growth during 2009-2010.
1.2 Objective & Scope Of The Study
The objective of the project is to evaluate the export competitiveness of Indian Pharma sector.
This study would focus mainly on the drugs and look at the entire value chain of exports. With
the aforementioned objective in mind, this study has first identified the progress in Indian export
basket which have shown a promising growth in value or in unit value and have a considerable
weight in the Indian export basket on the basis of recent performance of Indian exports of
pharmaceutical drugs in US and Europe markets.

1.3 Research Methodology

In order to evaluate the demand-side of Indian Pharma exports, the study has analyzed the
competitive performance of Indian exports of the products in the US and EU markets. It has also
been used to highlight the role of emerging trade policy environment – specifically, the role of
discriminatory rules of origin in Regional Trading Arrangements., tariff peaks and environmental
and labour standards as market access issues relevant to drug exporting countries.

To access the supply-side factors of export competitiveness, a preliminary interview was

conducted with a few exporters. The interview sought their views and opinions chiefly in export
of the supply-side bottlenecks that they are facing in India. The supply side framework is based
more on data/ numbers. The inferences about the supply side factors are therefore based on the
opinions expressed by exporters of certain products.

1.4 Key Benefits

The global pharmaceutical industry is facing a period of significant drug patent expiries, which
substantially expands the addressable market for generics companies. Many of these MNCs are
collaborating with Indian companies, which often offer as much as 30% to 50% savings in total
drug discovery and development costs. India is well-placed to benefit from this shift, with the
country's strong manufacturing base - both in formulations, as well as in key inputs (bulk drugs
and APIs). India has the highest number of US FDA approved plants outside of the US.

Indian companies benefit from the fixed profit margins in the highly competitive and price-
sensitive generic market, and are able to leverage the strong, established distribution networks of
the global Pharma companies. India, with its inherent competitive advantages and cost-effective
manufacturing capabilities, has now become one of the most preferred destinations for Contract
Research and Manufacturing Services (CRAMS). India with its intrinsic competitive advantages
remains as one of the most preferred outsourcing destinations and is now playing a vital role in
manufacturing as well as drug development value chain of various innovator companies.

1.5 Therapeutic Category Share

Top 10 Drug types % Rx*
Anti-infectives--------- 37.3
Anti-rheumatic Nonsteroidal Analgesics.---- 24.3
Anti-pepticulcerants----- 14.1
Non-Narcotics, Antipyeretics---- 10.7
Antihistamines, Systemic---- 10.4
Vitamin B Complex--- 10.2
Cough Preparations---- 8.1
Haematinics, Iron + Combinations---- 5.1
Antispasm.Antichol. Combinations---- 4.5
Antiemetic, Antinausatics ----- 4.2
[Source: ORG-IMS, December 2005]
 PHARMA INDUSTRY
Chapter - 2
2.1 Introduction
A drug, broadly speaking, is any substance that, when absorbed into the body of a living
organism, alters normal bodily function. In pharmacology, a drug is "a chemical substance used
in the treatment, cure, prevention, or diagnosis of disease or used to otherwise enhance physical
or mental well-being." Drugs may be prescribed for a limited duration, or on a regular basis for
chronic disorders.

Recreational drugs are chemical substances that affect the central nervous system, such as
opioids or hallucinogens. They may be used for perceived beneficial effects on perception,
consciousness, personality, and behavior.[ Some drugs can cause addiction and habituation.

Drugs are usually distinguished from endogenous biochemicals by being introduced from outside
the organism. For example, insulin is a hormone that is synthesized in the body; it is called a
hormone when it is synthesized by the pancreas inside the body, but if it is introduced into the
body from outside, it is called a drug.

Many natural substances such as beers, wines, and some mushrooms, blur the line between food
and drugs, as when ingested they affect the functioning of both mind and body.Drugs produced
in India are controlled by the World Health Organization (WHO) and in many cases these drugs
are FDA approved! First, is it legal to import generic equivalents of brand name drugs currently
under patent from an overseas pharmacy?

The World Trade Organization (WTO) treaties between nations protect patents and trademarks.
India is one of the few nations that selected a protection scheme based upon protection of the
manufacturing process (Process Patents) rather than using the more common scheme of
protecting the actual product.(Productpatents).

As a result, Indian pharmaceutical chemists can legally create, and sell worldwide, drugs that are
still patent protected elsewhere if they do so using a process that creates the identical drug
through the use of a different process.
Therefore, these drugs can be marketed at prices that reflect their real manufacturing cost, rather
than a monopoly price that is set without regard to competition. No wonder that the
pharmaceutical industry is the most profitable (that's profit, not gross income) industry in the US.
The profit margin of the drug companies, which takes into consideration the substantial costs for
research and development of new drugs, is nothing short of scandalous and immoral. Thus, the
question is not 'why can our overseas pharmacy charge so little', it is 'why do they charge so
much.  

2.2 Indian Prescription - Drug  Sources

The best way to beat high drug prices is to send your pharmaceutical order to a reputable
Pharmacy in India. These online prescription pharmacies source their drugs, which are
manufactured at world-class sites and they are typically approved, by one or all of the following
agencies,
World HealthOrganization,(WHO) 
Food and Drug Administration (FDA), USA
Medicines Control Agency (MCA),UK
Therapeutic Goods Administration (TGA),Australia
Medicines Control Council (MCC),SouthAfrica.
National Institute of Pharmacy (NIP),Hungary.
Pharmaceutical Inspection Convention(PIC),Germany
State Institute for the Control of Drugs,Slovak Republic
Food and Drug Administration (FDA), India 
Indian Online prescription Pharmacies:
Your orders are processed at specially created export facilities of overseas pharmacies and these
Licensed Pharmacies are manned by licensed pharmacists who verify the prescription, if needed, 
and then dispense the drugs exactly as you ordered. They have handled more than 50,000
prescriptions during last year. These are a large chain of independent pharmacies located in
Major cities of India.

Your order is filled with drugs drawn from the same immense inventory pool as that used to fill
bulk orders from the chain's retail stores, which dispense thousands of prescriptions daily. This
assures you that your drugs are factory fresh, genuine, and of the highest quality.
All of the drugs that are offered are in the form of pills, capsules, or tablets and are machine
sealed at the factory in tamper-proof packs, and are untouched by human hands.

2.3 Drug Manufacturers

Given below is a list of some of the Indian manufacturers from whom these overseas pharmacies
source the drugs for you. All these are well known in North American & European markets
GlaxoSmithKline (GSK), India  http://www.gsk-india.com  
Novartis India Limited  http://www.in.pharma.novartis.com   
Wyeth India Limited  http://www.Wyethindia.com  
Parke Davis India Ltd 
AVENTIS PHARMA INDIA  http://www.aventispharmaindia.com  
PFIZER INDIA LIMITED  http://www.pfizerindia.com  
UCB Pharma Ltd 
E Merck India Ltd 
ELI Lilly and Company (India) 
AstraZeneca Pharma India Ltd  http://www.astrazeneca.com  
JOHNSON & JOHNSON (ETHNOR DIVISION) 
Cipla Limited  http://www.cipla.com  
Ranbaxy India Limited  http://www.ranbaxy.com  
Dr.Reddy Laboratories  www.drreddys.com  
Nicholas Piramal India Limited  http://www.nicholaspiramal.com  
SUN PHARMA LIMITED  http://www.sunpharma.com  
RPG LIFESCIENCES LTD www.rpglifesciences.com 

This is only a representative list for you to learn about the Indian drug manufacturers. These
Pharmacies source more than 10,000 products from more than 100 manufacturers. Some of these
plants pass regular inspections by visiting regulators from the F.D.A.'s of the United States,
Britain, Canada, Germany, France, Spain, and other countries. Ranbaxy has U.S. F.D.A.
approval for 20 of its generic products and it even owns a factory in New Brunswick,
2.3.1 HIV Drugs
In the USA it cost about $12,000.00 per year for the three drugs that are commonly used to
control the HIV virus.  These 3 drugs are from 3 different companies and their profits from these
drugs are enormous.  In India these same 3 individual drugs are manufactured as one drug, in one
pill, and sell for about $300.00 per year.

2.4 Pharmaceutical Drugs And Indian Entrepreneurship

In India, almost 100 percent of the domestic pharma companies are family run. As most of these
companies started showing significant growth only after 1970, we usually see the first or second
generation entrepreneurs in this family run business.

The most successful Indian pharma company, so far, with global footprints is Ranbaxy.
Unfortunately, in the very early third generation of entrepreneurship, the business was sold off to
Daichi-Sankyo, probably for some very valid business reasons.Even in the second generation of
entrepreneurship, we have witnessed some well known pharma companies, like Glenmark, Elder
Pharma etc getting split up between brothers. Perhaps, in future we shall see more of such splits
and consolidations.

Until now, the focus on ensuring prosperity through family businesses was to help them preserve
wealth and survive from one generation to the next. But with changing times, the families have
come to understand the requirements for long-term growth and productivity that can generate
prosperity for many generations to come. A critical facet of all thriving businesses and growing
economies is no secret entrepreneurship.As long as the families are able to differentiate between
a family and business interest, bring in a strategic focus in business instead of trying to do
everything then it appears lucrative.

Mumbai: As top Indian pharmaceutical companies sell themselves off, India’s Rs 60,000
crore
drug market seems harking back to the 1970s, when it was dominated by foreign multinationals.
Just six of India’s top 10 drug makers by market share are controlled by domestic promoters

today, down from nine in December 2008.

“At least two more deals (of foreign firms acquiring Indian drug makers) are likely in the next
18 months,” said Tarun Shah, founder, MP Advisors. Global acquisitions have also changed the
structure of the Indian market. The combined share of top 16 drug makers in the local market is
56%, or worth Rs33,600 crore, according to retail audit data compiled by IMS Health. Since new
acquisitions and mergers have changed the ownership base in the industry, 23% of this market is
now controlled by six multinational companies.

With multinationals’ interest to grow in this market and Indian entrepreneurs’ willingness to
encash, there could be more acquisitions happening, which will lead to MNCs increasing their
market share in the domestic market.
2.5 The Pharma Boom

From 1951 (launch of First Five Year Plan) till 1991, the growth rate had been about 3.5%. The
population grew at about 2.5%. With dismal growth and rapidly expanding population, poverty
multiplied and unrest grew louder.

Its GDP grew at 8% a year (1991 to 1997). It was export led boom for them. The latter is good
but is not an ideal situation. The exports were priced low in order to pay for the monies received
and allow huge profits for the American businesses.

(1998-2004) It is period of greatest improvement in the Indian economy and its perception
abroad. The economy grew at 6.5% with an occasional burst of 8% in 2003. The foreign money
managers started to look at India favorably.

The recent regulatory and much awaited patent law changes have lead the Indian Pharmaceutical
Industry towards exploring newer avenues of drug development, thus, promising higher capital
investment in the pharmaceutical industry in the near future. The Indian Pharmaceutical
Research is backed by strong Government support and availability of surplus skilled technical
workers at lower costs.

At a growth rate of 9 per cent per year, the pharmaceutical industry in India is well set for rapid
expansion. As a result of the expansion, the Indian pharmaceutical and healthcare market is
undergoing a spurt of growth in its coverage, services, and spending in the public and private
sectors.

The economic liberalization policies coming to force in the 1990s and the strong emergence of
private sector in the Indian economy has heightened the pace of development of the
pharmaceutical industry and will continue to do so.

The relaxing of pricing controls within the last ten years, coupled with strong native
manufacturing expertise, provides an attractive proposition for Big Pharma. The US Food and
Drug Administration (FDA) has already approved 60 manufacturing sites – more than any other
country outside the US – for new developments.

2.6 Social Dimensions

Pharma is one of the industries with the most complex mix of stakeholders. It therefore always
had to carefully chose how to communicate with each of them. Each pharma marketing and
comms department has dedicated resources for each of stakeholder, because it is crucial to
generate targeted content and messages for each carefully and  responsibly.

social media initiative by pharma is one that manages to create engagement with the stakeholders
targeted. Social media for pharmacos therefore should be entirely about getting the right amount
of information to the right patient, physician, regulator, payer, journalist or financial analyst etc.
at the right time.  Sort of a personalized medicine approach to social media.

2.7 Global Trade - Pharma

In 1985, the top 20 also included countries such as the former Yugoslavia, Poland, and Hungary.
However, as seen in their low and relatively insignificant export numbers, the exporting
countries that really mattered were still limited to the US and EU.

The percentage of growth in the former leaders has been sluggish over the past two decades,
while countries like Ireland and the Benelux nations have experienced significant growth. This
could be due to a slowdown in R&D innovation or an expiry of patents on major products, which
allows generics to enter the market and drive prices down.

If these former pioneers wish to remain competitive, they need to expand the development of
new drugs. Otherwise, they will face a continuing of the intensified competition from developing
nations that has appeared over the last decade. As outsourcing investment in drug discovery and
product development grows, emerging countries will gain more technical knowledge and become
potential competitors to the established pharmaceutical giants. Also, as major patents expire and
generic companies in countries like Israel and India enter these markets, there will be increasing
competition from emerging economies on the former pioneer nations.

On the whole, the industry has grown significantly, with all the top 20 countries experiencing
positive growth and continuing upward. It is one of the highest-profit industries in the world, and
with the expanse in new medications and in the demand for alternative medications and
nutritional supplements, it has grown and changed considerably since 1985.

2.7.1 GLOBAL TRADE & REGULATORY BODY

The attractive opportunities offered by the loss of patent protection on several major products in
the coming period, and resolution of the biosimilar regulatory issue in the US, has to be offset
against price reduction pressures driven by the ongoing economic downturn and aggressive
competition for the business that is an offer.

USA: The largest generic market and the most sought after target for Indian companies involved
in the generic business, is the US. As more companies gained the expertise to file for FDA
approval, the number of ANDAs approved increased dramatically. In 2005, the number
increased to 52 and subsequently increased year-on-year, to reach 132 in 2008. In 2009, the total
number of ANDA approvals was 125. In the first quarter of 2010, a further 20 were approved.

UK: Over 80% of prescriptions in the mature UK market are written generically. The UK has
always been a focus for Indian companies with 9 companies running 11 manufacturing sites.
Between January 2009 and January 2010, Indian companies had more than 260 marketing
authorisations approved by the UK’s Medicines and Healthcare Regulatory Agency (MHRA) for
a wide range of products. During this period, Ranbaxy received 55 approvals; Dr. Reddy’s
received 54; Aurobindo received 39; and Lupin received 25.

Europe: Beyond the UK and Germany, significant European markets have been slow to adopt a
vigorous generics drugs policy. However, pressure on governments to cut costs in the face of
burgeoning drugs bills and economic recession, are seeing countries such as France, Italy and
Spain exploring the increased use of generics. A number of Indian companies are either
monitoring them from the sidelines or have already identified growth potential; Ranbaxy, for
example is established in France,Germany,Italy and Spain.

Brazil: Brazil is perhaps the most notable emerging generic market in recent years. According to
the Brazilian generic industry association, Pró-Genéricos, prices of generic medicines have to be
at least 35% cheaper than prices of original medicines but, in practice, they are up to 50%
cheaper. In 2009, generic medicines represented 19.4% of the pharmacy sector by volume,
increasing 19.0% over the previous year to 330.0 million units. In value terms, pharmacy sales of
generic medicines increased by 24.0% to R$4.5 billion (US$2.2 billion). Indian companies have
been present in the Brazilian market for several years. In 2008, Indian pharmaceutical exports to
Brazil were valued at around US$166 million per year and made up a significant part of all trade
between India and LatinAmerica.

Australia: Due to low prices of branded products, Australia is not yet a major market for
generics. A number of leading drugs are due to lose patent protection, but price competition
tends to be muted for off-patent drugs. The government is, however, currently looking at ways to
boost generic consumption in an effort to rein in the overall drugs bill. The market is beginning
to attract Indian companies, a number of which have gained approval from the Therapeutic
Goods Administration for their manufacturing facilities and a range of products.
Indian pharmaceutical companies are no strangers to competition. The Indian market is highly
competitive with more than 300 organised players and branded promotional costs associated with
every product, yet the industry is able to offer low-priced products and remain profitable in
India. However, whether the Indian industry will be able to maintain the pace of expansion
across the world is questionable in the current economic climate.

A.The Indian Pharma-Industry looking beyond generics

The Indian pharmaceutical industry has a long history of reverse-engineering and its ability to
produce and distribute globally generic copies of pharmaceutical products is well proven. Post
TRIPs, the R&D focus of Indian companies has shifted towards novel drug delivery systems or
discovery research. But the global launch of innovative new products is still some way off, so
what are the options for companies going forward?

B.In-licensing and custom manufacturing are alternative strategies to generics

Building upon its strengths in chemical synthesis and process engineering, the availability of
highly-skilled labour and a low-cost manufacturing base, some companies have elected to pursue
alternative business strategies.

Piramal Healthcare has always partnered global innovator companies and, in addition to an
extensive Indian generic business, is a global player in custom manufacturing and has a number
of early stage development candidates. In May 2010, it was announced that Abbott had agreed to
pay a total of US$3.7 billion for the domestic drug business, leaving Piramal to concentrate on its
research, formulation and customer manufacturing businesses.

Another company with a diverse portfolio of services is Jubilant Organosys. The company’s
main focus is its Pharmaceuticals and Life Sciences Products and Services business, which has
grown significantly over the last few years. Jubilant is active in APIs, proprietary products,
contract manufacturing of liquid and lyophilized sterile injectables, ointments, creams and
liquids, radiopharmaceuticals, drug discovery services, medicinal chemistry services, clinical
research services,generic dosage forms and healthcare.

C.Biosimilars
The resolution of the regulatory issues surrounding biosimilars in the USA has removed at least
one obstacle to the development of these products. As one of the leading producers of generic
drugs, it is logical that Indian companies would see biosimilars as a natural follow-on business.
Recent milestones in the development of biosimilars include:

Biocon signed a collaborative agreement with Mylan in June 2009 on the development,
manufacturing, supply and commercialisation of multiple, high-value generic biologic
compounds for the global marketplace. The collaboration combines Biocon’s scientific and
biologics manufacturing with Mylan's global commercial footprint.

In March 2010, Ranbaxy and the San Diego, California-based Pfenex announced that they had
entered into an agreement under which Ranbaxy will develop an undisclosed biosimilar
therapeutic produced in the Pfenex Expression Technology platform, a pseudomonas-based
recombinant protein technology.
In February 2009, Wockhardt announced that it had launched Glaritus, a recombinant long-
acting human insulin analogue, in India. The company commented that it was the first company
in the world, after the innovator, to launch this particular type of insulin, which works slowly for
over 24 hours.

2.8 Key producers of Pharmaceuticals

The following is a list of the twelve largest pharmaceutical companies ranked by revenue as of
July 2009 in the Fortune Global 500.
Net income/
[1] Total Revenues
Rank Company Country (loss) Employees
(USD millions)
(USD millions)

1 Johnson & Johnson United States 63,747.0[20] 12,949.0 118,700

2 Pfizer United States 48,296.0[21] 8,104.0 81,800

3 GlaxoSmithKline United Kingdom 44,654.0[22] 8,438.6 99,003

4 Roche Switzerland 44,267.5[23] 8,288.1 80,080

 5 Sanofi-Aventis France 42,179.0[24] 5,636.7 98,213

6 Novartis Switzerland 41,459.0[25] 8,195.0 96,717

7 AstraZeneca United Kingdom 31,601.0[26] 6,101.0 65,000

8 Abbott Laboratories United States 29,527.6[27] 4,880.7 68,838

9 Merck United States 23,850.3[28] 7,808.4 55,200

10 Wyeth United States 22,833.9[29] 4,417.8 47,426

11 Bristol-Myers Squibb United States 21,366.0[30] 5,247.0 35,000

12 Eli Lilly United States 20,378.0[31] (2,071.9) 40,500

 EU pharmaceutical exports in 2009: €77.5 billion

 EU pharmaceutical imports in 2009: €42.5 billion
 Biggest markets for EU pharmaceutical exports: US, Switzerland, Russia, Canada, Japan

With an estimated share in 2008 of 31.1% of world pharmaceutical output, a global output of
nearly €196 billion, and sales of €133 billion the EU pharmaceutical industry is one of Europe's
best-performing sectors. The EU is the second global manufacturing location for pharmaceuticals
behind the US and ahead of Japan, and its exports accounted for 13.4% of the global
pharmaceuticals market in 2009.

The pharmaceutical industry is the 5th largest sector in the European Union, accounting for 3.5%
of total manufacturing production. Pharmaceutical companies in the EU employ approximately
633,000 employees

2.9 Pharmaceutical Drugs Consumption

World Drug Report 2010: drug use is shifting towards new drugs and new markets

23 June 2010 - Today, at the National Press Club in Washington, UNODC launched the World
Drug Report 2010. Taking part in the launch were UNODC Executive Director Antonio Maria
Costa, Viktor Ivanov, Director of the Federal Drugs Control Service of the Russian Federation,
and Gil Kerlikowske, Director of the White House Office of National Drug Control Policy.
The Report shows that drug use is shifting towards new drugs and new markets. Drug crop
cultivation is declining in Afghanistan (for opium) and the Andean countries (coca), and drug
use has stabilized in the developed world. However, there are signs of an increase in drug use in
developing countries and growing abuse of amphetamine-type stimulants and prescription drugs
around the world.

The Report shows that the world's supply of the two main problem drugs - opiates and cocaine -
keeps declining. The global area under opium cultivation has dropped by almost a quarter (23 per
cent) in the past two years, and opium production looks set to fall steeply in 2010 due to a blight
that could wipe out a quarter of Afghanistan's opium poppy crop. Coca cultivation, down by 28
per cent in the past decade, has kept declining in 2009. World cocaine production has declined
by 12-18 per cent over the period 2007-2009.

Global potential heroin production fell by 13 per cent to 657 tons in 2009, reflecting lower
opium production in both Afghanistan and Myanmar. The actual amount of heroin reaching the
market is much lower (around 430 tons) since significant amounts of opium are being stockpiled.
UNODC estimates that more than 12,000 tons of Afghan opium (around 2.5 years' worth of
global illicit opiate demand) are being stockpiled.

The World Drug Report 2010 shows that in the past few years cocaine consumption has fallen
significantly in the United States, where the retail value of cocaine declined by about two thirds
in the 1990s and by about one quarter in the past decade.

To an extent, the problem has moved across the Atlantic: in the last decade, the number of
cocaine users in Europe has doubled, from 2 million in 1998 to 4.1 million in 2008. By 2008, the
European market ($34 billion) was almost as valuable as the North American market ($37
billion). The shift in demand has led to a shift in trafficking routes, with an increasing amount of
cocaine flowing to Europe from the Andean countries via West Africa, causing regional
instability. "People snorting coke in Europe are killing the pristine forests of the Andean
countries and corrupting governments in West Africa", said Mr. Costa.

Globally, the number of people using amphetamine-type stimulants - estimated at around 30-40
million - is soon likely to exceed the number of opiate and cocaine users combined. There is also
evidence of increasing abuse of prescription drugs. "We will not solve the world drugs problem
if we simply push addiction from cocaine and heroin to other addictive substances - and there are
unlimited amounts of them, produced in mafia labs at trivial costs", warned Mr. Costa.

The market for amphetamine-type stimulants is harder to track because of short trafficking routes
(manufacturing usually takes place close to the main consumer markets) and the fact that many
of the raw materials are both legal and readily available. Manufacturers are quick to market new
products (like ketamine, piperazines, mephedrone and Spice) and exploit new markets. "These
new drugs cause a double problem. First, they are being developed at a much faster rate than
regulatory norms and law enforcement can keep up. Second, their marketing is cunningly clever,
as they are custom-manufactured so as to meet the specific preference in each situation.

The number of clandestine laboratories involved in the manufacture of amphetamine-type

stimulants is reported to have increased by 20 per cent in 2008, including in countries where
such labs had never been detected before.

Manufacture of "ecstasy" has increased in North America (notably in Canada) and in several
parts of Asia, and use seems to be increasing in Asia. In another demonstration of the fluidity of
drug markets, "ecstasy" use in Europe has plummeted since 2006.

Cannabis remains the world's most widely produced and used illicit substance: it is grown in
almost all countries of the world and is smoked by 130-190 million people at least once a year -
though these parameters are not very telling in terms of addiction. The fact that cannabis use is
declining in some of its highest value markets, namely North America and parts of Europe, is
another indication of shifting patterns of drug abuse.

UNODC found evidence of indoor cultivation of cannabis for commercial purposes in 29

countries, particularly in Europe, Australia and North America. Indoor cultivation is a lucrative
business and is increasingly a source of profit for criminal groups. Based on evidence gathered in
2009, Afghanistan is now the world's leading producer of cannabis resin (as well as of opium).

The World Drug Report 2010 exposes a serious lack of drug treatment facilities around the
world. "While rich people in rich countries can afford treatment, poor people and/or poor
countries are facing the greatest health consequences", warned the head of UNODC. The Report
estimates that, in 2008, only around one fifth of problem drug users worldwide had received
treatment in the previous year, which means that around 20 million drug dependent people did
not receive treatment. "It is time for universal access to drug treatment", said Mr. Costa.

He called for health to be the centrepiece of drug control. "Drug addiction is a treatable health
condition, not a life sentence. Drug addicts should be sent to treatment, not to jail. And drug
treatment should be part of mainstream health care."

He also called for greater respect for human rights. "Just because people take drugs, or are
behind bars, this doesn't abolish their rights. I appeal to countries where people are executed for
drug-related offences or, worse, are gunned down by extrajudicial hit squads, to end this
practice".

Mr. Costa highlighted the dangers of drug use in the developing world. "Poor countries are not in
a position to absorb the consequences of increased drug use. The developing world faces a
looming crisis that would enslave millions to the misery of drug dependence". He cited the boom
in heroin consumption in East Africa, the rise of cocaine use in West Africa and South America,
and the surge in the production and abuse of synthetic drugs in the Middle East and South-East
Asia. "We will not solve the world drug problem by shifting consumption from the developed to
the developing world", said Mr. Costa.

The World Drug Report 2010 contains a chapter on the destabilizing influence of drug
trafficking on transit countries, focusing in particular on the case of cocaine. It shows how
underdevelopment and weak governance attract crime, while crime deepens instability. It shows
how the wealth, violence and power of drug trafficking can undermine the security, even the
sovereignty, of States. The threat to security posed by drug trafficking has been on the agenda of
the Security Council several times during the past year.

While drug-related violence in Mexico receives considerable attention, the northern triangle of
Central America, consisting of Guatemala, Honduras and El Salvador, is even more seriously
affected, with murder rates much higher than in Mexico. The Report says that the Bolivarian
Republic of Venezuela has emerged as a major departure point for cocaine trafficked to Europe:
between 2006 and 2008, over half of all detected maritime shipments of cocaine to Europe came
from that country.

The Report highlights the unstable situation in West Africa, which has become a hub for cocaine
trafficking. It notes that "traffickers have been able to co-opt top figures in some authoritarian
societies", citing the recent case of Guinea-Bissau.

Mr. Costa called for more development to reduce vulnerability to crime and increased law
enforcement cooperation to deal with drug trafficking. "Unless we deal effectively with the
threat posed by organized crime, our societies will be held hostage - and drug control will be
jeopardized, by renewed calls to dump the UN drug conventions that critics say are the cause of
crime and instability. This would undo the progress that has been made in drug control over the
past decade, and unleash a public health disaster", he warned.  "Yet, unless drug prevention and
treatment are taken more seriously, public opinion's support for the UN drug conventions will
wane".

Speaking at the launch, Mr. Kerlikowske said: "The United States recognizes, as a major drug
consuming nation, our responsibility to reduce American drug use and global consequences of
that use. For this reason, the Obama Administration released last month its first National Drug
Control Strategy emphasizing community-based prevention, early intervention, integration of
drug treatment into our health-care system, and evidence-based prevention and treatment,
combined with innovations in the criminal justice system. These new efforts will complement
our continuing efforts at home and abroad to disrupt drug trafficking organizations, interdict
currency and weapons before they get in the hands of drug cartels, and assist our partners around
the world to reduce drug production, trafficking and use."

2.10 Fair Trade in Global Pharma

Source: http://www.globalissues.org/issue/61/fair-trade
Globalization, trade and the free markets are the talks of today. Many envision or talk about a
future where people of different nationalities and cultures will be able to share and trade
resources across boundaries in a manner that will benefit all of humanity.
But, how fair is trade when a nation's own global trading policies together with international
corporations' desire to increase their profits result in manipulated international trade pacts and
agreements, so that they are most favorable for themselves? How free is the free market? Why
do the poor get poorer and the rich get richer?

A lot of overbearing regulations can give too much power to a few, and potentially corrupt ruling
regime and prevent innovative ideas from flourishing. It can perhaps be an obstacle for a foreign
nation to invest in a country due to those conditions and regulations which increase costs. (The
fact that some of these regulations are usually for the benefit for the people of that nation poses
another problem, altogether, mentioned in the MAI and Free Trade sections.)

However, too much deregulation can lead to corporations being able to undermine basic social
and human rights as well as lead to environmental damage, often without accountability. IMF-
imposed structural adjustment and their pushes for deregulation has also led to further poverty in
some countries.

The correct balance is difficult to reach due to the inherent power conflicts between the various
bodies involved. This leads to a lot of unfairness in trade and basic human rights for which the
majority of people end up paying the price. For example, some believe that one of the main
problems causing the 1998/99 financial crisis around the world is a lack of global regulations to
help protect developing nations as they enter a global market. Even the World Bank has
cautioned that globalization and localization (the increasing demand for local autonomy) can
pose problems as well as offer benefits, if not handled properly.

There is already a growing fair trade movement around the world, where local producers are able
to fairly trade their products. However, it isn't always easy to maintain that when globalization,
in its current form, does not seem to favor those who want trade to be fair.

(Reuters) - Western drug companies, struggling with expiring patents, a

dwindling pipeline of new drugs and burgeoning costs, are looking to Asia's vast
markets for new ideas, partnerships and customers.
The biggest draw is China and many pharmaceutical giants, with their eye on the ageing
population of the world's No. 2 economy, are lobbying to have their drugs included on key
government lists for subsidised drugs and seeking collaborations with Chinese firms.

"The focus has shifted in the last two years to the unique medical needs of Asia and of course,
China is the most important part," said Bradley Marchant, Pfizer Inc's(PFE.N) head of clinical
development in Asia, told Reuters on the sidelines of a pharmaceutical forum in Shanghai.

China is expected to become the world's third-largest pharmaceutical market by 2011, from ninth
in 2003, according to IMS Health Inc. Chronic illnesses like cardiovascular diseases, diabetes
and cancer now account for 83 percent of all deaths in China. It is also troubled by a very high
prevalence of hepatitis B, smoking- and pollution-linked respiratory diseases.

Markets aside, China's appeal lies also in its drug research units, many headed by Chinese
scientists who have returned after years of studying and working in the United States and
Europe. For the western drug firms, the imminent prospect of a large drug patents set to expire
has added a sense of urgency to their search for partners.

The top two drugs faced with patent expiry are Pfizer Inc's cholesterol fighter Lipitor and the
anti-clotting Plavix, sold by Bristol-Myers Squibb Co and Sanofi-Aventis. Marchant said Pfizer
would be interested in collaborating with partners in China on liver diseases, such as liver
cirrhosis, and cancer.

Liver related diseases are especially prevalent in Asia, and in particular China, because of the
endemicity of hepatitis B, which is a major risk factor for liver cirrhosis, or hardening, and liver
cancer.Swiss drugnaker Novartis AG said it was also looking to form partnerships.

"We have only about half as many new drug candidates as we really want to have coming into
our pipeline, so we need new and good ideas from the outside," said Douglas Hager, Novartis'
vice president of business development and licensing.
And then there is the issue of cost.The need for drug firms to cut costs, driven by a generally
tougher business environment, is made worse by cut-throat competition. While it cost $100
million to push out a drug back in 1979, by 2005, the cost had risen to $1.3 billion.

NEW APPROACH
Research chiefs of major drug companies say intense industry competition and high costs mean
the market can no longer support the old way of drug research -- when firms kept large teams of
in-house researchers and waited for results.

"The old model for pharmaceutical research and development does not work and we have to find
a new approach, an approach where we share risks and go into partnerships," Marchant said.

"What we are seeing is an evolution of strategies, evolution of companies' mindsets in order to

thrive in a very difficult environment. We can basically do full research using partners instead of
our own labs."

Patents too have become devalued because of a much faster pace in drug discovery. While new
drugs in the 1960s would find no competitors till more than a decade later, by the late 1990s,
drugs would be faced with directly competing newcomers just months after being put on shelves.

"We have to seek the best science and technology ... we will be doing more and more external
innovation," Lily Lee, vice-president and head of Johnson & Johnson's Pharmaceutical R&D
Asia, told the conference in Shanghai.By "external innovation", Lee meant teaming up with local
biotech companies and research institutes to share risks and costs.

In China, research outfits such as the School of Biological Science at Nanjing University are
increasingly seen by western pharmaceutical giants as ideal working partners.Researchers there
are designing tests for early diagnosis of lung and pancreatic cancer through detection of certain
molecules or biomarkers in the blood, called microRNAs.

"Using microRNAs, we have been able to detect cancer 33 months before (conventional) clinical
diagnosis," Zhang Chenyu, dean of the school, told Reuters in an interview.Zhang's team will be
conducting larger clinical trials in the months ahead and hopes to win domestic approval from
China' State Food and Drug Administration.
Angel Broking has done a research on the growth of pharmaceutical industry and found that by
2015 the pharmaceutical industry in India will be in the top 10 markets. Moreover, as per a press
release by research firm RNCOS in May 2010, the report titled ‘Booming Generics Drug Market
in India' projects the Indian generic drug market to grow at a CAGR of around 17 per cent
between 2010-11 and 2012-13.

The following form the basis of the technological strengths of the Indian pharmaceutical
industry:-

 Self-reliance displayed by the production of 70% of bulk drugs and almost the entire
requirement of formulations within the country
 Low cost of production
 Low R&D costs
 Innovative Scientific manpower
 Strength of National Laboratories  

Indian pharmaceutical industry as the second largest growing industry. Also the pharmaceutical industry
in India is the third largest in the world , which will be of US$20 billion by 2015. Mergers and acquisitions
are the part of this growth. The compounded annual growth rate of pharma in India is 12-15% and the
global figures are 4-7% for the period of 2008-2013.
Ranbaxy is world's second largest manufacturer of cefaclon (world's largest selling anti-biotic)

Lupin is world's largest producer of ethambutol, an anti-TB drug.

Dr. Reddy's Lab is second largest producer of ranitidine, an anti-ulcerant.

MNC's market share in India has fallen from 71% in 1971 to 35% now.

Above facts only underline the fact that the Indian Pharmaceutical Industry has arrived and with
a BANG!

India ranks 5th in volume terms and 14th in value terms in drug producing countries. CAGR of
Indian Pharmaceutical industry is 15.8%.
 HISTORY-PHARMA INDUSTRY-INDIA
Chapter – 3
3.1 Pharma stage
Indian pharma industry — Coming out of the shadows

During the 1960's domestic Indian pharmaceutical companies were not able to produce any
major drugs as they were covered by patents that granted monopoly to the innovator of that drug
till the patent expired. At that time around 85% of the domestic healthcare market was controlled
by MNCs and there were hardly any exports. The country may have gained independence in
1947 but the Indian pharmaceutical industry was still very dependent on imports. In the early
days of independence, India had no say in the availability and affordability of drugs. However,
inspite of being the second largest populated country in the world, the Indian pharma industry is
nowhere among the top markets, having a 1.8% share in value terms and 8% in volume terms, of
the world pharma market.

The Indian patents act 1972 that granted Independence to the Indian Pharmaceutical Industry
was undone by the draconic amendment of March 2005,which backdated product patenting to
January 1995.The 1972 legislation was proposed by national interest;2005 by international
pressure.Each country has its own specific need0based patent laws,and has to decide its own
destiny.

A) ‘Patenting’ Independence: 1972

The Indian Patents Act of 1972 granted independence to the Indian pharmaceutical industry. Our
hands were tied by the then patent law that put the interest of foreign monopolies before the
health of millions of suffering Indians. April 20, 1972 was a red-letter day for India. It was the
day when the Patents Act (Act 39 of 1970) came into force, replacing the Indian Patents and
Designs Act of 1911. The new Patents Act abolished product patents and allowed process patents
for seven years only.

The Indian Patents Act of 1972 granted the pharmaceutical sector the right to produce any drugs
the country needed. It did away with the shackles imposed by monopoly. It refused to let
multinational corporations (MNCs) wear the noble garb of intellectual rights.

In 1971, MNCs had an over 70 per cent share of the Indian pharmaceutical industry. In 2007, in
a reversal of roles, Indian companies commanded 83 per cent. In 1971, Alembic was the only
Indian among the top 12 companies in the Indian pharmaceutical market. In 2007, there are only
three MNCs in the top-12 list.

In 1974-75, 24 years after Independence, the industry produced APIs worth Rs 900 million.
Some of India’s leading pharmaceutical companies are acquiring companies in Europe, the US
and other countries. Many more are getting into marketing and technological tie-ups.
Pharmaceutical mergers and acquisitions fail to surprise us any longer.
Pharmaceutical business models are changing. The world is now discovering India as a preferred
place for clinical research. In more ways than one, the industry appears set to keep up its growth
and progress, but for the 2005 Act.

Nevertheless, India has the potential to make its mark in the world market in the coming 5-10
years. Several top domestic companies have started making their presence felt internationally.
Their dream run in the US markets, however, seems to have come to an end, with "authorized
generics" being encouraged by MNCs. This has prompted companies like DRL and Ranbaxy to
go in for costly litigations which again cost them dear. These companies need to revisit their
strategies there.

However, post 2005, in the new product patent regime there are many other fish to fry, viz.
Contract manufacturing, clinical trials, contract research, custom manufacturing, bio-informatics
and other services. According to current statistics, the total global outsourcing market is around
US$ 66 bn. of which contract research is US$ 13 bn., contract manufacturing US$ 37 bn.,
contract sales US$6 bn and informatics US$ 10 bn. India's share of this huge pie, in the next 2-3
years would well be around US$ 4-10 bn.

B) Patents And The National Interest

The pragmatic Patents Act of 1972 that led to tremendous growth was undone by the draconic
amendment to the Act in March 2005, which back-dated product patenting to January 1995.

If 1972 was motivated by national interest, 2005 was prompted by international pressure, by an
ill-perceived need to “belong” to the international community. The Patents Act 1972 resurrected
a flagging domestic pharmaceutical industry. This Act had a much wider purpose; to help the
Indian who had to fight TB, diabetes and a multitude of diseases with affordable medicines.

Today we have a population of over 1,100 million. The diseases that used to worry us the most
are still around. There is the additional scourge of HIV/AIDS. Millions of Indians need
medicines. Most of them cannot afford to pay high prices.
Going by global experience, product patents that are now again enforced, can only lead to
monopolies and these, in turn, to high prices. Africa and the AIDS issue of 1990-2000 is a clear
example.

C)Drugs

The earliest drugstores date back to the Middle Ages. The first known drugstore was opened by
Arabian pharmacists in Baghdad in 754,[2] and many more soon began operating throughout the
medieval Islamic world and eventually medieval Europe. By the 19th century, many of the drug
stores in Europe and North America had eventually developed into larger pharmaceutical
companies.

Most of today's major pharmaceutical companies were founded in the late 19th and early 20th
centuries. Key discoveries of the 1920s and 1930s, such as insulin and penicillin, became mass-
manufactured and distributed. Switzerland, Germany and Italy had particularly strong industries,
with the UK, US, Belgium and the Netherlands following suit.

Legislation was enacted to test and approve drugs and to require appropriate labelling.
Prescription and non-prescription drugs became legally distinguished from one another as the
pharmaceutical industry matured. The industry got underway in earnest from the 1950s, due to
the development of systematic scientific approaches, understanding of human biology (including
DNA) and sophisticated manufacturing techniques.

Numerous new drugs were developed during the 1950s and mass-produced and marketed
through the 1960s. 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.

Attempts were made to increase regulation and to limit financial links between companies and
prescribing physicians, including by the relatively new U.S. Food and Drug Administration
(FDA). Such calls increased in the 1960s after the thalidomide tragedy came to light, in which
the use of a new tranquilizer in pregnant women caused severe birth defects. In 1964, the World
Medical Association issued its Declaration of Helsinki, which set standards for clinical research
and demanded that subjects give their informed consent before enrolling in an experiment.
Phamaceutical companies became required to prove efficacy in clinical trials before marketing
drugs.

Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary center of
pharmaceutical production without patent protection.

The industry remained relatively small scale until the 1970s when it began to expand at a greater
rate.Legislation allowing for strong patents, to cover both the process of manufacture and the
specific products, came in to force in most countries. By the mid-1980s, small biotechnology
firms were struggling for survival, which led to the formation of mutually beneficial partnerships
with large pharmaceutical companies and a host of corporate buyouts of the smaller firms.
Pharmaceutical manufacturing became concentrated, with a few large companies holding a
dominant position throughout the world and with a few companies producing medicines within
each country.

The pharmaceutical industry entered the 1980s pressured by economics and a host of new
regulations, both safety and environmental, but also transformed by new DNA chemistries and
new technologies for analysis and computation. Drugs for heart disease and for AIDS were a
feature of the 1980s, involving challenges to regulatory bodies and a faster approval process.

Managed care and Health maintenance organizations (HMOs) spread during the 1980s as part of
an effort to contain rising medical costs, and the development of preventative and maintenance
medications became more important. A new business atmosphere became institutionalized in the
1990s, characterized by mergers and takeovers, and by a dramatic increase in the use of contract
research organizations for clinical development and even for basic R&D. The pharmaceutical
industry confronted a new business climate and new regulations, born in part from dealing with
world market forces and protests by activists in developing countries. Animal Rights activism
was also a challenge.
Marketing changed dramatically in the 1990s, partly because of a new consumerism. The
Internet made possible the direct purchase of medicines by drug consumers and of raw materials
by drug producers, transforming the nature of business. In the US, Direct-to-consumer
advertising proliferated on radio and TV because of new FDA regulations in 1997 that
liberalized requirements for the presentation of risks. The new antidepressants, the SSRIs,
notably Fluoxetine (Prozac), rapidly became bestsellers and marketed for additional disorders.

Drug development progressed from a hit-and-miss approach to rational drug discovery in both
laboratory design and natural-product surveys. Demand for nutritional supplements and so-called
alternative medicines created new opportunities and increased competition in the industry.
Controversies emerged around adverse effects, notably regarding Vioxx in the US, and
marketing tactics. Pharmaceutical companies became increasingly accused of disease mongering
or over-medicalizing personal or social problems.

D) Origin and Evolution

The modern pharmaceutical industry is a highly competitive non-assembled1 global industry. Its
origins can be traced back to the nascent chemical industry of the late nineteenth century in the
Upper Rhine Valley near Basel, Switzerland when dyestuffs were found to have antiseptic
properties. A host of modern pharmaceutical companies all started out as Rhine-based family
dyestuff and chemical companies e.g. Hoffman-La Roche, Sandoz, Ciba-Geigy (the product of a
merger between Ciba and Geigy), Novartis2 etc. Most are still going strong today.

Over time many of these chemical companies moved into the production of pharmaceuticals and
other synthetic chemicals and they gradually evolved into global players. The introduction and
success of penicillin in the early forties and the relative success of other innovative drugs,
institutionalized research and development (R&D) efforts in the industry . The industry
expanded rapidly in the sixties, benefiting from new discoveries and a lax regulatory
environment. During this period healthcare spending boomed as global economies prospered.The
industry witnessed major developments in the seventies with the introduction of tighter
regulatory controls, especially with the introduction of regulations governing the manufacture of
‘generics’5. The new regulations revoked permanent patents and established fixed periods on
patent protection for branded products, a result of which the market for ‘branded
generics’emerged.

3.2 Environmental Analysis (PEST)

Political,Economical,Social & Technological Issues In Pharma Industry

Technological advancements, tighter regulatory-compliance overheads, rafts of patent expiries

and volatile investor confidence have made the modern pharmaceutical industry an increasingly
tough and competitive environment. Below is an analysis of the structure of the pharmaceutical
industry using the PEST (political, economic, social and technological) model.
1. Non-assembled industries are industries that do not rely on manufactured or component parts
or materials e.g. chemicals, glass, woodwork etc.
2. Novartis was later formed in the 1990s by the merger of Sandoz and Ciba Geigy
3. Batiz-Lazo and Holland, Strategy and Structure of the Pharmaceutical industry June 2001
4. The importance of R&D was especially prominent due to the co-location of universities and
educational research
institutes such as the Universities of Basel, Freiburg and Strasbourg in the Upper Rhine Valley
area (BioValley).
5. Generics’ are medicines manufactured after patent expiry by another pharmaceutical and
usually sold at a cheaper price.
6. Branded generics are generic products which offer a small advantage and which are sold at a
price above the lowestpriced generics.

A)Increasing Political Attention

Over the years, the industry has witnessed increased political attention due to the increased
recognition of the economic importance of healthcare as a component of social welfare. Political
interest has also been generated because of the increasing social and financial burden of
healthcare. Examples are the UK’s National Health Service debate and Medicare in the US.

B)Economic Value Added

In the decade to 2003 the pharmaceutical industry witnessed high value mergers and
acquisitions. With a projected stock value growth rate of 10.5% (2003-2010) and Health Care
growth rate of 12.5% (2003-2010), the audited value of the global pharmaceutical market is
estimated to reach a huge 500 billion dollars by 2004. Only information technology has a higher
expected growth rate of 12.6%. Majority of pharmaceutical sales originate in the US, EU and
Japanese markets. Nine geographic markets account for over 80% of global pharmaceutical sales
these are, US, Japan, France, Germany, UK, Italy, Canada, Brazil and Spain. Of these markets,
the US is the fastest growing market and since 1995 it has accounted for close to 60% of global
sales. In 2000 alone the US market grew by 16% to $133 billion dollars making it a key
strategic market for pharmaceuticals.

C) The Social Dimension

Good health is an important personal and social requirement and the unique role pharmaceutical
firms play in meeting society’s need for popular wellbeing cannot be underestimated. In recent
times, the impact of various global epidemics e.g. SARS, AIDS etc has also attracted popular
and media attention to the industry. The effect of the intense media and political attention has
resulted in increasing industry efforts to create and maintain good government-industry-society
communications.

D) Technological Advances

Modern scientific and technological advances in science is forcing industry players to adapt ever
faster to the evolving environments in which they participate. Scientific advancements have also
increased the need for increased spending on research and development in order to encourage
innovation.

E) Legal Environment

The pharmaceutical industry is a highly regulated and compliance enforcing industry. As a

results there are immense legal, regulatory and compliance overheads which the industry has to
absorb. This tends to restrict it’s dynamism but in recent years, government have begun to
request industry proposals on regulatory overheads to so as not to discourage innovation in the
face of mounting global challenges from external markets.
Examples are Pfizer\Pharmacia, Glaxo-Wellcome\SmithKline-Beecham and Novartis (a merger
between Sandoz and CibaGeigy).
F) Structural Industry Analysis (Porter’s Five Forces)

This section provides a summary positional analysis of the pharmaceutical industry

• Barrier to entry: High (Pharmaceuticals). Cost of R&D and patent limitations
• Industry Competition: High. Advantages gained by first mover advantage (patents)
• Suppliers: supplier power is low
• Buyers: buyer power is low
• Substitutes: low (with patents) medium (after patent expiry)
Overall, the pharmaceutical industry shows an upward trend in its core markets. The industry
remains highly valued, has a favourable market position with strong financial make-up and
strong earnings growth. Its future potential demand trend is positive and despite increased
competition the industry still shows a continuing upward growth momentum. Datamonitor’s9
forecast of the leading 16 pharmaceutical companies for 2001 to 2007 suggests that combined
sales will grow at a minimum rate of 5.2 percent based on the potential of their product pipeline.

3.3 Strategic Issues Facing The Industry

The strategic issues shaping the modern pharmaceutical industry are:
A)Industry Consolidation
Merger activity has been intense within the industry in the last decade. Analysts believe that
three firms; GlaxoSmithKline, Bristol-Myers Squibb and Merck are likely candidates to be
directly involved in the next round of industry consolidation. Eli Lilly and AstraZeneca would
make the best partners for GlaxoSmithKline, combining the latter's commercialization strengths
with a partner's valuable portfolio and pipeline. A merger with Merck and Johnson may provide
a complementary portfolio and a short-term revenue boost, but the long term consequences of
such a deal would be a cause of concern if pursued due to the monopolistic consequences such
a merger could have.

B) Science and Innovation

Over the last decade the knowledgebase of the pharmaceutical sciences has changed dramatically
and continues to change at a fairly high rate. As new technologies and bodies of scientific
knowledge emerge, whole new sets of opportunities and threats are being introduced.
Breakthroughs in science, innovation and technology continue to create novel opportunities for
new products and processes. This has increased the pace of the industry and major players must
keep up with changes else become vulnerable. Over the last decade, we have seen this happen as
companies that were not very effective in research and new product development were acquired.

C) Increased Competition
A major issue facing the industry is the intense competition and the changing face the
harmaceutical market. The industry has seen a legion of new market entrants, increased
ompetition among key players and industry consolidation. A host of large-scale mergers and
acquisitions have taken place over the last two decades. Competitive advantage within the
industry is being constantly redefined and to maintain their presence, key industry players are
being forced to revamp their organisational structure, overcome huge barriers in R&D, clinical
trials simply to ensure continuity and maintain profitability.

D) Changing Consumer Profile

The profile of the pharmaceutical consumer has changed. Consumers are now better informed
and there are expectations on the industry to show that their products deliver better health and
greater economic value. Also, in previous decades governments were either the sole or major
purchasers of pharmaceutical products but the current trend shows that healthcare costs are being
constantly being shifted away from the government, which acted as the traditional social
purchaser, over to health insurance companies and common individuals. The increasing price
sensitivity of the common consumer and financial muscle of healthcare agencies and
healthinsurance companies is forcing firms in the industry to cut product prices thereby reducing
margins. In the future, as government shifts more healthcare costs to the end consumer,
consumers will increasingly pay more for access to healthcare and medicines and this will further
increase their price sensitivity.

E) Ageing Populations
Due to ageing global populations there is external pressure on the industry to reduce the price
and long-term dependence on pharmaceuticals. This, in addition to the market requirement for
the industry to improve current new medicines and lower product costs is increases the pressure
on industry to aggressively reduce it’s cost base without compromising gross spend on research
and development which most firms require to maintain competitiveness.

F) Changing Geo-political Environment

The political environment worldwide has become a major force. Due to the socio-political
consequences of healthcare and medicines, the pharmaceutical industry is facing increasing
political pressure to reduce prices and control costs. In certain geo-political areas, particularly in
developing economies, government are increasing pressure on pharmaceutical firms to act in the
social interest and this is likely to intensify in the future. Examples are issues around AIDS in
Africa. African government's policies are becoming increasingly stringent with regards to the
conduct of pharmaceutical firms.

G) Decreasing Consumer Influence

A unique feature of the pharmaceutical market is that the final consumer has little or no say in
the choice of medicines and treatments. Medical doctors, general practitioners and pharmacists
usually act as agents of the final consumer and they are largely responsible for the consumer’s
purchasing decisions. As a result of this pharmaceutical companies’ direct a sizeable proportion
of their marketing efforts at these agents. With the advent of the internet, consumer
enlightenment has the capacity to erode the influence of the medical agents as consumers have
easier access to medical information and treatments.

3.4 Analysis of Key Industry Participants and Strategy

This section provides a descriptive overview on the top three pharmaceutical firms worldwide.
Pfizer\Pharmacia:
After its merger with Warner-Lambert in July 2000, Pfizer became the world’s largest
pharmaceutical company. The strong commercial potential of Pfizer’s product portfolio and it’s
strong products pipeline, has caused Pfizer to invest heavily in product support, global sales
force expansion and increased R&D spend. In April 2003 the merger of Pfizer Inc. and
Pharmacia Corporation was announced. The estimated $60 billion merger consolidates Pfizer’s
position as the world's largest pharmaceutical company. The merged entity will control 11% of
the global pharmaceutical market, from 8%, with annual revenue estimated to increase from
$32billion to $46 billion. The new Pfizer will also control 50% more of the market than its
closest rival, the world's second largest drug company, GlaxoSmithKline10. The European
Commission approved the merger but demanded that the firm divest pharmaceuticals in nine
different areas in response anti-competitive charges.

GlaxoSmithKline:
The December 2000 merger of GlaxoWellcome and SmithKline Beecham created the
GlaxoSmithKline, the world's second largest pharmaceutical company with a global market share
of 7%. GSK has global pharmaceutical sales of over $22bn and also the largest share in several
therapeutic areas, including the vaccine and over-the-counter products (OTC).However, GSK is
still arguably a more global company (in terms of spread) than Pfizer, given that GSK generates
a far higher proportion of its sales outside the North American market. GSK is ahead of Pfizer in
every other region outside North America. GSK generated a relatively high $6.0bn, or 26.6% of
its sales, in the European market in the year to September 2002 compared to Pfizer's $3.8bn
(16.9%). The region in which Pfizer's market share is closest to GSK's is Africa, Asia and
Australasia; this is due mainly to GSK’s strong position in the large Japanese market, which has
been targeted by Pfizer for future growth.

Merck & Co:

Merck is the third-largest global pharmaceutical company. Excluding organic growth, for Merck
to rival the top two it will have to acquire at least one of the 15 leading pharmaceutical firms in
the world - a smaller acquisition would not gain it sufficient market share to overtake either
Pfizer or GSK. While it has not gone for a full-blown merger, Merck, like other drug companies,
has increased the number of collaborations with external and biotech firms. It has so far signed
close to 50 deals with research partners in the past 5 years. Merck has also teamed with
Schering-Plough to develop respiratory drugs. Merck's strategy is to focus on breakthrough
drugs, rather than go the consolidation route or imitate competitors with so-called "me-too"
products. Unfortunately its current product pipeline is rather weak and Merck may come under
increased pressure to merge as a means of gaining market share and growth. Analysts believe
Merck’s ideal merger candidate would be Johnson & Johnson due to the little overlap with
Merck’s pharmaceutical portfolio.
Ranking Corporation Market Share* (%)
1 Pfizer* 7.5
2 GlaxoSmithKline 6.9
3 Merck & Co 5.1
4 AstraZeneca 4.4
5 BMS 4.1
6 Novartis 3.9
7 Johnson 3.8
GlaxoSmithKline controls 7% of the global pharmaceutical market.
8 Aventis 3.7
9 AHP 3.2
10 Pharmacia* 3.1

The pharmaceutical industry in India is going through a major shift in its business model in the
last few years in order to get ready for a product patent regime from 2005 onwards. This shift in
the model has become necessary due to the earlier process patent regime put in place since 1972
by the Government of India. This was done deliberately to promote and encourage the domestic
health care industry in producing cheap and affordable drugs. As prior to this the Indian
pharmaceutical sector was completely dominated by multinational companies (MNCs).

These firms imported most of the bulk drugs (the active pharmaceutical ingredients) from their
parent companies abroad and sold the formulations (the end products in the form of tablets and
capsules, syrups etc.) at prices unaffordable for a majority of the Indian population.

This led to a revision of Government of India’s (GOI) policy towards this industry in 1972
allowing Indian firms to reverse engineer the patented drugs and produce them using a different
process that was not under patent. The entry of MNC’s was also discouraged by restricting
foreign equity to 40%. The licensing policy was also biased towards indigenous firms and firms
with lesser foreign equity1. All these measures by GOI laid foundations to a strong
manufacturing base for bulk drugs and formulations and accelerated the growth in the Indian
Pharmaceutical Industry (IPI), which today consists of more than 20,000 players1.

As a result the Indian pharmaceutical industry today not only meets the domestic requirement but
has started
exporting bulk drugs as well as formulations to the international market.
Currently the main activities of Indian pharmaceutical industry are broadly restricted to
producing
Bulk drugs and (ii) formulations with very few companies risking investing in primary research
aimed at developing and patenting new drugs. The bulk drug business is essentially a commodity
business, where as the formulation business is primarily a market driven and brand oriented
business. Multinational companies which have entered the Indian market have mostly restricted
themselves to formulation segment till date. The domestic pharmaceutical industry (MNC’s and
Domestic) meets about 90% of the country’s bulk drug requirement and almost the entire
demand for formulations2. The economics of bulk drug business and that of formulation business
are quite different. Since a majority of the Indian companies are producing both bulk as well as
formulations, these are considered together for the purpose of the present study.
3.5 The Changing Environment
During the early 1990s, markets were opened by removing restrictions on imports and in 1994
licensing was abolished for producing bulk drugs and formulations. Other than this FDI
restrictions into this sector have been modified to allow 74% foreign equity through the
automatic route. More favorable conditions are to follow in future particularly for MNCs as soon
as ‘Product Patents’ and ‘Exclusive Marketing Rights’ (EMRs) are permitted.

In a situation like this, there is a lot of speculation that the indigenous companies that have been
the mainstay of the Indian pharmaceutical industry2 over the past couple of decades finally
becoming a formidable part of Indian economy and a major source of foreign income might be
facing uncertain market conditions in the future. It may also come down to a state where most of
the small scale companies have to close down, with the multinational companies dominating and
monopolizing the industry once again.

There is a justified reason for this, and that is, so far Indian companies have made use of the
cheap labor and the reverse engineering skills under the favorable conditions of process patent
regime and developed generic replicas to drugs that were under patent in developed countries,
which then were sold in the domestic markets and exported to other unregulated markets
elsewhere in the world. This generic business enabled them to compete with multinational
companies in India and abroad and resulted in good revenues. However, once the product patent
regime gets implemented from the year 2005, one is not allowed to reverse engineer drugs that
are patented after 1995, and the revenues from this business will suffer. Whereas, the
multinational companies in India, which have an impressive new product portfolio will get
exclusive marketing rights to sell their products at higher prices and will be in a position to
dictate the terms.

Given the above, survival of Indian companies depends on producing generics of drugs whose
patent has lapsed and export the same to regulated markets4. This is possible only if these firms
are able to formulate these products at much lower prices allowing then to face competition from
established players in the international markets. Other than this, avenues like contract research
and manufacturing for multinational companies have become popular business models for many
small scale and medium scale firms. Given this situation it is highly likely that individual firms
adopt different strategies for growth. These strategies are dependent more on the managements
perception of the individual firm’s strength in terms of finance, manpower and material in
relation with the other firms within the industry for a given environmental context. Some of these
strategies may end in failure due to unexpected changes in the environment or bad judgment on
the part of the management. The main question for which we try to provide an answer is ‘Do
internal efficiencies have any role to play in the growth of a firm irrespective of the individual
growth strategies adopted in a dynamic environmental context’.

The above question becomes very important for firms which operate in a transition economy.
This is particularly true if the transition is aimed towards being a part of the global economy.
This would create an environment where firms are faced with a completely new opportunity set
in terms of investment and growth. These opportunities encourage firms to adopt high growth
strategies at the cost of immediate returns. The success or failure of any such strategies is
dependent on the nature of competition faced by these firms over time. Therefore it would be
very reasonable to assume that a firm’s internal efficiencies may become the crucial deciding
factor in dictating the survival and growth of these firms in various segments of pharmaceutical
industry. We concentrate on the role of internal efficiencies in the growth of these firms
independent of the individual marketing strategies and long term visions adopted at the firm
level.
The following paragraphs try to analyze the role of internal efficiencies in fostering growth using
DEA. Three models of DEA have been used namely the CCR, BCC and AR models not only to
ascertain the relevance of the parameters used for fostering growth but also to throw light on the
efficiency of these models in isolating the better firms irrespective of the individual growth
strategies used.

3.6 Cost Structure/Performance indicators of Indian pharmaceutical industry

The pharmaceutical industry is characterized by low fixed asset intensity and high working
capital intensity (ICRA 2002). The Material cost, Marketing and selling cost and Manpower Cost
constitute the three major cost elements for the Indian pharmaceutical industry, accounting for
close to 70% of the operating income. In the past 6-7 years, material costs, which account
foralmost 50% of the operating cost have declined owing to the decrease in prices of bulk drugs
and intermediates, increase in exports which enabled procurement of raw materials in large
quantities and hence at low prices and finally due to increase in production efficiencies. On the
other hand, the marketing and selling expenses, comprising of promotional expenses, trade
discounts,advertising and distributing costs; and freight and forwarding costs have increased in
the past few years owing to the increase in emphasis on sales of formulations. This increased
focus on marketing partly lead to the increase in the manpower costs of pharmaceutical
companies during the last decade. The other factor for the increase in the manpower costs, at
least in case of a few companies might be due to an increase in R&D efforts, which requires
quality research personnel.
 INDIA & GLOBAL MARKETS

Chapter- 4

4.1 Market leaders in terms of sales

The top 15 pharmaceutical companies by 2008 sales are:

Rank Company Sales ($M) Based/Headquartered in

1 Pfizer 43,363 US

2 GlaxoSmithKline 36,506 UK

3 Novartis 36,506 Switzerland

4 Sanofi-Aventis 35,642 France

5 AstraZeneca 32,516 UK/Sweden

6 Hoffmann–La Roche 30,336 Switzerland

7 Johnson & Johnson 29,425 US

8 Merck & Co. 26,191 US

9 Abbott 19,466 US

10 Eli Lilly and Company 19,140 US

11 Amgen 15,794 US

12 Wyeth 15,682 US

13 Teva 15,274 Israel

14 Bayer 15,660 Germany

15 Takeda 13,819 Japan

The following is a list of the 20 largest pharmaceutical and biotech companies ranked by
healthcare revenue. Some companies (e.g., Bayer, Johnson and Johnson and Procter & Gamble)
have additional revenue not included here. The phrase Big Pharma is often used to refer to
companies with revenue in excess of $3 billion, and/or R&D expenditure in excess of $500
million.
Revenue Healthcare Net income/
Total Revenues Employees
Rank Company Country R&D 2006 (loss) 2006
(USD millions) 2006
2008 (USD millions) (USD millions)

1 Novartis Switzerland 53,324 7,125 11,053 138,000

2 Pfizer USA 48,371 7,599 19,337 122,200

3 Bayer Germany 44,200 1,791 6,450 106,200

United
4 GlaxoSmithKline 42,813 6,373 10,135 106,000
Kingdom

Johnson and
5 USA 37,020 5,349 7,202 102,695
Johnson

6 Sanofi-Aventis France 35,645 5,565 5,033 100,735

Hoffmann–La
7 Switzerland 33,547 5,258 7,318 100,289
Roche

8 AstraZeneca UK/Sweden 26,475 3,902 6,063 50,000+

9 Merck & Co. USA 22,636 4,783 4,434 74,372

Abbott
10 USA 22,476 2,255 1,717 66,800
Laboratories

11 Wyeth USA 20,351 3,109 4,197 66,663

Bristol-Myers
12 USA 17,914 3,067 1,585 60,000
Squibb

Eli Lilly and

13 USA 15,691 3,129 2,663 50,060
Company

14 Amgen USA 14,268 3,366 2,950 48,000

Boehringer
15 Germany 13,284 1,977 2,163 43,000
Ingelheim

16 Schering-Plough USA 10,594 2,188 1,057 41,500

Baxter
17 USA 10,378 614 1,397 38,428
International

18 Takeda Japan 10,284 1,620 2,870 15,000

Pharmaceutical
 Co.

19 Genentech USA 9,284 1,773 2,113 33,500

Procter &
20 USA 8,964 n/a 10,340 29,258
Gamble

SUM 497,519 70,843 110,077 1,342,700

AVERAGE 24876 3542 5504 67135

Source: Top 50 Pharmaceutical Companies Charts & Lists, Med Ad News, September 2007

4.2 Key Players –Indian Pharmaceutical Industry

There are several national and international pharmaceutical companies that operate in India.
Most of the country's requirements for pharmaceutical products are met by these companies.
Some of them are briefly described below:
 Ranbaxy Laboratories Limited is the biggest pharmaceutical manufacturing company
in India. The company is ranked at the 8th position among the global generic
pharmaceutical companies and has presence in 48 countries including world class
manufacturing facilities in 10 countries and serves to customers from over 125 countries.
Ranbaxy Laboratories 2009-2010 Q3 Net Profit Results showed a profit of Rs 116.6 crore
as compared to Rs 394.5 crore deficit, recorded during the corresponding period last
fiscal.
 Dr. Reddy's Laboratories manufactures and markets a wide range of pharmaceuticals
both in India and abroad. The company has 60 active pharmaceutical ingredients to
manufacture drugs, critical care products, diagnostic kits and biotechnology products.
The company has 6 FDA plants that produce active pharma ingredients and 7 FDA
inspected and ISO 9001 and ISO 14001 certified plants. Dr. Reddy's Q1 FY10 result
shows the revenues of the company at Rs. 18,189 million which is up by 21%. During
this quarter the company introduced 24 new generic products, applied for 22 new generic
product registrations and filed 4 DMFs.
 Cipla is an Indian pharmaceutical company renowned for the manufacture of low cost
anti AIDS drugs. The company's product range comprises of anthelmintics, oncology,
anti-bacterials, cardiovascular drugs, antibiotics, nutritional supplements, anti-ulcerants,
 anti-asthmatics and corticosteroids. Cipla also offers other services like quality control,
engineering, project appraisal, plant supply, consulting, commissioning and know-how
transfer, support. For the financial year 2008-09 the company registered an increase of
22% in sales and other income over the previous year.
 Nicholas Piramal is the second largest pharmaceutical healthcare company in India. The
brands manufactured by the company include Gardenal, Ismo, Stemetil, Rejoint,
Supradyn, Phensedyl and Haemaccel. Nicholas Piramal has entered into join ventures and
alliances with several international corporations like Cheissi, Italy; IVAX Corp; UK, F.
Hoffmann-La Roche Ltd., Allergan Inc., USA etc.
 Glaxo Smithkline (GSK) is a United Kingdom based pharma company; it is the world's
second largest pharmaceutical company. The company's portfolio of pharma products
consist of central nervous system, respiratory, oncology, vaccines, anti-infectives and
gastro-intestinal/metabolic products among others. On November 2009, the FDA had
announced that the H1N1 vaccine manufactured by GSK would join the list of the four
vaccines approved.
 Zydus Cadila also known as Cadila Healthcare is an Indian pharmaceutical company
located in Gujarat. The company's 1QFY2010 results show the net sales at Rs880.3cr
which is higher than the estimated Rs773cr. The net profit was Rs124.8cr which was
increase of 39%; the increase was on account of higher sales and improvement in the
OPM.

INDIA’S DOMESTIC PHARMACEUTICAL MARKET (12 MONTHS ENDED JAN-2009)

Company Size ($ Billion) Market Share (%) Growth Rate (%)

Total Pharma Market 6.9 100.0 9.9
Cipla .36 5.3 13.4
Ranbaxy .34 5.0 11.5
Glaxo Smithkline .29 4.3 -1.2
Piramal Healthcare .27 3.9 11.7
Zydus Cadila .24 3.6 6.8
Source: ORG IMS

4.3 Future Scenario

With several companies slated to make investments in India, the future scenario of the
pharmaceutical industry in looks pretty promising. The country's pharmaceutical industry has
tremendous potential of growth considering all the projects that are in the pipeline. Some of the
future initiatives are:

 According to a study by FICCI-Ernst & Young India will open a probable US$ 8 billion
market for MNCs selling expensive drugs by 2015
 The study also says that the domestic pharma market is likely to reach US$ 20 billion by
2015
 The Minister of Commerce estimates that US$ 6.31 billion will be invested in the
domestic pharmaceutical sector
 Public spending on healthcare is likely to raise from 7 per cent of GDP in 2007 to 13 per
cent of GDP by 2015
 Dr Reddy's Laboratories has tied up with GlaxoSmithKline to develop and market
generics and formulations in upcoming markets overseas
 Lupin, a Mumbai based pharmaceutical company is looking to tap opportunities of about
US$ 200 million in the US oral contraceptives market
 Due to the low cost of R&D, the Indian pharmaceutical off-shoring industry is designated
to turn out to be a US$ 2.5 billion opportunity by 2012

4.4 Global Scenario

Pharmaceutical Industry Trends- Global Scenario
The global pharmaceutical industry is a multinational industry that is a highly regulated, capital
intensive, and which is driven by large research and development expenditures. The industry is
primarily privately owned and is technologically sophisticated. The global pharmaceutical
market is forecasted to grow to US$ 842 billion in 2010, an equivalent CAGR of 6.9% over the
next five years. The strong growth in the ten European market that joined the European Union in
2004 will help to boost European sales over the next five years. Of the leading product classes in
2005, cytostatics and angiotensin-II inhibitors generated the greatest year on year growth. There
were sixteen blockbuster drugs in 2005, generating a combined sales of US$ 18.1 billion. The
total pharmaceutical sales from the top ten companies accounted for more than 40% of the total
market.
Despite a growth rate of 7% down sliding from 2004 and the lowest since 1998, in 2005 the total
global pharmaceutical sales reached US$602. Among the ten leading international markets
combined, which account for 81% of world wide sales, audited growth was just 5.7%, down
from 7.2% in 2004. Emerging markets such as China, South Korea, Brazil, Russia and Turkey
experienced double-digit growth signaling an important shift occurring in the pharmaceutical
industry.
As growth in the mature markets flatten, industry attention is shifting to smaller, developing
markets that are doing exceptionally well. Many of these developing nations are experiencing
significant gross domestic product growth which helps finance the healthcare systems, increase
patient access and fuels the double digit growth. Pharmaceutical measures are gearing up to the
challenges of meeting the unmet needs of these markets.
If present industry overview is taken into consideration then the global

market in 2010 is projected to grow 4 - 6% exceeding $825 billion. The global pharmaceutical
market sales is expected to grow at a 4 - 7% compound annual growth rate (CAGR) through
2013. This industry growth is driven by stronger near-term growth in the US market and is based
on the global macroeconomy, the changing combination of innovative and mature products apart
from the rising influence of healthcare access and funding on market demand. Global
pharmaceutical market value is expected to expand to $975+ billion by 2013. Different regions
of the world will influence the pharmaceutical industry trends in different ways.

4.5 Asia Pacific Pharmaceutical Market

The pharma market world over will experience significant shifts. Asia-Pacific region will emerge
as the fastest growing pharmaceutical market over the recent past. The reason for this positive
shift can be attributed to the low costs and favorable regulatory environment. This region has
experienced important developments regarding contract manufacturing, especially in generics
and APIs. Increased R&D activities in the region has helped Asia-Pacific pharmaceutical
industry to achieve an estimated market size of around US$ 187 Billion in 2009. Here, the
pharmaceutical industry is expected to grow at a CAGR of around 12.6% during 2010-2012. It
can,infact, become the global API production hub in next few years.

pharmaceutical sales are growing at a fast rate in India, China, Malaysia, South Korea and
Indonesia due to the rising disposable income, several health insurance schemes (that ensures the
sales of branded drugs), and intense competition among top pharmaceutical companies in the
region (that has boosted the availability of low cost drugs). China’s pharmaceutical market will
continue to grow at a 20+ % annually, and will contribute 21% of overall global growth through
2013. India - 3rd Largest Producer of Pharmaceuticals Across the World- is already a US$ 8.2
Billion pharmaceutical market. The Indian pharmaceutical industry is further expected to grow
by 10% in the year 2010.

Position Of India In Global Arena

India will be one of the top 10 sales markets by 2020, according to a report by
PricewaterhouseCoopers (PwC), Global pharma looks to India: Prospects for growth.
“India could be the most populous country in the world by 2050 and is now making its mark as a
growing market, potential competitor or partner in manufacturing and R&D, and as a location for
clinical trials,” stated Simon Friend, global pharmaceutical and life sciences leader at
PricewaterhouseCoopers:

India’s population is growing rapidly, as is its economy – creating a large middle-class able to
afford western medicines. India’s epidemiological profile is also changing and the population is
ageing, so demand is likely to increase for drugs for cardio-vascular problems, disorders of the
central nervous system and other chronic diseases such as diabetes which is increasing at an
alarming rate.

The total market is expected to rise to a value of approximately US$50 billion by 2020, ao the
global pharmaceutical companies need to take an even closer look at India, the report suggests.
Global players in the pharmaceutical industry cannot afford to ignore India. The pharmaceutical
industry’s main markets are under serious pressure.
India now has a growing and increasingly sophisticated pharmaceutical industry of its own. It is
likely to become a competitor of global Pharma in some key areas, and a potential partner in
others.

Although urbanization continues, around 70% of India’s population still resides in rural areas.
This untapped potential is now the next volume driver for the industry, but foreign companies
looking to access rural markets face many hurdles.

India has considerable contract manufacturing expertise. Indian companies are among the world
leaders in the production of generics and vaccines – now producing more than 20% of the
world’s generics.

Around $70 billion worth of drugs are expected to go off patent in the US over the next three
years, and India is capable of manufacturing a substantial share of the product to support the
resulting generics opportunities, PwC report said.

In manufacturing big Pharma companies are striking closer relationships with Indian generics to
service global markets under marketing alliances such as GSK-DRL and Pfizer –
Aurobindo.PwC estimates that India’s 10 largest drug firms spent $480 million on R&D in 2008.

Some of the leading local producers have now started conducting original research, but despite
Indian pharma companies’ growing expertise in later stages of the R&D process, many of the
drug candidates initially formulated in India are likely to be further developed by Western drug
makers, because few Indian companies can currently afford the high costs and failure rates
associated with pushing a drug right through the pipeline.

Several Indian firms have already entered into research partnerships with multinationals; DRL
and Torrent have joined forces with Novartis, for example, while Ranbaxy has formed alliances
with GSK and Schwarz Pharmaceuticals.India has the world’s second biggest pool of English
speakers and a strong higher education system, so it should be well-positioned to serve as a
source for research talent, turning out roughly 115,000 scientists with Masters degrees and
12,000 with PhDs every year.India’s developing biotech industry and cost advantages should
drive significant growth in local development of biosimilars for the global market.

India also now ranks third in the world in terms of stem cell research. The Indian Government
has made the provision of healthcare one of its key priorities. It has launched a new policy to
build more hospitals, boost local access to healthcare and improve the quality of medical
training, and promised to increase public expenditure on healthcare to 2-3% of GDP by 2010, up
from a current low of 1%.

PwC, however, also notes that as with any kind of new market opportunity there are additional
factors to consider including inadequate energy and transport infrastructure has historically
posed challenging for companies operating in India but the situation is definitely improving as
the government deems it an investment need.

India offers some attractive tax benefits for Pharma companies such as R&D credits and income
tax exemptions in special economic zones (SEZs).Reductions in customs duties should also help
global manufacturers compete in the price sensitive Indian market. India will introduce Goods
and Services Tax (GST) in April 2011, which will have transformational implication for supply
chain in domestic market.

Counterfeit drugs have been a serious issue in India but recent research suggests the prevalence
of spurious drugs to have fallen to 0.046% of all medicines sold to consumers. Even so
companies should remain alert to possible counterfeiting issues.

Whilst intellectual property protection has improved substantially, some holes remain.
Compliance will always be an issue and as the market expands regulatory compliance will
require attention with robust programmes, vigilance and improved policing to ensure that
patients and India’s reputation are protected.

stable growth

According to Fitch Credit ratings and ENAM Securities, Indian Pharma sector had a stable
growth in the third quarter. They also feel CRAMS outsourcing will witness a healthy growth in
India and China and as more products go off patents. Besides as global Pharma enter the generic
market ,it will put strain on Indian companies, which will have to manage costs and maintain
profitability to be able to compete with them.

Generics to be brighter

The outlook for generics is bright given that over approximately $100 billion of drugs (approx.
15 percent of the patented pharma market) are slated to go off-patent over the next four years.
Also according to ENAM Big Pharma is expected to increasingly focus on generics and
emerging markets as (a) drug pipelines are unlikely to be replenished in line with patent expiries
(b) emerging markets are seeing far higher growth in generic drug sales, due to improved
awareness and access, coupled with rising expenditure on public health. Recent supply
agreements between Big Pharma (Pfizer, GSK) and local generic players (Dr Reddy's,
Aurobindo, Claris) all bear testimony to this shift in perception.

Mixed bag

Also, Q3FY10 was a mixed bag for Indian pharma companies. Generic players reported higher-
than-expected sales growth, due to smart gains in domestic formulation sales and exports
(especially US); however, CRAMS players had another lacklustre quarter, with declining sales.
Demand for early-phase contract research services is yet to revive; this, combined with running
down of inventory levels by API buyers, has kept revenues and margins under pressure.

CRAMS growth

ENAM expects the recovery process for CRAMS companies to be delayed by a quarter (at least),
given the weak Q3 numbers and downward revisions of guidance. However, global CRAMS
players continue to close facilities in developed markets, transferring more work to India/China-
based facilities. There has also been an increase in CRAMS revenues from India-based assets at
both Dishman and Piramal Healthcare despite an overall decline in their CRAMS sales. Thus,
participants seem to be reposing their belief in the viability of an emerging-market based
CRAMS model, which augurs well for Indian CRAMS players in the long run.

And according to Fitch a rising global acceptance of generics, coupled with increased
outsourcing of manufacturing by global pharma to low-cost locations, will benefit the export
focussed Indian pharma companies. This has led to increased contract manufacturing volumes
outsourced to India, as well as certain alliances by international pharma companies with quality
Indian majors. Also, India-focused pharma companies will continue to benefit from steady
domestic growth, with a consequent overall growth in volumes and capacity utilisation.

India focussed pharma companies will continue to benefit from steady domestic growth. Also
there will be price erosion due to the high generics competition both from existing players as
well as new entrants into the generics space. Regulatory issues could have an impact, primarily
with regard to approvals for new products and any tightening in quality controls.

Profitability to increase

Although higher utilisation levels and strong demand growth will continue to drive revenue
growth, margin benefits could be offset in future by adverse currency movements, greater than
expected competition, and/or price erosion in key markets. Fitch also notes that additional
margin benefits should accrue to Indian pharma companies which are undergoing a transition
from active pharmaceutical ingredients (API) to high margin generic formulations, and from
unregulated to regulated markets, as well as a move towards highend therapeutic
segments/delivery systems.

Fitch notes that with the arrival of Global Pharma into the generic market, the already
competitive market is likely to face further strain. As Indian companies, are much smaller and do
not have the financial strength to absorb high price cuts or deep discounts. Indian companies'
distribution networks in regulated markets is also far below that of Global Pharma. Fitch expects
that Indian companies will have to work harder to manage costs and maintain profitability in
order to compete effectively. Any delay in product approvals from the US Food and Drug
Administration (FDA) could impact sales to the US (the largest market and biggest growth driver
for Indian pharma companies). Ability to obtain these approvals would be contingent to achieve
the anticipated growth.

Increased demand from both the export and domestic markets

The global pharmaceutical industry is facing a period of significant drug patent expiries, which
substantially expands the addressable market for generics companies. Regulatory steps taken by
developed countries towards curtailing growing healthcare budgets has also contributed to the
increase in demand for generics. The sharpened focus of Global Pharma on the generics market
will also lead to greater outsourced manufacturing volumes in order to control costs. This could
be either through higher contract manufacturing volumes, or through longer term
relationships/alliances. India is well-placed to benefit from this shift, with the country's strong
manufacturing base - both in formulations, as well as in key inputs (bulk drugs and APIs). India
has the highest number of US FDA approved plants outside of the US. Fitch expects revenue
growth in both these segments over the medium term.

The domestic pharma industry is expected to continue to grow at 11-12 percent per annum in
2010. Fitch notes that rising purchasing power and the increasing penetration of health insurance
will support strong growth in the domestic formulations business in the long term.

India Pharma to become a long term sourcing base: further alliances likely

Alliances are product licensing deals and supply contracts between global pharma companies and
generic players. The partnership agreements are generally long term supply contracts for generic
products for regulated and unregulated markets, and may or may not include up-front licensing
fees. Fitch notes that Global Pharma's incentive to enter into alliances arises from the benefits it
derives from a readily available generic product portfolio - with necessary approvals in place. It
enables these big global firms to make up for the erosion in revenues and profitability from the
dwindling product pipeline of innovative drugs. For the international companies, these contracts
- in addition to the up-front licensing fees that cover the cost of research and development -
provide long-term revenue visibility. Indian companies benefit from the fixed profit margins in
the highly competitive and price-sensitive generic market, and are able to leverage the strong,
established distribution networks of the global pharma companies.
Fitch expects such deals/alliances to increase in future, given the approaching expiries, and with
an increasing number of Indian companies being targeted for their portfolio of generic drugs and
their capability to manufacture drugs at low cost. This would in turn provide generic players with
access to newer markets and an assured stream of revenue and profit.

4.6 In The Next Few years

Majority of pharma companies have completed their capacity expansion programmes, and are
likely to spend the next one to two years consolidating their recently expanded facilities. Large
future capacity additions appear unlikely over the near term.

Although refinancing risks remain on account of foreign currency convertible bonds (FCCBs)
outstanding on many Indian pharma companies' books, the improved liquidity scenario, coupled
with the improved cash flows over the near term, should partly offset this risk. Some companies
bought back a portion of their FCCBs in 2009 at a discount, which also partly mitigates
refinancing risks. Many Indian pharma companies suffered in 2009 due to large fluctuations in
foreign currency; due to a substantial portion of their sales, raw material purchases, and a
material part of their debt, being in foreign currency (primarily the US Dollar).

Fitch also expects liquidity to generally remain comfortable during 2010. With the improvement
in the global liquidity scenario, Indian pharma exporters should see shorter cash cycles with
regard to their working capital - which had expanded during the tight liquidity situation in 2008
and H109.

EXPORT COMPETITIVENESS OF INDIA PHARMA INDUSTRY

Chapter - 5

5.1. Exports
The Indian pharmaceutical industry is one of the most vibrant knowledge driven industries in
India that has witnessed consistent growth over the past three decades. The industry accounts for
8% of world's production by volume and 1.5% by value. Much of the country's pharmaceutical
consumption was met by imports until the early 1970s. Between 1947-57, 99% of the 1704 drugs
and pharmaceutical patents in India were held by foreign MNEs which controlled 80% of the
market. Patent law protection; hold on technology, financial resources and foreign brand names
gave them distinct monopolistic advantages in India (Nayar 1983).

During the early 1970s, the government put into place a series of policies aimed at breaking
away India’s dependence on MNEs for the production of bulk drugs and formulations and
moving the country towards self-sufficiency in medicines. The introduction of the Patent act
1970 was perhaps the single most significant policy initiative taken by the government that laid
the foundation of the modern pharmaceutical industry. This Act did not allow product patents on
medicines, agricultural products and atomic energy. For these only process patents could be
registered. This act enabled Indian companies to develop skills in reverse engineering and to
produce alternate processes for drugs. Exempt from paying for licenses and royalties, Indian
companies could now access the newest molecules from all over the world and reformulate them
for sale in the domestic market.

As a result, after 1970, many new drug firms were set up. These companies developed R&D
base, which was later leveraged by them to move up the R&D value chain. By the mid 1980s,
India had emerged as a major pharmaceutical producer and the indigenous sector had captured a
substantial proportion of the market.

Thus, rapid growth in this industry has largely been the result of the patent regime that had been
pursued by the government of India since 1970. The ongoing process of liberalization and
WTO’s Intellectual property Rights Agreement has made a major impact on this policy
framework. Some fear that the post-TRIPs regime will discriminate against local firms in favour
of foreign companies that can afford the enormous funding required for research and
development and will harm the domestic industry while others suggest that this will result in a
metamorphosis of the industry.
They argue that the industry would make rapid strides in restructuring their business to meet
global standards in R&D, manufacturing, product development and marketing as the traditional
approaches of bypassing process patents will not be sufficient to get onto the market. This paper
however argues that the TRIPs regime poses challenges for the Indian pharmaceutical industry.
To meet these challenges, the industry will need to focus on the global marketing initiatives in
international markets of generics. This will allow the industry to continue to grow in the post
TRIPs regime.

The India pharmaceutical industry has already made a firm mark on global markets.
Pharmaceuticals’ exports grew from Rs. 373.3 millions in 1973-74 to Rs. 119250 millions in the
year 2003-2004. It is one of the top 20 top exporters of bulk actives and dosage forms. Indian
exports are destined to around 175 countries around the globe including highly regulated markets
of US, Europe, Japan and Australia. Furthermore, the regulated developed country markets are
now showing a definite shift towards generic drugs amid strident public demand for less
expensive medicines. In the next five years a number of patented drugs are going off patent in
the USA and Europe. This will open tremendous opportunities for the Indian firms to share
additional global market to the tune of US $60 billion. Thus the most dynamic prospects for
growth for pharmaceutical producers is through export market. Focus therefore needs to be on
major initiatives on the export front.

For this reason, it becomes essential to examine what drives Indian firms’ competitiveness in
this knowledge based industry and how their performance may further be improved.

EXPORTS - FACTS & FIGURES

The Indian pharmaceuticals industry has grown from a mere US$ 0.32 billion turnover in 1980 to
approximately US$ 21.26 billion in 2009-10.The country now ranks 3rd in terms of volume of
production (10% of global share) and 14th largest by value.

During the current year 2009-10, Pharma was among the few sectors that managed to expand its
revenues despite global recession and financial crises. Strong domestic demand, growing
preference for generics worldwide and favorable rupee-dollar exchange rate helped the Indian
Pharmaceutical sector. Aggregate income of the drugs and pharmaceuticals companies for the
first two quarters of the current year grew by 13 per cent and 7.8 percent respectively as
compared to previous year. As per Centre for Monitoring Indian Economy (CMIE) ,the
estimated growth in aggregate income for the next two quarters is 9.5 per cent and 10.2 percent
respectively. Growth of Indian Pharmaceutical Industry from 2002-03 to 2008-09 are given in
table below:

Figures in Rs Crore

  2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Domestic
30365 32575 34128 39989 45367 50946 55454
Market
Exports 12826 15213 17857 22216 24942 30760 38433
Imports 2865 2956 3139 4515 5867 6734 8552
Total Market
42326 47332 52029 62566 68442 78610 89335
Size

Source: Annual Report 2008-09,Department of Pharmaceuticals, Government of India

India currently exports drug intermediates, Active Pharmaceutical Ingredients (APIs), Finished
Dosage Formulations (FDFs), Bio-Pharmaceuticals, Clinical Services to various parts of the
world.Export of drugs and pharmaceuticals from 2002-03 to 2009-10 (May,09) are given in table
below:

Year Exports Growth %

2002-03 12826
2003-04 15213 18.61
2004-05 17857 17.38
2005-06 22216 24.41
2006-07 26895 21.06
2007-08 30760 14.37
2008-09 38433 24.94
April, 2009 3043 14.80
April 2009-Dec 2009 29551 -

Source: Directorate General of Commercial Intelligence and Statistics (DGCIS) Kolkata

Pharmexcil or the Pharmaceuticals Export Promotion Council is the agency set up to oversee
exports under the Ministry of Commerce & Industry, Govt. of India.
US remained the largest importer of Indian pharmaceutical products. The exports to United
States (US) reached US$ 6.99 billion compared to US$ 6.08 billion during the same period in
2007-08, registering a growth of 16.4 per cent.

India’s exports to South Africa grew 57.27%. Exports to Belgium (83.2%), Kenya (63.51%),
Nigeria (38.79%) and France (33.25%) have also increased significantly during the period under
consideration.

Top 20 destinations of Indian Pharma products during 2008-09

S. No. Importing country 2008-09 (figure in Rs Crore)

1 USA 7103.27
2 Russia 1519.20
3 Germany 1441.87
4 Austri 1417.15
5 UK 1233.09
6 South Africa 1126.75
7 Canada 1090.43
8 Brazil 1018.89
9 Nigeria 1001.74
10 Ukraine 687.22
11 Israel 686.22
12 Netherlands 669.98
13 Spain 620.02
14 Turkey 614.20
15 China 561.53
16 Kenya 543.86
17 Vietnam 536.62
18 Belgium 520.90
19 Italy 57.85
20 Mexico 501.54

Source: Directorate General of Commercial Intelligence and Statistics (DGCIS) Kolkata

Major Pharmaceutical Public Sector Undertakings

 Indian Drugs & Pharmaceuticals Limited (IDPL)

  Hindustan Antibiotics Limited (HAL)
 Bengal Chemicals & Pharmaceuticals Limited (BCPL)
 Rajasthan Drugs and Pharmaceuticals Ltd. (RDPL)
 Karnataka Antibiotics & Pharmaceuticals Ltd. (KAPL)

Major Pharmaceuticals Industries in India

 Aurobindo Pharma Ltd

 Aventis Pharma Ltd
 Cadila Pharmaceuticals Ltd
 Cipla Ltd
 Dabur Pharma Ltd
 Dey's Medical Stores Mfg. Ltd
 Dr. Reddy's Laboratories Ltd
 Elder Pharmaceuticals Ltd
 Glenmark Pharmaceuticals Ltd
 Glaxo SmithKline Pharmaceuticals Ltd
 Lupin Ltd
 Merck Ltd, India
 Piramal Health Care
 Novartis India
 Pfizer Ltd
 Ranbaxy Laboratories Ltd
 Wockhardt Limited
 Wyeth Laboratories Ltd
 MAJOR FINDINGS AND RECOMMENDATIONS

Chapter – 6

6.1 SWOT ANALYSIS

For the empirical study of SWOT in pharmaceutical industry of India, we have considered the
following hypothesis: -

1. R&D expenditure of Indian Pharmaceutical Organization is low.

2. Export of generic product in US and Europe will be a strategically important step for Indian
Pharmaceutical Company.
3. The cost of manufacturing, conducting clinical trial, and research are lower in India than US.
4. Clear sense of strategic vision is required.
5. Human assets are abundantly available in India.
6. Indian Pharmaceutical Company has to consider licensing, joint venture, contact research etc.
7. According to Indian Drug Manufacturer's Association (IDMA) annual publication. The
estimated value of production of bulk drugs and formation in India during 2000-01 was
approximately Rs. 22,187 crores out of which Rs. 4,344 crores is far bulk drugs and Rs.
17,843 crores for the formulation.

Table I: Sales of Major domestic companies in India

Gross Sales Gross Sales

Rank* Company Name
in Rs. Million in US $ Millions
1.   Ranbaxy 17,459  356.3 
2.   Cipla 10,475  213.8 
3.   Dr. Reddy's Lab 9841  200.8 
4.   Nicholas Piramal 5667  115.7 
5.   Wockardt Ltd. 5583  113.9 
6.   Lupin Labs 5437  110.9 
7.   Cadila Healthcare Ltd. 5087  103.8 
8.   Sun Pharma 4764  97.2 
9.   Alembic Ltd. 4738  96.7 
10.   Morepan 4297  87.7 

Strengths
People of India is a great asset for Indian Pharmaceutical Industry, large number of scientist in
the specialized field like bio-technology, molecular biology, genomics, sufficient number of
medical, Pharmacy & Science graduates, which contributes to the strengthening of Indian
Pharmaceutical Industry.
Table II: Cost of Development
Stages Regulated Market India
  Discovery 10 - 20  7 - 14 
  Preclinical, invivo/invitro testing/animal
---  --- 
studies
  Limited Animal Studies 4 - 5  1 - 1.5 
3 - 6 
  Phase I: A-B 1 - 5 
(15-30 volunteers) 
20 
  Phase II 1 - 5 
(50- 80 volunteers) 
150 - 200 
  Phase III 90 - 140 
(5000 volunteers) 

Table III: Cost of Manufacturing

Formulation plants for... Regulated Market India

  Table 30 - 40  10 
  Soft Capsules 30 - 40  10 
  Injectables 24+  7.2 
  Cost of Manufacturing Formulation 30 - 50  20 
Cost per molecule, in $ million, B/W estimates based on industry figures, the range depends on complexity of the
therapeutic category and the molecule. Business World 14th June 2004, P24.

Table IV: The Tufts Report on Cost of Development

Probability of entering Expected cost as % of Cost of developing
Stages
phase (%) total cost product ($mn)
  Preclinical 100  20  335 
  Clinical 31.4  80  467 
  Total 31.4  100  802 
  Out of pocket
---  ---  543 
expenses
  Capitalised (after
---  ---  897 
approval)

Source: Tufts Centre for Study in Drug Development, February 2004.

Low labour cost as well as highly educated people are the major strengths of the Indian
Pharmaceutical Industry. Any pharmaceutical industry needs employee from the field of Organic
chemistry, Biochemistry, Pharmacology, Analytical Chemistry. With a very well developed and
diverse education system, India produces students who can meet these requirements of Indian
Pharmaceutical Industry.
Hyderabad & Bangalore are very renamed in Software development not only in India but around
the world also. Many pharmaceutical around the world, they depend upon Indian Software. The
use of computers in all pharmaceutical industry is necessary and in particular they are being
applied to data management and drug discovery program. Thus collaboration between software
and pharmaceutical industry will help drug discovery & development in near future.

India has the largest number of USFDA approved manufacturing plant outside the US. In 2003,
the Indian Pharma Industry has filed 19 DMFs with the USFDA.

ANDA Filings

Source: CLSA Asia Pacific Markets.

Apart from establishing India as a leading low-cost API supplier for regulated markets. The
growth in DMF filing will help accelerate formulation filing a favorably impact India's cost
leadership in generic formulation as well

Table V: Health Statistics of India

 Subject Year of Reference Particulars
Population May 2000 1000 million
  2050* 1533 million*
  Crude birth rate (per 1000 population) 1998* 26.4 
  Crude death rate (per 1000 population) 1998* 9.0 
  Expectation of life at birth: male 1996-2001 62.4 
  Expectation of life at birth: female 1996-2001 63.4 
  Number of medical colleges in India 1999-2000 167 
  Total admission capacity for medicine 1998-1999 17,000 
  No. of pharmacy institutions imparting degrees in pharmacy 1999-2000 112 
  No. of pharmacy institutions imparting diplomas in pharmacy 1999-2000 325 
  Total admission capacity for pharmacy 1997-1998 5610 
  Number of doctors registered 1994-1995 489,189 
  Number of hospitals 1994-1995 13,392 
  Number of qualified nurses 1998-1999 607,376 

Source: Indian Drug Manufacturer's Association, 39th Annual Publication, 2001.

In 2008, Ranbaxy in USA, six ANDAs were submitted. Ranbaxy has the largest basket of
products in the US market with 141 approved drugs and another 98 marketing applications
pending for approval .

Table VI Increasing Number of ANDA Filings from India (Firm-wise)

FIRM 2004 2005 2006 2007 2008 2009

Ranbaxy 150 33 14 42 6 -
Dr.Reddy’s 52 13 12 33 22 37
Sun Pharmaceutical Inds. Ltd 11 22 29 45 31 38

Wockhardt 7 6 26 8
Cadilla healthcare 12 13 18
Glenmark Pharmaceutical Ltd - 7 11 10 23 30

Torrent Pharmaceutical Ltd - 1 3 2 5 21

Aurobindo 2 22 27 31 46 19

Source: Annual Reports, * FY 2008-09 and Q4 2008-09 Unaudited Results

Table: VII ANDA Approvals as on 31-3-08

Company ANDA Filings as on 31-3-08 ANDA Approvals as on 31-3-08

Ranbaxy 241 142

Dr.Reddy’s 122 70
Sun Pharmaceutical Inds. Ltd 142 53
Wockhardt - 23
 Cadilla healthcare 81 34
Glenmark Pharmaceutical Ltd 51 40
Torrent Pharmaceutical Ltd 11 4
Aurobindo 128 67

Source : Annual Reports, #Sun Pharma and Caraco

Weakness

Through the R&D spends of the top 20 Pharma companies has more than doubled over the last 5
years from $ 20 billion in 1995 to $ 40 billion in 2000,but R&D expenditure is very little amount
when compared to US Companies .

Thus, availability of fund is a major weakness of Indian Pharmaceutical Industry. The Indian
Pharmaceutical Industry is investing significant funds in bio-technology, genomics, proteomics
& alterer information based research which need very high amount of capital but there is no
guarantee of success. The biotech industry needs scientists who understand these disciplines, but
it is not easy to attract qualified scientist and businessmen from abroad to the work in India.

Gaining FDA approval of a drug can be a lengthy process. The Indian Pharmaceutical industry's
efforts to seek approval of market drug in the United States could be time consuming because of
FDA constraints, and the approval process could be a major bottleneck for India's drug
development industry.

The National Pharma pricing authority, decide the various pricing parameters, sets prices of
different drugs which lead to lower profitability of some organizations. Due to very low barrier
to entry, Indian Pharma Industry is highly fragmented with about 300 large manufacturing units
and about 18,000 small units spreads across the country. This makes Indian Pharma markets
competitive, due to price competition; growth of the industry in value term is reduced .

Lack of experience in International Markets could be a weakness area of Indian Pharma

Company. We have seen how Dr. Reddy's has been defeated from Pfizer in Amlodipine case in
International Markets. Not only that low level of strategic planning is also a weakness area of
Indian Pharma Company.

Opportunities
India is the largest democracy in the world, with a majority of its citizens fluent in English. Its
GDP is $ 4.7 billion. India's GDP grew at an average rate of 5.5% between 1990 to 1997. During
the current 5-year plan, it is expect to grow at 6.4%, and in the next 5-year plan it is projected to
be 9%. The Indian government policies are open to foreign investment, and country is
developing the necessary for economic growth. India's huge middle class, approximately 250
million people has a vigorous buying capacity with an annual expenditure of pharmaceutical
products, could be opportunity for near future.

Table : Health Statistics of India

Per Capita Drug Per Capita Drug

Country Country
Expenditure in US$ Expenditure in US$
  Japan 412     Brazil 16  
  Germany 222     Philippines 11  
  United States 191     Ghana 10  
  Canada 124     China 7  
  United Kingdom 97     Pakistan 7  
  Norway 89     Indonesia 5  
  Costa Rica 37     Kenya 4  
  Chile 30     India 3  
  Mexico 28     Bangladesh 2  
  Turkey 21     Mozambique 2  
  Morocco 17        

Source: http://www.indiaoppi.com\icannualchart.htm

The expenditure per patient for a clinical trial in India is much less compared with that in United
State. The cost of drug development depends on the type of therapeutic segment, previous
knowledge gain from a similar program, and complication that arise during the clinical study.
India has plenty of doctors & hospitals. Outside companies may find it is fruitful to establish an
alliance with an Indian company that has its own clinical trial set up. If a drug must be developed
to treat a tropical disease, India could be a idle place for conducting clinical drugs. With the poor
healthcare infrastructure it is logical to assume that many more people remain undiagnosed. The
occurrence of the diabetes may lead to other health problem mainly cardiovascular disease. This
reality provides numerous opportunities for pharmaceutical companies to market medicine to
treat this illness.
Though patent has implemented in India but there is small window to operate in. The least
development countries where product regime will not be operated until 2016, could be an
opportunity for Indian Pharmaceutical company.

Being the lowest cost producer with FDA approval plants, Indian Companies can become a
global outsourcing hub for pharmaceutical products. For the first three years of the ninth five-
year plan, the growth rate for the Indian economy was 6.2%. To meet the target of 6.5%, the
economy must grow at 7.2% during the next two years. The target growth rate for the tenth five-
year plan is 9% . This sizeable increase is a clear-cut indication of the anticipated future growth
of the Indian economy, which could provide good opportunities to the IPI.

Large number of drugs going off patent in Europe and in the US between 2005-09 offers big
opportunity for the Indian companies to capture this market. Since generic drugs are
commodities by nature, Indian producers have the competitive advantage, as they are the lowest
cost producers of drugs in the world.

There were fewer drugs that went off patent in 1997 or 1998 than the anticipated number of
drugs with patent expirations between 2000 and 2004. A list of the drug patents that expire
during this period, grouped by treatment category, is provided in Table VII. This list highlights
particular therapeutic categories that are most susceptible to generic entry; however, there are
several caveats. First, some drugs have several patent numbers due to different treatment
indications and are therefore represented more than once in the table. Second, many
manufacturers are successful at extending the effective patent life of their product by obtaining
new patents. Third, even without additional patents, some manufacturers are able to gain
exclusivity for additional months or years. Finally, many manufacturers have developed newer
medications with improved efficacy or reduced side effects by the time their products' patents
expire. In such cases, if patients are switched to the newer medications, the patent expiration on
the older product does not lead to as much generic competition.

The FDA's statistics can assist in estimating the emergence of generic products onto the market.
The overall number of generic approvals has decreased over the past three years, yet the number
of approvals representing the first time a generic drug was available for the brand-name product
has remained stable for at least the last two years, as shown in Table 3. There has been some
speculation that the number of generics and first generic entrants may increase over the period
2000-2004.

It is not only the number of drugs coming off patent that will influence the expenditure equation;
the dollar value of expiring patented drugs will increase significantly over the 2000-2004 period,
as compared with 1997 - 1999. It has been estimated that the value of sales of expiring patented
drugs was only US$1.1 billion in 1998 and US$3.3 billion in 1999 compared with projected
values of US$6.5 billion, US$6.7 billion, US$2.8 billion, US$6 billion and US$ 3.5 billion for
2000-2004, respectively3. Thus, estimates predict that the number of dollars spent on drugs that
are subject to generic competition between 2000 and 2004 will be between two and five times
the annual dollar volume of recent years.

The impact of greater numbers of patent expirations on drugs with high sales will help to curb
the impact on spending. Furthermore, the extent of generic entry may be greater due to increased
pressure for less expensive products.

Table : Number of Drug with patent expiring 2002 - 04

Treatment Category 2000 2001 2002 2003 2004

  Cancer and Cancer related treatments 5    6    4    2    10   
  Anti-infective treatments 2    6    2    3    5   
  Central nervous system treatments 6    2    2    5    3   
  Cardiovascular/cerebrovascular treatments 13    13    6    17    4   
  Respiratory treatments 5    3    4    5    2   
  Endocrine, nutritional, metabolic and immunity treatments 3    2    2    3    2   
  Tropical treatments 5    1    3    7    1   
  Hormonal treatments 1    4    1    5    2   
  Musculoskeletal and connective tissue treatments 1    0    1    0    0   
  AIDS and AIDS-related treatments 2    2    0    1    1   
  Analgesic treatments 1    5    5    1    3   
  Digestive system treatments 5    1    5    0    4   
  Blood disorder treatments 0    0    0    0    0   
  Genitourinary treatments 1    0    1    3    3   
  Miscellaneous treatments 3    8    5    6    6   

Source: FDA Orange Book (http://www.fda.govicderforange/patex.htm)

Table IX: Deals by global generics companies

 Deal size
Year Acquirer Target Country
($ Millions)
1996   Tewa   APS-Bercl   United Kingdom 53   
1996   Watson   Oclassen Pharma   United States 135   
1997   FH Faulding   Faulding   Australia 276   
1998   Teva   Pharmachemie   Holland 83   
1998   Alpharma   Cox Pharma   United Kingdom 200   
1999   Alpharma   Schwarz   Germany 150   
1999   Teva   Copley   United States 2156   
1999   Teva   Novopharm   Canada 285   
2000   Watson   Schein Pharma   United States 701   
2001   Mayne group   FH Faulding   Australia 1151   
2000   Cephalon   Anesta Corp   United States 454   
2001   Barr labs   Duramed Pharma   United States 590   
2002   Baxter   ESI Lederle   United States 305   
2002   Bio-Tech Corp   Rosemont Pharma   United Kingdom 99   
2002   Pliva   Sidmak   United States 153   
2002   Teva   Bayer Classics   France 93   
2002   Sandoz   Lek   Slovenia 746   
2003   Teva   Sicor   United States 3400   
2004   Sandoz   Sabex   Canada 565   
Total          9655   

Source: Industry

Opening up of health insurance sector and the expected growth in per capita income are key
growth drivers from a long-term perspective. This leads to the expansion of healthcare industry
of which pharma industry is an integral part.

Threats

1st January 2005 was a historical day for Indian Pharmaceutical Industry because from that date
product patent has been implemented in India. So, no copy-cut method will be implement in this
industry.

So, the organization which having very strong R&D or financially very sound for licensing any
patent product can be smoothly run. There will be tremendous competition between Indian &
Multinational Pharmaceutical organizations.
The Indian Pharmaceutical Market may face the threat of the damping of bulk drugs and
formulations by neighboring countries. There are certain concerns over the patent regime
regarding its current structure. It might be possible that the new government may change certain
provisions of the patent act formulated by the preceding government.

Threats from other low cost countries like China and Israel exist. However, on the quality front,
India is better placed relative to China. So, differentiation in the contract manufacturing side may
wane. After the SWOT (strength, weakness, opportunities & threats) analysis of Indian
Pharmaceutical Industry it has found that, Indian Pharmaceutical Industry has lots of opportunity
in the near future, but to manage the future Indian Pharma Companies should implement the
competitive strategy after SWOT analysis.

SUMMARY:

Strengths:
1. India with a population of over a billion is a largely untapped market. To put things in
perspective, per capita expenditure on health care in India is US$ 93 while the same for countries
like Brazil is US$ 453 and Malaysia US$189.
2. The growth of middle class in the country has resulted in fast changing lifestyles in urban and
to some extent rural centers. This opens a huge market for lifestyle drugs, which has a very low
contribution in the Indian Markets.
3. Indian manufacturers are one of the lowest cost producers of drugs in the world. With a
scalable labor force, Indian manufactures can produce drugs at 40% to 50% of the cost to the rest
of the World.

4. Indian pharmaceutical industry possesses excellent chemistry and process reengineering skills.
This adds to the competitive advantage of the Indian companies. The strength in chemistry skill
helps Indian companies to develop processes, which are cost effective.

Weaknesses:
1. The Indian Pharma companies are marred by the price regulation. The National Pharma
Pricing Authority, which is the authority to decide the various pricing parameters, sets prices of
different drugs, which leads to lower profitability for the companies. The companies, which are
lowest cost producers, are at advantage while those who cannot produce have either to stop
production or bear losses.

2. Indian Pharma sector has been marred by lack of product patent, which prevents global
Pharma companies to introduce new drugs in the country and discourages innovation and drug
discovery.
3. Due to very low barriers to entry, Indian Pharma industry is highly fragmented. This makes
Indian pharma market increasingly competitive. The industry witnesses price competition, which
reduces the growth of the industry in value term.

Opportunities
1. The migration into a product patent based regime is likely to transform industry fortunes in the
long term. The new product patent regime will bring with it new innovative drugs.

2. Large number of drugs going off-patent in Europe and in the US during 2005 - 2009 offers a
big opportunity for the Indian companies to capture this market. Since generic drugs are
commodities by nature, Indian producers have the competitive advantage, as they are the lowest
cost producers of drugs in the world.
3. Being the lowest cost producer combined with FDA approved plants; Indian companies can
become a global outsourcing hub for pharmaceutical products.

Threats:
1. Threats from other low cost countries like China and Israel exist. However, on the quality
front, India is better placed relative to china.
2. The short-term threat for the Pharma industry is the implementation of VAT. Though this is
likely to have a negative impact in the short-term, the implications over the long-term are
positive for the industry.

Strategy

1. Toll manufacturing.
2. Joint Venture.
3. Merger.
 4. Acquisition.
5. Bottom fishing.
6. In licensing.
7. Niche player.
8. Contact Research.

1.Toll Manufacturing

Indian Parma companies have made their maximum impact when supplying bulk drugs or active
pharmaceutical ingredients (APIs) to the world market. It's a model that has existed for three
decades and is likely to remain the most preferred model for Indian Pharma companies of all
types, big and small. After all, it fetches healthy net margins of 15-20%. API manufacturing has
been done by two kinds of manufacturers: the rebel manufacturers who made copies of patented
molecules without the knowledge or approval of the patent holder; and, the friendly
manufacturers, who manufactured and supplied bulk drugs for and with the approval of the
holder of the patent. While the nineties were dominated by the former, the trend in India is
beginning to gradually shift towards the latter .

2. Joint Venture

The rate of joint venture formation between U.S. companies and international partners has been
growing 27% annually since 1985 . Companies of ten form joint ventures to combine the
resources and expertise needed to develop new products or technologies. It also enables a firm to
enter a country that restricts foreign ownership. The corporation can enter another country with
fewer assets at stake and thus lower risks. For example, Dr. Reddy's Laboratories has joint
venture in South Africa to market its product. Called Dr. Reddy's Laboratories Pvt. Ltd., South
Africa, (Dr. Reddy's SA), the joint venture has been started in association with Venture pharm
Pvt. Ltd. a part of the J&J Group of companies with a 60:40 holding , the company said in a
release. The company aims to use South Africa as the gateway towards penetrating and
establishing a presence in that region. Dr. Reddy's SA will act as the applicant for local
registration purposes and will be responsible for distribution, marketing, sales and business
development of Dr. Reddy's pipeline and other selected licensed products, the release added.
3. Merger

A corporation can grow internally by expending its operation both globally and domestically
through merger. A merger is a transaction involving two or more corporation in which stock is
exchanged, but from which only one corporation survive. Merger usually occurs between firm or
somewhat similar size and are usually friendly. The resulting firm is likely to have a name
derived from its composite firms.

4. Acquisition

A relatively quick way to move into an international area is through acquisitions purchasing
another company already operating in that area. Synergistic benefits can result if the company
acquires a firm with strong complementary product lines and a good distribution network.
Research does suggest that wholly owned subsidiaries are more successful in international
undertakings than are strategic alliances, such as joint ventures.

5. Bottom fishing

Yet another breed of companies believes that they can survive this watershed year by bottom
finishing. At least, till such time that the turbulent waters settle down in the few years after 2004.
In a way, bottom - fishing is quite similar to toll manufacturing (even net margins) are about the
same: up to 20%) . Bottom fishing, though, is more risky since such companies concentrate only
on a few bulk drugs but squeeze the most out of their processes to become the world's least cost
producers of specific drugs.

6. Licensing

Under a licensing agreement, the licensing firm grants rights to another firm is the host country
to produce and/or sell a product. The licensee pays compensation to the licensing firm in return
for technical expertise. This is an especially useful strategy if the trademark or brand name is
well known, like Celadrin is a licensing product from USA to Dr. Reddy's Lab.

7. Niche player

Then there are those who have smartly orchestrated their strategies to operate in highly
specialized market niches. Their chances of survival are high for three reasons: One, they would
be super specialists in their areas. Two, because of super-specialization, their net margins are as
high as 20-40% and, three, by virtue of the niche in which they operate, they will face few
focused competitors and many other competitors whose interest in their segment would be
peripheral to their overall focus.

8. Contract Research

The smaller companies might lack the wherewithal to come out with a brand new drug on their
own, but that does not mean that they do not possess natural research advantages in specific
areas. If there's an area other than toll manufacturing where Indian Pharma companies have a
natural edge over companies from other countries, it's in contract research. Chemists here
possess complex synthesis capabilities and a growing experience of CGMP compliance. They
are turned to developing products at low cost and have a large local dose market in which to gain
experience. Given that modern drug research is a multi-step process in which different steps are
out-sourced to different specialty outfits, this is proving to be an advantage for Indian companies.

For example, Indian companies are able to tackle complex syntheses in relatively short periods
of time. Like Dr. Reddy's, which claims a development time two times faster than a US or
European company.

Export

After software, it's the Pharma companies that are all set to usher in the next exports miracle for
India. According to an ICRA report, Indian Pharma exports grew at a scorching pace of 27%
CAGR over the last 10 years, from 1991-2001. This is just the beginning. The next three years
will see Indian companies step on the pedal, growing exports from Rs. 8,750 crore in 2001 to Rs.
17,000 crore in 2005 - the report noted. And industry honchos fully concur with the fact that
exports are changing the fate of the Indian Pharma Industry. If one were to take the top 30
Pharma companies today, on an average 35-40% of their revenues come from exports, while the
figure is expected to touch 50% by 2005.

Foreign Dose
  Pharma export grew at 27% CAGR over last 10 years.
 Exports of hit Rs. 17,000 crore in '05 from Rs. 8,750 crore in '01.
 Cos change to "industry out" strategy from "Marketing in".
 India seen as feeder country for formulation products.

Patent In 1884, the US Food and Drug Administration (FDA) promulgated the Hatch-Wax man
Act to provide incentives for drug innovation with the objective of reducing cost of drugs for
patients. A Company seeking marketing rights in the US has to file an Abbreviated New Drug
Application (ANDA) under one of the specified grounds: Para I: No patent information on the
drug has been submitted to the FDA; Para II: the patent has expired; Para III: the patent will
expire on a stated date and generics will be launched upon expiry; and Para IV: the patent is
Invalid or will not be infringed upon by the manufacture, use or sale of the generic drug. Para IV:
is the most attractive since it allows 180-day market exclusivity to the first ANDA filed and
approved. Exclusivity gives the innovator enough time to recoup investments and build up
market shares before competition crashes the prices of the drug. After the 180-day period, the
specific drug becomes generic. Besides, section 505 (2) (b) of Para IV also allows a three-year
exclusivity if the innovator files a New Drug Application (NDA) that does not Infringe upon the
existing patent.

Conclusion

India, 2nd largest population in the world, a highly educated population that is fluent in English,
and well developed buying power, India has great potential for industrial growth. Its current
GDP growth is approximately 6.2%. The annual per capita expenditure for pharmaceuticals is
merely $3 compared with $191 in the United States . India has a strong infrastructure for
pharmaceutical business environment. A handful of Indian companies have started churning out
new drug discoveries for the world. Over the next five years, at least three major drugs with
significant therapeutic advances will emerge every year from the discovery pipelines of Indian
companies.
As a sector, pharmaceutically in India are expected emerge as a globally competitive business.
Indeed, India will emerge as a knowledge hub for pharmaceuticals. The advances in
bioinformatics, genomics, proteomics and other areas of new biology if we prevent brain-drain.
That will throw up unique opportunities to re-shape the pharmaceutical frontiers.

 expiry of formulations in US to spur growth.

Even as the pharmaceutical industry becomes a force to reckon with, India is becoming a
developed country and an economic power. A new India will emerge, breaking the shackles of
unaccountable bureaucracy, poor political leadership and declining moral standards, Knowledge
will be the key driver of competitiveness in this new era. And India will excel. Knowledge-based
industries such as information technology, pharmaceuticals and biotechnology will propel India
to prosperity.

By testing the hypothesis, it is clear that three options are left for Indian Pharmaceutical
Organizations: -

1. Generic Business in US and Europe Market.

2. Research & Development.
3. Contact Manufacturing.

It has been seen that US and Europe's Generic Markets gradually loose their glory due to severe
price reduction, but still it is a good opportunity for Indian Pharmaceutical Co. with NDDS
(Noble Drug Delivery System) products because of big market size.

Indian Pharma Company are not so financially sound to invest in the R&D. Some of the
organization in India has started to invest into R&D, like Dr. Reddy's & Ranbaxy. But their
research product will be launched in the near future.

The untapped potential of the large pool of low-cost, English speaking technical manpower and
low-cost of manufacturing, conducting clinical trial and research with diversify education system
in the field of Pharmaceutical, Technology and Management, India can be a place of Choice
(Outsourcing hub) for multinational organization.
So, for the Indian Pharmaceutical Co. contact manufacturing, contact research - who having
good R&D set-up, export of medicine in US Generic market will be a wise step. Beside that Para
IV filling will be a strategically important, but challenging the patented products under Para IV,
having high risk to loose or win the game. But to implement it organization should be
strategically very sharpen on that particular area.

But, before implementing the strategy in domestic or international market pharmaceutical

organization should have clear sense of strategic vision and Balance Scorecard, which will
deploy their business strategy better.

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 Read more: Medindia - About Pharmaceutical Industries in India
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 Graphics of China healthcare spending: r.reuters.com/kyp92p

 Source: http://www.unodc.org/unodc/en/frontpage/2010/June/drug-use-is-
shifting- towards-new-drugs-and-new-markets.html