INDUSTRY regulations of the government regarding the patenting,

                       

 

 

 

 

 

 

 

 

 

 

 

INDUSTRY ANALYSIS

                 PHARMA INDUSTRY

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Himanshu Maheshwari         Kavita Kulkarni

80303170060                           Faculty Guide –NMIMS
Hyderabad

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

S.No

Content

Page No.

1

Introduction

3-4

2

Industry
and Competition: Market Size and Characteristics

4-8

3

Industry and Competition:
Market Trends

9-11

4

Industry
and Competition: Market Structure

11-13

5

Characteristics
of Competitors

13-17

6

References

17

 

 

 

 

 

 

 

 

 

Introduction

 

 

The Pharma
Industry develops, manufacture, and markets drugs licensed for use as medicines.
For this they have a well-equipped Research and Development department. Pharma
companies are allowed to deal in generic and/or brand medicines and medical
devices. They deal with variety of laws and regulations of the government
regarding the patenting, testing, pricing and ensuring safety and adequacy and
marketing of drugs. The Indian Pharma industry is the second-largest in the
world by volume and is ahead to manufacturing sector of India. The first pharma
company of India was Bengal Chemicals and Pharma Works, which still exists
today as one of 5 government-owned drug manufacturers, in Calcutta in the year
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 due to the Patents Act in 1970, the industry got an opportunity to
grow. This patent act removed composition patents from food and drugs, and
though it kept process patents, these were shortened to a period of five to
seven years. The lack of patent protection made the Indian market undesirable
to the multinational companies who had dominated the market, and while they
streamed out, Indian companies started to take their places. The multinationals
were market leaders at that time because of their superior technology. As a
result of this, they had gained expertise in reverse-engineering new processes
for manufacturing drugs at low costs. Although some of the larger companies
have taken small steps towards drug innovation, the industry as a whole has
been following this business model until the present. Introduction to Pharma
Industry 28 Research and Development Drug discovery is the process by which the
required drugs are discovered or designed. In the past most drugs have been
discovered either by isolating the active ingredient from traditional remedies
or by serendipitous discovery. A great deal of early-stage drug discovery has
traditionally been carried out by universities and research institutions. All
this requires constant innovation and research by either the traditional or
modern methods, or a combination of both. Drug development refers to activities
undertaken after a compound is identified as a potential drug in order to
establish its suitability as a medicines. Objectives of drug development are to
determine appropriate Formulation and Dosing, as well as to establish safety.
Research in these areas generally includes a combination of in vitro studies,
in vivo studies, and clinical trials. The amount of capital required for late
stage development has made it a historical strength of the larger pharma
companies. Often, large multinational corporations contribute in a broad range
of drug discovery and development, manufacturing and quality control,
marketing, sales, and distribution. On the other hand, smaller organizations
lay emphasis on a specific aspect such as discovering drug candidates or
developing formulations. Often, collaborative agreements between research
organizations and large pharma companies are formed to discover any probability
of new drug.

 

 

Market Size of
Indian Pharma Industry and Its Characteristics

 

 

Indian
pharma sector is estimated to account for 3.1- 3.6 % of the global pharma
industry in terms of value and 10 % in value terms.
It is estimated to grow to 100US$ billion by 2025. India accounts for 20 per cent of global exports in
generics. India’s pharma exports stood at US$ 16.84 billion in 2016-17 and are expected to reach US$ 20
billion by 2020. During April – September 2017, India exported pharma products worth Rs.411.3 billion (US$ 6.4 billion). During April – October 2017, India exported pharma products worth Rs.478.3 billion (US$ 7.4 billion).

 

    Figure 1: Revenue of Indian pharma sector ($
billion)

Source:
Department of Pharmas, PwC, McKinsey, TechSci Research

      Notes: F – Forecast, CAGR – Compound
Annual Growth Rate

 

 

The
market size is expected to grow to US$ 55 billion by 2020 and become the 6th
largest pharma market globally by absolute size. Branded generics with nearly
80% of market share will dominate the pharma market (in terms of revenues).

 

According
to data from the Ministry of Commerce and Industry, India has out- performed China
in pharma exports with a YoY growth of 11.44% to US$ 12.91 billion in FY
2015-16, on other hand imports rose marginally by 0.80 % YoY to US$ 1,641.15 Million.

 

Figure 2:
Projected size of Indian Pharma market in $ billion

 

 

     Source: Mckinsey Analysis, secondary
Research

 

Figure 3:
Formulation and Bulk Drugs Export Outlook:

 

 

Source:
CRISIL research; KPMG in India analysis

 

The
US Food and Drug Administration (USFDA) approved 201 in FY 2015-16 drugs of
Indian companies, nearly doubled from 109 in FY 2014-15. India accounts for
around 30% (by volume) and about 10% (value) of US generics market which stood
at US$ 70-80 billion in 2015-16.

 

India’s biotechnology industry
made of bio-agriculture, bio-pharmas, bio-services, bio-informatics and
bio-industry is expected grow at an average growth rate of 30% a year and
expected to reach $100 billion by 2025.

 

 

Figure 4:
Percentage Distribution of Biotech Companies in Various Segments

 

Biopharma, therapeutics,
comprising vaccines and diagnostics, is the largest sub-sector of biotech
contributing nearly 62% of the total revenues at Rs 12,600 crore ($
1.88-billion).

 

 

Geographical Clusters: Most of the pharma
manufacturing units are concentrated in Maharashtra and Gujarat. These two
states are home for 44% of the pharma manufacturing units.

 

Source:
Ministry of Skill Development & Entrepreneurship

 

 

Table 1: Geographical
Distribution of the Pharma Companies In India

 

State

No. of Manufacturing units

Total

Formulation

Bulk Drugs

Maharashtra

1928

1211

3139

Gujarat

1129

397

1526

West Bengal

694

62

756

Andhra Pradesh

528

199

727

Tamil Nadu

427

98

570

Others

3423

422

3845

Total

8174

2389

10563

Sources:
Department of Pharmas; KPMG in India analysis, ASSOCHAM

 

The data clearly suggests that due to
better infrastructure facilities, enhanced support from small-scale companies,
conductive industrial atmosphere and skills in chemistry, Maharashtra remains
an attractive destination for Pharma companies. The Maharashtra government
promotes the “Centres of Excellence” working on cutting-edge R&D in
emerging areas of technology and life sciences.

 

Figure: Percentage
Distribution of Pharma Companies in Various Regions

Sources:
Department of Pharmas; KPMG in India analysis, ASSOCHAM

On
other hand Gujarat always encourages new investments in the state and employs
approximately 52,000 people in this sector.

 

The 5 tax-free states namely Himachal
Pradesh, Uttaranchal, Jammu & Kashmir, Jharkhand and Sikkim are emerging as
hot destinations for Pharma companies. Uttarakhandand Himachal Pradesh (HP) is
considered to be among the fastest growing Pharma hubs in India. Baddi and some
other areas in HP have over 300 manufacturing units. Haridwar, Roorkee, Dehradun
and Rudrapur of Uttarakhand have 200 pharma manufacturing units.

 

Figure:
Manufacturing hotspot for various companies across India

Source:
KPMG in India analysis, IBEF August 2013

 

The investment in the region is reported
to be worth an estimated INR30 billion in recent years. Alembic, Dr. Reddy Lab,
Alkem, Mankind, Torrent, Lupin, Cadila, Indswift Lab, Unichem, Morepen,

 

Klitch, Ranbaxy, Nector, Surya, Cachet,
Indchemie, Galpha are some of the major companies to have established their
units in these areas. (Cf. KPMG in India analysis, IBEF August 2013).

 

 

 

 

 

 

 

 

 

Market Trends of
Indian Pharma Industry

 

 

GLOBAL TRENDS

 

Figure: Global Pharma Market, Regional Market Share Forecast, 2017*

*Based at ex-manufacturer price levels, not including rebates and discounts. Contains audited and unaudited
date. All compound annual growth rates (CAGR) based on five years.

Pharmerging countries include: Algeria, Argentina,
Colombia, Egypt, Indonesia, Mexico, Nigeria, Pakistan, Poland, Romania, Saudi
Arabia, South Africa, Thailand, Turkey, Ukraine,

 

IMS has estimated a
compound annual growth rate (CAGR) for the global pharma market of 3-6% in the forecast period of 2013-2017. The US
pharma market is expected
to grow at a rate of 1–4%. As far as Europe is
concerned, the markets of the European Union are expected to experience a CAGR
of 0–3%, and the rest of Europe is should have a CAGR of (-1%) to 2%. Emerging
markets, may see strong growth, but are expected to show slower growth than in
the previous forecast period. IMS expects China’s
market will experience a CAGR of 13–16%, between 2013–2017 compared to a CAGR of 22% during
2008–2012. IMS estimates that the pharma markets of Brazil, India,
and Russia may to see a CAGR of 10–13% between
2013–2017 compared to a CAGR of 16% during 2008–2012. Tier 3 ‘pharmaerging’ markets have a prognosis
to have pharma industry
growth of 6–9% between 2013–2017 compared to a CAGR of 9% during 2008–2012.Due
to reporting purposes, CAGR forecasts are estimated
in constant dollars, and historical CAGR in actual dollars. 

The influence of
emerging markets in pharma
industry growth is substantially proven by several key projections offered by
IMS. By 2017, 50% of drugs by volume are forecasted
to be in ‘pharmerging’ markets, and the US and Europe each respectively
will account for only 13% of pharma volume by 2017. China will take the lead, and the BRIC
countries (Brazil, Russia, India, and China) will account for 70% of all
‘pharmerging’ market sales by 2017 on a value basis
and strategically will continue to be the reasons of thriving among emerging
markets. Pharma sales in
China are estimated to touch $167 billion by 2017, $49 billion in Brazil, $24
billion in India, and $27 billion in Russia.

 

LOCAL TRENDS:

 

 

Government
expenditure on pharma in the country increased from US$14 billion in 2008 to
US$ 53 billion in 2016. The expenditure expanded at a CAGR of 18.1 per cent
over 2008–16to reach US$ 53 billion. Under Union Budget
2017-18, new 5,000 postgraduate seats in medical colleges
were announced by the government, to ensure availability of specialist doctors.
Under Union Budget 2017-18, new 5,000 postgraduate seats in medical colleges
were announced by the government, to ensure
availability of specialist doctors. Medical technology park in Vishakhapatnam,
Andhra Pradesh has already
been set up with an investment of US$ 183.31 million.
States like Himachal Pradesh, Gujarat, Telangana and Maharashtra are showing
interest for making investments in these parks. German technical services provider TUV Rheinland’s Indian subsidiary has partnered with
Andhra Pradesh MedTech Zone(AMTZ) to create an infrastructure for
Electro-Magnetic Interference (EMI/EMC) at an investment of US$ 12.64 million over a course of four to five years.

 

 

 

Rising share of government expenditure (US Billion$)

 

 

 

Market Strucher
of Indian Pharma Industry

 

 

The number of
purely Indian pharma companies is fairly low. Indian pharma industry is mainly
operated as well as controlled by dominant foreign companies having
subsidiaries in India due to availability of cheap labor in India at low cost. In 2002, over 20,000 registered drug manufacturers in India sold $9
billion worth of formulations and bulk drugs. 85% of these formulations were sold in
India while over 60% of the bulk drugs were exported,
mostly to the United States and Russia. Most of the players in the market are
small-to-medium enterprises; 250 of the largest companies control 70% of the
Indian market.

Major players in
pharma Industries are

 

 

.4 SUN PHARMA:

 

1.     
It has 48 manufacturing facilities
across five continents and employs more than 30,0000 people as on FY16

2.     
Nearly 74 per cent of its sales
came from international markets in 2016

3.     
Revenues of Sun Pharma
increased from USD932 million in FY09 to USD 4.2 billion in FY16, witnessing
growth at a CAGR of 24.16 per cent over FY09-16

4.     
In March 2015, Sun Pharma
completed the acquisition of Ranbaxy Laboratories Ltd to become the fifth
largest global specialty pharma company, No 1 pharma company in India, and
ensure a strong positioning in emerging markets.

5.     
The company reported net profit
of USD 335.8 million for the period July2016 – September 2016

 

     DR REDDY’S

1.     
The company’s revenues
increased from USD1.5 billion in FY09 to USD2.4 billion in FY16, at a CAGR of
6.84 per cent over FY09-16

2.     
Global generics comprised over
81 per cent of its revenue mix in FY15           

3.     
Dr Reddy’s is investing heavily
on R to differentiate itself in the market. In FY15 – 16 Dr Reddy’s spent
around 13.8 per cent of sales on R&D

4.     
The company’s revenues
increased from USD1.5 billion in FY09 to USD2.4 billion in FY16, at a CAGR of
6.84 per cent over FY09-16

5.     
Dr Reddy’s has access to
numerous emerging markets through partnerships with GlaxoSmithKline (GSK)

 

 

LUPIN:

1.   
Its revenues increased from
USD822.5 million in FY09 to USD2.1 billion in FY16,       witnessing growth at a CAGR of 14.3 per
cent over FY09-16.

2.   
Its revenues increased from
USD822.5 million in FY09 to USD2.1 billion in FY16, witnessing growth at a CAGR
of 14.3 per cent over FY09-16.

3.   
In February 2017, Lupin has
received the final approval from USFDA to market potassium sulfate, sodium
sulfate & magnesium sulfate oral solutions, which are used to treat a form
of cancer.

4.   
Lupin is a renowned pharma
player producing a wide range of quality, affordable generic and branded
formulations and APIs.

 

 

Characteristics of Competitors

 

PORTER’S FIVE FORCES ANALYSIS:

 

Competitive
Rivalry: Growth
opportunities for pharma companies are expected to grow in next few years, with
many drugs going off-patent in the US and other countries, thus increasing
competition • Indian pharma companies will face competition from big pharma
companies, backed by huge financial muscle.

Threats of
new Entrants: Strict government regulations strict entry of new players. Also
difficult to survive because of high gestation period.

Substitute Products:

Threat to substitute products is low;
however, homeopathy and Ayurvedic medicines can act as substitute.

Bargaining
Power of Suppliers:

Difficult-to-manufacture APIs such as
steroids, sex hormones and peptides give bargaining power to suppliers.
However, generic APIs do not have much of that power.

Bargaining
Power of Customers:

Generic drugs offer a cost effective
alternative to drugs innovators and significant savings to customers. Bio similar
offer significant cost saving for insurance companies in India.

 

 

Effects of GST on the Healthcare Industry

The passing of the
GST (Goods and
Services Tax) Bill has grabbed the attention across all the industries in the
country. It would benefit most of the sectors and
make the taxation process easier as it will replace a number of different taxes
and duties.

The Indian
Healthcare Industry is now among of the major
sectors with respect to revenue and to employment. As the expenditure on the
Healthcare increases, so do revenues from taxes. Recently, the Government of
India decided for the implementation of GST, which would subsume various taxes
of the complex tax system in the country into one
uniform tax system.

It is expected that
GST would have a constructive effect on the Healthcare Industry particularly
the Pharma sector. It would help the industries by streamlining the taxation
structure since 8 different types of taxes
are imposed on the Pharma Industry today. An amalgamation of all the taxes into one
uniform tax will ease the way of doing business in the country, as well
as minimising the cascading effects of manifold taxes that is applied
to one product. Moreover, GST would also improve the
operational efficiency by rationalising the supply chain that could alone
add 2 percent to the country’s Pharma industry. GST
would help the Pharma companies in rationalising their supply chain; the companies would need to review their strategy and
distribution networks. Furthermore, GST implementation would also enable a flow
of seamless tax credit, improvement the overall compliance create an equal
level playing field for the Pharma companies in the country. The biggest advantage for the
companies would be the reduction in the overall transaction costs with
the withdrawal of CST (Central Sales Tax). GST is also expected to
lower the manufacturing cost.

One more benefit
likely to accrue due to GST is the reduction in the
overall cost of technology. Currently, the technical machinery and equipment
which are imported into the country by the healthcare sector are very costly.
Also, the duty which is levied is not allowed as a tax credit under the present tax regulations. However, with GST this
scenario might change. Under GST, duty charged on the import of such equipment
and machinery would be allowed as a credit.

 

 

Demonetization effect
on pharma Industry:

Pharma sector experienced negative
impact with the impact of demonetization, but the impact is temporary and
expected to be same. pros and cons
of demonetisation on pharma Industry

Healthcare businesses and organizations are contending
with extraordinarily new financial, demographic, and regulatory pressures.
A challenging global economy continues to strain the
bottom lines of providers, payers, and pharmaceutical companies – not to
mention the businesses and taxpayers who ultimately foot the bill.
Tighter finances and thinning margins have made cost
cutting and operational efficiency a top
priority across the healthcare supply chain. It has also fuelled
innovation, without compromising the end goal: patient care
The National Sample Survey reveals that over 80% of
Indian population is not covered by health insurance.
Private Doctors are a one-man army, taking up the
majority cases in both rural and urban areas.
A Forbes report stated that the per capita healthcare
expenditure in India is about $60, which is significantly less amongst the
BRIC nations and trivial compared to the
developed countries, considering that USA spends over $8600.
The alarming fact here is that over 90% of healthcare
expenditure in India is out of pocket. 

 

 

References:

 

1.https://www.ibef.org/download/Pharmaceutical-March
2017.pdf     

2. https://cleartax.in/s/gst-impact-on-healthcare-pharma-sector

3.https://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India

4.https://www.linkedin.com/pulse/demonetization-slowdown-effect-healthcare-pharma-banerjee/

5.https://www.brandindiapharma.in/pharmaceutical-industry-trends/indian-pharma-companies-increase-spending-on-rd