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•     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
      volume terms.
•     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,
      like Bioinformatics.
                                                                               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,

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