Overview of Indian pharmaceutical industry
A PROJECT REPORT ON
OVERVIEW OF INDIAN PHARMACEUTICAL INDUSTRY
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Overview of Indian pharmaceutical industry
CERTIFICATE FROM PROJECT GUIDE
This is to certify that, a student of MBA (Marketing), , has worked under my guidance and supervision and successfully completed the project. This Project has the requisite standard and to the best of my knowledge no part of it has been reproduced from any other summer project report, monograph or book.
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Overview of Indian pharmaceutical industry
DECLARATION
The information submitted is true and original to the best of my knowledge.
Signature of the Student:
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Overview of Indian pharmaceutical industry
ACKNOWLEDGEMENT
The work that I have presented today to you stands as a testimony to the sincere efforts put in by me and to the guidance and help given to me by so many people directly or indirectly, for whom I would like to thank from the abyss of my heart. The joy of completion is never complete till the fruits are shared with the ones who helped me to achieve my aim to some extent.
I would like to express my sincere gratitude to my project guide Prof. Subramanian for giving guidance and taking active interest throughout my project work. My heartfelt thank to for providing me with the infrastructure for the project work and also to the entire faculty whose knowledge has immensely contributed in the preparation of the project.
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Overview of Indian pharmaceutical industry
TABLE OF CONTENT Sr.No.
TOPIC
Page No.
1
EXECUTIVE SUMMARY
5
2
HISTORY
8
3
THE INDIAN PHARMACEUTICAL INDUSTRY
11
4
SECTOR’s INVOLVED
13
5
TYPES OF DRUG SYSTEMS IN INDIA
14
6
TYPES OF PRODUCTS
16
7
FACTS & FIGURES
18
8
FUNCTIONS OF A PHARMACEUTICAL COMPANY
22
9
MAJOR PLAYERS
26
10
SWOT
29
11
MICHAEL PORTER’S FIVE FORCES MODEL OF INDIAN PHARMACEUTICAL INDUSTRY
35
12
TRENDS AND STRATEGIES
39
13
MARKETING OF PHARMASEUTICAL PRODUCTS
40
14
RESEARCH AND DEVELOPEMENT
44
15
INTELLECTUAL PROPERTY RIGHTS & DPCO
56
16
CONCLUSION
61
17
FUTURE FOR THE PHARMACEUTICAL INDUSTRY
62
18
BIBLIOGRAPHY
63
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Overview of Indian pharmaceutical industry
Executive summary: The Indian pharmaceutical industry valued at $12 billion has portrayed tremendous progress with reference to infrastructure development, technology base creation and a wide range of production. The domestic market in India is estimated to be at US$ 12 billion by 2010. The pharmaceutical industry produces bulk drugs belonging to major therapy groups. India ranks 4th worldwide accounting for 8 per cent of the world's production (In terms of Volume) and 13 in terms of value. The industry has developed Good Manufacturing Practices (GMP) facilities for the production of different dosage forms. The pharma industry exports drugs and pharmaceuticals worth over $ 3.8 billion. It ranks 17th in terms of export value of bulk actives and dosage. Indian exports cover more than 200 countries including the highly regulated markets of USA, Europe, Japan and Australia. Certain bulk drugs &their formulations are subject to price control under DPCO. Presently, under DPCO, 1995 there are 74 bulk drugs and their formulations under price control covering approximately 40% of the total market. Research & Development is the key to the future of pharmaceutical industry. The R & D expenditure by the Indian pharmaceutical industry is around 1.9% of the industry’s turnover. However, now that India is entering into the Patent protection area, many companies are spending relatively more on R & D. Success factors of the Indian pharmaceutical industry can be enumerated as Low cost based, skilled labour force and good manufacturing facilities, Understanding of International regulatory framework & Research & development. The driving force that will change the character and shape of the pharmaceutical industry will be the impending Product Patent regime. At present, under the Indian Patents Act, 1970, there is no Product Patent protection for pharmaceuticals. There is only Process Patent protection.
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Overview of Indian pharmaceutical industry
India should go ahead &accept product patent, as it will lead to Development of Science and Technology, attract Foreign Investments in Technology and Research, retain scientific talent in India.
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Overview of Indian pharmaceutical industry
“Indian pharmaceutical industry can be defined as a success story providing employment to millions and ensuring that essential drugs are available at affordable prices to the vast population of Indian sub-continent”
-RICHARD GESTER (Economist)
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Overview of Indian pharmaceutical industry
History: The earliest drugstores date 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 of the 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 late 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, with the UK, US, Belgium and the Netherlands following suit. Legislation was enacted to test and approve drugs and to require appropriate labeling. Prescription and nonprescription drugs became legally distinguished from one another as the pharmaceutical industry matured. The industry got underway in earnest from the 1950s, due to the development of systematic scientific approaches, understanding of human biology (including DNA) and sophisticated manufacturing techniques. Numerous new drugs were developed during the 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 (Thorazine), Haldol (Haloperidol) and the tranquilizers ushered in the age of psychiatric medication. Valium (diazepam), 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 US FDA. Such calls increased 9
Overview of Indian pharmaceutical industry
in the 1960s after the thalidomide tragedy came to light, in which the use of a new tranquilizer in pregnant women caused 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. Phamaceutical 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 protection. The industry remained relatively small scale until the 1970s when it began to expand at a greater rate. Legislation allowing for strong patents, to cover both the process of manufacture and the specific products came in to force in most countries. By the mid1980s, small biotechnology firms were struggling for survival, which led to the formation of mutually beneficial partnerships with large pharmaceutical companies and a host of corporate buyouts of the smaller firms. Pharmaceutical manufacturing became concentrated, with a few large companies holding a dominant position throughout the world and with a few companies producing medicines within each country. The pharmaceutical industry entered the 1980s pressured by economics and a host of new regulations, both safety and environmental, but also transformed by new DNA chemistries and new technologies for analysis and computation.[citation needed] Drugs for heart disease and for AIDS were a feature of the 1980s, involving challenges to regulatory bodies and a faster approval process. Managed care and Health maintenance organizations (HMOs) spread during the 1980s as part of an effort to contain rising medical costs, and the development of preventative and maintenance medications became more important. A new business atmosphere became institutionalized in the 1990s, characterized by mergers and takeovers, and by a dramatic increase in the use of contract research organizations for clinical development and even for basic R&D. The pharmaceutical industry confronted a new business climate and new 10
Overview of Indian pharmaceutical industry
regulations, born in part from dealing with world market forces and protests by activists in developing countries. Animal Rights activism was also a problem. Marketing changed dramatically in the 1990s, partly because of a new consumerism. [citation needed] The Internet made possible the direct purchase of medicines by drug consumers and of raw materials by drug producers, transforming the nature of business. In the US, Direct-to-consumer advertising proliferated on radio and TV because of new FDA regulations in 1997 that liberalized requirements for the presentation of risks. The new antidepressants, the SSRIs, notably Fluoxetine (Prozac), rapidly became bestsellers and marketed for additional disorders. Drug development progressed from a hit-and-miss approach to rational drug discovery in both laboratory design and natural-product surveys. Demand for nutritional supplements and so-called alternative medicines created new opportunities and increased competition in the industry. Controversies emerged around adverse effects, notably regarding Vioxx in the US, and marketing tactics. Pharmaceutical companies became increasingly accused of disease mongering or over-medicalizing personal or social problems. There are now more than 200 major pharmaceutical companies, jointly said to be more profitable than almost any other industry, and employing more political lobbyists than any other industry. Advances in biotechnology and the human genome project promise ever more sophisticated, and possibly more individualized, medications.
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Overview of Indian pharmaceutical industry
THE INDIAN PHARMACEUTICAL INDUSTRY: The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously. Playing a key role in promoting and sustaining development in the vital field of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world. The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. It is an extremely fragmented market with severe price competition and government price-control. 12
Overview of Indian pharmaceutical industry
The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These units produce the complete range of pharmaceutical 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 pharmaceutical formulations. For the first time in many years the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime, is well set to mark its place as a Sunrise Industry.
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Overview of Indian pharmaceutical industry
Sector’s involved
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Overview of Indian pharmaceutical industry
330 organized players contribute to 70% of total sales.
Types of drug systems in India Ancient civilization allowed India to develop various kinds of medical and pharmaceutical systems. In addition to the allopathic system, which is prevalent in the United States, Japan, and Europe, the following types of medical and pharmaceutical systems are used by the Indian people: ayurvedic, unani, siddha, and homeopathy .
Ayurveda Ayurveda translates as the “science of life.” It encompasses fundamentals and philosophies about the world and life, diseases, and medicines. The knowledge of ayurveda is compiled in Charak Samhita and Sushruta Samhita. The curative treatment lies in drugs, diet, and general mode of life. Siddha. The siddha system is one of the oldest Indian systems of medicine. Siddha means “achievement.” Siddhas were saintly figures who achieved healing through the practice of yoga. The siddha system does not look merely at a disease but takes into account a patient’s age, sex, race, habits, environment, diet, physiological constitution, and so forth. Siddha medicines have been effective in curing some diseases, and further work is needed to truly understand why this system works. Unani. The unani system originated in Greece and progressed to India during the medieval period. It involves promotion of positive health and prevention of disease. The system is based on the humoral theory, i.e., the presence of blood, phlegm, yellow bile, 15
Overview of Indian pharmaceutical industry
and black bile. A person’s temperament is accordingly expressed as sanguine, phlegmatic, choleric, or melancholic. Drugs derived from plant, metal, mineral, and animal origin are used in this system.
Homeopathy Homeopathy flourished in Germany in the seventeenth and eighteenth centuries. In India, it is one of the commonly used methods to treat diseases. Physicians in the time of Hippocrates (400 BC) first observed that some substances produce symptoms of conditions that they were then used to treat. On the basis of this finding, a homeopathic medicinal agent, which can produce artificial symptoms in healthy human beings, can cure a similar set of symptoms of natural diseases. It normally uses a single medicine, and the dosage is minimal—just enough to cure the disease.
Yoga and Naturopathy Yoga and naturopathy are ways of life. In naturopathy, one applies simple laws of nature. It advocates proper attention to eating and living habits. It also involves hydrotherapy, mud packs, baths, massage, and so forth. Yoga consists of eight components: restraint, observance of austerity, physical postures, breathing exercises, restraining of the sense organs, contemplation, meditation, and samadhi. Increasing interest exists in revisiting these ancient drug systems. The Department of Indian Systems of Medicines and Homeopathy was established in 1995 as a separate department in the Ministry of Health and Family Welfare. One of the organization’s goals is to prepare standards for ayurvedic, unani, sidhha, and homeopathy drugs. Good manufacturing practices for ayurvedic drugs are at the final stage. The department is actively pursuing a proposal to establish a medicinal-plant board to enhance the availability of quality raw materials, prepare a database of medicinal plants, and collect information from ancient texts.
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Overview of Indian pharmaceutical industry
Types of products:
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Overview of Indian pharmaceutical industry
Specialty Pharma: Industry Landscape Convergence is changing traditional market segments. Although much of specialty pharma consists of hybrid players, the sector can be segmented into three subcategories Specialty Marketing • Improve market visibility and branding of smaller and mid-size proprietary products, and exploit revenue synergies 18
Overview of Indian pharmaceutical industry
•
Strength of sales and marketing infrastructure drives growth
•
Reduced technology, market, and litigation risk
•
May be dependent on one or two products or product platforms
Drug Delivery • Create more effective delivery mechanisms for existing drugs and solutions for product life cycle management for branded companies •
High R&D spend and technology risk
•
Develop strategic alliances and partnerships for access to pipeline candidates and therapeutic area platforms
•
IP drives continued industry leadership
Generics • Market generic versions of branded drugs •
Record numbers of drugs coming off patent
•
First to file—first to market gains all important 6-month market exclusivity
•
Litigation costs continue to rise
•
Highly regulated industry
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Overview of Indian pharmaceutical industry
FACTS & FIGURES Globally, India is •
4th in terms of volume (8% of world’s production)
•
13th in terms of value
•
Manufactures over 400 bulk drugs & 60,000 formulations
•
Highly fragmented with 30,000 players
•
330 companies holds 70% of the market share
•
Witnessing a growth rate of about 10% over the last few years.
•
Domestic consumption 57%
•
Between 2007-08 and 2011-12, the Indian domestic pharmaceutical market is
Export revenues 43%.
expected to grow at a CAGR of nearly 16%. •
The size of the domestic pharmaceutical market is larger than export market. However, owing to the growth of global generics market, stringent price controls in the domestic market, and better margins, the export market is growing much faster than the domestic market.
•
Traditional branded generics presently dominate the Indian pharmaceutical market but the future will see strong growth in the specialty branded generics and patented drug segments.
•
Drugs for diabetes and cardiovascular diseases are expected to see the fastest growth among all therapy areas during 2007-2011.
•
The retail pharmaceutical market in India is presently highly unorganized; however, a vast opportunity exists for the organized market.
•
Over the last few years, Cipla, Ranbaxy and GlaxoSmithKline are controlling the top three positions in the Indian pharmaceutical market.
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Overview of Indian pharmaceutical industry
Table I: Health statistics of India (6). Subject Population
Year of Reference May 2000 2050 Crude birth rate(per 1000 population) 1998 Crude death rate (per 1000 population) 1998 Expectation of life at birth: male 1996–2001 Expectation of life at birth: female 1996–2001 Number of medical colleges in India 1999–2000 Total admission capacity for medicine 1998–1999 Number of pharmacy institutions imparting degrees in pharmacy 1999–2000 Number of pharmacy institutions imparting diplomas in pharmacy 1999–2000 Total admission capacity for pharmacy 1997–1998 Number of doctors registered 1994–1995 Number of hospitals 1994–1995 Number of qualified nurses 1998–1999
Particulars 1000 million * 1533 million* * 26.4 * 9.0 62.4 63.4 167 17,000 112 325 5610 489,189 13,692 607,376
Health statistics of India Table I summarizes the health statistics of India (6). India is the second largest country in the world, with a population of approximately 1 billion. The population is expected to grow to about 1.5 billion by 2050. Life expectancy at birth for males and females is 62.4 and 63.4 years, respectively, which is much lower than that of the United States. The total admission capacities for medical and pharmacy institutions of higher learning are 17,000 and 5610, respectively. India has approximately 14,000 hospitals. The number of registered doctors and nurses is about 490,000 and 600,000, respectively.
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Overview of Indian pharmaceutical industry
Table II: Value of production of bulk drugs and formulations in India during the past decade (6). BULK DRUGS Value in $ Millions** % Growth 1 83.7
Value Rs. in Cr 900
Year 1991–92 25.0 1992–93 25.0 1993–94 15.0 1994–95 15.0 1995–96 15.0 1996–97 15.0 1997–98 15.0 1998–99 15.0 1999–00* 12.5 2000–01* 12.5
Value Rs. in Crores 24.0
Formulations Value in Millions** Growth 4800 979.6
1150
234.7
27.8
6000
1224.5
1320
269.4
14.8
6900
1408.2
1518
309.8
15.0
7935
1619.4
1822
371.8
20.0
9125
1862.2
2186
446.1
19.9
10494
2141.6
2623
535.3
20.0
12068
2462.9
3148
642.5
20.0
13878
2832.3
3777
770.8
16.7
15860
3236.7
4344
886.5
15.0
17843
3641.5
* Estimated. **Currency exchange rate: Rs 49 _ US $1.00 or Rs 1 crore _ $0.204082 million.
Table III: Total value of imports and exports of drugs and pharmaceuticals from 1991–1992 to 1999–2000 (6). Total Imports Year
Total Exports
Rupees % Growth over in Crores $ Million Previous Year
1991–92 1992–93 1993–94 1994–95 1995–96 1996–97 1997–98 1998–99 1999–2000
807.4 1137.4 1440.0 1527.0 1867.0 1039.2 1447.1 1446.8 1502.0
164.8 232.1 293.9 311.6 381.0 212.0 295.3 295.3 306.5
Rupees % in Crores $
— 41 27 6 22 - 44 39 _0.02 4
Million 1489. 5 1541.5 1991.7 2465.3 3443.2 4340.0 5353.0 6153.0 6631.0
Growth over Previous Year 304.0 314.6 406.5 503.1 702.7 885.7 1092.5 1255.7 1353.3
— 3 29 24 40 24 23 15 8
Currency exchange rate: Rs 49 _ US $1.00 or Rs 1 crore _ $0.204082 million.
Table IV: Exports of formulations and basic and crude drugs with value and growth percentages from 1990–1991 to 1998–1999 (6). Formulations Basic
Drugs Crude
Drugs
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Overview of Indian pharmaceutical industry
Year
Rupee in Crores
$ in Million
% Growth pr y
Rupees in Crores
$ in Millions
% Growth over pr yr
Rupees in Crores
$ in Millions
% Growth over Previous Year
90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99
985.5 508.7 965.5 1310.8 1505.5 2044.8 2414.8 2926.8 3101.4
210.1 103.8 197.0 267.5 307.2 417.3 492.8 597.3 632.9
118 -26 90 36 15 36 18 21 6
157.8 838.7 409.5 530.8 760.1 1132.9 1664.5 2214.8 2870.4
32.2 171.2 83.6 108.3 155.1 231.2 339.7 452.0 585.8
-55 431 -51 30 43 49 47 33 30
111.3 142.1 166.5 150.1 199.7 265.5 260.7 211.4 181.2
22.7 29 34.0 30.6 40.8 54.2 53.2 43.1 37.0
27 28 17 -10 33 33 ----19 -14
FUNCTIONS OF A PHARMACEUTICAL COMPANY: FOUR MAJOR FUNCTIONS:
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Overview of Indian pharmaceutical industry
1. 2. 3. 4. 5.
Research and Development Regulators Production Quality Marketing
Research and Development: 1. Drug Discovery 2. Drug Development Drug Discovery: It is the process by which potential drugs are discovered or designed. In the past most drugs have been discovered either by isolating the active ingredient from traditional remedies or by serendipitous discovery. Modern biotechnology often focuses on understanding the metabolic pathways related to a disease state or pathogen, and manipulating these pathways using molecular biology or Biochemistry. A great deal of early-stage drug discovery has traditionally been carried out by universities and research institutions. Drug development: It refers to activities undertaken after a compound is identified as a potential drug in order to establish its suitability as a medication. Objectives of drug development are to determine appropriate formulation as well as to establish safety. Regulators: This department is responsible for getting approval or license for the particular drugs manufactured by their company. Every drug has to be approved by the central body before it is marketed to the customers. Regulators are doing the following activities in a pharma company 1. Keeping in touch with doctors in the government hospitals regularly 2. Introducing the newly developed drugs to the doctors, then drugs will be given to the patients by doctors’ prescription. 3. Doctors will analyze the patients normalcy, after they have the drugs 4. As per the patients improvements, a separate report will be prepared for the drug and will be given to the regulatory department. 5. These report will be submitted before the DCD (Drug Control Department) by regulatory department 6. As per the doctor’s report drug will be licensed by the DCD.
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Overview of Indian pharmaceutical industry
About DCD: The Drugs Control Organization was functioning, as a subordinate office under Directorate of Health Services till January 1986 and Director Health Services was the Ex-officio Drugs Controller. Thereafter, The Drugs Control Organization became an independent Department with Drugs Controller as Head of Department. The Drugs Control Department of Delhi State is enforcing the provisions of following statutes, enacted by Government of India: 1. Drugs & Cosmetics Act, 1940 and Rules made there under. 2. Drugs & Magic Remedies (Objectionable Advertisements) Act, 1954. 3. Drugs (Prices Control) Order, 1995. i.
Inspection for grant / renewal of licences for the manufacture of allopathic drugs including whole human blood / blood components / Blood products, surgical dressings, diagnostic reagents/ Kits, disposable syringes/needles/perfusion sets, repacking of drugs, homoeopathic medicines and cosmetics.
ii.
Inspection for grant / renewal of licences for retail and wholesale of drugs including homoeopathic medicines. No licence for sale of Ayurvedic /Unani / siddha medicines and cosmetics is required.
iii.
Collection of samples of drugs & cosmetics from mfg./ sale premises for test / analysis to check their quality being manufactured and sold in Delhi.
iv.
Inspections and raids with a view to detect offences under the Act specially movement and sale of spurious drugs/ cosmetics.
v.
Investigations of cases of contraventions under the Act.
vi.
Inspections of the premises licensed for manufacture and sale of drugs, with a view to ensure that conditions of the licenses are complied with.
vii.
Launching of prosecutions against persons / firms found contravening the provisions of the Act.
Production: Once the drug is approved by the DCD, Regulatory dept will give the MFR (Master Formulation Record) to the Production Department. As per the MFR, following important processes will be taken in a pharmaceutical company to produce tablets. 1. Dispensing Of Raw materials 2. Drying 3. Sifding 25
Overview of Indian pharmaceutical industry
4. Plending 5. Slugging 6. Multimill 7. Compression 8. Package Dispensing of Raw materials: With the help of R & D, the required raw materials will be purchased by the materials department to the purpose of production. Drying: In which chemical component will be completed dried to remove the water contents. Sifdying: Small dust particles will be removed from the raw materials by these process. Slugging: In this process, the chemical components will be made as round shaped particles for further process. Multimill: Here the round shaped particles will be broken and make it as powder. Compression: These processed chemical substances will be compressed to get the desired shape such as vowel or round. Now tablets will be ready for packaging process. Packaging: There are two types of process Strip Packing: Here drugs will be packed by aluminium foils Blister Packing: Tables will be covered by PVC (Poly Vinyl Chloride) foils. Then foils will be packed in Carton, each carton will have leaflet with adequate information. Quality: Quality Assurance: This division will ensure the following things with the help of R&D. 1. Weight, 2. Hardness 3. Thickness 4. Friability ( Tendency to loose weight)
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Overview of Indian pharmaceutical industry
5. Disintegration (Dissolving power in the water; Maximum 15 minutes for all the drugs to be dissolved in the water)
Quality Control: Three most important steps are taken in this quality control 1. Stability: It is the test to identify the expiry date for a drug and will keep the drugs still it gets expired. 2. Analysis: HPLC (High Pressure Liquid Chromatography) it’s used to separate, identify, and quantify drugs. HPLC utilizes a column that holds chromatographic packing material (stationary phase), a pump that moves the mobile phase(s) through the column, and a detector that shows the retention times of the molecules. 3. UV Spec: Drugs will be tested by sparking the Ultra Violet rays. Marketing Division: Every Pharmaceutical company will have their own marketing and sales strategies to introduce the drugs into the market. Drugs will be pushed into the market through doctors normally. Doctors will be approached by sales professionals often. Apart from that they will take care of retail, distributor and wholesale sales.
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Overview of Indian pharmaceutical industry
MAJOR PLAYERS Market leaders in terms of revenue The following is a list of the 20 largest pharmaceutical and biotech companies ranked by healthcare revenue. Some companies (eg, Bayer, Johnson and Johnson and Procter & Gamble) have additional revenue not included here. The phrase Big Pharma is often used to refer to companies with revenue in excess of $3 billion, and/or R&D expenditure in excess of $500 million.
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Overview of Indian pharmaceutical industry
Revenue Country
Total Revenues (USD millions)
Healthcare R&D 2006 (USD millions)
Net income/ (loss) 2006 (USD millions)
Employees 2006
Johnson and Johnson
USA
53,324
7,125
11,053
138,000
2
Pfizer
USA
48,371
7,599
19,337
122,200
3
Bayer
Germany
44,200
1,791
6,450
106,200
4
Glaxo SmithKline
United Kingdom
42,813
6,373
10,135
106,000
5
Novartis
Switzerla nd
37,020
5,349
7,202
102,695
6
SanofiAventis
France
35,645
5,565
5,033
100,735
7
Hoffmann– La Roche
Switzerla nd
33,547
5,258
7,318
100,289
8
AstraZeneca
UK/Swed en
26,475
3,902
6,063
98,000
9
Merck & Co.
USA
22,636
4,783
4,434
74,372
10
Abbott Laboratories
USA
22,476
2,255
1,717
66,800
USA
20,351
3,109
4,197
66,663
USA
17,914
3,067
1,585
60,000
Rank 2006
Company
1
11 12
Wyeth BristolMyers Squibb
13
Eli Lilly and Company
USA
15,691
3,129
2,663
50,060
14
Amgen
USA
14,268
3,366
2,950
48,000
15
Boehringer Ingelheim
Germany
13,284
1,977
2,163
43,000
16
ScheringPlough
USA
10,594
2,188
1,057
41,500
17
Baxter International
USA
10,378
614
1,397
38,428
18
Takeda Pharmaceutic al Co.
Japan
10,284
1,620
2,870
15,000
USA
9,284
1,773
2,113
33,500
USA
8,964
n/a
10,340
29,258
19 20
Genentech Procter & Gamble
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Overview of Indian pharmaceutical industry
Top 10 Indian Players 30
Overview of Indian pharmaceutical industry
Top 10 Pharmaceuticals in India, 2008 Rank
Company
Revenue 2008 (Rs crore)
Revenue 2008 (USD millions)
1
Ranbaxy
4,461
1,026
2
Dr.Reddy’s Laboratories
1,933
444
3
Cipla
1,842
423
4
Ashwin Dalvi India
1,387
319
5
Aurobindo Pharma
1,260
290
6
GlaxoSmithKline
1,228
282
7
Lupin Laboratories
1,180
271
8
Sun Pharmaceutical Industries
2,375
550
9
Cadila Healthcare
1,091
251
10
Wockhardt
980
225
SWOT ANALYSIS: 31
Overview of Indian pharmaceutical industry
It is often said that the pharma sector has nocyclical factor attached to it. Irrespective of whether the economy is in a downturn or in an upturn, the general belief is that demand for drugs is likely to grow steadily over the longterm. True in some sense. But there are risks. The SWOT analysis of the industry reveals the position of the Indian pharma industry in respect to its internal and external environment. Strengths •
Low cost - Indian manufacturers are one of the lowest cost producers of drugs in the world. With a scalable labor force, Indian manufactures can produce drugs at 40% to 50% of the cost to the rest of the world. In some cases, this cost is as low as 90%.
•
Strong technical skills – Indian pharmaceutical industry posses excellent chemistry and process reengineering skills. This adds to the competitive advantage of the Indian companies. The strength in chemistry skill helps Indian companies to develop processes, which are cost effective.
•
Large untapped market - Indian with a population of over a billion is a largely untapped market. In fact the penetration of modern medicine is less than 30% in India. To put things in perspective, per capita expenditure on health care in India is US$ 93 while the same for countries like Brazil is US$ 453 and Malaysia US$189.
•
Huge market for lifestyle drugs – The growth of middle class in the country has resulted in fast changing lifestyles in urban and to some extent rural centers. This opens a huge market for lifestyle drugs, which has a very low contribution in the Indian markets.
•
Growth of middle class - The growth of middle class in the country has resulted in fast changing lifestyles in urban and to some extent rural centers. This opens a 32
Overview of Indian pharmaceutical industry
huge market for lifestyle drugs, which has a very low contribution in the Indian markets.
•
Competent workforce - Indian manufacturers are one of the lowest cost producers of drugs in the world. India has a pool of personnel with high managerial and technical competence as also skilled workforce. It has an educated work force and English is commonly used. Professional services are easily available. With a scalable labor force, Indian manufactures can produce drugs at 40% to 50% of the cost to the rest of the world. In some cases, this cost is as low as 90%.
•
Information Technology - It has a good network of world-class educational institutions and established strengths in Information Technology.
•
Globalization - The country is committed to a free market economy and globalization. Above all, it has a 70 million middle class market, which is continuously growing.
•
Consolidation - For the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India.
Weaknesses 33
Overview of Indian pharmaceutical industry
•
Poor R&D expenditure - Compared to the global pharmaceutical industry, Indian R&D expenditure is still minuscule, which could have a negative effect in the long run, especially in Product Patent regime. The average R & D spends in India, though growing at a CAGR of 18% over last five years, is just 1.9% of sales, as against 9-10% spend by global pharma companies.
•
Tag of being “Copy Cats” – Majority of the Indian companies is dependent on replicating drugs developed by MNCs, hence Indian companies are viewed in not so good light.
•
Price Regulation - The Indian pharma companies are marred by the price regulation. Over a period of time, this Over a period of time, this regulation has reduced the pricing ability of companies. The NPPA (National Pharma Pricing Authority), which is the authority to decide the various pricing parameters, sets prices of different drugs, which leads to lower profitability for the companies. The companies, which are lowest cost producers, are at advantage while those who cannot produce have either to stop production or bear losses.
•
Slow growth - Indian pharma market is one of the least penetrated in the world. However, growth has been slow to come by. As a result, Indian majors are relying on exports for growth. To put things in to perspective, India accounts for almost 16% of the world population while the total size of industry is just 1% of the global pharma industry.
•
Low entry barriers - Due to very low barriers to entry, Indian pharma industry is highly fragmented. This makes Indian pharma market increasingly competitive. The industry witnesses price competition, which reduces the growth of the industry in value term. To put things in perspective, in the year 2003, the industry
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Overview of Indian pharmaceutical industry
actually grew by 10.4% but due to price competition, the growth in value terms was 8.2% (prices actually declined by 2.2%) •
Labour laws - Outdated and restrictive labour laws are hampering all the industries in India and making it unviable for the MNCs to set up production base in India.
•
Lack of product patent - Indian pharmaceutical sector has been marred by lack of product patent, which prevents global pharmaceutical companies to introduce new drugs in the country and discourages innovation and drug discovery.
•
Highly fragmented - Due to very low barriers to entry, Indian pharma industry is highly fragmented with about 300 large manufacturing units and about 18,000 small units spread across the country. This makes Indian pharma market increasingly competitive. The industry witnesses price competition, which reduces the growth of the industry in value term. To put things in perspective, in the year 2003, the industry actually grew by 10.4% but due to price competition, the growth in value terms was 8.2% (prices actually declined by 2.2%).
35
Overview of Indian pharmaceutical industry
Opportunities •
Off patent drugs - Large number of drugs going off-patent in Europe and in the US between 2005 to 2009 (approx. $80 billion) offers a big opportunity for the Indian companies to capture this market. Since generic drugs are commodities by nature, Indian producers have the competitive advantage, as they are the lowest cost producers of drugs in the world.
•
Expansion - Opening up of health insurance sector and the expected growth in per capita income are key growth drivers from a long-term perspective. This leads to the expansion of healthcare industry of which pharma industry is an integral part.
•
Outsourcing - Being the lowest cost producer combined with FDA approved plants; Indian companies can become a global outsourcing hub for pharmaceutical products.
•
Impact of the Health Insurance Sector - Opening up of health insurance sector and the expected growth in per capita income are key growth drivers from a longterm perspective. This leads to the expansion of healthcare industry of which pharma industry is an integral part.
•
Innovation - The migration into a product patent based regime is likely to transform industry fortunes in the long term. The new patent product regime will bring with it new innovative drugs. This will increase the profitability of MNC pharma companies and will force domestic pharma companies to focus more on R&D. This migration could result in consolidation as well. Very small players may not be able to cope up with the challenging environment and may succumb to giants.
36
Overview of Indian pharmaceutical industry
Threats •
Transition from “Process” patent to “Product” patent – This is the major threat Indian pharma industry is facing. Indian companies especially medium and small sized do not have capabilities to develop new molecules, and they may succumb to the giants.
•
Counterfeit drugs – The extent of the problem of counterfeit drugs is unknown. Counterfeiting is difficult to detect, investigate, and quantify. So, it is hard to know or even estimate the true extent of the problem. What is known is that they occur worldwide and are more prevalent in developing countries. It is estimated that upwards of 10% of drugs worldwide are counterfeit, and in some countries more than 50% of the drug supply is made up of counterfeit drugs
•
Other low cost countries - Threats from other low cost countries like China and Israel exists. However, on the quality front, India is better placed relative to China. So, differentiation in the contract manufacturing side may wane.
•
VAT - The short-term threat for the pharma industry is the uncertainty regarding the implementation of VAT. Though this is likely to have a negative impact in the short-term, the implications over the long-term are positive for the industry.
37
Overview of Indian pharmaceutical industry
Michael Porter’s Five Forces (5f) Model Of Indian Pharmaceutical Industry Today's business environment is extremely competitive and in economics parlance where perfect competition exists, the profits of the firms operating in that industry will become zero. However, this is not possible because, firstly no company is a price taker (i.e. no company will operate where profits are zero). Secondly, they strive to create a competitive advantage to thrive in the competitive scenario. Michael Porter, considered to be one of the foremost gurus' of management, developed the famous five-force model, which influences an industry. Here, we apply this model for the Indian pharmaceutical industry.
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Overview of Indian pharmaceutical industry
Industry Competition Pharmaceutical industry is one of the most competitive industries in the country with as many as 10,000 different players fighting for the same pie. The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% market share, and the top five players together have about 18% market share. Thus, the concentration ratio for this industry is very low. High growth prospects make it attractive for new players to enter in the industry. Another major factor that adds to the industry rivalry is the fact that the entry barriers to pharmaceutical industry are very low. The fixed cost requirement is low but the need for working capital is high. The fixed asset turnover, which is one of the gauges of fixed cost requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times. For smaller companies, it would be even higher. Many smaller players that are focused on a particular region have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way. An important fact is that pharmaceutical industry is a stable market and its growth rate generally tracks the economic growth of the country with some multiple (1.2 times average in India). Though volume growth has been consistent over a period of time, value growth has not followed in tandem. The product differentiation is one key factor, which gives competitive advantage to the firms in any industry. However, in pharmaceutical industry product differentiation is not possible since India has followed process patents till date, with laws favoring imitators. Consequently, product differentiation is not the driver, cost competitiveness is. However, companies like Pfizer and Glaxo have created big brands in over the years, which act as
39
Overview of Indian pharmaceutical industry
product differentiation tools. This will enhance over the long term, as product patents come into play from 2005.
Bargaining Power of Buyers The unique feature of pharmaceutical industry is that the end user of the product is different from the influencer (read doctor). The consumer has no choice but to buy what doctor says. However, when we look at the buyer's power, we look at the influence they have on the prices of the product. In pharma industry, the buyers are scattered and they as such does not wield much power in the pricing of the products. However, government with its policies plays an important role in regulating pricing through the NPPA (National Pharmaceutical Pricing Authority).
Bargaining Power of Suppliers The pharmaceutical industry depends upon several organic chemicals. The chemical industry is again very competitive and fragmented. The chemicals used in the pharmaceutical industry are largely a commodity. The suppliers have very low bargaining power and the companies in the pharmaceutical industry can switch from their suppliers without incurring a very high cost. However, what can happen is that the supplier can go for forward integration to become a pharmaceutical company. Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies, who turned themselves into pharmaceutical companies.
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Overview of Indian pharmaceutical industry
Barriers to Entry Pharmaceutical industry is one of the most easily accessible industries for an entrepreneur in India. The capital requirement for the industry is very low, creating a regional distribution network is easy, since the point of sales is restricted in this industry in India. However, creating brand awareness and franchisee amongst doctors is the key for longterm survival. Also, quality regulations by the government may put some hindrance for establishing new manufacturing operations. Going forward, the impending new patent regime will raise the barriers to entry. But it is unlikely to discourage new entrants, as market for generics will be as huge.
Threat of Substitutes This is one of the great advantages of the pharmaceutical industry. Whatever happens, demand for pharmaceutical products continues and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an on going concern, pharmaceutical industry seems to have an infinite future. However, in recent times, the advances made in the field of biotechnology, can prove to be a threat to the synthetic pharmaceutical industry.
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Overview of Indian pharmaceutical industry
TRENDS AND STRATEGIES: The Indian domestic pharmaceutical industry is increasingly becoming globally competitive to counter the weaknesses and threats. The key trends and strategies being adopted by the local pharmaceutical industry are: •
Increased R&D Focus
Driven by the imminent change to a product patent regime at home from 2005 the leading pharmaceutical companies in India have been increasing their R&D budgets over the years. Indian pharmaceutical companies are likely to double their expenditure on R&D over the next 2 years. •
Exports driven growth
Indian pharmaceutical companies are on a global beat. Currently, exports contribute more than half the total revenues for most of the Indian pharmaceutical majors. Exports have increased in recent years as Indian pharmaceutical companies have made deep inroads into the regulated generic markets of the US and Europe, in addition to unregulated markets. •
MNCs showing growing interest in India
The share of MNCs in the Indian pharmaceuticals market is expected to increase with the recognition of product patents in the country from 2005, as they will be able to freely introduce top of the line, patented products in the domestic market. Moreover, with the new price control order expected to be passed soon, DPCO coverage will be substantially reduced and margins of most MNCs with strong brands will drastically improve. The Indian Government’s decision to allow 100 per cent Foreign Direct Investment into the drugs and pharmaceutical industry is expected to aid increased investment in R&D infrastructure by MNCs in India.
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Overview of Indian pharmaceutical industry
Marketing of pharmaceutical products: Pharmaceutical companies commonly spend a large amount on advertising, marketing and lobbying. In the US, drug companies spend $19 billion a year on promotions. Advertising is common in healthcare journals as well as through more mainstream media routes. In some countries, notably the US, they are allowed to advertise direct to the general public. Pharmaceutical companies generally employ sales people (often called 'drug reps' or, an older term, 'detail men') to market directly and personally to physicians and other healthcare providers. In some countries, notably the US, pharmaceutical companies also employ lobbyists to influence politicians. Marketing of prescription drugs in the US is regulated by the federal Prescription Drug Marketing Act of 1987. To healthcare professionals Physicians, physician assistants, and nurse practitioners are perhaps the most important players in pharmaceutical sales because they write the prescriptions that determine which drugs will be used by the patient. Influencing the physician is often seen as the key to prescription pharmaceutical sales. A medium-sized pharmaceutical company might have a sales force of 1000 representatives. The largest companies have tens of thousands of representatives. Currently, there are approximately 100,000 pharmaceutical sales reps in the United States pursuing some 120,000 pharmaceutical prescribers. The number doubled in the four years from 1999 to 2003. Drug companies spend $5 billion annually sending representatives to physician offices. Pharmaceutical companies use the service of specialized healthcare marketing research companies to perform Marketing research among Physicians and other Healthcare professionals. To insurance and public health bodies Private insurance or public health bodies (e.g. the NHS in the UK) decide which drugs to pay for, and restrict the drugs that can be prescribed through the use of formularies. Public and private insurers restrict the brands, types and number of drugs that they will cover. Not only can the insurer affect drug sales by including or excluding a particular drug from 43
Overview of Indian pharmaceutical industry
a formulary, they can affect sales by tiering or placing bureaucratic hurdles to prescribing certain drugs as well. In January 2006, the U.S. instituted a new public prescription drug plan through its Medicare program known as Medicare Part D. This program engages private insurers to negotiate with pharmaceutical companies for the placement of drugs on tiered formularies. To retail pharmacies and stores Commercial stores and pharmacies are a major target of non-prescription sales and marketing for pharmaceutical companies. Direct to consumer advertising Since the 1980s new methods of marketing for prescription drugs to consumers have become important. Direct-to-consumer media advertising was legalised in the FDA Guidance for Industry on Consumer-Directed Broadcast Advertisements
Controversy about drug marketing and lobbying There has been increasing controversy surrounding pharmaceutical marketing and influence. There have been accusations and findings of influence on doctors and other health professionals through drug reps, including the constant provision of marketing 'gifts' and biased information to health professionals; highly prevalent advertising in journals and conferences; funding independent healthcare organizations and health promotion campaigns; lobbying physicians and politicians (more than any other industry in the US; sponsorship of medical schools or nurse training; sponsorship of continuing educational events, with influence on the curriculum; and hiring physicians as paid consultants on medical advisory boards.
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Overview of Indian pharmaceutical industry
To help ensure the status quo on U.S. drug regulation and pricing, the pharmaceutical industry has thousands of lobbyists in Washington, DC that lobby Congress and protect their interests. The pharmaceutical industry spent $855 million, more than any other industry, on lobbying activities from 1998 to 2006, according to the non-partisan Center for Public Integrity. Some advocacy groups, such as No Free Lunch, have criticized the effect of drug marketing to physicians because they say it biases physicians to prescribe the marketed drugs even when others might be cheaper or better for the patient. There have been related accusations of disease mongering (over-medicalising) to expand the market for medications. An inaugural conference on that subject took place in Australia in 2006. A 2005 review by a special committee of the UK government came to all the above conclusions in a European Union context whilst also highlighting the contributions and needs of the industry. There is also huge concern about the influence of the pharmaceutical industry on the scientific process. Meta-analyses have shown that studies sponsored by pharmaceutical companies are several times more likely to report positive results, and if a drug company employee is involved (as is often the case, often multiple employees as co-authors and helped by contracted marketing companies) the effect is even larger. Influence has also extended to the training of doctors and nurses in medical schools, which is being fought. It has been argued that the design of the Diagnostic and Statistical Manual of Mental Disorders and the expansion of the criteria represents an increasing medicalization of human nature, or "disease mongering", driven by drug company influence on psychiatry. The potential for direct conflict of interest has been raised, partly because roughly half the authors who selected and defined the DSM-IV psychiatric disorders had or previously had financial relationships with the pharmaceutical industry. The president of the organisation that designs and publishes the DSM, the American Psychiatric Association, recently 45
Overview of Indian pharmaceutical industry
acknowledged that in general American psychiatry has "allowed the biopsychosocial model to become the bio-bio-bio model" and routinely accepted "kickbacks and bribes" from pharmaceutical companies.
Developing world The role of pharmaceutical companies in the developing world is a matter of some debate, ranging from those highlighting the aid provided to the developing world, to those critical of the use of the poorest in human clinical trials, often without adequate protections, particularly in states lacking a strong rule of law. Other criticisms include an alleged reluctance of the industry to invest in treatments of diseases in less economically advanced countries, such as malaria; Criticism for the price of patented AIDS medication, which could limit therapeutic options for patients in the Third World, where the most people have AIDS. In September 2008 the Open Source Drug Discovery Network was launched in India to combat infectious diseases common to developing countries.
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Overview of Indian pharmaceutical industry
Research and development: Drug discovery is the process by which potential drugs are discovered or designed. In the past most drugs have been discovered either by isolating the active ingredient from traditional remedies or by serendipitous discovery. Modern biotechnology often focuses on understanding the metabolic pathways related to a disease state or pathogen, and manipulating these pathways using molecular biology or Biochemistry. A great deal of early-stage drug discovery has traditionally been carried out by universities and research institutions. Drug development refers to activities undertaken after a compound is identified as a potential drug in order to establish its suitability as a medication. Objectives of drug development are to determine appropriate Formulation and Dosing, as well as to establish safety. Research in these areas generally includes a combination of in vitro studies, in vivo studies, and clinical trials. The amount of capital required for late stage development has made it a historical strength of the larger pharmaceutical companies. Often, large multinational corporations exhibit vertical integration, participating in a broad range of drug discovery and development, manufacturing and quality control, marketing, sales, and distribution. Smaller organizations, on the other hand, often focus on a specific aspect such as discovering drug candidates or developing formulations. Often, collaborative agreements between research organizations and large pharmaceutical companies are formed to explore the potential of new drug substances.
The cost of innovation Drug discovery and development is very expensive; of all compounds investigated for use in humans only a small fraction are eventually approved in most nations by government appointed medical institutions or boards, who have to approve new drugs before they can be marketed in those countries. Each year, only about 25 truly novel drugs (New chemical 47
Overview of Indian pharmaceutical industry
entities) are approved for marketing. This approval comes only after heavy investment in pre-clinical development and clinical trials, as well as a commitment to ongoing safety monitoring. Drugs which fail part-way through this process often incur large costs, while generating no revenue in return. If the cost of these failed drugs is taken into account, the cost of developing a successful new drug (New chemical entity or NCE), has been estimated at about 1 billion USD (not including marketing expenses). A study by the consulting firm Bain & Company reported that the cost for discovering, developing and launching (which factored in marketing and other business expenses) a new drug (along with the prospective drugs that fail) rose over a five year period to nearly $1.7 billion in 2003. These estimates also take into account the opportunity cost of investing capital many years before revenues are realized (see Time-value of money). Because of the very long time needed for discovery, development, and approval of pharmaceuticals, these costs can accumulate to nearly half the total expense. Some approved drugs, such as those based on re-formulation of an existing active ingredient (also referred to as Line-extensions) are much less expensive to develop. The consumer advocacy group Public Citizen suggests on its web site that the actual cost is under $200 million, about 29% of which is spent on FDA-required clinical trials. For me-too-drugs and for generics, the cost are even less. Calculations and claims in this area are controversial because of the implications for regulation and subsidization of the industry through federally funded research grants.
Controversy about drug development and testing There have been increasing accusations and findings that clinical trials conducted or funded by pharmaceutical companies are much more likely to report positive results for the preferred medication. In response to specific cases in which unfavorable data from pharmaceutical companysponsored research was not published, the Pharmaceutical Research and Manufacturers of America have published new guidelines urging companies to report all findings and limit 48
Overview of Indian pharmaceutical industry
the financial involvement in drug companies of researchers.US congress signed into law a bill which requires phase II and phase III clinical trials to be registered by the sponsor on the clinicaltrials.gov website run by the NIH. Drug researchers not directly employed by pharmaceutical companies often look to companies for grants, and companies often look to researchers for studies that will make their products look favorable. Sponsored researchers are rewarded by drug companies, for example with support for their conference/symposium costs. Lecture scripts and even journal articles presented by academic researchers may actually be 'ghost-written' by pharmaceutical companies. Some researchers who have tried to reveal ethical issues with clinical trials or who tried to publish papers that show harmful effects of new drugs or cheaper alternatives have been threatened by drug companies with lawsuits.
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Overview of Indian pharmaceutical industry
R & D (Process): The Key to success in this industry is research & development. R&D is the starting of the industry value chain and is also the most important value creator. Companies that involve in R&D do so in specific areas. They chose specific therapeutic areas to target based on their strengths in the market, and the commercial potential.
Kinds of Research BASIC R&D This involves discovering new molecules from scratch. It is highly capital intensive in nature as it relies on a great deal of automation. There are only a handful of Indian players that are able to conduct some form of basic research (Ranbaxy & DRL), and the top five have announced plans. In the drug development process in any pharmaceutical company a typical product takes 7-10 years, and $350-500 million internationally but the statistic varies greatly with the disease type. PROCESS RESEARCH OR REVERSE ENGINEERING This entails research on the process by which the drug is made and making modifications to the process. Here a company typically copies the molecule of another company and develops a highly cost effective method of producing that molecule. It is much less expensive to conduct since they do not need to conduct any discovery research or clinical trials. Till now this has been the focus of most Indian players. ANALOGUE OR DISCOVERY RESEARCH Companies modify an existing molecule or a new one that has not been commercialized after accessing international patent databases, to arrive at a new molecule. 50
Overview of Indian pharmaceutical industry
BIOTECHNOLOGY RESEARCH It aims at establishing the link between ones genes and the diseases one has and could one day determine the best drug for an individual based on ones genetic makeup. Most of these companies are however doing reverse engineering in the biotech area, and there is very little basic biotech research in India. NDDS RESEARCH NDDS (New drug delivery system) entails delivering existing drugs in a novel method. Indian companies are looking to research NDDS systems to new drugs being developed. This takes 3 years, at a cost of between US $ 10 and 20 Million. An NDDS could fetch you a patent if it is a new concept, and if it is n improvement it could give you market exclusivity for 3 years in the US.
R&D In India The Indian industry has attained cost advantages in process research used for generic drugs & value added generics production, which accounts for 60-80 percent of total sales. This cost advantage is in the fact that: - Most infrastructure facilities are much cheaper in India than in developed countries. - Indian scientists can be attracted at much cheaper rates than their US counterparts. The more value added basic research methodologies are being pursued by very few players like Ranbaxy, Biocon & Dr. Reddys who are willing to take the risk of investing millions in building research capabilities and developing molecules. In the absence of product patents Indian companies ignored basic research and concentrated their R&D efforts toward producing drugs through alternative processes. Consequently, total expenditure on R&D was low (multinational pharmaceutical players spend about 13-16% of total sales on R&D). 51
Overview of Indian pharmaceutical industry
Investments made in R&D by the Indian pharmaceutical companies would yield 3-4 molecules a year, which is a very small number. There is very little private initiative to invest in R&D. The government continues to bear the burden, with industry chipping in with 10% to 12%. This also evident in the data of patent granted in the country where the top firms granted patents are mostly MNCs. Indian industry instead mastered the art of reverse engineering to gain competitive advantage, as the industry structure did not provide incentives to invest in basic research. Indian firms have invested very little in R&D in India due to: - Lack of Product Patent protection: The delayed adoption of TRIPS in India is cited as the major impediment to the possible investment by international companies in India. - Inadequate profit base: The price control has squeezed the profit margins making it difficult for Indian and international companies to cull out and invest sizable sums in R&D. The profitability of Indian companies is also much lower than international levels. The pre-tax profit margin of pharmaceutical companies in India is much less than 6% on sales in sharp contrast to the 18% profit margins common to international companies.
CHANGING SCENARIO OF INDIAN R&D The acceptance of provisions of the agreement on TRIPS is expected to change the orientation of Indian companies towards R & D. Indian companies have started investing in complex R & D activities like novel drug delivery system and new drug discovery. The advantages of conducting R & D in India are given below. - Lower costs: R&D expenditure in India is far lower than in the developed countries. The cost differentials are due to lower costs in machinery and human capital. The cost advantages can only be exploited if the necessary funds required can be sourced. Following India’s acceptance of the provision of Trade Related Intellectual Property 52
Overview of Indian pharmaceutical industry
Rights (TRIPS) under the GATT agreement, investments are expected to start flowing into the area of basic research. - Population advantages: A larger population base would facilitate clinical trials for diseases especially prevalent in developing countries. Indian R&D efforts could be directed towards infectious diseases that are especially prevalent in Asian countries. Such R&D activities will be targeted towards segments such as antibiotics, anti-parasitics and other anti-bacterials. Drug discovery in India—Trends and challenges Buoyed by India's recent laws recognising international pharmaceutical patents, more than a dozen Indian companies have launched new drug discovery programs or reinvigorated existing ones. The key to the future of India's pharma industry will depend on its ability to scale back its reliance on low-cost manufacturing and to foster innovation. A review of the trends and challenges in the past few years Drug discovery research and development in India comprises collaborative research, basic drug discovery and development and contract services. Due to increasing cost of developing a new drug and risks involved in the process, companies are looking to mitigate risks involved. One of the recent trends is the de-merger of R&D units to unlock values. For Indian life sciences companies engaged in basic pharma research, the year 2007 was a year of filing patent applications. Most of the filings came from companies from Mumbai, Hyderabad and Bangalore which are engaged in chemical and biotechnology-based research of new medicines. The trend in patent applications is a pointer to India's growing stature, wherein Indian companies that were once cautious have proved themselves well versed in the game of innovation. Demerging of R&D Units
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Overview of Indian pharmaceutical industry
A recent trend of de-risking the business model along with unlocking value from the drug discovery program has started making headlines. Drug majors including Ranbaxy Laboratories, Sun Pharmaceuticals and Nicholas Piramal India Limited (NPIL) have already hived off their R&D divisions into separate entities. Even Dr Reddy's Laboratories (DRL) has followed the same path, but in a slightly different manner. The drug maker has floated Perlecan Pharma in collaboration with ICICI Venture and CVC to take care of its novel drug business. The reasons are many and interlinked and the benefits that research driven companies are seeking by de-merging their R&D arm are noted below in brief. •
This is a move intended to boost investor sentiment as by carving out the expenditure related to new drug R&D, the balance sheet looks much better. Through the current de-merger initiatives, pharma companies can reduce R&D costs and improve margins of their standalone business
•
In all the cases, companies have restricted the hive off to new chemical entities (NCEs) only. However, the drug delivery system clinical and the generic part will remain intact with the parent (Glenmark Pharma is an exception). The rationale is that generic and innovation are two totally different businesses, with different time frames, certainty profiles and investments. The approach to the projects that scientists need to take is also entirely different. De-mergers will provide greater flexibility and impetus to the drug discovery research programme while unlocking significant value for the company and its shareholders
•
Furthermore, costs escalate as new drug candidates mature (proceed to advanced stages of clinical trials) and hence, funding becomes an important issue. New drug research activity does not form part of the core operations of pharma companies, which is why it becomes difficult to solely focus available resources and energy on it
•
A significant advantage is that promoters of these firms can sell either part or whole of their stakes in the de-merged entities to raise funds for new R&D ventures or simply to even recover their capital. Listing on stock exchanges also gives them better visibility and helps to command better valuations. Of the demergers that have happened so far, DRL has kept Perlecan Pharma unlisted and 54
Overview of Indian pharmaceutical industry
has licensed out four products to a company for clinical development. SPARC is a full-fledged research company that discovers and develops new drugs/delivery systems •
And last, creation of a separate company is an innovative way to mitigate risks involved in the drug discovery business where, despite years of expensive research, the success ratio is still small.
Partnering for drug discovery Many Indian pharma companies have partnered for R&D and include large names like Zydus Cadila, DRL, Ranbaxy, NPIL, Biocon, to name a few. Most companies have tied up with other specialist research companies for development of new drugs on disease areas like cancer, diabetes, malaria and nervous system disorders. Similarly, DRL has partnered with ClinTec International for clinical trials and codevelopment of its anti-cancer drug. ClinTec International will possess the marketing rights for European markets while the commercialisation for the rest of the world and US markets would be retained by DRL. It has also tied up with Torrent Pharma for the exclusive marketing rights of its two hypertension drugs in Russia, where Torrent has a strong market hold. Business strategies comprising collaborative approach for drug discovery, strategic sourcing and divesting of manufacturing assets with a buyback business are some of the strategies increasingly used to work along with Indian MNCs. Co-opetition, denoting collaboration and competition, whereby companies collaborate in identifying best practices and sharing various steps in drug discovery to competing on generics, has been identified by all leading MNC players and their Indian counterparts. To cite an example, GSK and Ranbaxy have set up an early-stage partnership in drug research, under which GSK will provide the Indian firm with leads, Ranbaxy will conduct lead optimisation and animal trials, and GSK will take the drug through human trials. GSK will have exclusive rights to sell any resulting product in developed-world markets, and the two firms will copromote it in India. 55
Overview of Indian pharmaceutical industry
Challenges Challenges facing the industry revolve around manpower and early stage funding. There is severe paucity of trained personnel, the only solution being recruiting fresh graduates and training them on the job. Such a situation leads to rampant poaching of trained people from other companies. R&D in the pharma industry is multi-faceted and draws upon the expertise of molecular biologists, synthetic and analytical chemists, genomics and proteomics specialists, pharmacologists and medical practitioners. Closely associated with these are regulatory and quality assurance functions. However, according to industry sources, pharma companies find a huge dearth of skilled resources in the critical areas of early stage drug discovery as compared to chemistry or analytical chemistry wherein the talent is easily available. A considerable challenge faced by the industry is venture capital (VC) funding, which in India is severely limited. Funding pertains to private equity (PE) players that invest when the candidate reaches the development phase. The focus is more towards the 'D' rather the 'R' in R&D. Most venture capitalists are unwilling to invest in biotech R&D. Rather, they want to fund companies whose products and markets are clearly identified or commercialisation of technologies already developed. Government funding Government grants are available, but they tend to be small and typically targeted to government institutions or research bodies. There is little government support for private sector R&D outside of that available from the Technology Development Fund, which finances CSIR-approved projects. However, many state governments are setting up biotech development funds of their own and earmarking significant amounts to invest in companies located within their boundaries. An example is Gujarat Biotech Venture Fund (GVFL), whose first investment under its biotech fund was providing an early stage funding of Rs 2 crore to Ahmedabad-based Celestial Biologicals, promoted by the Intas 56
Overview of Indian pharmaceutical industry
Group. GVFL, formerly known as Gujarat Venture Finance Limited, is widely regarded as the pioneer of venture capital in India. The Small Business Innovation Research Initiative (SBIRI) set up in 2005 is the new scheme launched by the Department of Biotechnology (DBT) to boost public-privatepartnership effort in the country. The distinctive feature of SBIRI is that it supports the high-risk pre-proof-of-concept research and late stage development in small and medium companies led by innovators with science backgrounds. The scheme covers all areas in biotechnology related to healthcare, agriculture, industrial processes and environmental biotechnology and biomedical devices and instruments. The New Millennium Indian Technology Leadership Initiative (NMITLI) is the largest public-private-partnership effort undertaken by the Government of India. In the six years of its existence the programme has evolved 42 R&D projects covering diverse areas and involving 287 partners (222 in the public sector and 65 in the private sector) with an estimated outlay of Rs 300 crore. The role played by NMITLI is best illustrated by Bigtec. In March 2008, NMITLI came in the news for funding Bigtec (a biotechnology start-up) that had developed a hand-held diagnostic device. The Rs 6 crore NMITLI grant helped the Bangalore-based Bigtec to miniaturise advanced medical technologies to create a socalled lab-on-a-chip where biology, chemistry, electronics, optics, micro fluidics and software converge in a hand-held device that can diagnose a pathogen in a fraction of the time taken by a conventional system.
Way ahead As per Ernst & Young's Global Pharmaceutical Center Thought Leadership Report, Progressions 2006, India has been identified as an emerging hub for collaborative and outsourced R&D. According to the report, many global companies are confronted by a value crisis as they try to sustain a business model based on high costs of manufacturing, R&D, marketing and sales, increasing regulatory scrutiny and reimbursement pressures. 57
Overview of Indian pharmaceutical industry
Countries that can combine lower cost manufacturing with adequate regulatory protection of intellectual property are well positioned to attract large pharma companies, India being a prime example. Industry insiders consider a negation of the cost advantage within the next ten to fifteen years and are preparing for the next logical step in the evolutionary ladder—progression up the value curve. The enabling environment for innovation being put in place and a proactive government doing its utmost to promote this sector, has formed a unique spiraling effect. To thrive in the long term, Indian companies will need to make the transition towards innovative R&D-driven enterprises and will need to find creative solutions around challenges such as insufficient VC and indifferent PE markets. Indian companies would need to find ways to strike a balance between making high investments in innovation to help drive future growth, while still generating short term revenue growths, in order to partake the high risk drug development market. This would result in more collaborative drug discovery and development deals with innovator companies across the value chain.
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INTELLECTUAL PROPERTY RIGHTS: India's new product patent regime is the result of the WTO's Doha Round of negotiations in 2001. Final agreement was reached on TRIPs ground rules for patent protection among WTO member countries, stating that both processes and products should be protected. Subsequently, on March 22, 2005, India's Parliament approved the Patents (Amendment) Act 2005, bringing in a system of product patents backdated to January 1, 2005. The new regime protects only products arriving on the market after January 1, 1995, abolishing the previous process patent system established by the 1970 Patent Act. Since the introduction of product patents the MNCs have largely returned, the most recent being Merck & Co, which inaugurated its wholly owned subsidiary MSD India Pvt Ltd in July 2005 after being absent for approximately 20 years. While the firm did not plan to set up manufacturing facilities in India within the near future, it was looking at R&D prospects in the country, beginning with clinical trials. The granting of patents to New Chemical Entities or New Medical Entities involving one or more inventive steps. The industry is also waiting to see whether the government will follow international guidelines governing compulsory licensing, the process by which the TRIPs agreement permits governments, in special cases, to waive the patent on a particular medicine. Elsewhere in the world, the trade treaty allows compulsory licenses to be issued in response to a national emergency, but in India they may currently be invoked due to factors such as the reasonability of a product's price, and its potential for export and local manufacturing, among other issues. The industry must have high levels of confidence in the country's 59
Overview of Indian pharmaceutical industry
regulatory framework. A major drawback is that India offers no data protection (although it is provided by China, which also has a good patents protection regime and a bigger domestic market than India). A further disincentive is that drug prices on the Indian domestic market are the lowest in the world.
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Misconceptions and Facts
Several myths have been propounded by the anti-Patent lobby. Most of these are based on conjecture and are unsupportable on facts. The two most frequently employed are "High Prices" and "Impact on Local Industry". Both of these are addressed below:
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Myth of ‘High Priced Medicines after Change in Patent Laws’
A myth is propagated that after introduction of Patent Act, in compliance with TRIPs provisions, the prices of medicines will accelerate and medicines will become unaffordable for people. This fear is due to a lack of understanding of how the transition to a Patent Regime works and how pharmaceutical prices are determined.
Patents can never be awarded
retrospectively. Patents can only apply to new discoveries. The transition provisions of TRIP’s ensure that patents in India will only be granted for totally new discoveries, post 1 st January 1995. Only items for which no patent has ever been granted in any other WTO country before 1 st January, 1995 or for which no application was pending for a patent in any other WTO country as on 1st January 1995 will ever be patentable in India. This means that any 60
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medicinal product already available in the Indian market on the date of coming into force of the new law, cannot, and will not, ever be patented in India. It should be noted that it takes anywhere between 8-12 years for a new drug to be granted registration by Drug Authorities of any country after which marketing permission is given. This registration period comes out of the overall patent life of the medicines, which is now almost universally 20 years from the date of application. A discoverer thus enjoys at best only 8-12 years of Exclusive Marketing for recovering the cost of research. The number of new drugs registered worldwide each year is between 25-35. •
What this essentially means is:
A. Within the transition period (1995-2004) allowed for India, not more than a handful of new drugs will actually qualify for any form of exclusivity. B. Even after India commences granting patents, by the time patented products become a significant proportion of those already available locally; it will be another 10-15 years i.e. 2015-2020.
DPCO: Drugs and formulations have been subjected to price control for more than three decades now. The economic reforms initiated by the Government of India in July 1991, trickled down to the Pharmaceutical Industry only in 1994 and that too partially. Price control in a large
number
of
industries
has
already
been
abolished.
The main objectives of the Drug Policy after the modifications in the Policy of 1986 announced in September 1994 are to ensure availability, at reasonable prices of essential and life saving and prophylactic medicines of good quality; strengthening the system of quality control over drug production and promoting the rational use of drugs in the country; creating an environment conducive to channelizing new investment into the pharmaceutical industry to encourage cost-effective production with economic sizes and introducing new technologies and new drugs; and strengthening the indigenous capability for production of drugs. 61
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The Drugs Price Control Order (DPCO), 1995 is an order issued by the Government of India under Section 3 of the Essential Commodities Act, 1955 to regulate the prices of drugs. The Order provides the list of price-controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by Government and penalties for contravention of provisions among other things. For the purpose of implementing provisions of DPCO, powers of the Government have been vested in the National Pharmaceutical Pricing Authority (NPPA). Drugs are essential for health of the society. Drugs have been declared as essential and accordingly put under the Essential Commodities Act. Only 74 out of 500 commonly used bulk drugs are kept under statutory price control. All formulations containing these bulk drugs either in a single or combination form fall under the price control category. However, the prices of other drugs can be regulated, if warranted in public interest. The NPPA was established on 29th August 1997 as an independent body of experts following the Cabinet Committee’s decision in September 1994 while reviewing the Drug Policy. The Authority has been entrusted with the task of fixation/revision of prices of pharmaceutical products (bulk drugs and formulations), enforcement of provisions of the Drugs (Prices Control) Order and monitoring the prices of controlled and decontrolled drugs in the country.
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RESEARCH & DEVELOPMENT
Research & Development is the key to the future of pharmaceutical industry. The pharmaceutical advances for considerable improvement in life expectancy and health all over the world are the result of a steadily increasing investment in research. R & D in the pharmaceutical industry in India is critical to find answers for some of the diseases peculiar to a tropical country like India and also for finding solutions for unmet medical needs.
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Overview of Indian pharmaceutical industry
The R & D expenditure by the Indian pharmaceutical industry is around 1.9% of the industry’s turnover. This obviously is very low when compared to the investment on R & D by foreign research based pharma companies. They spend 10 – 16% of the turnover on R & D. However, now that India is entering into the Patent protection area, many companies are spending relatively more on R & D. There is considerable scope for collaborative R & D in India. India can offer several strengths to the international R & D community. These strengths relate to availability of excellent scientific talents who can develop new synthetic molecules and plant derived candidate drugs. Industrial R & D groups can also carry out limited primary screening to identify lead molecules or even candidate drugs for further in vivo screening, pre-clinical pharmacology, toxicology, animal and human pharmacokinetics and metabolic studies before taking them up for human trials. In such collaborations, harmonised standards of screening can be assured following established good laboratory practices. When it comes to clinical evaluation at the time of multi-center trials, India would provide a strong base considering the real availability of clinical materials in diverse therapeutic areas. Such active collaboration will be mutually beneficial to both partners. According to a survey by the Pharmaceutical Outsourcing Management Association and Bio/Pharmaceutical Outsourcing Report, pharmaceutical companies are utilising substantially the services of Contract Research Organisations (CROs). Indian Pharmaceutical Industry, with its rich scientific talents, provides cost-effective clinical trial research. It has an excellent record of development of improved, cost-beneficial chemical syntheses for various drug molecules. Some MNCs are already sourcing these services from their Indian affiliates.
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Conclusion Porter’s five forces model gives a fair idea about the industry in which a company operates and the various external forces that influence it. However, it must be noted that any industry is not static in nature. It's dynamic and over a period of time the model, which have used to analyze the pharmaceutical industry may itself evolve. Going forward, we foresee increasing competition in the industry but the form of competition will be different. It will be between large players (with economies of scale) and it may be possible that some kind of oligopoly or cartels come into play. This is owing to the fact that the industry will move towards consolidation. The larger players in the industry will survive with their proprietary products and strong franchisee. In the Indian context, companies like Cipla, Ranbaxy and Glaxo are likely to be key players. Though consolidation within the current big names is not ruled out. Smaller fringe players, who have no differentiating strengths, are likely to either be acquired or cease to exist. The barriers to entry will increase going forward. The change in the patent regime will see new proprietary products coming up, making imitation difficult. The players with huge capacity will be able to influence substantial power on the fringe players by their aggressive pricing which will create hindrance for the smaller players. Economies of scale 64
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will play an important part too. Last but not the least, in a vast country of India's size, government too will have bigger role to play. India has the capability to become a global pharma hub by exporting domestically produced generic products and positioning itself as an off shoring destination for clinical and pre-clinical research and other support services. There is tremendous potential in the Indian pharma market itself. Consumer spending on healthcare went up from 4 per cent of GDP in 1995 to 7 per cent in 2007. That number is expected to rise to 13 per cent of GDP by 2015.
Future of the Pharmaceutical Industry For the first time, the seven largest markets will contribute to just 50 percent of growth, while seven emerging markets—Brazil, China, India, Mexico, Russia, Indonesia, and Turkey—will contribute to nearly 25 percent of growth worldwide. With market value of about US$ 45billion in 2005, the generic sector is expected to grow to US$ 100billion in the next few years. Clinical Research Outsourcing (CRO), a budding industry valued over US$ 118 million per year in India, is estimated to grow to US$ 380 million by 2010 The future of Indian pharmaceutical sector is very bright because of the following factors: Clinical trials in India cost US$ 25 million each, whereas in US they cost between US$ 300-350 million each. Indian pharmaceutical companies are spending 30-50% less on custom synthesis services as compared to its global costs. In India investigational new drug stage costs around US$ 10-15 million, which is almost 1/10th of its cost in US (US$ 100-150million) Treatment to prevention, from generalised to personalised medicine, from distribution chain to direct consumer sales and from multilateral to unilateral regulatory regime.
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Bibliography Websites •
www.ficci.com
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www.kpmg.com
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www.pharmaceutical-drug-manufacturers.com
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www.pharmbiz.com
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www.wikipedia.com
Books 1. C.K. Kothari (Research Methodology) 2. Philip Kotler (Marketing Management) 3. Indian Journal of Marketing
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