Status Paper

Pharmaceutical Clusters in India

By

Amar Singh Foundation for MSME Cluster

HISTORY OF PHARMACEUTICALS An Indian Ayurvedic article ARIANA, the Sushruta Samhita, is the earliest know compilation of medical substances of 6th century BC. However, the earliest text as preserved belongs to 3rd or 4th century AD. Ancient Egyptian pharmacological knowledge was recorded in various papyri such as the Ebers Papyrus of 1550 BC and Edwin Smith Papyrus of 16th century BC. The earliest know Chinese manual on material medica is the Shennong Bencao Jing (The Divine Farmer’s Herb Root Classic), which dates back to 1st century AD. It was compiled during the Han dynasty and was attributed to the mythical Shennong. Earlier literature included lists of prescriptions for specific ailments, by a manuscript "Recipes for 52 Ailments", found in the Mawangdui tomb, in 168 BC. In ancient Greece during the time of Hoppocrates there was a group of experts in medicinal plants. The most important of these rhizotomoi was Diocles of Carystus. The Greek physician Pedanius Dioscorides wrote a five-volume book in the 1st century AD. The Latin translation De Material Medica (concerning medical substances) was used as a basis for many medieval texts and was built upon by many Middle East scientists during the Islamic Golden Age. The advances made in the Middle East in botany and chemistry led to substantial development of medicines in medieval Islam. Mohammad ibn Zakariva Razi (Rhazes – 865-915) promoted medical uses of chemical components. Abu al Qasim a-Zahrawi (Abulcasis – 936-1013) pioneered the preparation of medicines by sublimation and distillation. His Liber servitoris provides recipes and explains how to prepare the ‘simple’ from which were compounded the complex drugs then generally used. Sabur Ibn Sahl was, however, the first physician to initiative pharmacopoedia, describing a large variety of drugs and remedies for ailments. Al-Biruni (973-1050) wrote one of the most valuable Islamic works on pharmacology titled Kitab al-Saydalah 2

(the Book of Drugs) wherein he gave detailed information of the properties of drugs and outlined the role of pharmacy and the functions and duties of pharmacist. Ibn Sina (Avicenna) described about 700 preparations, their properties, mode of action and their indications. He devoted in fact a whole volume to simple drugs in The Canon of Medicine. The writings of al Maridini of Baghdad and Cairo and Ibn al Wafid (1008-1074) had great impact and both of which were printed in Latin more than fifty times. Appearing as De Medicinis universalibus et particularibus by ‘Mesure’, the younger, and the Medicamentis simplicibus by ‘Abenguefit’. Peter of Abano (1250-1316) translated and added a supplement to the work of al-Maridini under the title De Veneris. Al Muwaffaq’s contributions in the field are also pioneering. Living in the 10th century, he wrote the foundations of the true properties of Remedies, amongst other describing arsenious oxide and being acquainted with silicic acid. He made clear distinction between sodium carbonate and potassium carbonate and drew attention to the poisonous nature of copper compounds, especially copper vitriol and also lead compounds. He also described the distillation of sea water drinking. In Europe pharmacy-like shops began to appear during the 12th century. In 1240 emperor Frederic II issued a decree by which the physicians and the apothecary’s professions were separated. The first pharmacy opened in Trier (Germany) in 1241 is still working. In Europe there are old pharmacies still operating in Dubrovnik, Croatia located inside the Franciscan monastery, opened in 1317; and one in the Town Hall Square of Tallinn, Estonia dating 1422. The oldest is claimed to be set up in 1221 in the Church of Santa Maria Novella in Florence, Italy, which now houses a perfume museum. Pharmacists practice in a variety of areas including retail, hospitals, clinics, nursing homes, drug industry, and regulatory agencies. Pharmacists can specialize in various areas of practice including but not limited to: hematology/oncology, infectious diseases, ambulatory care, nutrition support, drug information, critical care, pediatrics, etc.

19th century Italian pharmacy

Modern pharmacy in Norway 3

EVOLUTION The earliest drug stores dates back to the middle ages. The first known drugstore was opened by Arabian pharmacists in Baghdad in 754 and many more soon began operating throughout the medieval Islamic world and eventually medieval Europe. By the 19th century many drug stores in Europe and North America had eventually developed into larger pharmaceutical companies. Most of today’s major pharmaceutical companies were founded in the last 19th and early 20th centuries. Key discoveries of the 1920s and 1930s, such as insulin and penicillin became mass-manufactured and distributed. Switzerland, Germany and Italy had particularly strong industries followed by the UK, USA, Belgium and Netherlands. Legislation were enacted to test and approve drugs and to require appropriate labeling. Prescription and non-prescription drugs became legally distinguished from one another as the pharmaceutical industry matured. The industry got underway in earnest from the 1950s due to development of systematic scientific approaches, understanding of human biology and sophisticated manufacturing techniques. Numerous new drugs were developed during 1950s and mass-produced and marketed through the 1960s. These included the first oral contraceptive, ‘The Pill’, Cortisone, blood-pressure drugs and other heart medications. MAO inhibitors, chlorpromazine, Haldol and the tranquilizers ushered in the age of psychiatric medication. Valium, discovered in 1960, was marketed from 1963 and rapidly became the most prescribed drug in history, prior to controversy over dependency and habituation. Attempts were made to increase regulation and to limit financial links between companies and prescribing physicians, including by the relatively new U.S. Food and Drug Administration (FDA). Such calls increased in 1960 after the thalidomide tragedy came to light, in which the use of new tranquilizer in pregnant women cause severe birth defects. In 1964, the World Medical Association issued its Declaration of Helsinki which set standards for clinical research and demanded that subjects give their informed consent before enrolling in an experiment. Pharmaceutical companies became required to prove efficacy in clinical trials before marketing drugs. Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary center of pharmaceutical production without patent production. 4

The modern pharmaceutical industry is a highly competitive global industry. Its origins can be traced back to the nascent chemical industry of the late 19th century in the Upper Rhine Valley near Basel, Switzerland when dyestuffs were found to have antiseptic properties. A host of modern pharmaceutical companies all started out as Rhine-based family dyestuff and chemical companies’ viz. Hoffman-La Roche, Sandoz, Ciba-Geigy, Novartis etc. Most of them are still going strong today. Over the time many of these chemical companies moved into the production of pharmaceuticals and other synthetic chemicals and they gradually evolved into global players. The introduction and success of penicillin in the early 40s and the relative success of other innovative drugs, institutionalized research and development efforts, the industry expanded rapidly in the sixties benefitting from new discoveries and a lax regulatory environment. During the period healthcare spending boomed as global economies prospered. The industry witnessed major developments in the seventies with the introduction of tighter regulatory controls, especially with the introduction of regulations governing the manufacture of ‘generics’. The new regulations revoked permanent patents and established fixed periods on patent protection for branded products, as a result of which the market for ‘branded generics’ emerged. POLICY FRAMEWORK ‘Pharmaceutical Policy 2002’ was announced by the Government in 2002 which could not be put into operation due to litigation. The Supreme Court directed the government to formulate criteria for ensuring essential and life saving drugs not to fall out of price control. Again, the draft National Pharmaceuticals Policy was prepared and submitted to the Cabinet in 2007. The Cabinet referred the draft document to the Group of Ministers. The Group of Ministers is yet to give its recommendations on the draft National Pharmaceuticals Policy, 2006. The Patents Act has been brought in line with TRIPS Agreement with the enactment of Patents (Amendment) Act, 2005. However, not much impact on prices and availability of medicines is expected because of: (i) (ii)

Government continues to have powers to regulate the prices of medicines Safe-guards like compulsory licensing, parallel imports etc. exist. 5

(iii)

(iv) (v) (vi)

The drugs covered in the list of essential medicines are not likely to be covered by patent – these would continue to be abundantly available at reasonable prices At any point of time, globally 5-10 percent of the drugs would be under patent protection Price competition among different drugs in the same therapeutic group would keep the prices under control. Majority of the patients in India have the limited purchasing power and this will act as a check on high prices

Data Protection: The TRIPS Agreement expects WTO member countries to adopt minimum standards on the patent laws as stipulated therein. As per agreement members when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical product which utilizes new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public or unless steps are taken to ensure that the data are protected against unfair commercial use. The data submitted while seeking marketing approval is proprietary information of the originator. Data Protection guarantees the ‘non-reliance’ of that data by any other company for unfair commercial use. From January 2005, the country became TRIPS compliant and formally recognized product patents. Patent protection in India is now on levels comparable to developed nations. For any Intellectual Property (IP) sensitive industry India is now a destination – both as a market and for manufacturing and research & development (R&D). Patent: The Indian Patents & Designs Act (1911) recognized product patents but the goals of patent protection – to promote and protect innovation – did not materialize. To encourage investments and promote development The Indian Patent Act, 1970 (with amendments) removed product patents in pharmaceutical, agro-chemical and food processing sectors, where only process patents were admissible. This legalized copycat drug-making. Indian entrepreneurs could reverse engineer patent protected drugs, tweak the manufacturing process to bypass patent infringement suits, and market the drugs at a fraction of the price of the original drug, having no R&D costs to recover. The effects of this law were predictable. Between 1970 and 2004, Pharmaceutical Transnational companies (TNCs) saw their market-share fall from 85 % to 15%. TNCs could not compete against local manufacturers on price, 6

and local ingenuity and process chemistry skills saw many patented products launched in the local markets even before the patent owners (TNCs) could launch them. As a result TNCs lost interest in India and either stopped supporting their local subsidiaries or withdrew altogether. The local pharmaceutical manufacturing industry, on the other hand, grew to over 20,000 manufacturing units, including around 300 in the organized sector and a few large publicly traded companies As one of the founding members of the World Trade Organisation, India committed to bring its patent protection laws to internationally acceptable minimum TRIPS levels in 10 years. Accordingly, from January 01, 2005, product patent was recognized in the pharmaceutical sector and the patent period increased from the earlier seven years to 20 years. Indian Pharmaceutical Landscape – Post TRIPS With over 60,000 brands in over 60 therapeutic categories, the total market size is approximately USD 10.5 billion. India has world class facilities and expertise in manufacturing with the largest number of US FDA approved manufacturing units in the world outside the US. Ancillary industries are well developed with support available locally. Quality bulk drugs at competitive prices are assured. In R&D, basic research and biology skills are weak, a legacy of the lax patent regime where basic research was neglected. But process chemistry skills – honed over decades of reverse-engineering – are strong. The Indian pharmaceutical industry accounts for at least 35% of bulk drug filings in the US. PostTRIPS, the Indian pharmaceutical landscape is set to change permanently. Local pharmaceutical majors are moving up the international value chain, focusing on generics marketing in Europe and the US to complement their already-strong presence in bulk Active Pharmaceutical Ingredient (API) supply and to capitalize on the record number of drugs set to go off-patent over the next five years. To leverage their experience in manufacturing, local companies are scouting for contract manufacturing opportunities. Their country-wide network of skilled marketing personnel they are actively seeking inlicensing and marketing opportunities. Local pharmaceutical majors do not have the finances to take a product to market. With annual sales of a billion - less than the R&D budgets of Big Pharma – they are out licensing their New Molecular Entities (NME) innovation, and focusing on cheaper Abbreviated New Drug Applications (ANDAs). To ‘learn and earn’, they are positioning themselves as willing partners in global pharmaceutical knowledge networks. With cost and process skills working to their advantage, local companies are also scouting to grab a share of the international R&D outsourcing market. Of all the opportunities for global pharmaceutical companies in this scenario, outsourcing the clinical development phase of the R&D process appears the most promising. With a large population and world class medical 7

skills, this outsourcing service segment is developing rapidly and with patent protection no longer a hurdle, a fresh look at this segment is warranted. Including India in the clinical development outsourcing network presents a four- fold benefit – it is the most immediate opportunity with the greatest potential benefit in the shortest possible time addressing the most pressing issue today. The Drugs (Prices Control) Order (DPCO), 1995 The DPCO provides for ceiling prices for medicines, the lists of which are reviewed periodically. Over the years substantial changes have been made in the DPCO in terms of reduction in the number of drugs under price control and simplification of application procedures. The DPCO, 1995 allows for exemption from price control for new bulk drugs which have not been produced elsewhere and which are developed through indigenous R and D. On the recommendation of the Hathi Committee (1973), the Government of India created a Drug Price Equalisation Account (DPEA) under the DPCO. This equalisation is done on the basis of a weighted price average determined by the government. Any company that sells the product at higher margins on account of cheaper sourcing of inputs is held liable to pay up the overcharged amount to the government. PHARMACEUTICAL ADVISORY FORUM Through Drug policies announced from time to time, Government of India has been trying to ensure abundant availability of good quality essential pharmaceuticals of mass consumption at reasonable prices. At the same time strengthening the indigenous capability for cost effective quality production of medicines has been an important objective. To help realize this and in order to provide a Forum for a meaningful dialogue among all the stakeholders on various issues concerning the drug policy it was decided to constitute a Pharmaceuticals Advisory Forum. The Pharmaceutical Advisory Forum has been constituted in 2004. Some of the decisions taken by the forum are given below: 1. Generic-generic drugs to be allowed a reasonable MAPE so as to take care of market promotion expenses and other profits etc. and 50% trade margin (15% wholesale – 35% retailer). 2. State Government to issue directions to doctors in Government hospitals to prescribe only generic-generic medicines 3. As a result of reduction in excise duty from 16% to 8% all drug companies should reduce prices of their medicines by 4.58% 4. Department to facilitate opening of Generic Drug Stores, initially one in each District through NGOs, Charitable bodies, Red Cross,

8

Hospitals etc. which are willing to work on ‘not-for-profit’ basis. Initially drugs from Pharma CPSUs to be supplied to them at low prices. 5. The Pharmaceutical Policy should be finalised and notified at the earliest. 6. Working Group on Branded-generic to be constituted – report in next meeting of working group on Branded-generic has since been constituted in August 2008

INTERNATIONAL SCENARIO Global pharmaceutical industry is robust and steadily growing. The industry consists of large, medium and small scale units providing huge employment opportunities and producing large quantities of life saving drugs. This market has provided growing opportunities for Indian pharmaceuticals industry too. The global pharmaceutical markets were estimated at USD 712 billion in the year 2007 growing at 6.4 per cent. The market size of USA is estimated at USD 295-305 billion growing at 4-5 per cent followed by top 5 European countries with an estimated market size of USD 135-145 billion growing at 4-5 per cent. Emerging markets viz. Brazil, China, India, Russia, South Korea and Turkey had an estimated market size of USD 85-90 billion growing at 12-13 per cent and Japan with an estimated market size of USD 64-68 billion growing at 1-2 per cent. World market for patent expired molecules is valued at USD 102 billion in 2006 is expected to grow to USD 160 billion by 2010. Market size for pure generics is USD 65 billion with growth of 11 per cent in 2008. The World trade in APIs (bulk drugs) and their intermediates is expected at USD 70 billion. Global market for contract research and manufacturing services is estimated at USD 48 billion. It is expected to grow at 10 per cent. Global Pharmaceutical Market Size and Growth rates (2002-07) Global sales USD billion per year Total world market USD billion Growth of previous year (%)

2002

2003

2004

2005

2006

2007

428

499

560

605

649

712

9.50

10.30

8.00

7.30

7.10

6.40

Source: IMS Health Market Prognosis (includes IMS Audited and Un-audited markets) All information current as of March 28, 2008

9

NATIONAL SCENARIO There are about 260 large units and about 23000 small-scale units in operation, although the number cannot be authenticated, which form the core of the industry (including 7 central public sector units). These units produce the complete range of formulations i.e. medicines, ready for consumption by patients and about 350 bulk drugs i.e. chemicals having therapeutic value and used for production of formulations. Larger formulation players have a market share of less than 6%. whereas, the top 10 players accounts for 26% of the formulation market. Indian pharmaceuticals industry has grown from a mere 1500 crores turnover in 1980 to approximately Rs.1,00,611 crores in 2009-10 (up to Sept 2009). The growth of Indian pharmaceuticals has been mainly due to exports. The exports have risen from Rs.6,256 crores in 1998-99 to Rs.39821 crores in 2008-09. The pharma sector has grown from Rs.32,000 crores in 2003-04 to Rs.55,000 crores in 2008-09. Overview of Indian Pharma Sector (Rs. in crores) 90000 80000 70000 Domestic

60000

Exports 50000

Imports

40000

Total Market size

30000 20000 10000 0 2002-03 30365

2003-04 32575

2004-05 34128

2005-06 39989

2006-07 45367

2007-08 50946

2008-09 55454

Exports

12826

15213

17857

22216

24942

30760

38433

Imports

2865

2956

3139

4515

5867

6734

8552

Total Market size

42326

47332

52029

62566

68442

78610

89335

Domestic

(Source: Annual Report-Department of Pharmaceuticals, Government of India)

India exports pharmaceuticals products to more than 200 countries around the globe including highly regulated markets of USA, West Europe, Japan and Australia. The industry now produces bulk drugs or active pharmaceutical ingredients (API) belonging to all major therapeutic groups requiring complicated manufacturing technologies. Formulations in various dosage forms are being produced in GMP 10

compliant facilities. Strong scientific and technical manpower and pioneering work done in process development have made this possible. Top 20 Importing Countries of Indian Pharmaceutical products (Rs. in crores) S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Importing country

2006-07

2007-08

2008-09

USA Russia Germany Austria UK South Africa Canada Brazil Nigeria Ukraine Israel Netherlands Spain Turkey China Kenya Vietnam Belgium Italy Mexico

4479.00 1321.64 1343.83 80.13 901.60 501.57 562.45 777.03 629.80 519.67 538.97 480.63 466.73 470.30 686.55 310.27 415.06 178.44 504.54 455.56

5839.35 1243.81 1448.01 111.38 1146.52 684.27 789.15 771.61 671.24 497.14 456.80 522.69 501.42 502.10 879.42 366.60 483.56 273.28 471.28 442.49

7103.27 1519.20 1441.87 1417.15 1233.09 1126,75 1090.43 1018.89 1001.74 687.22 686.22 669.98 620.02 614.20 561.53 543.86 536.62 520.90 57.85 501.54

Generic Production: Of the total global market of USD 773 billion the market size of USA alone is 38%. However, by the year 2013 when drugs sales will be of the value of USD 987 billion, this market share is expected to come down to 34%. The global market of generic drugs was estimated to be of the value of USD 84 billion in 2009 of which US accounted for 42%. India‘s share was about USD 19 billion and ranks 3rd in the world with volume of production 10% of the global share, but India ranks 14th by value with the worldwide share of 1.5%. In the year 2008 drugs worth USD 20 billion went out off- patent and in the year 2009 it was USD 14 billion. In the year 2011 about USD 52 billion worth drugs are expected to go off-patent. During 2008-2015, around USD 300 billion worth of prescription drugs may go off-patent.

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The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$ 12.6 billion in 2009, according to a report ‘India Pharma 2020: Propelling access and acceptance, realising true potential’ by McKinsey & Company. The report states that the market has the further potential to reach US$ 70 billion by 2020 in an aggressive growth scenario. Moreover, according to an Ernst & Young and an industry body study, the increasing population of the higher-income group in the country, will open a potential US$ 8 billion market for multinational companies selling costly drugs by 2015. Besides, according to the report the domestic pharmaceuticals market is estimated to touch US$ 20 billion by 2015, making India a lucrative destination for clinical trials for global giants. Further, IMS Health India, which tracks drug sales in the country through a network of nationwide drug distributors, estimates the healthcare market in India to reach US$ 31.59 billion by 2020.

Market Share of Different Product Categories Anti-infective

Gastrointestinal

Cardiac

Respiratory

Vitamins/minerals/nutrients

Pain/analgesic

Dermatological

Gynaecology

Neuro psychiatry

Antidiabetics

Opthologicals

Others

1.7 11

4.4

16.4

5.3 10.9

5.3

10.3 5.4

9.5

10.2

9.6

The Indian pharmaceutical market reached US$ 10.04 billion in size, with a value-wise growth rate of 20.4 per cent over the previous year’s corresponding period on a Moving Annual Total (MAT) basis for the 12 months ended July 2010, according to data from IMS Health India. According to the All India Organisation of Chemists and Druggists (AIOCD), the pharmaceuticals industry in India will grow by over 100 12

per cent over the next two years. "The people are increasingly becoming health conscious and sell of all types of medicines, particularly antibiotic, will zoom up in the coming years. We expect the business to double by 2012", as per Shri JS Shinde, President, AIOCD. India's domestic pharmaceutical market is valued approximately at US$ 12 billion in 2010, and has shown a strong growth of 21.3 per cent for the 12 months ending September 2010, as per consulting firm Pricewaterhouse Coopers (PwC). It estimates that over the next 10 years, the domestic market will grow to US$ 49 billion, at a compounded annual growth rate (CAGR) of 15 per cent. Further, a RNCOS report titled 'Booming Pharma Sector in India' projects that the formulations industry is expected to prosper parallel to the pharmaceutical industry. It is expected that the domestic formulations market in India will grow at an annual rate of around 17 per cent in 2009-10, owing to increasing middle class population and rapid urbanisation. According to Shri Srikant Kumar Jena, Union Minister of State for Chemicals and Fertilisers, India tops the world in exporting generic medicines worth US$ 11 billion and currently, the Indian pharmaceutical industry is one of the world's largest and most developed. Diagnostics Outsourcing/Clinical Trials According to the research published by RNCOS titled 'Indian Diagnostic Market Analysis' published in January 2010, the Indian diagnostic services are projected to grow at a CAGR of more than 20 per cent during 2010-2012. Some of the major Indian pharmaceutical firms, including Sun Pharma, Cadilla Healthcare and Piramal Life Sciences, had applied for conducting clinical trials on at least 12 new drugs in 2010, indicating a growing interest in new drug discovery research. Government Initiative 100 per cent foreign direct investment (FDI) is allowed under the automatic route in the drugs and pharmaceuticals sector including those involving use of recombinant technology. The Government plans to set up a US$ 639.56 million venture capital (VC) fund to give a boost to drug discovery and strengthen the pharma infrastructure in the country. According to Secretary, Department of Pharmaceuticals, the Government had issued an expression of interest (EoI) for technical and financial bids for the selection of a global level consultant (GLC) for the 13

preparation of a detailed project report (DPR) in order to develop India as a drug discovery and pharma innovation hub by 2020. The Drugs and Pharmaceuticals Manufacturers Association has received an in-principle approval for its proposed special economic zone (SEZ) for pharmaceuticals, bulk drugs, active pharmaceutical ingredients (APIs) and formulations to be located at Nakkapalli mandal in Visakhapatnam district, according to a government press release. According to Shri Srikant Kumar Jena, Union Minister of State for Chemicals and Fertilisers, the Department of Pharmaceuticals has prepared a "Pharma Vision 2020" for making India one of the leading destinations for end-to-end drug discovery and innovation and for that purpose provides requisite support by way of world class infrastructure, internationally competitive scientific manpower for pharma research and development (R&D), venture fund for research in the public and private domain and such other measures. The government plans to open 3,000 Jan Aushadhi stores, which sell unbranded generic drugs at heavy discounts to branded drugs, in the next two years Investment The healthcare sector has attracted growing investor support in 2010 with nearly a tenth of the total private equity funding going to this sector. In the third quarter the calendar year 2010, a total of US$ 2,047 million was invested across 88 deals, of which 9 per cent were healthcare deals, according to research firm Venture Intelligence. Further, in October 2010, the pharma, healthcare and biotech sector witnessed five merger and acquisition transactions (M&A) worth US$ 250 million, according to global consultancy firm Grant Thornton. The drugs and pharmaceuticals sector has attracted FDI worth US$ 1,825.43 million between April 2000 and September 2010, according to data published by Department of Industrial Policy and Promotion (DIPP). Some of the major investment developments in the sector include:  



Hyderabad-based Natco Pharma plans to raise US$ 22.22 million to fund its expansion plans and research activities. Private equity major Sequoia Capital has made its first investment in the pharmaceutical sector in the country by investing US$ 15.86 million into Celon Labs, which will use the funds to double its manufacturing facility. Belgium based Helvoet Pharma, part of the Daetwyler Group is setting up its first greenfield production facility in Khandala Industrial Area, phase I (SEZ), on Pune- Bangalore Highway, near Pune. The company has invested US$ 26.56 million for the plant. 14







Swiss Pharma major Lonza AG, would invest around US$ 55.33 million through its Indian subsidiary in a phased manner in Genome Valley project, Hyderabad, said Stefan Borgas, CEO, Lonza. Chennai-based Bafna Pharmaceuticals plans to raise around US$ 4.43 million for its future expansion by issuance of warrants and shares. Hyderabad Menzies Air Cargo Private Limited, a joint venture between GMR Hyderabad International Airport Limited (GHIAL) and Menzies Aviation, has launched India's first airport-based pharma zone, dedicated pharmaceutical cargo storage and handling facility, at Hyderabad. The project involved an investment of US$ 1.22 million.

Pharmaceuticals Regions in India The concentration of pharmaceutical small and medium scale units are spread over the following regions: S. No.

Region

1

Maharashtra (Mumbai-Pune and Aurangabad) Gujarat (AhmedabadVadodara) Delhi-UP and Haryana Madhya Pradesh (Indore) Uttarakhand (Dehradun) Andhra Pradesh (HyderabadMedak) Cuttack-Bhubaneswar Total

2 3 4 5 6 7

Production value per annum (Rs. in crores) 12000-15000

Estimated employment

10000-12000

55000

5000 2500 2000 8186

25000 15000 20000 20000

65000

1400

Maharashtra Region:  Maharashtra region accounts for approximately 18% of the country’s output of pharmaceuticals by value  Pharmaceuticals clusters in the region are Pune, Aurangabad and Thane and Margaon  The region is the leading producer of vaccines in the country  Major pharmaceutical units such as Pfizer, Johnson and Johnson, GlaxoSmithKline, Abbott, Sun Pharmaceuticals  Maharashtra’s strong position is displayed with around 3,139 manufacturing licensees

15

Gujarat Region Alembic Chemical Works Co. Ltd one of the oldest pharmaceutical companies in India was set in Vadodara in 1907 just six years after India’s first domestic pharmaceutical unit – Bengal Chemical and Pharmaceutical Works was set up in Kolkata. Sarabhai Chemicals was started soon thereafter. The Industry had received strong support from the academic field in 1940 the Drugs Laboratory in Vadodara was established followed by LM College of Pharmacy. Further in 1989 the B.V.Patel Education Trust, Ahmedabad and Gujarat Branch of Indian Pharmaceutical Association (IPA) established the B.V.Patel Pharmaceutical Education and Research Development (PERD) Center in Ahmedabad. In the last two decades, invested capital to labour ratio has risen significantly. The employment almost doubled between 1979-80 and 1997-98. There are currently approximately 3500 drug manufacturing units in Gujarat region. The region houses several established companies such as Torrent Pharma, Zydus Cadila, Alembic, Sun Pharma, Claris, Intas Pharma and Dishman Pharmaceuticals which have operations in the world’s major pharma markets. Over the last few years, the region’s contribution in the growth of India’s pharmaceutical industry has been significant. The state commands 42% share of India’s pharmaceutical turnover and 22% share of exports. Approximately 52,000 people are employed in the region in pharmaceuticals sector which has witnessed 54 per cent CAGR in capital investments over the last three years. Madhya Pradesh (Indore) Region Pharmaceutical units are concentrated in and around Indore. Dhar, a place near Indore holds second rank in housing the pharmaceutical industries. The remaining pharmaceutical units are situated in Bhopal, Ratlam, Shivpuri, Murena, Katni, Jabalpur, Mandla, Guna, Chhindwara, Sagar, Chhatarpur, Tikamgarh, Rewa, Satna, Sidhi, Shadol, Raisen, Sehore, Vidisha, Mandsaur, Neemuch and Harda Approximately 400 units are functioning in the region which excludes repackers. Most of them are formulation units in the following locations: Place

Indore Dhar Khandwa Ujjain

No. of own

No. of loan licence Mfrs.

98 33 2 23

83

5 16

Total number of units licence Mfrs 181 33 2 28

Mandsaur/Neemuch Dewas Ratlam Shajapur Gwalior Shivpuri Bhind Morena Guna Jabalpur Katni Mandla Chhindwara Sagar Chhatarpur Tikamgarh Rewa Satna Sidhi Shahdol Raisen Harda Sehore Vidisha Bhopal

4 7 7 2 13 2 9 5 1 10 1 1 4 16 2 3 4 2 2 1 18 1 3 1 10

6 2

2

4

4 7 13 2 15 2 9 5 1 10 1 1 4 16 2 3 4 2 2 1 20 1 3 1 14

This region has shown consistent growth in the past year. The turnover of the pharmaceutical industry of the region was Rs.3800 crores The pharmaceutical industry of the region bloomed only after independence. Prior to independence only few pharmaceutical players were existent in the region. Factors contributing to the growth of pharmaceutical are:          

Availability of basic infrastructure facilities Pro-active attitude of authorities Formation of pharma associations Availability of quality manpower Availability of machinery and raw material suppliers Availability of good transportation facilities by rail, road and air Development of pharma industries in Gujarat region had an advantage in the development of Indore pharma units Proximity to the markets of adjoining states Establishment of testing laboratories both in private as well as government sector Availability of education institutions, medical college, pharma collage, Ayurvedic collage 17



Establishment of dry port at Pithampur cargo facility (Source: MIDC, KPMG Pharma 2008 and IECCI)

Of these Regions the following are the pharmaceutical clusters S. No.

Name of the Cluster

State

1

Hyderabad

2

Medak

3 4 5 6 7 8 9

Ahmedabad Vapi Margaon Aurangabad Pune Thane Indore

10 11 12

Bhubaneswar Tiruvallur Dehradun

Andhra Pradesh Andhra Pradesh Gujarat Gujarat Goa Maharashtra Maharashtra Maharashtra Madhya Pradesh Orissa Tamil Nadu Uttarakhand

Estimated no. of units 391

Estimated Turnover of the cluster 8187

Estimated no. of employment 20000

1290

10250

41000

50

1600

1500

37 350

130 2034

1700 20000

54

20

1400

290

1748

16074

136

18

Associations in the Pharmaceutical Clusters S. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36.

Name of the Association Gujarat Chemical Association, Ahmedabad Gujarat Dyestuff Manufacturers Association, Ahmedabad Indian Drug Manufacturers Association Naroda Industries Association, Naroda (Ahmedabad) Pardi Industrial Association, Ahmedabad Vapi Industries Association Vatva Industrial Estate Visnagar Industries Association Drug Manufacturers Association (DMA) Pharma Manufacturers Association (PMA) Association of Pharma Manufacturers (APM) Bulk Drugs Manufacturers Association (BDMA), Ahmedabad Organization of Pharmaceutical Manufacturers (OPM) Nalgonda Drugs Manufacturers Association (NDMA) Pashamylaram Industrial Services Society (PISS) Madhya Pradesh Pharmaceutical Manufacturers Organization (MPPMO) Madhya Pradesh Small Scale Drugs Manufacturers Association (MPSSDMA) Madhya Pradesh Ayurvedic Manufacturing Association (MPAMA) Indian Drug Manufacturers Association (IDMA) Indian Pharmaceutical Association (IPA) Organisation of Pharmaceutical Producers of India (OPPI) All India Manufacturers Organisation (AIMO) All India Organisation for Chemists and Druggists (AIOCD) Goa Pharmaceutical manufacturers’ Association (GPMA) Goa State Association of Chemists & Druggists Goa Small Industries Association (GSIA) Goa Chamber of Commerce & Industry (GCCI) Confederation of Indian Industries (CII) Chemists & Druggists Association of Goa (CDAG) Retail Druggists and Chemists Association Chemexil, Ahmedabad Vatva Industrial Association Medical Disposable Manufacturers Association (MDMA) Utkal Pharmaceutical Manufacturers’ Association (UPMA) Orissa Small Scale Industries Association (OSSIA) Orissa Assembly of Small & Medium Enterprises (OASME), 19

37. 38. 39. 40.

Orissa & Orissa Industries Federation (OIF) Orissa Young Entrepreneurs’ Association (OYEA) Utakal Chamber of Commerce & Industry (UCCI), Thane Belapur Industries Association (TBIA)

Public Sector Undertakings 1. 2. 3. 4. 5. 6. 7.

Hindustan Organic Chemicals Ltd HOCL), Rasayani, Maharashtra. Hindustan Insecticides Ltd, New Delhi. Indian Drugs & Pharmaceuticals Ltd (IDPL), Dundahera (Haryana). Hindustan Antibiotics Ltd (HAL), Pimpri, Pune, Maharashtra. Smith Stanistreet Pharmaceuticals Ltd. (SSPL), Kolkata. Bengal Chemicals & Pharmaceuticals Ltd (BCPL), Kolkata. Bengal Immunity Limited (BIL), Kolkata, West Bengal.

Joint Sector Undertakings 1. 2. 3. 4. 5.

Rajasthan Drugs & Pharmaceuticals Limited (RDPL) Orissa Drugs & Chemicals Limited (ODCL) Karnataka Antibiotics & Pharmaceuticals Limited (KAPL) Maharashtra Antibiotics & Pharmaceuticals Ltd. (MAPL) Manipur State Drugs & Pharmaceuticals Limited (MSDPL)

Wholly Owned Subsidiaries 1. IDPL (Tamil Nadu) Limited, Chennai 2. Bihar Drugs & Organic chemicals Limited, Muzaffarpur

Other Organisations 1. Petrofils Cooperative Ltd, PO Petrofils, District-Vadodara, Gujarat. 2. Central Institute of Plastics Engineering & Technology, Guindy,

Chennai. 3. Institute of Pesticides Formulation Technology, Gurgaon, Haryana. 4. National Institute of Pharmaceuticals Education and Research,

Mohali, Punjab.

SWOT Analysis of Pharmaceutical industry: Strengths:  Large untapped domestic market  Low cost manufacturing  Availability of Trained Scientific Personnel  Raw material available in sufficient quantity  Existence of Technical Institutes 20

 

Well developed Infrastructural facilities Presence of number of Financial Institutions, Banks etc.

Weakness:  Low margins  Low investment in R & D  Easier imports  Finance available at high rate of interest  Low Trust level  Poor testing facilities  Poor coordination with Govt. bodies and other related Organisations Opportunities:  Possibility of establishing Common Testing Laboratories  Globalisation can ensure tremendous market potential  Enterprises can join hands together for overseas market, brand building and participation in trade fairs.  New Drug Price Control Order – exempting drugs from falling under DPCO for a period of 15 years, provided the drug is developed through indigenous R & D and is patented under the Indian Patent Act, 1970. Threats:  China threat – capacity to deliver huge quantity at low price  Increasing competition  Investment in Plant & Machinery will increase in order to fulfill the norms of ‘Schedule M’ of Drugs and Cosmetic Act irrespective of assured market  Burden of Taxes increasing  Product Patent Law will be made compulsory Research and Development In no other industry segment innovative R&D is as critical as in Pharma industry. Here, the New Drug Discovery Research (NDDR) has to keep pace with the emerging pattern of diseases as well as responses in managing existing diseases where target organisms are becoming resistant to existing drugs. The NDDR is also an expensive activity. It is encouraging to observe that at least 10 Indian companies are into new drug discovery in the areas of infections, metabolic disorders like diabetes, inflammation, respiratory, obesity & cancer. Most of these companies have increased their R&D spending to over 5% of their respective sales turnovers. There is notable success from some Indian companies in out licensing new molecules in the asthma and diabetes segments to foreign companies. Introduction of Product Patent for Pharmaceuticals is an important feature for Indian Pharma R&D 21

scenario. This has boosted the confidence of MNC Pharma companies in India where a number of western Pharma companies have already R&D Collaboration with Indian Pharma companies in the field of NDDR. Some Indian companies have also got US-FDA approvals for their new molecules as Innovative New Drugs. Western Pharma companies have recognized the attractiveness of India as a R&D outsourcing destination due to low cost scientific manpower, excellent infrastructure top quality top quality with capability to conduct modern research under GLP, GCP guidelines. Many of them have set up independent R&D centers in India.

Contract Manufacturing Many global pharmaceutical majors are looking to outsource manufacturing from Indian companies, which enjoy much lower costs (both capital and recurring) than their western counterparts. Many Indian companies have made their plants cGMP compliant and India is also having the largest number of USFDA-approved plants outside USA. Indian companies are proving to be better at developing Active Pharmaceutical Ingredients (APIs) than their competitors from target markets and that too with non-infringing processes. Indian drugs are either entering in to strategic alliances with large generic companies in the world of off-patent molecules or entering in to contract manufacturing agreements with innovator companies for supplying complex under-patent molecules. Some of the companies like Dishman Pharma, Divis Labs and Matrix Labs have been undertaking contract jobs for MNCs in the US and Europe. Even Shasun Chemicals, Strides Arcolabs, Jubilant Organosys, Orchid Pharmaceuticals and many other large Indian companies started undertaking contract manufacturing of APIs as part of their additional revenue stream. Top MNCs like Pfizer, Merck, GSK, Sanofi Aventis, Novartis, Teva etc. are largely depending on Indian companies for many of their APIs and intermediates. The Boston Consulting Group estimated that the contract manufacturing market for global companies in India would touch $900 million by 2010. Selected Contract Manufacturing Deals in India Indian company

Multinational

Product

Lupin Laboratories

Fujisawa

Cefixime

Apotex

Cefuroxime Axetil, Lisinopril (Bulk) Bulk and Formulations

Nicholas Piramal

Allergan Advanced Medical Optics 22

Eye Products

Wockhardt

Ivax

Dishman Pharmaceuticals

Solvay Pharmaceuticals Eprosartan Mesylate

IPCA Labs

Merck

Bulk Drugs

Tillomed

Atenelol

Orchid Chemicals and Pharmaceuticals

Apotex

Cephalosporin and other injectables

Sun Pharma

Eli Lilly

Kopran

Synpac Pharmaceuticals Altana Pharma

CVS products, antiinfective drugs and insulin Penicillin- G Bulk Drug

Cadila Healthcare

Nizatidine (anti- ulcerant)

Boehringer Ingelheim

Biocon

Intermediates for Pantoprazole Gastrointestinal and CVS Products

Bristol Myers Squibb Bulk Drugs

Way Ahead By 2020 the pharmaceutical market is anticipated to more than double to US$1.3 trillion, with the E7 countries — Brazil, China, India, Indonesia, Mexico, Russia and Turkey — accounting around for one fifth of global pharmaceutical sales. Further, incidence of chronic conditions in the developing world will increasingly resemble those of the developed world. Pharma 2020: The vision: The current pharmaceutical industry business model is both economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets. In order to make the most of these future growth opportunities, the industry must fundamentally change the way it operates. Some of the major changes anticipated for the industry are:

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  

 



Health care will shift in focus from treatment to prevention. Pharmaceutical companies will provide total health care packages. The current linear phase research & development process will give way to in-life testing and live licensing, in collaboration with regulators and health care providers. The traditional blockbuster sales model will disappear. The supply chain function will become revenue generating as it becomes integral to the health care package and enables access to new channels. More sophisticated direct-to-consumer distribution channels will diminish the role of wholesalers.

Marketing: The future sees the key forces reshaping the pharmaceutical marketplace, including the growing power of healthcare payers, providers and patients, and the changes required to create a marketing and sales model that is fit for the 21st century. The present models may not be the best option for the pharma industry in 2020 and there is need for creative collaboration models. There is need to evaluate the advantages and disadvantages of the alternative business models and how each stands up against the challenges facing the industry. There would be need to ponder over the political, economic, scientific and social trends currently shaping the commercial environment together with the development of new, more collaborative business models that will exert pressure on effective tax rates within the industry. Companies would need to adapt their tax planning to support the provision of outcomes-based healthcare and remain competitive. There are going to be issues that will have a major bearing on the industry over the next 10 years. The changes that will be brought out will best help pharmaceutical companies relies the potential the future hold to enhance the value they provide to the society.

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