1. Pharmaceutical Industry in India
 Module:
Pharmaceutical Economics
By: Hemant Vyas (MBA)

2. Learning Objectives
 Growth and Structure of Pharmaceutical Industry
 Global and Indian Scenario
 Research and Development Activities of Industry
 Promotional Expenses
 Profitability of the Industry
 Mergers and Acquisitions in the Industry

3. Growth of Pharmaceutical Industry
 Since 1950s the drug multinational
corporations have been riding the
high wave of R & D driven growth
backed-up by a high-profile
promotional campaign aided by an
industry-friendly patent regime.
Closer home, the growth and
performance of the industry is no
less spectacular.

4. Global Pharmaceutical Industry
 The Global pharmaceutical industry is characterized by global
market dominance of the oligopolistic core of R&D based
pharmaceutical companies.
 However, there is heterogeneity in terms of firms’ orientations,
size, innovative and production capabilities
 Generic entry leads to price competition on off-patented drugs
and by incremental innovations that may act as substitutes.
 As of 2008, top 10 global R&D based companies held a
consolidated global market share of 46.4% and the share of top 20
was 63.7%. Pfizer, top global pharmaceutical major alone had
7.6% of global market share

5. Drug Sales by Geographic Region, 2004
Global Sales - US $ 242,115 Millions - 2004
Africa
0.4%
MiddleEast
0.9%
Others
2.7%
U.S.
66.4%
Canada
2.3%
India & Pakistan
0.3%
Japan
3.7%
Asia-Pacific
1.6%
Europe
18.2%
Australia & New
Zealand
1.2%
Latin America
2.3%
Source: PhRMA

6. Pharmaceutical Sales by Country

7. Top 20 Drug Companies by Sales

8. Global Top 15 Drug MNCs

9. Where does the Indian Pharmaceutical Industry Stand?
 The Indian pharmaceutical industry has grown from a
mere US $ 0.3 billion turnover in 1980 to about $19 billion
in 2008 (USD 7.24 billion on exports).
 It is among the top Five producers of bulk drugs in the
world
 3rd
in (10% in global sales) terms of volume and 14th
(1.5%)
in terms of value.
 After USA (169), India has the highest number of ANDA
approved (132) plants in US in the year 2007
 There are about 2389 bulk drug manufacturing units and
8174 formulations units spread across India. Total:
10563 units
 Very insignificant level of aggregate R&D investments

10. Where does the Indian Pharmaceutical Industry Stand?
 One reason for lower value share is the lower
cost of drugs in India ranging from 5% to 50%
less as compared to developed countries.
 Indian pharma industry growth has been
fuelled by exports and its products are
exported to more than 200 countries with a
sizeable share in advanced regulated markets
of US and Western Europe.
 The total employment is about 340,000 in the
sector and an estimated 400,000 doctors and
300,000 chemists are serving an over 1 billion
customers market.

11. Where does the Indian Pharmaceutical Industry Stand?
 India, currently accounts for one out of
every four Abbreviated New Drug
Applications (ANDAs) (Generic products
approvals) in the years 2007 & 2008.
 More than one fourth of total Drug Master
Files (DMFs) with US FDA, the largest
share in registrations granted in the world
including USA.
 India has the highest number of USFDA
approved plants outside USA.

12. Overview of the Pharmaceutical Industry in
India: Changing dynamics
A Snapshot of Key Trends in Pharmaceutical Industry (Rs Crores)
Year 1965-66 1980-81 1994-95 1997-98 2001-02 2002-03 2005-06
Capital Investment 140 500 1200 1840 2150 2500 3200
Production
Formulation 150 1200 7935 12068 13878 15960 18750
Bulk Drugs 18 240 1518 2623 3148 3777 5113
Import 8 113 2868 3128 3441 4267
Export 3 46 2184 5353 5959 6631 7980
R&D Expenditure 3 15 140 220 260 320 560
Source: PDRC Reports

13. Share of MNCs and Indian Domestic Industry
0
10
20
30
40
50
60
70
80
Year
Share of MNCs and Indian Companies in the Indian Pharmaceutical Industry
MNC 38 68 60 50 40 32 23
Indian 62 32 40 50 60 68 77
1952 1970 1978 1980 1991 1998 2004
Source: CMIE Prowess
Sudip Chaudhuri, The WTO and India’s Pharmaceuticals Industry: Patent Protection TRIPS and
Developing Countries, New Delhi, Oxford University Press, 2005. pp 18

14. Overview of the Pharmaceutical Industry in
India: Changing dynamics
Production of Indian Pharmceutical Industry and their ratio
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
RsCrores
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Ratio
Formulations
Bulk Drugs
Ratio
Formulations 150 1200 7935 12068 13878 15960 18750
Bulk Drugs 18 240 1518 2623 3148 3777 5113
Ratio 8.3 5.0 5.2 4.6 4.4 4.2 3.7
1965-66 1980-81 1994-95 1997-98 2001-02 2002-03 2005-06
Source: PDRC Reports, Chaudhuri, 2005

15. Company Name Owner
Sales
(Rs. Crore)
Cipla Ltd. CIPLA Group 4295.24
Dr. Reddy'S Laboratories Ltd. Dr. Reddy's Group 3615.35
Lupin Ltd. Lupin Group 2661.62
Sun Pharmaceutical Inds. Ltd. Sun Pharmaceutical Group 2427.35
Aurobindo Pharma Ltd. Aurobindo Pharma Group 2409.28
Piramal Healthcare Ltd. Piramal Ajay Group 2001.32
Cadila Healthcare Ltd. Zydus Cadila Group 1758.5
Glenmark Pharmaceuticals Ltd. Glenmark Pharmaceuticals Group 1408.71
Aditya Medisales Ltd. Private (Indian) 1376.48
Orchid Chemicals & Pharmaceuticals Ltd. Private (Indian) 1250.19
Wockhardt Ltd. Wockhardt Group 1188.95
Ipca Laboratories Ltd. Ipca Laboratories Group 1145.94
Divi'S Laboratories Ltd. Private (Indian) 1047.56
Alembic Ltd. Alembic Group 1027.35
Torrent Pharmaceuticals Ltd. Torrent Group 1001.9
Biocon Ltd. Private (Indian) 905.07
Top 15 Indian Firms in Terms of Sales, 2007-08 (Mar-08)
Source: CMIE PROWESS

16. Company Name Owner Sales (Rs. Crore)
Ranbaxy Laboratories Ltd. Ranbaxy Group 3656.2
Glaxosmithkline Pharmaceuticals Ltd. Glaxo (F) Group 1761.39
Matrix Laboratories Ltd. Private (Foreign) 974.27
Aventis Pharma Ltd. Aventis (F) Group 961.13
Pfizer Ltd. Private (Foreign) 794.27
Abbott India Ltd. Private (Foreign) 639.27
Novartis India Ltd. Private (Foreign) 578.67
Strides Arcolab Ltd. Private (Foreign) 415.45
Wyeth Ltd. Wyeth (F) Group 361.89
Merck Ltd. Private (Foreign) 357.65
Astrazeneca Pharma India Ltd. Private (Foreign) 330.51
Solvay Pharma India Ltd. Private (Foreign) 183.18
Fulford (India) Ltd. Private (Foreign) 174.38
Organon (India) Ltd. Private (Foreign) 163.16
Bayer Polychem (India) Ltd. Private (Foreign) 47.21
Biddle Sawyer Ltd. Glaxo (F) Group 35.25
Global Remedies Ltd. Private (Foreign) 7.2
Top MNCs Operating in India (Mar-08)
Source: CMIE PROWESS

17. Market Dispersion?:
Share of Top Drug Companies
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
IPM-99 IPM-2003 Global Market
Top 10 Companies Next 10 Companies Rest
Source: IMS-ORG

18. Homogenous Vs Hetrogenuous Drugs
 A simple analysis of company-wise drug sales
pattern is misleading because the market for
drugs is not homogeneous single product
category but a multi-product one. That is, the
market for pharmaceuticals can be sub-
grouped into a large number of independent
sub-markets.
 This is because medicine prescribed for
cardiovascular disease cannot be administered
to a patient suffering from cancer.
 Consequently, one cannot observe drug
manufacturers competing on an industry-wide
basis.

19. Market Structure
 Any study on structure of industry is normally
predicated upon industrial organisation approach
– essentially a neo-classical framework.
 A careful analysis of market structure would then
provide us with the nature of conduct of firms and
consequently its performance.
 A standard textbook analysis of structure of
market can be identified by the following
features: i) seller concentration; ii) barriers to
entry (scale economies and product
differentiation); iii) conditions of demand and iv)
buyer concentration.

20. Market Structure of the Pharma Ind.
 Industry concentration acts as a vital
element in the determination of market
structure.
 The total industrial share accounted for by
four or eight players in the market
normally measures the concentration
ratio. If the concentration is high, that is,
number of sellers being few in a product
category but their combined sales value
accounts for a sizeable share, then the
firms would be constrained to compete on
price front.

21. Concentration in Indian Drug Industry - 2002
Therapeutic Group Leading Products No. of No. of
Amount of
Sales
Percent Products Companies
Tonics 25.76 31 2 2
Laxatives 22.81 32 2 2
Anti-coagulants 21.61 32.43 2 1
All Other Antibiotics 39.22 35.62 2 2
Vaccines 66.96 74.65 3 3
Anti-Epiletptics 64.05 44.27 4 4
Rubs, Other Inhalents 100.19 83.41 4 4
Anti-Diabetic Therapy 108.78 38.34 4 4
Antispasmod, etc.. 51.18 41.3 4 4
Antiseptic, Disinfectant 71.47 78.63 4 4
Other Penicillins 52.97 86.53 4 3
Sex Hormones 73.71 31.23 5 4
Topical Corticosteroids 115.22 42 6 5
Cough Preparations 73.05 41.23 6 6
Tuberculostatics 153.58 44.69 6 4
Hypotensives 92.56 36.84 7 7
Anti-asthmatics 119.61 45.88 7 4
Vitamins 296.91 38.87 8 6
Cardiac Therapy 135.96 31.64 8 8
Cold Preparations 197.3 41.65 8 8
Anti-inflammatory, Anti-Rheumatics 255.04 41.09 8 8
Analgesics 150.17 51.28 8 8

22. Pharma Market Structure
 The grouping and illustration presented
offers only a rough idea.
 The actual structure is still more
complicated.
 For instance, the sub-market categories
can be grouped into roughly 13-14 major
segments.

23. Pharma Market Structure
 Again each major segment can be divided into
3-10 sub-categories.
 For example, under the category of Infections
and Infestations, the following are sub-
categories: a) antibiotics, b) Sulphonamides
and other antibacterials, c) Antituberculous
drugs, d) Antileprotics, e) Antifungals, f) Anti-
amoebics, antigiardiasis, g) Antimalarials,
h) Antihelmintics and other anti-infestive
drugs, i) Antivirals and j) Vaccines and anti-
toxins.
 Furthermore, each of these sub-categories
comprises different chemical entities and
finally, each of the chemical entities produce
varieties of brands and generic products.

24. Global Top 15 Therapeutics

25. Leading Therapeutic Segments - 2007

26. High Profitability in Pharma Industry
 A noteworthy feature of the
pharmaceutical industry is that the
industry was most profitable among all
the leading sectors of Indian industry.
 Interestingly, profitability ratio of
pharmaceutical industry increased almost
consistently over the last few decades.
 Pharmaceutical industry had out-
performed other sectors of industry
despite facing an additional dose of
uncertainty arising from changes in
patent regime and price control.

27. Profitability in Indian Industry
Sectors Dec-95 Dec-97 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04
Chemicals 5.8 4.8 4.8 4.2 3.5 4.4 5.8 6.3
Food & beverages 4.8 4.1 4.9 4.8 5.1 4.2 3.6 5.2
Machinery 5.5 3.7 3.5 2.6 1.5 2.7 1.7 3.1
Textiles 5.6 0.6 -1.9 -1.0 -2.4 -2.9 0.9 -0.4
Transport equipment 5.8 7.3 3.1 3.3 1.0 3.3 5.0 6.3
Drugs & pharmaceuticals 8.8 7.5 6.6 7.5 10.0 12.4 11.3 13.4
Source: CMIE, Prowess database

28. Price Control & Profitability
 A relative comparison of ratios to all-industry average
shows that drug companies have all along been
exhibiting a higher growth in profitability.
 A higher profitability for pharmaceutical industry is
being justified on the ground of significant contribution
towards R&D.
 But a casual observation of R&D expenditure among
Indian companies in the 1990s point to an insignificant
contribution made by drug companies in India, both by
wholly owned subsidiaries and private domestic
players.
 On the contrary, higher profitability in this sector
seems to have been sustained by notably tall marketing
and advertising expenses ensured under a brand-name.
 This is mainly made possible by a high concentration
ratio of firms competing under product competition
rather than price competition.

29. Research and Development Effort of
the Industry
 The unusually extraordinary profit earned by drug firms
is largely justified on the grounds of its heavy
commitment towards drug research spending.
 An “Industry of Discovery” – the label earnestly goes to
the pharmaceutical industry for its major medical
breakthroughs.
 The chemical based invention of medical products can be
traced to decades of 1930s & 1940s, made possible by
sustained effort involving public sector laboratories,
public research hospitals and academic institutions
across the globe in basic research.
 Later, business enterprises, particularly, transnationals
seizing the opportunity perfected the art of developing,
testing, manufacturing, marketing and patenting of basic
research in developed market economies.

30. Research and Development Effort of
the Industry
 In fact, the intensity and coverage of
infectious diseases which has been vital cause
for wrecking the lives of millions by inflicting
disease and death in the world, inspired the
big drug companies to make bacterial
medicine research a central research agenda.
 Heart diseases, cancer, diabetes, etc., along
with communicable diseases took its toll on a
large-scale in developed as well as third world
economies, the later bearing the brunt of such
development.
 By 1940s & 1950s communicable diseases in
industrialised market economies have started
falling quite significantly.

31. Research and Development Effort of
the Industry
 Since 1960s, drug companies in developed
countries have tended to divert research
agenda & efforts towards these degenerative
disease & newly emerging diseases, such as,
HIV/AIDS and hepatitis.
 Falling rate of death and disability was not
attributed in any significant way to the
invention of anti-bacterial medicine rather
could be traced to secular decline captured
since the mid-19th century in Industrialised
countries.
 For a detailed account of secular decline of
communicable diseases in Great Britain, see
Mc Keown (1989), pp. 91-109.

32. Global R & D as Percent to Sales Turnover
Year Percent to Sales
R&D
Spending
(In %) (In Billions)
1980 8.9 2.0
1990 14.4 8.4
2000 16.2 26.0
2005 15.8 39.4
Source: PhRMA

33. R&D Intensities of Global
Pharmaceutical Majors, 2004-05
Rank
(in terms of sales turnover)
Firm R&D to Sales (%)
1 Pfizer Inc, USA 14.6
2 GlaxoSmithKline, UK 13.9
3 Sanofi-Aventis, France 15.6
4 Johnson & Johnson, USA 11.0
5 Roche, Switzerland 16.3
6 Novartis AG, Switzerland 14.9
7 Merck Inc, USA 17.5
8 AstraZeneca, UK 17.7
9 Eli Lilly and Company, USA 19.4
10 Bristol-Myers Squibb, USA 12.9

34. Public-Private Share of R&D
50
25
84
42 39
66
76
43
64
16
58 61
27
24
7 11
0 0 0 7 0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%U
SA
U
K
N
O
RW
AY
FR
AN
C
E
D
EN
M
AR
K
C
AN
ADAAU
STR
ALIA
Public For-Profit Not-for-Profit
Source: World Medicine Situation, 2006

35. Global R&D Expenditure Allocation
by Therapeutic Segment
Therapeutic Segment Percentage Allocation
Central Nervous System Drugs 22.7
Neoplasms (Cancer),
Endocrine System & Metabolic Diseases
20.9
Cardiovascular Drugs 14.2
Anti-Infectives 14.2
Respiratory Drugs 7.1
Biologicals (Vaccines) 4.3
Alimentary and Genito-Urinary Drugs 3.3
Others 13.1
Total (%) 100.0
Total Amount (US $ Billion) 48.0

36. R&D Intensity of Pharmaceutical
Companies in the 1990s
Year 1992 1993 1994 1995 1996 1997 1998
R&D Intensity 0.220 0.744 1.154 1.233 1.478 1.637 1.406
No. of Units 117 155 209 264 271 231 170

37. Company Name Owner R&D R&D as % Sales
Dr. Reddy'S Laboratories Ltd. Dr. Reddy's Group 333.45 9.2
Cipla Ltd. CIPLA Group 232.3 5.4
Lupin Ltd. Lupin Group 193.37 7.3
Cadila Healthcare Ltd. Zydus Cadila Group 161.8 9.2
Sun Pharmaceutical Inds. Ltd. Sun Pharmaceutical Group 144.39 5.9
Wockhardt Ltd. Wockhardt Group 126.74 10.7
Aurobindo Pharma Ltd. Aurobindo Pharma Group 117.51 4.9
Torrent Pharmaceuticals Ltd. Torrent Group 113.17 11.3
Panacea Biotec Ltd. Panacea Biotec Group 107.67 12.9
Piramal Life Sciences Ltd. Private (Indian) 99.03 N.A.
Orchid Chemicals & Pharmaceuticals Ltd. Private (Indian) 70.9 5.7
Glenmark Pharmaceuticals Ltd. Glenmark Pharmaceuticals Group 65.91
4.7
Biocon Ltd. Private (Indian) 64.65 7.1
U S V Ltd. Private (Indian) 59.02 8.4
Alembic Ltd. Alembic Group 46.24 4.5
Sun Pharma Advanced Research Co. Ltd. Sun Pharmaceutical Group 44.71 N.A.
Ind-Swift Laboratories Ltd. Ind-Swift Group 44.69 2.3
Ipca Laboratories Ltd. Ipca Laboratories Group 42.92 3.7
Piramal Healthcare Ltd. Piramal Ajay Group 35.28 1.8
Unichem Laboratories Ltd. Private (Indian) 32.71 5.5
R&D Spending of top Indian firms in 2007-08 (Rs in Crore) & (As % of Sales)
Source: CMIE PROWESS

38. Company Name Owner R&D R&D % Sales
Ranbaxy Laboratories Ltd. Ranbaxy-Daiichi Group 460.51 13
Glaxosmithkline Pharmaceuticals Ltd. Glaxo (F) Group 5.81 0
Matrix Laboratories Ltd. Private (Foreign) 119.7 12
Aventis Pharma Ltd. Aventis (F) Group 4.53 0
Pfizer Ltd. Private (Foreign) 24.58 3
Abbott India Ltd. Private (Foreign) 3.55 1
Novartis India Ltd. Private (Foreign) 0.76 0
Strides Arcolab Ltd. Private (Foreign) 37.5 9
Wyeth Ltd. Wyeth (F) Group 0.79 0
Merck Ltd. Private (Foreign) 1.48 0
Astrazeneca Pharma India Ltd. Private (Foreign) 2.46 1
R&D of MNCs Operating in India (2007-2008) (In Rs. Crore) & (As %
of Sales)
Source: CMIE PROWESS

39. Source: Chaudhuri, 2007

40. Mergers & Acquisitions
Source: Pradhan, Jaya Prakash, (2008)
Indian Pharmaceutical Greenfield OFDI,
1977-March 2007 (USD Million) Year
No of Overseas
Acquisitions
1995 1
1996
1997 1
1998 1
1999
2000 1
2001 1
2002 6
2003 7
2004 12
2005 20
2006 14
2007 14

41. Mergers and Acquisitions
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
MillionUS$
Services
IT
Telecommunication
RealEstate
Construction
Automobile
Power
Mining
Petroleum
Chemicals
Cement
Pharmaceuticals
Flow of FDI in various sub-sectors
Year FDI Inflows
2002-03 40
2003-04 109
2004-05 292
2005-06 217
2006-07 51
2007-08 181
Cumulative April 2000-Feb 2009 1457
Inflows of FDI in Pharmaceuticals Industry from
2002-03 to February 2009 (USD Million)
Source: DIPP
Source: DIPP

42. Mergers and Acquisitions
 Very little public information on Mergers and acquisitions in India
and relevant data. Currently no law requires review of
combinations to ascertain possible impact of Mergers and
acqusitions. Competition Act, 2002 (Section 5&6) have not yet been
notified.
 Ranbaxy Mergers and concerns raised: In November 2008, Daiichi
Sankyo of Japan acquires Ranbaxy Laboratories at US $4 billion
for a controlling stake of 63.92% of Ranbaxy’s equity shares.
As per the Company’s 2009 annual report “…[t]he coming together
of Ranbaxy and Daiichi Sankyo is a path-breaking confluence that, in
one sweep, catapults the new, empowered entity to the status of the
world's 15th largest pharmaceutical Company. Individually, the two
pharmaceutical giants are formidable - one, India's largest generics
Company and the other, among the largest innovator companies in
Japan”.

43. Aging of Brands – 1980-2004
Launch Year No. of Brands
Value in Rs.
Crs.
Market
Share
Before 1980 544 3388.9 16.9
1981 to 95 2856 7392.0 36.9
1996-2000 3597 4627.1 23.1
After 2001 6807 3702.4 18.5
Others 1198 943.3 4.6
Grand Total 15002 20053.7 100
Source: IMS-ORG

44. Overview of the Pharmaceutical Industry in
India: Changing dynamics
Summary
 Indian pharmaceutical industry grew out of active policy interventions by the
Government, initially by keeping health care as central focus;
 Changing strategies since 1990s among top visible: Recent growth in the Industry is driven
by export orientation;
 Around 250 companies hold 70% of the market share;
 Small scale industry is a still major source of employment. However, there are increasing
threats to their competitiveness;
 Witnessing a phase of Outward FDI: Increase in number of Foreign acquisitions;
 Industry is witnessing increasing consolidation- visible through acquisitions and mergers
in India;
 Renewed interest by MNCs to increase their market shares, generally through
acquisitions- Major change in market structure witness after Ranbaxy’s acquisition by
Daiichi Sankyo;
 The awaiting generic opportunity: off patented drugs to constitute a $ 67 billion market
worldwide (Economist, June 2007). IMS Health estimate show that the world wide
pharmaceutical industry in 2006 saw record $18 billion drop in branded sales
 Global average R&D is around 18.5% & Indian average is around 2-3%: Without high
R&D intensity it would be difficult for Indian companies to move up R&D value chain.

45. Branded Generics & Generics-Generics
 Branded generics are a different version of
branded drug, marketed directly through
chemists. To pharmaceutical trade and to
institutions, they are sold at low prices in
high volumes as generics, but to
consumers they are made to appear as
branded drugs & sold at prices which
approximate the price of branded drugs.
 They are generics as far as trade is
concerned, but branded as far as the
patient is concerned;
 G-G: These drugs are those which are
marketed under their chemical name.