Report on India’s Pharmaceutical Industry

The Indian pharmaceutical industry in recent years has grown in stature from an industry that copies patent drugs and manufactures them cheaply. It’s now counted among the industries that are fueling India’s economic growth and holds vast potential. India-based pharmaceutical companies are also predicted to gain considerable market share in the world by the end of this decade. The industry is estimated to have generated revenue worth US$13.1 billion in FY 2011, according to a new Research and Market’s report, “Indian Pharma Sector Forecast 2014.”

India-based companies fulfill around 70 percent of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. Development economist, Richard Gerster, said that 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.”

For the country, pharmaceutical industry has always been a prominent industrial sector. “A Brief Report Pharmaceutical Industry in India,” published in January 2011, said that Indian pharmaceutical industry is a highly organized sector, and it ranks “very high” amongst all the third world countries in terms of technology, quality, and the vast range of range of medicines that are manufactured. The industry is expected go through major transformation in the next ten years and enter the global toptier. Currently, it’s estimated to be worth US$4.5 billion, and is growing at nearly 8 to 9 percent annually.

Last year, McKinsey & Company’s report, “India Pharma 2020: Propelling access and acceptance, realizing true potential,” predicted that the Indian pharmaceuticals market will grow to US$55 billion in 2020; and if aggressive growth strategies are implemented, it has further potential to reach US$70 billion by 2020. Market Research firm Cygnus’ report, published last year in December, forecast that the Indian bulk drug industry will expand at an annual growth rate of 21 percent to reach $16.91 billion by 2014. The report also noted that India ranks third in terms of volume among the top 15 drug manufacturing countries.

India based pharmaceutical companies are not only catering to the domestic market and fulfilling the country’s demands, they are also exporting to around 220 countries. They are exporting high quality, low cost drugs to countries such as the U.S, Kenya, Malaysia, Nigeria, Russia, Singapore, South Africa, Ukraine, Vietnam, and more. Currently, the U.S is the biggest customer and accounts for 22 percent of the sector’s exports, while Africa accounts for 16 percent and the Commonwealth of Independent States (CIS) places around eight percent of orders, as per Research and Market report. Earlier this year in February, India and Japan signed a Free Trade Agreement (FTA), which is expected to increase the export of pharmaceutical products to Japan. Under the agreement, duties on more than 90 percent of goods traded within a tenyear window have been scrapped.

The exports are expected to increase by 20 percent in 2011, taking the overall value to £6.73 billion. Research and Market report noted that around 56 percent majority of products exported are formulations, while bulk drugs account for a little over 40 percent and herbals for the remaining two percent.

Cygnus report noted that contract manufacturing has been driving the bulk drugs exports in the last few years, and that global pharmaceutical companies have been outsourcing contract manufacturing to Indian companies to cut costs. The recent increase in exports has been due to greater number of expired patents and also countries have started recognizing and accepting generic drugs. Research and Market report said that exports have also received a boost from the industry’s overall emergence from the recession.

Indian pharmaceutical industry has taken a quantum leap thanks to The Patents Act, 2005 (Amendment to The Patents Act, 1970). The Patent Act of 1970 saw the exodus of the multinational companies (MNCs) as it recognized only process patents. Indian companies had the freedom to copy drugs manufactured by patent holding companies without paying any kind of royalty. They were protected by the patent act to legally reverse-engineer internationally patented drugs and sell it within India and also in those markets that did not conform to drug patents. Post independence, 1947 to mid 50s, the country’s laws recognized both process and product patent. It was expected that the multinational MNCs will bring in their innovations, technology, and finance to benefit Indian customers. However, instead of investing in India, or helping the country’s domestic industry, MNCs brought in import of bulk drugs. And, since the patents on essential drugs were with them along with high class technology and financial resources, they were able to establish their monopoly. According to reports, this resulted in high drug prices that were getting beyond the reach of common man and not helping India’s interests.

To slow down the control of MNCs and cut down their dominance of the Indian market, the Government passed the Drug Price Control Order (DPCO) of 1970. The order provided process patents for 5 to 7 years and was seen as a move to make the domestic market self-reliant. For the MNCs, India ceased to be a profitable market and they slowly left the country and Indian companies grabbed the opportunity and stepped in. As a result, the country became self-sufficient in the manufacturing of basic drugs. From the 1970s to 2005, many manufacturing units were established and researches were done to develop new processes for several drugs. Also, the DPCO put a limit cap on the prices of essential, lifesaving drugs, resulting in their availability in the domestic market at affordable prices.

The amendment act of 2005 altered the practice of manufacturing drugs without conforming to the patent laws of other countries. The act barred the companies from producing patent products without paying patent royalty. As India had signed the General Agreement on Trade and Tariffs (GATT) and the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement — and joined GATT’s successor World Trade Organization (WTO) in 1994 — it had to amend its patent act. The amendment in 2005 opened the doors for MNCs. This time around, they have shed their reluctance to invest in India and are also collaborating with domestic players. Most of these companies are outsourcing their manufacturing to the country. The Indian-based companies with more than two decades of experience in manufacturing drugs — thanks to a process patent system — is benefiting them in the changed scenario. The MNCs are also bringing in their technology and research and development (R&D) team to India.

Indian companies are also continuously increasing their investment in R&D and not limiting themselves to only manufacturing drugs. They are spending around 6 to 8 percent of their turnover on R&D — earlier these companies did not spend more than 1 percent on R&D. “There has been a significant increase in R&D since the introduction of the India Patent Act in 2005,” said Brian Ager, the Director-General of European Federation of Pharmaceutical Industries and Associations, in an interview given to a newspaper in India.

Factors such as low manufacturing cost, highly qualified employees with scientific acumen, high technical and manufacturing skills, and knowledge of English are propelling the growth of India’s pharmaceutical industry. According to a report, the Indian pharmaceutical industry is also becoming U.S. foreign direct investment (FDI) compliant to harness the growth opportunities in areas of contract manufacturing.

Additionally, the government of India is also providing incentives to encourage investment in pharmaceutical sector and helping domestic players. Under the automatic route in the drugs and pharmaceuticals sector — including the companies using recombinant technology — the government has permitted 100 percent foreign direct investment (FDI). According to a report, the Indian government plans to set-up a US$639.56 million venture capital (VC) fund. This fund is expected to encourage discovery of new drugs and also help strengthen the pharma infrastructure.

The Government has also issued Expression of Interest that says that they intend to facilitate establishing new and also upgrade GLP Compliant Chemical Testing Laboratories; Compliant Biological Testing Laboratories; and GLP Compliant Large Animal Houses. The Government plans to carry out these initiatives via Public Private Partnership (PPP). Through these initiatives the Department of Pharmaceuticals expects to facilitate innovation and catalyze and compliment the R&D efforts of the Indian Pharma Industry.

The Department of Pharmaceuticals has prepared a “Pharma Vision 2020” that aims to make India one of the leading destinations for end-to-end drug discovery and innovation. It plans to provide world class infrastructure, internationally scientific manpower for pharma R&D, venture fund for research in the public and private domain and more.

The Drugs and Pharamceuticals Manufactures Association has also received an — in-principle — approval for its proposal to set-up special economic zone (SEZ) for pharmaceuticals, bulk drugs, active pharmaceutical ingredients (APSs), and formulations. The zone will be located at Nakkaplli mandal (Vishakapatnam district), in the state of Andhra Pradesh.

The top ten Indian pharmaceutical companies are Ranbaxy, Dr. Reddy’s Laboratories, Cipla, Sun Pharma Industries, Lupin Labs, Aurobindo Pharma, GlaxoSmithKline Pharma, Cadila Healthcare, Aventis Pharma, and IPCA Laboratories.