• The Indian Pharmaceutical industry is highly fragmented with MNC companies were able to clock topline growth in the range
about 24,000 players (around 330 in the organised sector). of 10% to 15%. On the margin front, performance was mixed
The top ten companies make up more than a third of the market. with only GSK Pharma managing to expand margins on account
The revenues generated by the industry are approximately of a superior product mix. Aventis also did well with exports
US$ 7.6 bn and have grown at an average rate of 10% over surging once again after a slew of poor quarters.
last five years. The Indian pharma industry accounts for about
1% of the world's pharma industry in value terms and 8% in KEY POINTS
• In the recent past, Indian companies have targeted international Supply: Higher for traditional therapeutic segments, which is
markets and have extended their presence there. While some typical of a developing market. Relatively lower for lifestyle
companies are exporting bulk drugs, others have moved up segment.
the value chain and are exporting formulations and generic Demand: Very high for certain therapeutic segments. Will
products. India also offers excellent exports opportunities for change as life expectancy, literacy increases.
clinical trials, R&D, custom synthesis and technical services
Barriers to entry: Licensing, distribution network, patents,
plant approval by regulatory authority.
• The drug price control order (DPCO) continues to be a menace
Bargaining power of suppliers: Distributors are increasingly
for the industry. There are three tiers of regulations - on bulk
pushing generic products in a bid to earn higher margins.
drugs, on formulations and on overall profitability. This has
made the profitability of the sector susceptible to the whims Bargaining power of buyers: High, a fragmented industry has
and fancies of the pricing authority. The new Pharmaceutical ensured that there is widespread competition in almost all
Policy 2006, which proposes to bring 354 essential drugs under product segments. (Currently also protected by the DPCO).
price control has not been officially passed as yet and has Competition: High. Very fragmented industry with the top 300
been stiffly opposed by the pharmaceutical industry. (of 24,000 manufacturing units) players accounting for 85%
• The R&D spend of the top five companies is about 5% to 10% of sales value. Consolidation is likely to intensify.
of revenues. Despite growing at a CAGR of over 50% over
the last four years, the ratio is still way below the global CURRENT SCENARIO AND PROSPECTS
average of 15% to 20% of sales. However, despite the
relatively low R&D spending, Indian companies are stepping • The product patents regime heralds an era of innovation and
up their research activities to make themselves more self research resulting in the launch of new patented products. In
sufficient in terms of product development, now that the the longer run, domestic companies would face fresh
product patent regime has come into force. competition from MNCs, as they would make aggressive new
launches. However, the latter would most likely be subject to
FY09 price negotiation.
• Drugs having estimated sales of over US$ 108 bn are expected
• FY09/CY08 was a mixed year for domestic pharma companies to go off patent between CY09 and CY13. With the
as the global financial crisis took its toll. The sharp depreciation governments in the developed markets looking to cut down
of the rupee against the dollar had a huge impact on most of healthcare costs by facilitating a speedy introduction of generic
the domestic pharma companies. While revenues were drugs into the market, domestic pharma companies will stand
enhanced, those with substantial foreign debt on their books to benefit. However, despite this huge promise, intense
had to book considerable forex losses, which impacted competition and consequent price erosion would continue to
profitability. At the same time companies such as Dr.Reddy's remain a cause for concern.
and Sun Pharma were able to garner the 180-day exclusivity
for certain drugs which bolstered revenues and profits. • The life style segments such as cardiovascular, anti-diabetes
and anti-depressants will continue to be lucrative and fast
• Another problem which impacted the pharma sector was the growing owing to increased urbanisation and change in
stringency of the US FDA while inspecting manufacturing plants. lifestyles. Growth in domestic sales in the future will depend
As a result many companies such as Ranbaxy, Lupin and Sun on the ability of companies to align their product portfolio
Pharma's subsidiary Caraco were found guilty by the US FDA towards the chronic segment.
for not complying with quality manufacturing standards. This
impacted their performance during the year. In all cases the • Contract manufacturing and research (CRAMS) is expected to
issues with the US FDA have yet to be resolved. gain momentum going forward. India's competitive strengths
in research services include English-language competency,
• The European market posed a set of challenges for Indian availability of low cost skilled doctors and scientists, large
generic companies. While the UK was bogged with severe patient population with diverse disease characteristics and
pricing pressure, the governments of Germany and France adherence to international quality standards. As for contract
undertook various healthcare reforms, which impacted the manufacturing, both global innovators and generic majors are
revenues of companies having a presence in these countries. finding it profitable to outsource production. Currently, India
Further, the global economic slowdown only worsened matters. has the highest number of US FDA approved plants outside
• In the domestic market, FY09 was a decent year for the the US at 75 plus.
pharmaceutical industry with most of the top players managing
to clock a double-digit growth. However, it was the chronic
therapy segment, which once again took centrestage
relegating the acute therapy segment to the background. While
the former recorded a robust 21% YoY growth, the latter grew
by 11% YoY.
• MNC companies did well during FY09/CY08 as compared to
last year wherein they had performed poorly. On an average,