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Jour nal of Scienti1ic & Industrial Research Vol. 6 1 , March 2002, pp 1 67- 1 83
Technical Commentary
Global Scenario of Pharmaceutical Industry with Special Reference to Indian Pharmaceutical Industry
The paper covers the fol lowing aspects: An introduction of the structure of the industry, detai ls about the importance of research and patents in this sector worldwide, difference between basic and process R&D, the anomalies in India and changes imminent under WTO, The global scenario including industry size, growth, regional market shares, therapeutic segmentation, major players and brands. It also provides detai ls about how managed health care works, its repercussions on drug prices and opportunities in the US generics market, The Indian scenario gives the historical backdrop, present status, growth projections, changing strategies in the face of WTO. export opportunities and future prospects. A detailed coverage of DPCO (Drug Price Control Order). its evolution since 1 970. present status, recent drug policy, coverage under DPCO '95, drugs under price control. their notified prices and major formulations.
Introduction to the Pharmaceutical Industry
Pharmaceuticals
The usage of pharmaceuticals is governed by the underlying medical science. The four primary medical sciences are as under: ( i) Allopathy or modern medicine has gained global popularity, (i i) Ayurveda, an ancient Indian science, mainly uses herbal remedies, (i i i) Unani , having Chinese origin, is prevalenl in South East Asia, and (iv) Homeopathy, founded by a German physician, was fairly popular in the early 1 9th century.
World-over the pharmaceuticals industry is focused on Allopathy, the most modern medical science. Other modes of medical treatment such as Homeopathy, Ayurveda and Unani are more prevalent in th ird world countries.
Bulk Drugs
Bulk drugs are medicinally effective chemicals. They are derived from four types of intermediates (raw materials) , viz, ( i ) Plant derivatives (herbal products), ( i i ) Animal derivatives eg Insulin extracted from bovine pancreas, ( i i i ) Synthetic chemicals, and (i v) Biogenetic (human) derivatives eg Human insulin.
Bulk drug discovery requires intensive and expensive research. Thus new drugs are patented by the innovator to ensure commercial gains on his R&D investment. When a drug goes off-patent it becomes generic. Bulk drugs can be broadly categorised as: ( i )
under patent, (i i) generic or off-patent. A patent provides exclusivity of manufacturing/l icensing to the discoverer, i. e. , patent holder for a stipulated time period.
Formulations
Doctors, post-diagnosis to cure a disease or disorder m the patient primari ly prescribes formulations. To prevent misuse/incorrect administration, most formulations are disbursed by pharmacies only under medical prescription and these are called ethical products. However, some formulations such as pain balms and health tonics can also be purchased by users directly. These are called over-the-counter (OTC) products. Formulations can be categorised as per the route of administration to patients, viz.
• Oral, i.e. , tablets, syrups, capsules, powders etc taken internally
• Topical, i. e. , ointments, creams, l iquids, aerosols that are appl ied on the skin.
• Parenterals, i. e. , sterile solutions injected in an intravenous or intramuscular fashion.
• Others such as eye-drops, pessaries, and surgical dressings.
Manufacturing Process
Bulk drugs are prepared by appropriate chemical reactions of natural/ synthetic intermediates under controlled conditions. Formulations manufacture is a batch mixing process. Right dosage
1 68 J SCI IND RES VOL 6 , M ARCH 2002
of the bulk drug (active ingredient) is compounded with compatible substances, to make the formulation palatable. Packed as per the physical form-bottles (for i iquids) , b l ister strips (for tablets/capsules) or ampoules (for powders), each formulation pack has the expiry date and storage instructions printed on it . Stringent quality control i s exercised at all stages.
Therapelltic Segments
For ease of prescription, bu lk drugs and their formulat ions are classified as per their end use ie therapeutic effectiveness against a particu lar d isease or ai lment . For example, medicines are categorised as anti-ulcer and anti-tuberculosis . The major therapeutic categories and the key drugs therein are detailed subsequently.
Research, Patents and WTO This section discusses, in detai l , the importance
of R&D, patents in the global pharma Industry and the changes in patent laws to be enforced under WTO.
Research Driven Industry
Pharmaceuticals industry is driven by a global need to conquer disease. Medicines are developed to treat new di seases or improve upon the existing treatment. An in-depth understanding of human physiology and disease mechanism is a pre-requi site to pharma R&D. To facil itate research, companies usually concentrate on select therapeutic areas such as anti-ulcer and anti-cancer. Major diseases for which new drugs are continuously being researched globally are AIDS, Alzheimer's disease, arthritis (rheumatism), cancer, depression, diabetes, heart disease, osteoporosis and stroke.
Basic vs Process R&D
Basic research deals with discovery/invention of a new medicinally effect ive chemical . Process R&D is basically reverse engineering of a molecule through sl ight process modifications. Basic research i s both time and capital-intensive. Hundreds of molecules need to be analysed to determine possible effectiveness. Following such laboratory testing, actual cl inical trials are then carried out to determine the drug' s efficacy on patients. The process thus requires around 1 2- 1 5 y and costs US$350-400 m per NCE (new chemical entity). Process R&D is far easier and costs are negligible compared to basic research.
Patents
Patents are a vital aspect of the global pharma industry. Patent protection is essent ial to spur basic R&D and make it commercially viable. But, on ly the developed nations endorse product patents. Most third world countries have patent laws but enforcement is totally lax. Some developing nations like India, Egypt and Argentina al low only process patent registrat ion . As a result, pharma R&D is concentrated amongst the pharma MNCs in the US, Japan, and Europe. The leading MNCs have a geographically widespread market reach spanning almost the entire globe, hence their high R&D costs can be spread over a large user base.
A researcher undertakes patent registration once a molecule shows some promise of therapeutic effectiveness. Patent l ife counter starts running from the day the patent appl ication i s made. The patent office then starts the process of establishing that the molecule is unique. The steps involved are:
• Within 1 8 months of fi l ing the app lication, a brief write up of the molecular structure and its therapeutic util ity is published as a public document .
• Patent office thereby invites objections, if any, from third parties, eg, competitors.
• Objections received are conveyed to the applicant who has a chance to defend or modify his claim to originality.
• The modified claims are republ ished and once again objections are invited.
• Once the patent office is satisfied about the applicant ' s claim, i t grants the patent.
Once a patent is granted in one of the developed nations, i t is relatively easier to get it in other countries. Also, certain patent authorities have coverage over many nations, e g, European Patent Office (EPO) covers a large part of the European subcontinent.
New Drug Approval (NDA)
Prior to launching its products in any country, a pharma company undertakes patent registration to protect i ts own interests. To protect the interests of the consumers, it is necessary that the product be approved by the drug authorities in that country. Mostly the process for seeking approval is in i t iated along with the patent registration process. An NDA (New Drug Appl ication) is filed with the drug
KHANNA & NAGIN CHAND: GLOBAL SCENARIO OF PHARMACEUTICAL INDUSTRY 1 69
authorities - such as FDA in US or Drug Control ler in India, detai ling the new molecules' therapeutic properties. Then, cl in ical trials are carried out in three stages :
• Animal toxicity (Testing on animals) .
• Trials on a few select volunteers.
• Trials on a larger scale in hospitals/institutions.
Drug authorities approval is essential at each stage and only when all three trial stages are successfully completed can the product be launched. Once a new product has been launched in any of the developed countries l ike the US, Japan, or Europe, it takes relatively lesser time to get approval from drug authorities in other countries.
Glohal Price Variation
Drug prices vary from country to country for many reasons including patent regulations, government controls, income differences, currency exchange fluctuations, etc.
Patent regulation-Patents provide the innovator exclusivity of manufacture over the l i fe of the patent. To maximise gains, pharmaceutical companies charge high premium on their under patent products. As patent laws are stringent only in the developed nations, accordingly formulation prices too are much higher in these markets.
Government control-Due to lax of patent l aws in the developing countries, local players are able to infringe upon the original patent holder' s rights without payment of royalty. Hence the cost of manufacture of reverse engineered pharmaceuticals i s significantly reduced. To prevent undue profiteering by local pharmaceutical companies the Governments in such countries often impose price controls on popularly used drugs and formulations. Even some major industrialised countries of Europe distort the market mechan ism by imposing price controls. Thi s in turn causes higher prices in free markets l ike the US, as companies try to enhance sales/profits by charging what the traffic bears.
Income disparity-In the develop ing nations with low per capita income and low standard of l iving, pharma MNCs are faced with the choice of either sel l ing products at artificially low prices or denying patients the benefits of the drugs.
Impact of Glohal Price Variations
Due to fear of piracy and low product prices in third world countries, most MNCs are reluctant to
introduce their top-of-the-line products in these places. Therefore, patients in these countries do not get better treatment options out of compulsion . Majority of MNCs conduct research on those di seases that affect populations in the developed nations while tropical diseases get low priority.
Wide variations in pharma prices between the developed and developing nations have resulted in increasing resistance to runaway healthcare costs in the developed nations, especially the US. Within a therapeutic segment, generic substitutes to the underpatent drugs generally exist . Though often lesser effective, they are able to reduce the cost of treatment significantly. Thi s methodology has been gaining popularity in last 5 y. Managed Healthcare, as it is called, i s akin to medical insurance and it usual ly fol lows the principle of encouraging generic substitutes to curtail medical expenses.
Developing nations that impose price controls reduce the competit iveness of pharma companies in these countries. Price and volume controls provide few incentives for innovation. Whi le price controls lower drug prices, they do not necessari ly reduce healthcare costs. A more expensive drug may mean faster recovery, possibly el iminating future hospital isation and hence, overall it may prove cost-effective.
WTO
Due to pressure from the developed countries, across the world, uniformity in patent laws is being implemented under WTO (World Trade Organisation-earlier GAIT, ie, General Agreement on Tariffs and Trade). Presently, different countries have different patent types and l ife period. WTO has decided upon a product patent l ife of 20 y in all countries. However, to ensure a smooth transition and provide local players in the developing countries, ample time for gearing themselves, a moratorium up to the year 2005 AD has been provided. Hence, new products, i e, drugs introduced after this date wi l l have to be accorded product patent protection even in countries l ike India or Argentina. However, existing pharmaceuticals and new products that wi ll be introduced in the interim period will al l continue to be reverse engineered in nations . which do not have product patent laws.
Global Scenario
This section discusses in detail , the global pharma industry, i ts evolution , size, composition, players and prospects .
1 70 J SCI IND RES VOL 61 MARCH 2002
Origin
Qu inine extracted from the Cinchona tree bark was used to treat malaria way back in the year 1 6 1 9. But, S i r Alexander Flemming's discovery of Penici l l in in 1 929 can be considered the real foundation of modern pharmaceuticals research. Next major breakthrough came in 1 932 with the synthesis of sulphonamides in Germany by Klarer and Mietzsch. The J 5 Y period between 1 938 and 1 953 is known as the age of antibiotics as large number of new anti-infectant agents were introduced during the period . Antibiotics and vaccines have p layed a major role in ncar-eradication of six major diseases, viz, influenza/pneumon ia, tuberculosis , syphi l is , diphtheria, whooping cough and measles.
Benefit to mankind-By 1 960, the death rate, due to disease, in a year fel l to 8,800 (from the high 1 2, 1 20 in 1 920) per mil l ion persons. Every 4 y since 1 965 . one additional year has been added to the l ife expectancy at birth, mainly owing to advances in pharma R&D. Now, in the US the average l ife expectancy is over 75 y. As ant ibiotics enabled people to survive more advanced ages, researchers focused on cell biochemistry to find cures for more complex chronic diseases. Drug researchers are now targeting to cure the underlying causes of diseases that are rooted in the human molecular structure.
Growth
Pharmaceutical is a continuous growth industry, immune to economic recession and commodity cycles. Rising population, new disease incidence or resurgence of certain diseases spurs the growth. Therapeutic usage of pharmaceuticals varies across the globe. Hypertension and cardiac diseases are more prominent in the developed countries while infectious diseases l ike typhoid, tuberculosis, etc are largely prevalent in developing nat ions.
Global Consolidation
Pressure on drug prices has made global pharmaceutical MNCs resort to mergers and alliances in a bid to reduce R&D duplication and costs besides increase reach so as to spread research expenditure over a larger base. The number of all iances increased from 1 20 in 1 986 to nearly 400 in 1 994. The all iances allowed the companies to draw upon pooled expert i se, brought products to market more rapidly and effectively and commercialized the products. The four mega mergers at the global level in the last 5 y have been Glaxo-Wellcome, Hoechst-Marion-Merrell
Dow-Roussel , Ciba-Sandoz (to form Novartis) and Hoechst Marion Roussel-Rhone Poulenc (to form Aventis). More recently, the industry has witnessed fresh round of mergers-Glaxo has agreed to merge with SmithKl ine Beecham, Pfizer with Warner Lambert, Hoechst with Rhone Poulenc. The merger of two or more companies takes 1 -2 y as the consolidation of resources, affi l iat ions, and strategic al l iances need modifications at several levels-from global through regional down to the local level .
Industry Size
The global pharmaceuticals industry, valued at $305 bn, is projected to grow at a CAGR of 8 per cently in the next 5 y. In 1 998, market grew by 7 per cent as against 6.6 per cent in the previous year. Growth rates differed across nations, with the developing nations l ike South Korea, Taiwan, India, and others recording high growth- 1 2 to 1 5 per cent/yo It can be attributed to healthcare costcontainment pressures keeping pharmaceuticals prices low in developed countries, while export opportunities and low domestic per capita consumption have provided higher growth potential in the developing nations .
Regional Market Shares
Within the global pharma market, regional shares are expected to change, due to faster growth in the dev�loping nations. The top ten worldwide markets represent 84 per cent of all global audited pharmaceutical sales.
The United States, which is the largest market, grew by 1 1 per cent to $99.5 bn in 1 998, nearly 40 per cent of the total world market. Japanese pharmaceutical industry decl ined by I per cent as the Japanese government re-sizes pharmaceutical pricing. Japan remains the world's second largest market with sales of $38.8 bn. Within the top five European markets, Germany remains in the lead with sales of $ 1 8 .2 bn. The fastest growing Western European markets in 1 998 were Spain and Italy registering I I and 9 per cent growth over the respective figures in 1 997. Brazil , seventh in world pharmaceutical market, recorded 5 per cent decl ine from the previous year due to economic conditions. Of the top ten markets, all but Japan and Brazil , showed accelerated growth iii 1 998. Central Europe grew at 28 .5 per cent, Middle East Africa at 1 0. 1 per cent and South East Asia at 8.4 per cent (Table 1 ) .
KHANNA & NAGIN CHAND: GLOBAL SCENARIO OF PHARMACEUTICAL INDUSTRY 1 7 1
Major Therapeutic Segments
The top ten therapeutic segments account for nearly 30 per cent of the total world market. Three out of the leading ten, cholesterol and triglyceride reducers, antidepressants and antipsychotics, are growing at more than 20 per cent.
The anti-ulcerant therapeutic segment, which represents treatments for stomach ulcers and valued at $ 1 2 .9 bn, remains the leading therapeutic class worldwide in 1 998, as i t has for the past 8 y. Losec (omeprazole), the world's leading antiulcerant product, accounted for nearly 30 per cent of all sales.
The cholesterol and triglyceride reducers, drugs used to reduce cholesterol in the bloodstream, i s growing at 20 per cent. Antidepressants, used to treat chronic depression, are also growing at more than 2 1 per cent. Outside of the top ten therapeutic segments, by far the fastest growing sub-class is erectile dysfunction, which grew by 277 per cent in 1 998, driven by the b lockbuster launch of Viagra. The second fastest growing segment is compounds used to treat heart indications, the angiotensin II antagonists. Currently in 56th place, angiotensin II antagonists grew by 1 04 per cent to $ 1 . 1 bn in 1 997 (Table 2).
Major Therapeutic Segments in the Global Market
Leading Players
In 1 998, Novartis, Merck and Glaxo Wellcome shared the top position in the global pharmaceutical market. Novartis' sales were driven by the strong performance of Lamisil and Aredia, while Merck benefited from strong sales of Zocor, Fosamax and Cozaar. Glaxo Wel lcome saw growth from Fl ixonase and Serevent. Pfizer at #4, is well-poised to jump ahead of its fourth position based on its 1 998 growth rate of 2 1 per cent aided by the continued success of its cardiovascular drug Norvasc and Viagra. The
Table I -The world sales and growth of phannaceuticals in 1998
Country Sales. $ bn Share. per cent US 1 00 40 Japan 39 1 5 Germany 1 8 7 France 1 4 6 Italy I I 4 UK \0 4 Brazil 7 3 Spain 5 2 Canada 5 2 Argentina 4 I Total 25 1 .3 84 Source: Scrip Negative figures are in parantheses
Growth. per cent I I
( I I ) 5 4 9 8
(5) I I I 6
leading 20 pharmaceutical companies account for more than 57 per cent of all global sales. The percentage market share of the leading 1 0 companies increased slightly from 35 .4, in 1 997, to 36. 1 per cent in 1 998.
Within the top 20 companies, Warner-Lambert experienced the highest growth rate at 37 per cent, thus moving up from 1 6th to 1 5th place in the rankings. This growth was fuelled by the company's cholesterol-reducing drug Lipitor which grew by 1 99 per cent, and Rezulin, a new antidiabetic drug, up by 97 per cent over 1 997. El i Li l ly achieved 1 7 per cent growth, ranks 91h with the help of 95 per cent growth of its antidepressant Zyprexa (Table 3) .
Research & Development Expenditure
Major US pharmaceutical companies are expected to spend more than $ 1 9.5bn in 1 999, a jump of 1 5 per cent from 1 998. Pfizer is expected to spend maximum, fol lowed by Johnson & Johnson and E Merck (Table 4).
Cancer research is the most active area with more than 650 products under development, fol lowed by cardiovascular research with more than 200 products. The global pharmaceutical industry is developing more than 1 50 vaccines and more than 1 00 products each for AIDS, psychiatric disorders, dermatologic conditions, blood and respiratory disorders. Major formulations expected to hit the market in the next three years are given in Table 5.
Generic Competition
In the next l O y, an estimated 60 major pharmaceutical products with sales (while under patent) in excess of US$40 bn wil l lose patent
Table 2-Therapeutic segment sales and growth in 1 998
Therapeutic segment Sales, $ bn Growth. per cent
Anti-ulcers 1 2.9 3 .0
Cholestrol and triglyceride reducers 9.6 20.0
Antidepressants 9.4 2 1 .0
Ca-antagonists 8.7 1 .0
Cephalosporins 6.8 ( 1 .0)
ACE-inhibitors 6.5 4.0
Non-narcotic analgesics 6.2 (4.0)
Antirheumatic non-steroids 6.0 4.0
Antipsychotics 3 .9 30.0
Broad spectrum penicillins 3 . 8 4.0
Total 73.8 7.0
Source: Scrip Negative figures are in parantheses
1 72 J SCI IND RES VOL 6 1 M ARCH 2002
Novartis
2 Merck & Co
3 Glaxo Wel lcome
4 Pfizer
5 Bristol-Myers-Squibb
6 Johnson & Johnson
7 American Home Products
8 Roche
9 Lily
1 0 SmithKl ine Beecham
Sub- Leading 10 companies total
I I Astra
1 2 Abbott Labs
1 3 Hoechst Marion
1 4 Schering Plough
I S Warner Lambert
1 6 Bayer
1 7 Rhone Poulenc Rorer
1 8 Pharmacia & Upjohn
1 9 Zeneca
20 Boehringer Ingelheim
Total Leading 20 companies
Source: Scrip
bn
1 0.6
1 0.6
1 0.5
9 .9
9 .8
9
7.8
7.6
7.4
7.3
90.5
6.9
6.4
6.2
6.2
6
5 .2
4.6
4.5
3.7
3 . 6
1 43 . 8
sales share.
per cent
4 .2
4 .2
4.2
3 .9
3 . 9
3 .6
3 . 1
3
2.9
2.9
35.9
2.8
2.5
2.5
2.5
2.4
2 . 1
1 .8
1 .8
1 .5
1 .4
57.2
5
8
2 1
I I
8
I 6
1 7
6
8
1 6
8
2
1 4
3 7
I
7
8
1 6
6
9
protection. The large number of innovator products loosing patent protection wil l foster robust growth in the generic bulk drugs and formulations industry. Though some brand name companies do own and operate generic subsidiaries the commodity based pricing structure of generic drugs will not sustain R&D programs. Thus, funds available for R&D will most l ikely depend on a Company' s abi l i ty to discover, patent and bring to market a steady stream of new and innovative products .
In manufacture of generics the developing nations l ike Indi a, China, Taiwan, Korea etc have advantage of lower manufacturing and manpower costs. Moreover, reverse engineered drug even while under-patent, helps local pharmaceutical manufacturers in such countries to target the first wave of generic competition to hit the markets in developed nat ions when the drug goes off-patent.
Table 4-R&D expenditure over the three years, absolute and as proportion of sales
Company 1 999 1 998 1 997
Amount, $ bn
Pfizer 2.8
Johnson 2 .5 &Johnson
Merck & Co 2. 1
American 1 .8 Home Products
Bristo-Myers- 1 .8 Squibb
Lil ly 1 .9
Monsanto 1 .6
Abbott 1 .3
Pharmacia & 1 .3 Upjohn
Schering 1 .2 Plough
Warner 1 .2 Lambert
Source: Scrip
As sales. Amount. As sales, Amount. per cent $ bn per cent $ bn
1 7.5 2.3
9 .5 2 .3
6.8
1 2 .6
8.8
1 8 .3
1 5 . 5
9 . 5
1 .8
1 .7
1 .6
1 .7
1 .3
1 .2
1 8 1 .2
1 2 .8
9 .4 0.9
1 6 .8 1 .9
9.6 2 . 1
6 .8 1 .7
1 2 .3 1 .6
8.6 1 .4
1 8 .8 1 .4
1 4.6 0.9
9.8 1 .3
1 7 .7 1 .2
1 2.5 0 .8
8.6 0.7
Later, increasing competition brings down prices and margins.
For detailed report on world generics market look into http://www.indiainfol ine.com/sect/gene/ chO I .html to ch07 .html .
Managed Care
Managed Care is akin to medical insurance and it usually follows the principle of encouraging generic substitutes to curtail medical expenses. Managed Care organizations frequently use various cost containment techniques specially directed at lowering pharmaceutical expenditures. These organizations, especially popular in the US. are known as Health Management Offices (HMOs). Typical cost reduction techniques of H MOs are as under:
Formularies-Virtual ly, all H MOs now use formularies, i. e. , l ist of products approved for reimbursements. Closed formularies l imit payment only to those products specifically l i sted in the formularies. In 1 996, an estimated 62 per cent of H MOs in the US used close formularies. up from 35 per cent in 1 994 and 47 per cent in 1 995. Closed formularies may deny coverage for newer more expensive or experimental drugs regardless of the effectiveness.
KHANNA & NAGIN CHAND: GLOBAL SCENARIO OF PHARMACEUTICAL INDUSTRY 1 73
Table 5-Expected fonnulations in three years
Product
2000 Arava
Asthmanex
Darifenacin
Melacinc
Omniccf
Relenza
Sabril
Sunepitron
Tevetcn
Voriconazole
2001 AriOo
Avakinc
Bcxtra
Idoxifene
Insulin Glargine
Pneumococcal vaccine
Pioglitazone
Zeldox
Zelmac
Ridogrel
Ritanserin
Zenamivir
2002 Acecol
Adinazolam
Almotriptan
Alosetron
Dutasteride
Gatifloxacin
Moxitloxacin
NovoRapid
Reminyl
Source: Scrip
Company
Hocchst M arion ROllsell
Schering Plough
Pfizer
Schering Plough
Warner-Lambert
Glaxo Wel lccme
Hoechst Marion ROllsell
Pfizer
Solvay
Pfizer
SmithKl ine Beecham
CTCR
Knoll
Smith K l ine Beecham
Novartis
American Home Products
Lil ly
Pfizer
Novartis
Johnson & Johnson
Johnson & Johnson
Glaxo Wel lcome
Sankyo
Phannacia & Upjohn
Phannacia & Upjohn
Glaxo Wel l come
Glaxo Well come
Bristol-Meyers Squibb
Bayer
Novo Nordisk
Johnson & Johnson
Therapeutic substitution-It is defined as exchange by another drug having a different chemical composition from the prescribed one, usually but not always within the same therapeutic class. In some circumstances, HMOs' pharmacists make this exchange without the knowledge of the prescribing physicians . Over one-third of HMOs now use therapeutic substitutions up from 22 per cent in 1 990.
Step care therapy-Physicians affi l iated to HMOs follow a sequence of treatment for a given condition usually starting with the low cost treatment and progressing to high cost only if previous treatment i s ineffective. The patient may be denied immediate treatment with most effecti ve treatment and as a result suffer a delayed recovery. Percentage of HMOs using this therapy has increased from 27 per cent in 1 990 to 5 1 per cent in 1 994.
Generic substitution-Percentage of HMOs requiring generic substitution ie the same drug being replaced with a generic copy, has increased from 63 per cent of HMOs in 1 990 to 87 per cent of HMOs in 1 994. Switching patients from a brand name to a generic copy can cause problems particularly with i l lness such as heart fai lure, cancer, diabetes and seizure disorders that are treated with drugs that have a narrow therapeutic range. Dramatically, increased use of generic substi tution threatens to sacrifice qual ity in the name of cost containment. In the past decade, generic drugs have doubled the share of the US prescription market from 1 8 .6 per cent at the end of 1 984 to 43 per cent in 1 996.
Managed care in all its variations is transforming the pharmaceutical market place. Cost containment has become the new buzzword, creating an intensely competit ive market. Pharma companies introducing new products not only have to provide better therapeutic advantage but also do it at a lower cost to entice users. According to the Boston Consultancy Group, new drugs approved in 1 99 1 -92 were on an average 14 per cent cheaper than the best sellers already in the market in their respective therapeutic classes. In some therapeutic areas, competit ion lowers prices even more. The intensifying competi tion also shows that the time during which the first drug in therapeutic class is the sole drug and the second drug i s introduced the time gap is shrinking. Another reason for this is the Waxman Hatch Act, which extended patent expiry dates for some products in the US up to a maximum of 22 months. But, this l i terally reduced the period between patent expiry and to zero entry of generic competition into the market. Increasing emphasis on generic substitution by Managed Care organizations has led to more rapid market share erosion for originator products, once the patent expires. For originator . drugs, which first faced the generic competit ion in 1 990 period, generics gained 47 per cent of the market after 1 8 months, whereas for
1 74 J SCI IND RES VOL 6 1 MARCH 2002
products, whose patent expired in generic competit ion clai med 72 prescription within 1 8 months.
Future Outlook
1 992 period, per cent of
Ti l l now, MNCs were concentrating on the three major pharma markets viz the US, Europe and Japan, mainly due to good patent protection for their products in these developed nations. Now with WTO becoming a reali ty, patent laws in developing nations wil l gradually become more stringent. Thus, MNCs are getting more incl ined to strengthening their posit ion in the fast growing third world markets. Expanding market boundaries may help the MNCs spread their R&D costs over a larger base. This in turn wil l partly offset the impact of healthcare cost containment pressures in the developed nations. However, product pricing in the developing countries wil l have to be s ignificantly lower due to the latter' s poor per capita spending on healthcare.
In the developing nations, local players are gearing-up to face the WTO challenge. These players lack the requis i te financial muscle to take on basic research. Thus, they are either angling for a tie up with some MNC or focusing on the promising global generics market (for enhancing exports) . The large local players in the developing nations will be able to leverage upon their established distribution network, manufacturing faci l ities and field force to attract MNC partners.
In the next 5 y the world pharmaceutical market is expected to grow at CAGR of 8 per cent, with alobal turnover of $40 I bn in 2002. The fastest b growing regions are expected to be North America, the Middle East, Australasia, and South East Asia (including China). North America i s expected to remain the largest pharmaceutical market with volume growth boosted by increased prescription drug coverage for Medicare and Medicaid patients under managed care schemes and new product launches. By 2002, US pharmaceutical market i s expected to be in the vicinity of $ 1 69 bn .
Europe i s expected to register growth of mere 5 .8 per cent in the next 5 y, mainly due to price controls. Germany, France and Italy are expected to have growth rate much below the regional average of 5.8 per cent. Estimated growth of various regions are given in Table 6.
Indian Scenario
This section discusses in detai l the evolution and critical aspects of the Indian pharma industry, major factors affecting players' profitabi l ity and future prospects.
Backdrop
In the 50 y s ince independence the Indian pharmaceuticals industry has evolved s ignificantly. In itially the MNCs had a near monopoly. They imported and marketed formulations in India, mainly low cost generics for the masses and also a few special i ti es, l i fe saving, high priced products. With the Government increasing pressure against imports of fin ished products, the MNCs set up formulating units and continued importing the bulk drugs. In the 1 960s the Indian Government laid the foundation of the domestic pharmaceuticals industry by promoting Hindustan Antibiotics Ltd (HAL) and Indian Drugs and Pharmaceuticals Ltd ( IDPL) for manufacture of bulk drugs. However, MNCs maintained a lead due to the backing of their global R&D. H igh cost for basic research deterred local players (in the private sector).
/970-A Revolutionary Year
For the fol lowing reasons the year 1 970 proved a revolutionary one in the growth and place of pharmaceutical i ndustry in this country.
• The Indian Patent Act (IPA) was introduced. This has been one of the s ingle most important factors to spur the domestic pharmaceutical industry. Under the IP A, substances used in foods and pharmaceuticals could not be granted product
Table 6-Estimated regional growth in the pharmaceuticals
Region CAGR ( 1 998-2002), per cent
North America 9.R
Europe 5 .8
Japan 4.9
Latin America & Caribbean 8,4
Southeast Asia! China 1 l .0
Eastern Europe 8.6
Middle East 1 0 .6 Africa 3 .3 Indian subcontinent 8.6
Australasia 9.8
CIS 6.6
Total world market 8 .0
Source: Scrip
KHANNA & NAGIN CHAND: GLOBAL SCENARIO OF PHARMACEUTICAL INDUSTRY 1 75
patents. Only process patents were allowed for a period of 5 years from date of patent grant or 7 years from date of filing for patent, whichever was earlier. Process modifications to develop MNCs bulk drugs was far easier for the local players and there was an influx of domestic manufacturers, who first started making bulk drugs and then progressed to formulations. For local players, a wide possible portfolio mix was possible, while the MNCs were constrained to their parent company' s product range. With the IPA, cost of local manufacture reduced, so also, absence of royalty payments on reverse engineered drugs.
• Drugs Price Control Order (DPCO) was also introduced in 1 970 by the Indian Government. The DPCO effectively put a cei ling on prices of certain mass-usage bulk drugs and their formulations, so as to prevent any undue profiteering. This further deterred the MNCs as selling their products at much lower prices in India meant global repercussions and possible uproar in their home countries. So MNCs curtailed new product launches, giving further scope to Indian players.
• FERA (Late 70 's)-MNCs were compelled to reduce holding in their Indian ventures to 40 per cent, else comply with export obligations to retain a maximum 5 1 per cent stake. As a result some MNCs curtailed the scope of their operations. This further strengthened the position of the local pharmaceutical companies.
Present Scenario
Over 20,000 registered pharmaceutical manufacturers exist in the country. The market share of MNCs has fallen from 75 per cent in 1 97 1 to around 35 per cent in the Indian pharmaceuticals market, while the share of Indian companies has increased from 20 per cent in 1 97 1 to nearly 65 per cent. PSUs have almost lost out completely.
The sector has undergone several policy as well as attitudinal changes over the past two years. It was one of the major beneficiaries from the budget proposals . Some of the positive steps taken were: • Pharmaceutical industry is recognized as
knowledge based industry. The government has plans to increase the investment in R&D.
• Rationalization of excise duty and reduction in interest rates in export financing.
• Additional deductions under Income Tax laws for R&D expenses.
• Foreign direct investments permit up to 74 per cent through automatic route.
• Setting up two high levels committees to review the drug policy for strengthening R&D capabilities and reducing the price control regime.
Besides the Indian Parliament has enacted the required changes in the Indian Patent Act 1 970 (IPR) regarding mailbox arrangement and exclusive marketing rights (EMR).
Emerging Trends
Increased focus on R&D-Major domestic players namely Ranbaxy, Dr Reddy: s Labs, Cipla, Nicholas Piramal and Wockhardt · are aggressively investing in R&D. Dr Reddy' s Labs and Ranbaxy have already discovered one new chemical entity (NCE) and are in Phase IT and Phase I of the clinical trail respectively. Wockhardt is expected to come out with in new molecule by FI 2/2000.
Marketing tie-ups-Domestic players and MNCs have entered into marketing arrangements to increase market penetration and further strengthen positions in respective therapeutic segments. Ranbaxy has tied up with Cipla, Glaxo and Hoechst Marion for products in specific therapeutic segment. Similarly, Hoechst Marion has tied up with Nicholas Piramal.
Product rationalization, brand acquisition or company acquisition-Most of the top pharmaceutical companies are consolidating their position in the domestic market either through product rationalization brand acquisition or company acquisition. Hoechst, Glaxo, Wockhardt and Ranbaxy have cut down their product portfolio in order to be more focused. Similarly companies such as Sun Pharma, Nicholas Piramal and Dr Reddy's Labs have opted for brand/ company acquisition to increase the therapeutic reach and market penetration .
Domestic Market
The domestic pharmaceuticals industry output exceeds Rs 1 70 bn, which accounts for merely 1 .3 per cent of the global pharmaceutical sector. Of this, formulations account for 8 1 .5 per cent and 1 8 .5 per cent is bulk drugs. In FY99 exports was at Rs 53 .7 bn and imports stood at Rs 3 1 .3 bn (Table 7) .
The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has increased drastically in the last two decades. The leading 250 pharmaceutical companies control 70 per cent of the market with market leader having nearly 7
1 76 J SCI IND RES VOL 6 1 MARCH 2002
per cent of the market share. It has become extremely competitive industry mainly due to . lower affordabil i ty, fragmented market with severe price competition and government price control (Table 8).
Over the years the Indian Pharmaceutical Industry has evolved around the opportunities presented in the regulated environment:
Lack of product patent-The Indian Patents Act 1 970 allowed the Indian companies to reverse engineer the patented molecules and launch it in the domestic market.
.
Price cei l ing under DPCO l imited the margins and shifted the focus to cost control. FERA led to reduced MNC exposure in India. Small-scale industry (SSI) exemptions led to proliferation of small formulation manufacturers and low cost drug manufacturers.
Consequently the capital investment has also increased over the years, especially in the last two decades (Table 9).
Bulk drugs-Over 60 per cent of India' s bulk drugs production is exported. The balance is sold locally to other formulators. However, many of the MNCs affil iates/subsidiaries in India import bulk drugs from the parent company and formulate it for local markets. Also, local players who export formulations avai l of duty free imports of bulk drugs. Exports are mainly to developing countries in case of under patent drugs and to the developed nations in case of generics. In FY99, exports stood at Rs 53.7 bn while import was at Rs 3 1 .3 bn.
Production of Bulk Drugs
The production of bulk drugs over years IS presented in Table 1 0.
Formulations-More than 85 per cent of the formulation production in the country i s sold in the domestic market. India is largely self-sufficient in case of formulations. Some life saving, new generation under-patent formulations continue to be imported, especially by MNCs, which then market them in India. Overall , the size of the domestic formulations market is around Rs 1 30 bn and it i s growing at 10 per cent/yo Formulation exports are largely to developing nations l ike China, South Africa, CIS, etc (Table I I ) . Exports
India's pharmaceutical exports are to the tune of Rs 53.7 bn, of which formulations contribute nearly
Table 7-Investment, imports and exports in the pharmaceutical industry in India (in Rs bn)
Capital Investment
Production: Formulations
Bulk Drugs
Import
Export
R & D Expenditure
Source: OPPI .
1 965-66 1 998-99
1 .4 2 1 .5
1 .5 1 38 .8
0. 1 8 3 1 .5
0.08 3 1 .3
0.03 53 .7
0.03 2.6
Table 8-Pharmaceutical industry size by number of units, the growth over years
Year Units, number
1 969-70 2,257
1 979-80 5, 1 56
1 989-90 1 6,000
1 998-99 20,053
Source: oppr
Table 9-Capital investment in the pharmaceutical industry
Year Rs bn
1 973 2.3
1 977 4.5
1 979 5 .0
1 982 6.0
1 985 6.5
1 98 8 8.0
1 993 1 0.6
1 994 1 2 .0
1 995 1 3 .8
1 996 1 6.0
1 997 1 8 .4
1 998 2 1 .5
Source: oppr
57 per cent and the rest 43 per cent comes from bulk drugs. In FY99, exports grew by 5.6 per cent. Formulations export declined by 9. 1 per cent while bulk drugs export jumped up by 33 .9 per cent. Erstwhile USSR was a major market for Indian formulations, but its disintegration adversely affected company' exports in 1 99 1 -92. Again the economic crisis in Russia depressed the export of formulations in 1 999. Overall pharma exports have registered a CAGR of 24 per cent in the past 5 y. This is because low domestic margins on account of competitive
KHANNA & NAGIN CHAND: GLOBAL SCENARIO OF PHARMACEUTICAL INDUSTRY 1 77
pressures and DPCO, led more players to focus on export markets. In exports, domestic companies have a three-pronged advantage over MNCs:
Table I O-Bulk drug production in India over years
Year Rs bn
1 980-8 1 2.4
1 98 1 -82 2.9
1 982�83 3.5
1 983-84 3 .6
1 984-85 3 .8
1 985-86 4.2
1 986-87 4.6
1 987-88 4.8
1 988-89 5 .5
1 989-90 6.4
1 990-9 1 7.3
1 99 1 -92 9.0
1 992-93 1 1 .5
1 993-94 1 3 .2
1 994-95 1 5 .2
1 995-96 1 8.2
1 996-97 2 1 .9
1 997-98 26.2
1 998-99 3 1 .5
Source: OPPI
Table I I -Production formulation over the years
Year Rs bn
1 980-8 1 1 2.0
1 98 1 -82 1 4.3
1 9 82-83 1 6.6
1 983-84 1 7.6
1 984-85 1 8 .3
1 985-86 1 9.5
1 986-87 2 1 .4
1 987-88 23.5
1 988-89 3 1 .5
1 989-90 34.2
1 990-9 1 3 8.4
1 99 1 -92 48.0
1 992-93 60.0
1 993-94 69.0
1 994-95 79.4
1 995-96 9 1 . 3
1 996-97 1 04.9
1 997-98 1 20.7
1 998-99 1 38 .8
• Process patents give freedom to make MNCs patented products, thus enabling wide therapeutic reach.
• Strong process R&D and low manufacturing costs. • No restrictions on export markets by parent's
overseas ventures (Table 1 2) .
Imports
India' s pharmaceuticals imports (including bulk drugs, formulations, intermediates, chemicals, solvents etc) are to the tune of Rs 3 1 .3 bn . Imports have registered a CAGR of nearly 23 per cent in the past 5 y. Imports of formulations have increased significantly in the past 5 y registering CAGR of 32.9 per cent in the past 5 y. In FY99 import of formulations grew by 25 .5 per cent yoy. Import of bulk drugs have s lowed down in the past 2-3 y mainly due to two reasons - firstly there is over capacity in the domestic market and secondly the quality of bulk drugs manufactured by the local manufacturers have improved significantly and they act as import substitute for MNC's requirements (Table 1 3).
Table 1 2-Exports during 1 980- 1 999
Year Formulations Bulk Drugs Total
Value. Value. per Value. Value. per Rs bn Rs bn cent of total Rs bn cent of total
1 9 80-8 1 0.4
1 98 1 -82 0.7
1 982-83 0.5
1 983-84 0.6
1 984-85 1 .0
1 985-86 1 . 1
1 986-87 1 .0
1 987-88 0.9
1 988-89 1 .6
1 989-90 3 . 1
1 990-9 1 3 .7
1 99 1 -92 5 .6
1 992-93 9.7
1 993-94 1 3 . 1
1 994-95 1 5 . 1
1 995-96 20.4
1 996-97 25. 1
1 997-98 33 .4
1 998-99 30.4
Source: OPPI
76
82
8 3
77
77
76
54
39
39
47
47
44
70
7 1
66
64
6 1
66
57
0. 1
0.2
0. 1
0.2
0.3
0.3
0.9
1 .4
2.4
3 .5
4. 1
7.2
4. 1
5 .3
7.6
1 1 .3
1 5 .8
1 7.4
23.3
24
1 8
1 7
23
23
24
46
6 1
6 1
53
53
56
30
29
34
36
39
34
43
0.5
0.8
0.7
0.8
1 .3
1 .4
1 .9
2.3
4.0
6.6
7.8
1 2.8
1 3 .8
1 8 .4
22.7
3 1 .8
40.9
50.8
53.7
1 78 J SCI IND RES VOL 6 1 MARCH 2002
\ MNCs vs Local Players
Overall, the pharma MNCs are at a disadvantage compared to local players, due to: • Limitation to parent company' s portfolio and lack
of freedom to reverse engineer any other MNC's products.
• Higher DPCO coverage due to a more mature product range.
• Parent company's reluctance to launch new products due to the absence of patent protection and threat of process piracy and compulsion to price the product lower in India compared to other countries.
• Lack of export opportunities due to parent's global presence.
Table 1 3-Import of various components of pharma (in Rs bn)
Year Bulk drugs Formulations Intermediates, Total chemicals and
others
1 980-8 1 0.87 0. 1 0 0. 1 6 1 . 1 3
1 98 1 -82 1 .05 0.02 0.29 1 .36
1 982-83 1 . 1 6 0.05 0.28 1 .48
1 983-84 1 .23 0.03 0.37 1 .63
1 9 84-85 1 .78 0. 1 0 0.27 2. 1 6
1 985-86 2.08 0. 1 6 0.43 2.67
1 986-87 2.07 0.22 0.58 2.88
1 987-88 2.34 0.2 1 0.94 3.49 ·
1 988-89 3.28 0.35 0.83 4.47
1 989-90 4.26 0.55 1 .7 1 6.52
1 990-9 1 3 .23 0.85 1 .96 6.04
1 99 1 -92 4.59 0.96 2.53 8.07
1 992-93 5 .08 1 .20 5.09 1 1 .37
1 993-94 6. 1 3 1 .3 8 4. 1 5 1 1 .67
1 994-95 8 . 1 1 1 .73 3. 84 1 3 .69
1 995-96 1 6.30 2.70 5 .05 24.05
1 996-97 1 7 .05 3 .45 5.56 26.06
1 997-98 1 8 .27 4.30 6 . 1 1 28.68
1 998-99 1 9. 1 8 5.40 6.70 3 1 .28
Source: OPPI
• Higher cost of manufacture due to parent company's insistence on stricter compliance of GMP (Good manufacturing Practices).
Factors Affecting Profitability
The Indian pharmaceutical industry is highly regulated. The Government controls prices of a large number of bulk drugs and formulations. Profit margins of players vary widely in both domestic and export sales due to many factors, these are mentioned subsequently.
In the domestic arena, profitabi l ity depends on: • Presence in large, high growth therapeutic areas eg
antibiotics, cardiac care, NSAIDs, etc. • Management foresight to select new high potential
molecules for launch in India. • Reverse engineering capability to pioneer new
processes. • DPCO coverage (new launches help reduce
proportion of products under DPCO) . • Competition from other players. • Backward integration into bulk drugs. • Established track record of product quality. • Franchise among doctors. • Domestic sales force (Medical Representatives, ie,
MRs) strength. • Distribution network in India.
Export prospects are linked to: • FDA, USA! MCA, UK approval for plants. • Marketing tie-up with overseas pharmaceuticals
companies. • Tapping the high potential US generics market. • Development of products which have recently
gone off-patent or which are scheduled to go offpatent in near future.
• Under-patent product exports to other developing/ third world countries without strict patent regulation.
• Franchise manufacturing of formulations for overseas pharma MNCs.
• Own marketing network in other countries to develop brand equity for formulations.
Future Scenario
As per WTO, from the year 2005 AD, India will grant product patent recognition to all new chemical entities (NCEs), ie, bulk drugs developed then
KHANNA & NAGIN CHAND: GLOBAL SCENARIO OF PHARMACEUTICAL INDUSTRY 1 79
onwards. This leaves another 5 y of MNCs research output open to process piracy. But, long-term prospects for MNCs are good. The pre-WTO and post-WTO scenarios are expected to be as under:
Pre-WTO-The transition phase in preparation of WTO has commenced. Established local pharma majors will try to comer a larger part of the domestic formulations market prior to aggressive product launches by MNCs post-WTO. Towards this end, these players are expediting the launch of new products and also looking at brand acquisition opportunities from other relatively smaller players. The latter, unable to sustain the stiff local competition, will either close down or be taken over by larger companies. Overall the currently fragmented industry will consolidate. The MNCs have started strengthening their ranks. Most have already restructured their operations and focused on the pharma business. Parent companies are reassessing India' s market potential and have accordingly increased stakes in existing ventures or set up new subsidiaries.
Post WTO-MNCs wil l be able to freely introduce top of the l ine, new products, i e, those patented after 2005 AD in the domestic market. However, these are expected to be priced at a significant premium in line with the MNCs global policy of earning returns on their R&D investment. Thus, within a therapeutic segment, the masses will still continue to resort to the older, lesser efficient and cheaper medicines. Thus, new launches by MNCs will be high margin, but low volume products and these will be mostly imported from overseas bases and only marketed in India. MNCs, which do not have a base in India, will enter into tie-ups with local players to license their new products. Local players will continue to make and market, in India, the popular generics and also those pre-WTO products, which may still be under, patent overseas. They will take up franchise manufacturing and marketing for overseas MNCs. Local players may also enter into research tie-ups with MNCs to leverage on their relatively low-cost, efficient skill base of trained pharmacists and chemists.
Strategies of Domestic Players
• Most of the domestic companies are expanding the therapeutic reach through new product launches in the high margin segment, thus enhancing the product portfolio (proper basket of products helps in convincing the medical fraternity) and
increasing the critical mass. Increased focus on prescription sales and acceptance in the medical fraternity through increased awareness and visibility.
• Increasing the market penetration through enhanced distribution channel. This will both increase the geographical reach in the domestic market and wil l faci litate l icensing of products from MNCs in the post product patent regime.
• Most of these companies have already upgraded the manufacturing faci lity and have approval or are in the process of getting approval from USFDA, UKMCA and other international agencies. This is the basic requirement for access to the high margin but highly regulated developed market of Europe and US.
• On the back of state of the art manufacturing facil ities the companies are pursuing contract manufacturing, global sourcing base for supply of bulk drugs, or intermediates for multinational corporations. Getting a breakthrough in area of contract manufacturing will help in increasing global acceptance in terms of quality and credibility in the export market.
• The companies are setting up subsidiary abroad or strategic alliances to exploit the tremendous opportunity in the generics market arising out in the next 5 to l O y. They have started applying for drug master file/product registration/abbreviated new drug application (ANDAs) worldwide.
• The medium term objective is to focus on process engineering of products going off patent in next 5-10 y, which will help in tapping the emerging generics market in the next 5- 1 0 y. At the same time R&D would also facilitate in new product launches in the domestic market in order to have a stronger product portfolio.
• The long-term objective will be to enter into higher platform of biotechnology and drug delivery systems.
Inter-country Comparison
Basic Indicators
The information on basic indicators for the year 1 997 is given in Table 1 4.
Life Expectancy & Adult Illiteracy
Life expectancy at birth and i l l iteracy among adults for different countries are given in Table 1 5 both for males and females.
1 80 J SCI IND RES VOL 6 1 MARCH 2002
Health Indicators The health indicators for different countries are
given in Table 1 6.
Annual Drug Expenditure Per Capita
Drug expenditure (per capita/y) among differ�nt countries is given in Table 1 7 .
Pharmaceuticals Sector: Trend Analysis of Domestic Formulations Market
The Rs 1 30 bn domestic formulations market is growing at I S per cent. The anti-infective therapeutic segment (including anti-bacterial and anti-TB therapeutic segment) which commands market share
Table I 4-Basic indicators of various countries in 1 997
Country Population (mn)
India 96 1
B angladesh 1 24
China 1 227
Pakistan 1 37
Sri Lanka 1 8
Indonesia 200
Korea Republic 46
Japan 1 26
Germany 8 2
Switzerland 7
United Kingdom 59
United States 268
GNP per capita, $
390
270
860
490
800
I I \ 0
1 0550
37850
28260
44320
207 1 0
28740
Average annual growth rate, per cent
3 .2
3 .7
7.8
5 .8
2 .8
3 .8
0.2
3 .2
Table 1 5-Life expectancy and i l l iteracy status of different countries
Country Life Expectancy at Adult Il l iteracy rate % B irth (Years) 1 996 1 995
Males Females Males Females
India 62 63 35 62
Bangladesh 57 59 5 1 74
China 68 7 1 1 0 27
Pakistan 62 65 50 76
Sri Lanka 7 1 75 7 1 3
Indonesia 63 67 1 0 22
Korea Republic 69 76 3
Japan 77 83 * * Germany 73 80 * * Switzerland 75 82 * * United 74 80 * * Kingdom United States 74 80 * * * I l l i teracy less than 5 per cent
of 22 per cent has registered growth of 1 3.3 per cent. Cephalosporins and macrolids (sub segment of antiinfectives) are growing at 28 and 1 9.5 per cent, respectively. Cardiac care at second place is growing at 1 6 per cent yoy. Vitamins, which witnessed lower growth of 6-8 per cent in FY98, have registered sales growth of 1 4 per cent in FY99. Amongst major therapeutic segments, vaccines and anti-diabetic therapeutic segment is fastest growing at 25 per cent each while antacids and enzymes are growing at 8 .5 per cent each. Performance of each therapeutic segment is described in detail in the latter part of the report (Table 1 8) .
Major Players
Glaxo-WelIcome combine continue to maintain the first rank despite losing the overall market share in FY99. Domestic companies namely Wockhardt, Dr Reddy's Labs, Nicholas Piramal, Zydus Cadila and Alkem Labs have improved their market share significantly. Wockhardt has improved its market share mainly due to acquisition of Merind besides 1 5 new product launches. Dr Reddy' s Labs has improved its rank from 24 in FY98 to 20 in FY99 on account of brand acquisitions from Dolphin Labs and Natco Pharma. Nicholas Pi ramal has improved its market share from 1 .8 in FY98 to 2. 1 per cent in FY99, mainly due to increased focus on formulation business. Amongst domestic players, Torrent Pharma was the major loser.
Table 1 6-Birth and death rates and infant mortality among different countries
Country Crude Birth Rate Crude Death Rate Infant Mortality (per 1 000 (per 1 000 Rate
population) population) (per 1 000 live birth )
1 970 1 995 1 970 1 995 1 980 1 996
India 39 28 1 6 9 1 1 6 7 1
Bangladesh 48 3 1 2 1 I I 1 32 77
China 33 1 7 8 7 42 33
Pakistan 48 39 1 9 I I 1 24 88
Sri Lanka 30 20 8 5 34 1 5
Indonesia 40 25 1 8 8 90 49
Korea Republic 30 1 5 1 0 6 26 9
Japan 1 9 1 0 7 7 8 4
Germany 1 3 1 0 1 2 I I 1 2 5
Switzerland 1 6 1 2 9 9 9 5 United 1 6 1 3 1 2 I I 1 2 6 Kingdom
United States I 7 1 5 9 9 1 3 7
K HANNA & NAGIN CHAND: GLOBAL SCENARIO OF PHARMACEUTICAL INDUSTRY 1 8 1
Table 1 7-Per capita expenditure on drug among different countries
Country Expenditure, $
Japan 4 1 2
Germany 222
United States 1 9 1
Canada 1 24
United Kingdom 97
Norway 89
Costa Rica 37
Chile 30
Mexico 28
Turkey 2 1
Morocco 1 7
Brazil 1 6
Philippines I I
Ghana 1 0
China 7
Pakistan 7
Indonesia 5
Kenya 4
India 3
Bangladesh 2
Mozambique 2
Pharmaceutical MNC USV (earlier US Vitamins) is the major gainer and has improved its share from 0.9 in FY98 to 1 .4 per cent in FY99. Most of the MNCs have lost their overall market share in the domestic formulation market due to presence of matured products in their portfolio and reluctance of parent company to introduce new products from their global product portfolio.
Marketing tie-ups-Domestic players and MNCs have entered into marketing arrangements to increase market penetration and further strengthen positions in respective therapeutic segments. Ranbaxy has marketing tie-ups with Cipla, Glaxo and Hoechst Marion for products in specific therapeutic segment. Similarly Hoechst Marion has tie-ups with Nicholas Piramal (Table 1 9).
Table 1 8-Major therapeutic segments Therapeutic segments Sales (Rs Market Growth,
mn) share, per cent per cent
Anti-infectives 28,550.0 22.0 1 3 .3
Cardiac care 7,760.0 6.0 1 6. 1
Vitamins 7,350.0 5 .7 1 4.0
NSAIDs 6, 1 25.0 4.7 1 5 .0
Anti-parasitic/anti- 5,625.0 4.3 1 2.0 fungal
Cough preparations 4,900.0 3 .8 1 2.0
Corticosteroids 4,575.0 3 .5 1 5 .2
Central nervous system 4, 1 75 .0 3 .2 1 6.3
Anti-anaemic 3,250.0 2.5 1 2.5
Anti-ulcerant 3,050.0 2.3 1 3 .0
Analgesics 3,000.0 2.3 1 4.5
Anti-diabetic 2,675.0 2. 1 25.0
Anti-asthmatics 2,675.0 2. 1 1 4.5
Nutrients 2,500.0 1 .9 1 5 .0
Harmones/ stimulants 2,300.0 1 .8 1 6.0
Anti-histamine 1 ,975.0 1 .5 1 6.5
Antacids/ anti-flatulents 1 .975.0 1 .5 8.7
Anti-emetic/ anti- 1 ,850.0 1 .4 20.0 nauseant
Cold preparations 1 ,800.0 1 .4 1 2.5
Enzymes 1 ,300.0 1 .0 8.5
Rubs & inhalants 1 ,250.0 1 .0 1 0.0
Vaccines 1 ,000.0 0.8 25.0
Anti-malarial 850.0 0.7 1 0.0
Major Brands
Becosules from Pfizer and Althrocin from Alembic Chemicals continue to hold first and second position, respectively. In FY99, Roxid (Alembic Chemicals), Mox (Rexcel Pharma), Corex (Pfizer) and Taxim (Alkem Labs) are the major gainers registering growth of over 20 per cent yoy. Zinetac (Glaxo), Brufen (Knoll Pharma), Combiflam (Hoechst Marion) are the major losers registering a negative growth of 1 4.2, 1 0.8 and 6.3 per cent yoy respectively (Table 20).
Pharmaceutical Sector: Domestic Companies to Dominate
A study of the quarterly results ended June-99 of 57 pharmaceutical companies comprising nearly 75 per cent of the market (by sales) revealed the fol lowing:
1 82 J SCI IND RES VOL 6 1 MARCH 2002
Table 1 9-Major players in the pharma sector
Rank Major players Market share, per cent Growth, per cent
FY99 FY98 GlaxoWeI !come
2 2 Cipla 3 3 Ranbaxy 4 4 Hoechst
Marion 5 9 Wockhardt 6 1 2 Zydus Cadila
7 8 Lupin Labs 8 6 Alembic
Chemicals 9 1 0 Pfizer 1 0 5 Torrent
Pharma I I . 7 Knoll Pharma 1 2 1 8 Nicholas
Pi ramal 1 3 1 4 Cadila
1 4 1 5 1 6 1 7
1 8
1 9
20
2 1 22 23 24
25
26
27
28 29
30
Ph anna I I Novartis India 20 Alkem Labs 1 7 Sun Pharma 1 6 Aristo
Pharma 1 3 Wyeth
Lederle 1 5 Smithkline
Beecham 24 Dr Reddy's
Labs 1 9 Parke Davis 32 USV 2 1 E Merck 22 Unichem
Labs 27 Rhone
Poulenc 25 German
Remedies 23 Himalya
Drugs 28 !PCA Labs 26 Sarabhai
Chemicals 29 FDC
FY99 6.3
4.2 3.5 3. 1
2.4 2.3 H 2.3
2.2 2.2
2.2 2 . 1
2.0
1 .9 1 .9 1 .9 1 .8
1 .7
1 .6
1 .6
1 .5 1 .4 1 .4 1 .4
1 .2
1 .2
1 .2
1 . 1 1 .0
1 .0
Negative figures are given in parantheses
FY98 7.0
4.2 3.5 3 .2
2 .3 2.0 2.4 2.4
2.2 2.4
2.4 1 .8
1 .8
2.0 1 .5 1 .6 1 . 7
1 .9
1 .8
1 .3
1 .5 0.9 1 .5 1 .4
1 .2
1 :3
1 .3
' .. 1 . 1 1 .5
1 .0
( 1 0.0)
(3. 1 )
4.3 1 5 .5 (4.2) (6.3)
(9,2)
( 1 0.4 ) 1 5 .6
8 .9
(4.0) 28.0
1'1 6 .9 4. 1
( 1 1 . 1 )
( I I . 7)
20.8
58 .9 (6.7)
(8 .5)
( 1 0.0)
(33.3)
(3.0)
Sector net profit increased 9. 1 per cent yoy. However, excluding extra-ordinary items (in case of Rhone Poulenc, Nicholas Piramal , Unichem Labs and Dolphin Labs) and prior year adjustments (Rhone
Table 20-The top 30 brands in pharmaceuticals
Rank Formul ations Company
FY99 FY98 1 Becosules 2
3 4
5 6 7 8
2 Althrocin
6 Corex 3 Sporidex 9 Taxim 7 Betnesol 8 Cifran
1 2 LIV-52
Pfizer Alembic Chemical Pfizer Ranbaxy Alkem Labs Glaxo Ranbaxy Himalaya Drugs
9 14 Voveran Hoechst Marion 10 5 Glucon D Heinz I I 1 0 Dexorange Plus Franco Indian 1 2 22 Mox Rexcel 1 3 1 6 Digene Knol l Pharma
1 4 1 3 Phexin Glaxo
1 5 1 6 1 7 1 8 1 9 20 2 1 22 23 24 25 26 27 28 29 30
4 Zinetac I I Combiflam 1 5 Ciplox 1 7 Ampoxin 26 Ceftum 28 Septran 25 Polybion 1 9 R-Cinex 27 Quadriderm 20 Revital 23 Evion 3 1 Ciprobid 24 Norflox 1 8 Brufen 29 Neurobion 43 Roxid
Glaxo Hoechst Marion Cipla Unichem Labs Glaxo Glaxo E Merck Lupin Labs Fulford Ranbaxy E Merck Cadila Pharma Cipla Knoll Pharma E Merck Alembic Chemical
Negative figures are gi ven in parantheses
Growth, per cent, yoy
6.0 3.4
20.8 1 0.2 20.4 1 7 .8 1 8.6 1 1 .6 1 5 .6 (3.9) 0.4
23.7 7.0 0.7
( 1 4.2) (6.3) 2.3 4.8 1 6.7 1 5 .5 9.5
( 1 .2) I I . I ( 1 .3) 3 .2 1 6.4 4. 1
( 1 0.8) 1 .4
24.6
Poulenc), net profit has jumped by 1 7 .4 per cent yoy. Domestic companies have registered faster growth than MNCs at the net profit level .
Sales have recorded a growth of 1 2 .5 per cent yoy. Domestic sales have remained around 8- 1 0 per cent but export turnover has jumped up substantial ly, in the range of 20-25 per cent. Domestic companies have registered a faster growth mainly due to increasing exports.
Operating profit margin (OPM) excluding other income has risen from 1 4.7 in Q I FY99 to 1 5 . 1 per cent in Q I FY2000 primari ly due to better export realizations. Domestic pharmaceutical companies
K H A N N A & N A G I N C H A N D : GLOBAL SCENA R IO OF PHARMACEUTICA L I N D U STRY 183
have outperformed MNCs mai n l y due to profitable
exports business, i n which the MNCs have relatively
no presence. Lower margins of MNCs also depi ct
increasing competi t ion in the domestic market.
Net profit margins (NPM) have dec l i ned from 9.3 in Q l FY99 to 9 per cent i n Q l FY2000 primari l y
due t o hi gher deprec iat ion charges. Domestic
compan ies have performed better than t he MNCs.
Most of t he MNCs have registered s i ngle digit NPM.
Other income has j umped substant ial l y, up by
24.7 per cent yoy. Amongst major p l ayers, other
income for Glaxo has increased by 73 .2 per cent yoy
due to increase in export i ncent ives and in vestment
i ncome. Novarti s and Pfi zer' s other i ncome has
increased by 65.6 and 63 per cent respectively.
Outlook-The pharmaceutical sector i s expected to register sales growth between 12- 15 per cent in the
2Q, with further improvement on the export front .
Domest ic compan ies are l i kely to cont inue their
superi or performance, helped by profitable exports.
The domestic formulation market is expected to
continue to w itness a squeeze on margi n s [The material
is from the internet] .
H K K H A N N A and N A G I N C H A D
