A Report on Health Care:

Pharmaceutical Sector
Presented to
Dr. Nehal Joshipura
On

30/07/2019
By Group 7
Shreyash Ranjan (20181040)
Smit Ruparel (20181041)
Pranav Sarawagi (20181042)
Rupali Sarawagi (20181043
Mohammed Razi Sayyed (20181044)

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 Table of Content

Sr.no Description Pg.no

1 Introduction to Pharmaceutical Sector 3-4

2 Players in Pharmaceuticals Sector 4-5

Factors affecting demand and supply in

3 5-6
Pharmaceuticals Sector

4 Porter’s Five Forces Analysis 6-7

5 Pestle Analysis of Pharmaceuticals Sector. 7-9

6 Impact of Domestic economy 9-10

7 Impact of Foreign economy 10

6 Summary 11

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Introduction to Pharmaceutical Sector

India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies
over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and
25 per cent of all medicine in UK.

India enjoys an important position in the global pharmaceuticals sector. The country also has a large
pool of scientists and engineers who have the potential to steer the industry ahead to an even
higher level. Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS
(Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.

Market Size

The pharmaceutical sector was valued at US$ 33 billion in 2017. The country’s pharmaceutical
industry is expected to expand at a CAGR of 22.4 per cent over 2015–20 to reach US$ 55 billion.
India’s pharmaceutical exports stood at US$ 17.27 billion in FY18 and have reached US$ 19.14 billion
in FY19. Pharmaceutical exports include bulk drugs, intermediates, drug formulations, biologicals,
Ayush& herbal products and surgicals.

Indian companies received 304 Abbreviated New Drug Application (ANDA) approvals from the US
Food and Drug Administration (USFDA) in 2017. The country accounts for around 30 per cent (by
volume) and about 10 per cent (value) in the

Investments and Recent Developments

The Union Cabinet has given its nod for the amendment of the existing Foreign Direct Investment
(FDI) policy in the pharmaceutical sector in order to allow FDI up to 100 per cent under the
automatic route for manufacturing of medical devices subject to certain conditions.

The drugs and pharmaceuticals sector attracted cumulative FDI inflows worth US$ 15.98 billion
between April 2000 and March 2019, according to data released by the Department of Industrial
Policy and Promotion (DIPP).

Some of the recent developments/investments in the Indian pharmaceutical sector are as follows:

 Between Jul-Sep 2018, Indian Pharmaceuticals sector witnessed 39 PE investment deals worth
US$ 217 million.
 Investment (as % of sales) in research & development by Indian Pharmaceuticals companies*
increased from 5.3 per cent in FY12 to 8.5 per cent in FY18.
 In 2017, Indian pharmaceutical sector witnessed 46 merger & acquisition (M&A) deals worth
US$ 1.47 billion
 The exports of Indian pharmaceutical industry to the US will get a boost, as branded drugs worth
US$ 55 billion will become off-patent during 2017-2019.

Government Initiatives

Some of the initiatives taken by the government to promote the pharmaceutical sector in India are
as follows:

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  In October 2018, the Uttar Pradesh Government announced that it will set up six
Pharmaceuticals parks in the state and has received investment commitments of more than Rs
5,000-6,000 crore (US$ 712-855 million) for the same.
 The National Health Protection Scheme is largest government funded healthcare programme
in the world, which is expected to benefit 100 million poor families in the country by providing
a cover of up to Rs 5 lakh (US$ 7,723.2) per family per year for secondary and tertiary care
hospitalisation. The programme was announced in Union Budget 2018-19.
 In March 2018, the Drug Controller General of India (DCGI) announced its plans to start a
single-window facility to provide consents, approvals and other information. The move is
aimed at giving a push to the Make in India initiative.
 The Government of India is planning to set up an electronic platform to regulate online
pharmacies under a new policy, in order to stop any misuse due to easy availability.
 The Government of India unveiled 'Pharmaceuticals Vision 2020' aimed at making India a
global leader in end-to-end drug manufacture. Approval time for new facilities has been
reduced to boost investments.
 The government introduced mechanisms such as the Drug Price Control Order and the
National Pharmaceutical Pricing Authority to deal with the issue of affordability and availability
of medicines.

Road Ahead

Medicine spending in India is projected to grow 9-12 per cent over the next five years, leading India
to become one of the top 10 countries in terms of medicine spending.Going forward, better growth
in domestic sales would also depend on the ability of companies to align their product portfolio
towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-
depressants and anti-cancers that are on the rise.

The Indian government has taken many steps to reduce costs and bring down healthcare expenses.
Speedy introduction of generic drugs into the market has remained in focus and is expected to
benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programmes,
lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

Players in Pharmaceuticals Sector

1. Sun Pharmaceutical – Market Cap in 2019, is Rs 99,992.28 Cr.

Sun Pharmaceutical Industries Limited (NSE: SUNPHARMA, BSE: 524715) is an Indian multinational
pharmaceutical company headquartered in Mumbai, Maharashtra that manufactures and sells
pharmaceutical formulations and active pharmaceutical ingredients (APIs) primarily in India and the
United States. The company offers formulations in various therapeutic areas, such as cardiology,
psychiatry, neurology, gastroenterology and diabetology.

2. Lupin Ltd. – Market Cap in 2019 is Rs 33,440.62 Cr.

Lupin Limited is a multinational pharmaceutical company based in Mumbai. It is the 12th-largest

company by market capitalization and the eighth-largest generic pharmaceutical company by

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revenue globally. The company's key focus areas include paediatrics, cardiovascular, anti-infectives,
diabetology, asthma and anti-tuberculosis.

3. Dr.Reddy’s Laboratories – Market Cap in 2019, is Rs 42204.54 Cr.

Dr. Reddy's Laboratories is an Indian multinational pharmaceutical company based in Hyderabad,

Telangana, India. The company was founded by Anji Reddy, who previously worked in the mentor
institute Indian Drugs and Pharmaceuticals Limited, of Hyderabad, India.

4. CIPLA – Market Cap in 2019 is Rs 37,502 cr

Cipla Limited is an Indian multinational pharmaceutical and biotechnology company, headquartered

in Mumbai, India. Cipla primarily develops medicines to treat respiratory, cardiovascular disease,
arthritis, diabetes, weight control and depression; other medical conditions

5. Aurobindo Pharmaceuticals Ltd – Market Cap in 2019 is Rs 34,473.7 cr.

Aurobindo Pharmaceuticals Limited is a pharmaceutical manufacturing company headquartered in

HITEC City, Hyderabad, India. The company manufactures generic pharmaceuticals and active
pharmaceutical ingredients. The company’s area of activity includes six major therapeutic/product
areas: antibiotics, anti-retrovirals, cardiovascular products, central nervous system products,
gastroenterologicals, and anti-allergics

Factors affecting demand and supply in Pharmaceuticals Sector

 Changing Disease Profile- Due to urbanisation and changes in lifestyle of people in the form of
fat rich and excess salt and calories, decreased physical activities, habits of tobacco and alcohol
and psychological stress have led to various diseases. Adding to the existing diseases like cancer,
HIV, tuberculosis etc.
 Increasing Health Consciousness- Health consciousness among the people is increasing due to
increasing literacy rate (52.2% in 1991 to 74.2% in2011) and awareness due to media. This has
resulted in an increased awareness- and the need for better and high quality drugs.
 Legal Factors - The pharmaceutical industry has to comply with various parameters, namely:
Manufacture and import, Patents, Animal testing, clinical trials and marketing, labelling and
packing, Price, and Quality. From the he above the most significant are the patents and price
control.
 Patent Related Factors - India has, with an amendment to the Indian Patent Act in 1999 allowed
acceptance of applications for product patents for drugs and medicines. Though not an Indian
regulation, but a regulation of the United States of America, this is relevant for the Indian
Pharmaceutical Industry as, they would be bound by it, in case they export or supply generic
drugs or medicines to US, which is a major market for the Indian pharmaceutical industry.
 Price Related Factors - The Drag Price Control Order (DPCO) is an order issued by the
Government of India under the Essential Commodities Act to regulate the prices of drags. The
Order inter alia provides the list of price controlled drugs, procedures for fixation of prices of
drugs, method of implementation of prices fixed by government, penalties for contravention of
provisions etc. It is administered by the National Pharmaceutical Pricing Authority (NPPA).

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 Other Economic Factors include Low Accessibility to Drugs due to Low Income and Poor
Infrastructure and Poor availability of finance to the companies
 Medical Insurance - Health insurance is a safeguard against rising medical costs. Hence health
insurance has become a necessity in today's world. The cost of medical care and treatment has
soared to new heights in recent years and is expected to rise even further in the years to come.
Health insurance can shield an individual from the risk of having to bear the enormous medical
costs in case of a major injury or life-threatening illness. Health insurance can be a good
stimulant for the overall healthcare sector and certainly to the pharmaceutical industry. One
step that could potentially drive down premiums was to make health cover mandatory.

Porter’s Five Forces Analysis:

Threat of new Entrants (moderate)

 Extensive cost associated with establishing a manufacturing setup, R&D, marketing sales and
distribution
 A nod for 100% Foreign Direct Investments (FDI) is given by union cabinet under the automatic
route for manufacturing of medical devices subject to certain conditions.
 However, companies have to abide by a number of sector specific laws Drugs & cosmetics Act,
1940 & The Patents Act, 2005 and strong Intellectual property regulations
 Getting access to distribution channel is difficult and also to capture a market share is difficult as
Pharmaceuticals industry consumers are sensitive to products use
 The company may face low margin of profits due to government pricing policies – Drug Price
Control Order
 The ongoing rumor is that the United States Food and Drug Administration is trying to block the
growth of the companies.

Power of Suppliers (Low)

 Pharmaceuticals products requires various types of organic chemicals and there are number of
suppliers present in the market hence it reduces their bargaining power
 Threat of forward integration is low as huge investments are required to set up the
manufacturing units & cost associated with R&D

Power of Buyers (moderate)

 End user of the product in Pharmaceuticals is different from the influencer (Doctor), consumer
is left with little or no choice to buy the brand or product what the doctors have prescribed
 Hospitals and other health care organizations buy in bulk quantities and exert pressure on
pharmaceutical companies to keep prices in check but individual customers have very little to
none
 Access to internet which allows the buyers to research on drugs in addition to the prescription
provided by their doctors, gives them more bargaining power

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Threat of Substitutes (medium to low)

 Increasing awareness and trend in usage of Naturopathy, Ayurveda and Homeopathy

 If the drug is still in its patent period, there is no substitute. However, as the patent period
expires, its generic production begins and a no. of substitutes develop
 Promotion of healthier lifestyle such as balanced diet, exercise, yoga and other physical
activities are substitutes to many drugs

Competitive Rivalry (High)

 A recent trend of mergers & acquisition, Indian Pharmaceutical industry witnessed 46 M&A in
2017 which states there is more of competition prevailing in the market
 Technological advancements has also led to further increase in competition as companies have
no option other than to adopt the new technologies
 India’s cost of production is approximately 33 per cent lower than that of the US which provides
a competitive advantage to Indian pharmaceuticals industry
 The exports of Indian pharmaceutical industry to the US will get a boost, as branded drugs worth
US$ 55 billion will become off-patent during 2017-2019 which will increase the competition
domestically as well for exports
 To compete in the market strategies adopted by companies are cost leadership (Sun
Pharmaceuticals is trying to achieve cost leadership by vertical integration) , differentiation (Dr.
Reddy acquired Octoplus N.V, to get access to the technology for the formulation of complex
injectable, focusing on new markets(Sun Pharmaceuticals decided to focus on specialty and
chronic therapies such as neurology, oncology, dermatology segments)

Pestle Analysis of Pharmaceuticals Sector.

Political factors

 The Minister in charge of the pharmaceuticalsindustry had been threatening to impose even
more stringent Price Control on the industry than before. Thus it is throwing many investment
plans into the doldrums.
 DPCO nullifies the market forces from encouraging competitive pricing of goods dictated by the
market. Now the pricing is done by the Government, based on the approved costs irrespective of
the real costs.
 The country goes in for the IPR (Intellectual Property Rights) regime which is popularly known as
the Patent Act. This Act impacts the Pharmaceutical Industry the most. Thus an Indian company
could not escape paying a patent fee to the inventor of a drug by manufacturing it using a
different chemical route. Indian companies went against this law and used the reverse-
engineering route to invent alternate manufacturing methods. A lot of money was saved this
way. This also encouraged competing company to market their versions of the same drug. This
means that the impurities and trace elements that were found in different brands of the same
substance were different both in qualification as well as in quantum.

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 Therefore many brands of the same medicine were truly different. Here Branding actually meant
quality and purer brand actually had pure active ingredients and lesser or less toxic impurities.
 Product patent regime will now eliminate all this. Patented drug would be manufactured using
the same chemical routes and would be manufactured by the inventors or licentiates using the
chemicals with same specifications. Hence all the brands with the same active ingredient will not
have any difference in purity and impurities. The different brands will have to compete on the
basis of non-input-related innovations such as packaging, colour, flavors etc.

Economical Factors

 Indians spends a very small proportion of their income on healthcare. This has stunted the
demand and therefore the growth of the industry.
 Per capita income of avg. Indian as low as Rs. 12,890, therefore, spending on the healthcare
takes a low priority. An Indian visits a doctor only when there is an emergency. This has led to a
flourishing of unqualified doctors and spread of non-standardized medication.
 The number of Registered Medical practitioners is low because of this. Due to which the reach
of Pharmaceuticals is affected adversely. There are nearly 5million Medical shops. Also this
affects adversely the distribution of medicines and also adds to the distribution costs. India is a
high interest rate regime. Therefore the cost of funds is double that in America which adds to
the cost of goods.
 Adequate storage and transportation facilities for special drugs are lacking. Studies had
indicated that nearly 60% of the Retail Chemists do not have adequate refrigeration facilities
and stored drugs under sub-optimal conditions. Thus affecting the quality of the drugs
administered and of course adds to the costs.
 India has poor roads and railway network. Therefore, the time of transportation is higher. This
calls for higher inventory carrying costs and longer delivery time. All this adds to the
uncalculated costs. It’s only during the last couple of years that good quality highways have
been constructed.

Socio-cultural Factors

 Poverty and associated malnutrition dramatically affected the incidence of Malaria and TB,
preventable diseases continued to play havoc in India for decades even after they were
eradicated in other countries.
 Poor Sanitation and polluted water sources ended the life of about 1 million children who were
under the age of five. In India people preferred using household treatments which handed down
for generations for common ailments. The use of magic/ tantrics/ hakims is still prevalent in
India.
 Increasing pollution has added to the healthcare problem. Smoking, drinking and poor oral
hygiene is still adding to the healthcare problem. Large joint families transmit communicable
disease among the members.
 Cattle-rearing encourage diseases that are communicated by animals. Early child bearing affects
the health standards of women and children. Ignorance of inoculation and vaccination has
prevented the eradication of diseases like polio, chicken-pox, small-pox, mumps and measles.

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Technological Factors

 Advanced machines have dramatically increased the output and reduced the cost.
Computerization has boosted the efficiency of the Pharmaceuticals Industry
 Newer medication, active ingredients are being discovered. In January 2005, the Government of
India had more than 10,000 substances for patenting.
 Ayurveda is now a well-recognized science and hence is providing the industry with a cutting
edge. Advances in Bio-technology, Stem-cell research have given India a step forward.
 Humano-Insulin, Hepatitis B vaccines, AIDS drugs and many such molecules have given the
industry a pioneering status.
 Newer drug delivery systems are the innovations of the day. The huge unemployment in India
prevents industries from going fully automatic as the Government as well as the Labour Unions
voice complains against such establishments.

Legal Factors

 The pharmaceutical industry is now a highly regulated and compliance enforcing industry. As a
result of which there are immense legal, regulatory and compliance overheads for the industry
to absorb. This tends to restrict it’s dynamism but in recent years, government has begun to
request industry proposals on regulatory overheads to encourage innovation in the face of
mounting global challenges from external markets.
 In Pharmaceutical industry, there is huge PSU segment which is highly inefficient. The
Government puts the surpluses generated by efficient units into the price equalization account
of inefficient units thus unduly subsidizing them. On a long term basis this has made practically
everybody inefficient.
 The Government provides extra drawbacks to some units located in specified area, providing
them with subsidies that are unfair to the rest of the industry, bringing in a skewed development
of the industry. As a result, Pharmaceutical units have come up at place unsuitable for a best
cost manufacturing activity.

Impact of Domestic economy

 India’s domestic pharmaceutical industry was around $11 billion in 2009 and is estimated to
grow approximately to $55 million dollars by 2020 but the market has slowed down consistently
over the last 5 years from 12-15 per cent in 2015 to 5-6 per cent in 2017.The market growth is
driven largely by volume with an average price increase if 1-2 per cent. The industry has the
potential to become a $70 million by 2020 as per Mckinsey if there is an aggressive growth
situation. India produces more than 20% of the generic products. Indian companies
 Despite the growth being slowed down, companies as still catering to healthcare needs, and
improving the quality of lives. The volume of government expenditure on healthcare has
increased from $22 Billion in 2012 to $53 Billion in 2016 and will keep on increasing due to high
disease burden in India and better access to healthcare. The market is likely to be impacted by
the following factors:
 Increasing Government Regulations: The recently proposed pharmaceutical law by the
government has impacted the manufacturing, supply chain to pricing and customer engagement
in the sector. As government play a vital role in shaping the regulations, the ease of doing

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 business can be improved for this sector. The strict government norms can bring uncertainty for
this sector.
 Increased engagement of Doctors: Doctors are the main influencers while considering the
treatment and the medicine choice. Technology based remote healthcare will continue to
expand, significantly increasing the reach and influence the doctors.
 Increased patient involvement: Patients nowadays want to be more involved in their choice of
preference. Patients before consulting to any doctor or visiting the hospital ask the reviews
before visiting and check on internet about hospital reviews.
 Role of Pharmacist: The market will show the rise in the number of Pharmacy chains, E-
Pharmacy chains will help to generate more investments.

Impact of Global economy

 Consolidation of Distributors and Pharmacy Chains: This has let the fall into the process of drugs.
 Increased product approvals and Competition from the Global market: The number of filings and
drug approvals is rising sharply, with an increasing number of Indian companies (e.g., accounting
for around 40 per cent of the ANDA approvals in 2017) vying for a share of the same pie . This
will keep up the competition (and consequently, price erosion) in the coming year.
 Increasing price control: Advancing the specialty / differentiated drugs business model: While
pharmaceutical companies could optimize the core generic portfolio across dosage forms, most
have begun to embrace the “next‐gen” specialty/differentiated assets portfolio. This will require
purposefully reinventing the operating model for generics companies, pursuing a systematic
portfolio and investment strategy (using partnership, analytics, technology, etc.), strengthening
development and launch processes (efficiency in trial design, setup and execution) and building
new innovator‐like functional strengths (pricing, launch, market access, regulatory, etc.).
 Embracing Digital and advanced analytics for accelerated growth: The recent technological shift
has prompted the rapid rise of Advanced Analytics (AA), which is enabling companies to surface
insights even with complex and unstructured data sets. Globally, in the pharmacy industry we
have seen use cases of AA driving growth and productivity across the pharmaceuticals value
chain including R&D (over 10 per cent increase in clinical trial productivity), Manufacturing
(more than 30 percent improvement in yields and throughput), Quality (over 15 per cent
reduced deviations), Supply Chain (over 20 percent increase in customer service levels), Sales
(around 30 per cent improvement in sales force conversion rate), etc10. In 2017, some India
pharmaceutical companies experimented with AA through pilot scale test cases with promising
results. We expect that they will advance the Digital and AA agenda on a larger scale in the years
to come.
 Institutionalizing quality and compliance excellence : The last few years have seen Indian
pharmaceutical manufacturers experience intense regulatory scrutiny and numerous compliance
challenges in meeting the evolving cGMP requirements. However, similar trends are seen at
leading Pharmaceuticals companies in other major manufacturing hubs as well proprietary
Pharmaceuticals operations benchmarking 14 China, Europe, North America. Many global
Pharmaceuticals companies have gone through a similar learning curve of multi‐year and
network‐wide remediation.

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Summary

The Indian Pharmaceutical industry was valued at USD 33 Billion in 2017.The exports from India
alone stood at USD 17.27 Billion.The industry is expected to grow at a CAGR of 22.4% between 2015-
2020 and achieve a market size of USD 55 Billion, of which the domestic generic market is expected
to contribute USD 27.9 Billion. India has also become a popular destination for outsourced contract
research and manufacturing service. The contract manufacturing and research Industry is expected
to have grown at 18-20 % CAGR in 2018, and is expected to have a market size of USD 18 Billion.

The industry is typically involved in four types of businesses- marketing of generic medicines,
marketing of branded generic medicines, marketing of innovator medicines, and manufacture and
supply of active pharmaceutical ingredients which are used as ingredients in medicines as well as
finished formulations.

However, the industry is primarily focused on manufacturing of generic medicine and export of bulk
drugs. The focus on development of new drugs began only with introduction of new Patent regime
in 2005 which permitted patenting of pharmaceutical products. Thus, while many domestic
companies are investing substantial amounts in drug research and development, India is still not an
innovator’s market.

As the pharmaceutical industry operates in the sensitive health sector, there are a plethora of laws
which regulate it. Right from manufacture of drugs to advertisement and promotion, each step in
drug manufacturing and marketing process is regulated. As mentioned earlier, India introduced a
patent protection regime in 2005 to protect both process as well as product innovation. India now
also has its own competition law to address anti-trust issues which arise in course of day to day
operation of the industry as well as owing to the numerous collaborations which the Industry is
witnessing.

The industry has witnessed numerous changes in the regulatory regime in the recent past. A new
price control order has been enforced and prices of all essential medicines under the National List of
Essential Medicines, 2015 have been brought under price control. India has implemented a
compulsory primary, secondary and tertiary bar-coding requirement on all its exports in a phased
manner. A new compensation regime has been introduced for clinical trial subjects wherein grounds
for compensation have been specified. A voluntary uniform code for marketing practices of
pharmaceutical companies was introduced sometime back to check improper promotions of drugs
before medical practitioners. A large number of fixed dose combination drugs have been banned
due to their unapproved use.

Backed by a strong intellectual property and regulatory framework, the Indian pharmaceutical
industry seems poised to achieve greater heights

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Sources:

http://ficci.in/spdocument/22944/india-pharma-2018-ficci.pdf

https://www.iipta.com/5-challenges-faced-by-the-pharma-industry/

https://www.rediff.com/money/2004/aug/27pharma.htm

https://www.ibef.org/download/Pharmaceuticals-July-2019.pdf

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