The industry has witnessed healthy growth in the recent past and investment in pharmaceutical industry is continuing. The product output is also increasing and operational and business management efficiency also seem to have improved. This is shown by the increase in the output of the industry as given in table
Growth of the Industry
The industry has witnessed healthy growth in the recent past and
investment in pharmaceutical industry is continuing. The product output is also
increasing and operational and business management efficiency also seem to have
improved. This is shown by the increase in the output of the industry as given
in table
Structure of the Industry
Pharmaceutical industry adopts high technology and produces high
value added products. The process is very complex in nature. The processes are
classified into primary and secondary. The primary process requires
uninterrupted power supply, maintaining of conditions under which the molecules
react and yield a new product, excellent manufacturing conditions and
well-trained personnel. Specific plants costs less but, they have the risk of
obsolescence. Multipurpose plants are expensive and have no risk of
obsolescence but, they have the risk of cross contamination. The secondary
process is the conversion of bulk drugs into formulations. The secondary
process is not much technology intensive and has low capital cost. Hence, there
are many players in the market.
Nature of the Product
The products of the pharmaceutical industry are broadly classified into bulk drugs, formulations and intravenous fluids. Bulk drugs are like Ciproflaxacin, Ibuprofen, Ranitidine, Ethanbutol, etc. The major manufactures of the products are Ranbaxy, Cipla, Cadilla, Dr.Reddys’ Lab and Lupin. Some companies manufacture formulations from bulk drugs and market them under brands. Companies also manufacture formulations for other companies. Some of the companies in the formulation segment are Ranbaxy, Cipla, Wockhardt, Lupin etc.
Intravenous fluids are preparations which aid in quick
replenishment of body fluids. Bulk drugs and formulations companies produce
intravenous fluids also. The formulations are produced by firms from all over
the country. Andhra Pradesh stands first in the production of bulk drugs.
Demand for the Product
The Indian pharmaceutical market which was worth Rs90 billion in
1997, is growing at 13.7% rate. But only three out of ten Indians have access
to allopathic drug. Even in this segment vast majority of them belong to urban
area. Investments in medical and public health declined from 2% of the total
capital outlay in the sixth five year plan to 1.75% in the Eighth five year
plan. In the year 1996-97, the portion in the annual budget was of 1.7%.
The less than 15 age segment of the population is expected to grow
at 0.5% but the fastest growth is expected in the 50-59 groups. This has led to
a shift in the demand from the life saving drugs to life enhancing drugs. It is
referred to as a shift from age old diseases to old age diseases.
Competition
The industry is having 2400 players within the organised sector and around 15,000 in small-scale sector. The low entry barriers, government’s encouragement given to small sector units and low capital cost are the reason for the presence of large number of units in the pharmaceutical sector. This has lead to price crash in the bulk drug.
Apart from internal competition, the industry is facing
international competition too. There is a large import of bulk drugs from
China. The Chinese products are a significant competitor for the Indian
pharmaceutical industry. Multinational corporations like Pfizer, Abbot labs and
Novartis also pose threat to the local producers.
Government Policy
The drug companies operate in a highly politicised environment. The
product development, prices, safety are regulated by the government. The
pharmaceutical industry functions under the Drug Price Control Order. The
prices of drugs are regulated to make them available to the masses at
affordable prices. The DPCO is issued from time to time to keep the policy in
tune with the changing demands.
The Patent Law in India provides patent only for process and there
is no product patent. But, with signing of GATT, India is required to amend the
Patent Law. Once the product patent comes into force, the reverse engineering
route to introduce new molecules will not be available to Indian companies.
Research and Development
The average sum spent by the 15 largest Indian pharmaceutical
companies for R & D is around 2 percent of turnover. This is drastically
low and research is mainly concentrated towards the area of process development
rather than on new molecular searching.
Strength
Despite economic slowdown,
the industry registered double digit growth rate.
Indian pharmaceutical market is growing at 13.7%.
Net exporter of bulk drugs and formulations.
Low cost in process development and R & D.
Third largest scientific pool in the world.
Weakness
Decline in plan investment in medical and public health.
Only three out of ten Indians have access to allopathic drugs.
Various price controls.
Opportunity
With increase in purchasing power, health care expenditure would
increase.
Non Japan Asia’s share of world health care spends will double.
Patent law will lead to consolidation of industry.
Threat
Fall in the price of bulk drugs and imports from China.
60 major products may lose patent protection.
Ambiguity regarding the timing and content of the Indian Patent Act
amendment.