Industry Analysis: Indian Pharmaceutical Industry
Submitted By: Abhishek(10810001) Anant Dhingra(10810004) Anuj Madaan(10810009) Maninder Pal Singh(10810029) Ravi Pratap Singh(10810050)
Agenda 1
Introduction
2
Reason For Choosing Pharmaceutical Industry
3
Pharmaceutical Industry- Age, History and Origin
4
Market Structure
5
Growth : Pharmaceutical Industry
6
Competition- Indian Pharmaceutical Industry
7
Export-Import: Pharmaceutical Industry
8
Effect of Foreign Investment
9
Effect of Foreign Investment
10
Government Regulation and Policies
11
Laws and Acts : Pharmaceutical Industry
12
Taxation System
13
Comparative Analysis of Pharmaceutical Industry in BRIC Nations
14
Future Outlook
IntroductionPharmaceutical Industry
Indian Pharmaceutical Industry •
The pharmaceutical industry in India is among the most highly organized sectors. This industry plays an important role in promoting and sustaining development in the field of global medicine.
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Due to the presence of low cost manufacturing facilities, educated and skilled manpower and cheap labor force among others, the industry is set to scale new heights in the fields of production, development, manufacturing and research.
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In 2008, the domestic pharma market in India was expected to be US$ 10.76 billion and this is likely to increase at a compound annual growth rate of 9.9 per cent until 2010 and subsequently at 9.5 per cent till the year 2015.
Indian Pharmaceutical Industry •
Indian pharmaceutical industry has grown over a period of time and has seen many ups and down during its evolution.
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The architect of the Indian pharmaceutical industry would be Acharya P.C.Ray. In the year 1901 Acharya P.C.Ray founded Bengal Chemicals and Pharmaceuticals Works Ltd. It started by making drugs from indigenous materials and then went on to manufacture quality chemicals, drugs, pharmaceuticals and employed local technology, skills and resources.
Market Segments Pharmaceuticals
Contract research and manufacturing services (CRAMS) India is a fast-growing CMO and custom research outsourcing (CRO) destination with a growth rate for CMO thrice the global market rate
Formulations
India’s manufacturing prowess in formulations is validated by the fact that it manufactures 60,000 packs across 60 therapy areas
Active pharmaceutical ingredients (APIs)
India is the third-largest player in the world with 500 different APIs
Cost Effective Strong Manufacturing Base Availability of high quality skilled workforce. Excellent marketing and distribution network Diverse ecosystem
SWOT Analysis
Weakness Less investment in research and development Lack of coordination between industry and academia. Negligible expenditure on healthcare in the country. Manufacture of fake and low quality medicines bring
Strength
SWOT Analysis
Threats
Increased export potential Marketing ties ups with multinational companies to sell their products in domestic market. Immense scope to position India as a centre for international clinical trials. Key player in global pharmaceutical R&D. Export of generic drugs to developed markets
Product patent regime is a major threat to domestic industry unless the industry takes up R&D initiative aggressively. Drug Price Control Order puts undue pressure on product prices, affecting the profitability of the pharmaceutical companies. The new MRP based excise duty regime threatens the business of smaller pharmaceutical companies
Opportunities
Reason For Choosing Pharmaceutical Industry
Reason For Choosing Pharmaceutical Industry •
Drugs and pharmaceutical industry plays a vital role in the economic development of a nation
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India is one of the fastest-growing pharmaceutical markets in the world, and its market size has nearly doubled since 2005
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The Indian pharmaceutical market is expected to reach US$ 20 billion by 2015, growing at a compound annual growth rate (CAGR) of 11.7 per cent during 2005–2015 and establish its presence among the world’s leading 10 markets
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India is also the third-largest market in the world in terms of volume and fourteenth in terms of value
Reason For Choosing Pharmaceutical Industry Contd… •
India accounts for 8 per cent of global pharmaceutical production. Indian firms produce about 60,000 generic brands across 60 therapeutic categories.
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In addition, Indian firms manufacture approximately 500 different active pharmaceutical ingredients (APIs)
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Moreover, according to an Ernst & Young and industry body study, the increasing population of the higher-income group in the country, will open a potential US$ 8 billion market for multinational companies selling costly drugs by 2015
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Further, IMS Health India, which tracks drug sales in the country through a network of nationwide drug distributors, estimates the healthcare market in India to reach US$ 31.59 billion by 2020
Pharmaceutical Industry- Age, History and Origin
Indian Pharmaceutical Evolution
Phase V Phase IV Phase III Development Phase
Phase II Phase I Early Years •Market share domination by foreign companies •Relative absence of organized Indian companies
Government Control •Indian Patent Act – 1970 •Drug prices capped •Local companies begin to make an impact
1970
Innovation and Research •Rapid expansion of •New IP law domestic market •Discovery Research •International •Convergence market development Growth Phase
•Process development •Production infrastructure creation
•Research orientation
•Export initiatives
1980
1990
2000
2010
Indian Pharmaceutical Evolution: Contd‌
Industry Trends •
The pharma industry generally grows at about 1.5-1.6 times the Gross Domestic Product growth
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Globally, India ranks third in terms of manufacturing pharma products by volume
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The Indian pharmaceutical industry is expected to grow at a rate of 9.9 % till 2010 and after that 9.5 % till 2015
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In 2007-08, India exported drugs worth US$7.2 billion in to the US and Europe followed by Central and Eastern Europe, Africa and Latin America
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The Indian vaccine market which was worth US$665 million in 2007-08 is growing at a rate of more than 20%
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The retail pharmaceutical market in India is expected to cross US$ 12-13 billion by 2012
Market Structure : Pharmaceutical Industry
Market Structure Division of Industry
Market Structure
Industry Type
Indian - Bulk Drugs
Gelatin Capsules Multinational; 9% I V Fluids; 1% Indian - Formulations; 9%
Indian - Bulk Drugs & Formln M/S; 14%
Indian - Bulk Drugs; 22%
Indian - Bulk Drugs & Formln Lrg
Gelatin Capsules; 0% Indian - Bulk Drugs & Formln
M/S
Indian - Formulations
Number of Companies
113
4
27
92
118
Indian - Bulk Drugs & Formln Lrg; 45%
I V Fluids
Multinational
9
10
Market Structure Indian - Bulk Drugs & Formln M/S Market Share
Indian - Bulk Drugs & Formln M/S Market Share Mangalam Drugs; 1% Others; 12% East India Phar.; 1% Hindustan Max GB; 1%
Intas Pharma.; 14%
Biological E; 1% Proto Developers; 1% Bharat Serums; 1% Jagsonpal Pharma; 1% RPG LifeScience.; 1% Raptakos, Brett;2% 1% Themis Medicare;
Alkem Lab; 10%
Blue Cross Lab.; 2% Cadila Pharma.; 4% Aditya Medisales; 10% Indoco Remedies; 4% Strides Arcolab; 4% Surya Pharma.; 10%
Claris Lifescien; 6% Unimark Remedies; 6%
Ind-Swift Labs.; 7%
Market Structure Indian - Bulk Drugs Market Share
Indian - Bulk Drugs Market Share others; 16%
Lupin; 20%
Neuland Labs.; 2% Wanbury; 2% Dishman Pharma.; 2% Granules India; 2% Aarti Drugs; 3% Jubilant Life; 14%
Parabolic Drugs; 3% Shasun Pharma.; 3% Hikal; 3% Elder Pharma; 4% USV; 5% Nectar Lifesci.; 5% Aristo Pharma.; 5%
Orchid Chemicals; 7% Divi's Lab.; 5%
Market Structure Gelatin Capsules and I V Fluids Market Share
Gelatin Capsules Market Share
I V Fluids Market Share
Ahlcon Parent(I); 7%
Guj. Inject; 0% Guj. Inject(Ker); 0%
Capsugel India; 9%
Medi Caps; 19% Venus Remedies; 44%
Sunil Healthcare; 49%
Parenteral Drugs; 48% Natural Capsules; 24%
Market Structure Indian - Formulations Market Share
Indian - Formulations Market Share Ankur Drugs; 15% Others; 24%
Ind-Swift; 10%
Medicamen Biotec; 1% Lincoln Pharma.; 2% Roussel India; 2%
Sharon Bio-Med.; 7%
Sanjiv.Parant.; 2% Kilitch Drugs; 2% Cadila Labs.; 2% Bliss GVS Pharma; 2%
Twilight Litaka; 7%
Kar.Antibiotics; 3% Albert David; 3% Arvind Remedies; 4%
Plethico Pharma.; 6% Ajanta Pharma; 6%
Market Structure Multinational Market Share
Multinational Market Share Solvay Pharma.; 4%
Fulford (India); 2% Abbott India; 14%
Astrazeneca Phar; 6%
Wyeth; 6%
Merck; 7%
Glaxosmit Pharma; 28% Novartis India; 8%
Pfizer; 11% Aventis Pharma; 14%
Indian - Bulk Drugs & Formln Lrg Market Share
TOP TO COMAPNIES Market Share
1. Ranbaxy Labs 2. Cipla
Others; 5% J B Chem & Pharm; 2% FDC; 2% Ranbaxy Labs.; 15% Unichem Labs.;3% 2% Glenmark Pharma.; TorrentAlembic; Pharma.;3% 4% Ipca Labs.; 4%
4. Aurobindo Pharma 5. Piramal Health
Cipla; 15%
Cadila Health.; 5%
6.Sun Pharma Inds. 7. Wockhardt
Wockhardt; 5% Sun Pharma.Inds.; 7%
3. Dr Reddy’s Labs
Dr Reddy's Labs; 12%
Piramal Health; 7% Aurobindo Pharma; 9%
8. Cardila Heath 9. Ipca Labs 10. Torrent Pharma
Growth : Pharmaceutical Industry
Indian - Bulk Drugs & Formln Lrg Sales Turnover(in Rs. Crore)
40000 35000 30000 25000 20000
Sales Turnover
15000 10000 5000 0 2001 Source: Capitalline
2002
2003
2004
2005
2006
2007
2008
2009
2010
Indian - Bulk Drugs & Formln Lrg Reported Net Profit(in Rs. Crore)
Reported Net Profit 7000 6000 5000 4000 3000 2000 1000 0 2001
2002
Source: Capitalline
2003
2004
2005
2006
2007
2008
2009
2010
Competition in Indian Pharmaceutical Industry Analysis of major players
Indian - Bulk Drugs & Formln Lrg Sales Turnover and Reported Net Profit on 2010 (in Rs. Crore)
6000 5000 4000
5608.67
5411.68 4543.8 3268.03 2708.58
3000 1854.9
2000 1000
1593.02 1081.49
525.76
0 Aurobindo Pharma Ltd
503.3
2568.82
1148.73
846.1 209.19
Dr Reddys Laboratories Ltd
443.22 Ranbaxy Laboratories Ltd
-1000
1425.28
1853.58
898.65 207.37 Wockhardt Ltd -794.21
-2000 Sales Turnover
Source: Capitalline
Reported Net Profit
Your Logo
Indian - Bulk Drugs & Formln Lrg R&D Expenditure(in Rs. Crore) over 10 years
700 600 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
500 400 300 200 100 0 Aurobindo Pharma Ltd
Source: Capitalline
Dr Reddys Laboratories Ltd
Ranbaxy Laboratories Ltd
Wockhardt Ltd
Ranbaxy •
11 State-of-the-art manufacturing facilities in countries like India, Brazil, South Africa
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Product Portfolio caters to nutrition, infectious diseases, gastroenteritis, pain management, cardiovascular ailments and central nervous system related ailments
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9 SBUs for various categories of drug manufactured by Ranbaxy
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Well-known for highest R&D budget among pharma companies in the world
Dr. Reddy’s Laboratories •
Presence in more than 100 companies
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Dr. Reddy’s Laboratories is very much customer friendly and tries to meet medical needs of the people
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16 countries have the representative offices and 21 countries have third party distribution
Sun Pharmaceuticals •
Known as the manufacturer of specialty Active Pharmaceutical Ingredients and formulations
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Concerned with chronic treatments such as cardiology, psychiatry, neurology, gastroenterology, diabetology and repiratory ailments.
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API include peptides, steroids, hormones, and anti-cancer drugs.
Sun Pharmaceuticals •
3 Major group companies:– Cacaco Pharmaceutical Laboratories (based in Detroit, Michigan) – Sun Pharmaceuticals Industries Inc. (Michigan) – Sun Pharmaceuticals (Bangladesh)
Aurobindo Pharma •
One of the most respected generic pharmaceuticals and API manufacturing company in the world
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Operates in over 100 countries
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Over 180 APIs, 250 formulations,110 DMFs and 90 ANDAs
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Product segments involve- Antibiotics, Anti-Retro Virals, CVS,CNS, Anti-Allergics
Export-Import: Pharmaceutical Industry
Government Initiatives •
The government of India has undertaken several including policy initiatives and tax breaks for the growth of the pharmaceutical business in India. Some of the measures adopted are: Pharmaceutical units are eligible for weighted tax reduction at 150% for the research and development expenditure obtained.
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Two new schemes namely, New Millennium Indian Technology Leadership Initiative and the Drugs and Pharmaceuticals Research Program have been launched by the Government.
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The Government is contemplating the creation of SRV or special purpose vehicles with an insurance cover to be used for funding new drug research
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The Department of Pharmaceuticals is mulling the creation of drug research facilities which can be used by private companies for research work on rent
Pharma Export •
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In the recent years, despite the slowdown witnessed in the global economy, exports from the pharmaceutical industry in India have shown good buoyancy in growth. Export has become an important driving force for growth in this industry with more than 50 % revenue coming from the overseas markets. For the financial year 2008-09 the export of drugs is estimated to be $8.25 billion as per the Pharmaceutical Export Council of India, which is an organization, set up by the Government of India. A survey undertaken by FICCI, the oldest industry chamber in India has predicted 16% growth in the export of India's pharmaceutical growth during 2009-2010.
Exports • • • • • •
Over 60 per cent of India’s bulk drug production is exported. Domestic pharmaceutical exports, growing at 30 per cent per annum, touched a new height of US$4.8 billion in the financial year 2006-07. The export revenue now contributes almost half of the total revenue for the top three pharmaceutical majors: Dr Reddy’s, Ranbaxy and Cipla. The other major exporters are Wockhardt Limited, Sun Pharmaceutical Industries Ltd. And Lupin Laboratories. The formulations and exports are largely to developing nations in CIS, South East Asia, Africa and Latin America . In the coming years, opening up of US generics market and anti AIDS market in Africa will boost exports.
Sales and Exports growth
1
2
Exports of Top 8 Pharma Companies 10 Year growth (year wise)
4000 3500 3000 Wockhardt Ltd Piramal Healthcare Ltd Ranbaxy Laboratories Ltd Aurobindo Pharma Ltd Cipla Ltd Torrent Pharmaceuticals Ltd Sun Pharmaceuticals Industries Ltd Shasun Pharmaceuticals Ltd
2500 2000 1500 1000 500 0 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Import: Pharmaceutical products Year
Import(in Rs. Crore)
%Share
Import to India Others; 7% JAPAN; 1% NETHERLAND; 1%
20092010
519,6
0.3811
KOREA RP; 1% INDONESIA; 2% IRELAND; 3% U K; 4%
SWITZERLAND; 33%
BELGIUM; 4% DENMARK; 4%
20102011(AprSep)
279,5
0.3770
FRANCE; 4%
CHINA P RP; 5% U S A; 15%
ITALY; 6% GERMANY; 9%
Effect of Foreign Investment : Pharmaceutical Industry
FDI by Country
The largest source of FDI in Indian pharmaceutical industry is Mauritius. Many global investors in India route their FDI through Mauritius to take advantage of the India-Mauritius bilateral tax treaty.
Impact of Foreign Investment
Major impact of foreign collaborations had been in the areas like Technological Developments---R&D & New Product Development, Productivity Enhancement, Reduction in Imports, Increase in Exports, Improvement in Quality Standards, Decrease in Net Foreign Exchange Outflow, Increase in Return on Capital Employed , Enhancing Marketing Base (Domestic & International) and overall Profitability.
Impact of Foreign Investment
Indian drug industry has in the last five years seen half a dozen big takeovers by foreign companies. •
$3.6 billion acquisition of promoters’ stake in Ranbaxy Laboratories in 2008 by Japan’s Daiichi Sankyo Co. Ltd.
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US drug maker Mylan Inc. paid $734 million to acquire Hyderabad-based Matrix Laboratories in 2006.
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German health care group Fresenius SE spent $219 million to take over Dabur Pharma in 2008.
Impact of Foreign Investment
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US drug and nutrition firm Abbott Laboratories paid $3.72 billion to acquire Piramal Healthcare Ltd’s domestic drug formulation business and spent $726 million to buy out Ahmedabad-based consumer health company Paras Pharmaceuticals.
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French drug multinational Sanofi-Aventis SA acquired a majority stake in Indian vaccines company Shanta Biotech in 2009 for €550 million
Government Regulation and Policies : Pharmaceutical Industry
India Patents Act,1972: Evolution and Impact • India provided product patent protection in pharmaceuticals till 1972 •
This did not have any positive effect because: – the MNCs, who held the patents were not keen on manufacturing (and R&D) activities; they preferred imports to local production in India and – prevented the Indian companies from doing so by using their patent rights. – On the one hand, because of lack of competition, drug prices in India were very high. – On the other hand, India was dependent on imports for many of the essential bulk drugs. The import dependence constricted consumption in a country deficient in foreign exchange and inhibited the growth of the industry
The India Patents Act, 1970 • The 1970 Act imposed substantial limits on patent rights; these limits were intended to encourage indigenous inventions and secure their production in India on a commercial scale (India Patents Act 1970, § 83) • First, and most importantly, pharmaceutical products could not be patented • Second, firms were permitted to patent only a single process for making a pharmaceutical; a firm could not block competitors by patenting all possible processes for making a drug • Third, the term for pharmaceutical process patents shortened to five years from the grant of the patent or seven years from application filing, whichever was less, compared to 14 years from application filing for all other inventions • And fourth, the Act imposed very broad “compulsory licensing”provisions for pharmaceutical process patents. Within three years of the grant, the patents were deemed “licenses of right,” meaning that anyone could use the process if they paid a royalty (Chaudhuri 2005, 37-8). In sum, pharmaceutical products had no protection, and pharmaceutical processes were protected for only three years if a royalty were paid and five years if no royalty were paid
Results • • • • • • •
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Remarkable growth in the pharmaceutical industry in India India and Japan: only two countries where western MNCs do not dominate India: net exporter and self sufficient in drugs Drug prices among the lowest in the world Source of good quality cheap drugs for the rest of the world India has the largest number of US FDA approved manufacturing facilities outside USA It was not product patent protection but its abolition which operated as a pull mechanism in India by provided the Indian companies the space of operations and the opportunity to develop and innovate Aided by the push programs of public investments in manufacturing and R&D, what Indian companies innovated are processes for manufacturing. And it is this capability which has permitted India to have an international presence and be a global source of drugs
Post-TRIPS Patent Laws (1995Present) •
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In January of 1995, India became a founding member of the World Trade Organization (WTO) and agreed to the requirements of the WTO intellectual property agreement, Trade-Related Aspects of Intellectual Property Rights (TRIPS). Under the Agreements on Trade Related Aspects of Intellectual Rights (TRIPS), mandatory for all countries to provide product patent protection in all products including pharmaceuticals
One important argument during TRIPS negotiations •
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Developing countries too would benefit from stronger patent protection because it will stimulate private R&D investment for developing country diseases e.g., leishmaniasis, sleeping sickness, Dengue fever, which are neglected by the Western MNCs TRIPS has not led to much R&D for developing drugs for necessary for developing countries and neglected by MNCs as Indian companies are not yet ready to undertake R&D independently and do not have all the skills and the resources to do so
Govt. Regulations and Legal Aspects Govt. Regulations and Legal Aspects … (1/4)
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The Central Drug Standard Control Organization (CDSCO), which falls under the purview of the Ministry of Health and Family Welfare, is the primary regulatory body in India.
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The Drug Controller General of India (DCGI) presides over the CDSCO and is in charge of the approval of licenses for drugs at both the central and state levels
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In January 2005, India introduced the product patent regime in accordance with the TRIPS agreement with an amendment to the Indian Patents Act. Further, in 2008, the introduction of the Drugs and Cosmetics (Amendment) Act 2008 put forth stringent penalties and imprisonment
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FDI of up to 100 per cent in drugs and pharmaceuticals is permitted through the automatic route. For licensable drugs and pharmaceuticals manufactured by recombinant DNA technology and specific cell/tissue-targeted formulations, FDI requires prior government approval
Govt. Regulations and Legal Aspects Policy and regulatory framework … (2/4)
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•
•
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The GoI plans to set up a pharmacopeial commission to support ayurveda, yoga and naturopathy, unani, siddha and homoeopathy (AYUSH) through guidelines laid down in the review of the Eleventh Plan As stated on the National Pharmaceutical Pricing Authority (NPPA) website, the NPPA is responsible for fixing and controlling the prices of 76 bulk drugs under the Essential Commodities Act The Department of Pharmaceuticals was formed on July 2, 2008, under the Ministry of Chemicals and Fertilisers with the objective of focusing on the development of the pharmaceutical sector in the country and to regulate various activities related to the pricing and availability of medicines at affordable prices, R&D, the protection of intellectual property (IP) rights and international commitments related to the pharmaceutical sector The GoI has been actively supporting the industry with various measures. It is embarking on a major multi-billion dollar initiative, with 50 per cent public funding through a PPP model, to harness India’s innovation capability.
Govt. Regulations and Legal Aspects Policy and regulatory framework ‌ (3/4)
Govt. Regulations and Legal Aspects Policy and regulatory framework … (4/4)
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Budget measures –
There has been an increase in weighted reduction from 150 to 200 per cent on expenditure incurred on in-house R&D activities and from 125 to 175 per cent on activities outsourced to specific institutions – The Union Budget of 2010 permitted a partial rollback in excise duty from 8 to 10 per cent (to impact raw-material costs)
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Policy measures –
The DCGI has made the registration of all clinical trials compulsory for trials initiated after June 15, 2009. Previously, the registration of clinical trials by various institutions and companies was voluntary – The DCGI has discontinued the issuance of the WHO-GMP certificate for both pharmaceutical products and plant audits – The GoI has issued the draft Drugs and Cosmetics (4th Amendment) Rules, 2009, which provides for product licenses for narcotic drugs and psychotropic substances to be issued by the Central Licensing Approval Authority (CLAA), which were previously issued by state licensing authorities
State Food and Drug Administrations (FDAs) – State FDAs, on the other hand, monitor the drug manufacture, sale, and testing by companies in their jurisdiction. There are also two main statutory bodies formed by Parliament: 1) the Drugs Technical Advisory Board, whose technical experts advise the Central and State Governments on special technical matters involving drug regulation, and 2) the Drugs Consultative Committee, where Central and State drug officials ensure that drug control measures are enforced uniformly in all states.
Laws and Acts : Pharmaceutical Industry
Laws Pertaining To Manufacture And Sale Of Drugs In India •
The Drugs and Cosmetics Act, 1940
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The Pharmacy Act, 1948
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The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954
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The Narcotic Drugs and Psychotropic Substances Act, 1985
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The Medicinal and Toilet Preparations (Excise Duties) Act, 1956
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The Drugs (Prices Control) Order 1995 (under the Essential Commodities Act)
The Drugs and Cosmetics Act 1940 • The object of the Act is to regulate the import, manufacture, distribution and sale of drugs. Under the provisions of this Act, the Central Government appoints the Drugs Technical Advisory Board to advise the Central Government and the State Governments on technical matters arising out of the administration of this Act. The board can constitute subcommittees for the consideration of a particular matter
The Pharmacy Act 1948 • Under the provisions of this act the Central Government constitutes a Central Pharmacy Council of India consisting of following members: a) Six members from the Teachers of pharmacy. b) Six members from practicing pharmacists or Pharmaceutical Chemists holding degree of diploma. c) One member elected by the Medical Council of India. d) The Director-General of Health Services. e) The Director of the Central Drugs Laboratory. f) The Chief Chemist, Central Revenues. g) One member to represent each state elected by members of State Councils who shall be a registered pharmacist. h) One member to represent each State Government who shall be either registered medical practitioner or a registered pharmacist.
Registration of Pharmacists – The State Government has under the provisions of the Pharmacy Act to get a register of the State Pharmacists prepared and it is the State Pharmacy Council which has to maintain the register. – The register shall contain the name and residential address of Pharmacist, the date of his first admission to the register, qualifications for registration, his professional address, the name of his employer and prescribed particulars
The Drugs and Magic Remedies (Objectionable Advertisements) Act 1954
– This Act is meant to control the Advertisements regarding drugs; it prohibits the advertising of remedies alleged to possess magic qualities and to provide for matters connected therewith. – The Drugs and Magic Remedies Act prohibits a person from taking part in publication of any advertisement referring to any drug which suggests use of the drug for: a) the procurement of miscarriage in women or prevention of conception in women; and b) the maintenance or improvement of the capacity of the human being for sexual pleasure;
Narcotic Drugs and Psychotropic Substances Act, 1985 – This is an Act to consolidate and amend the law relating to Narcotic Drugs – It’s aim is to make stringent provisions for the control and regulation of operations relating to Narcotic Drugs and Psychotropic Substances and for matters connected therewith
Taxation System: Pharmaceutical Industry
'Tax'ing Indian Pharma Direct taxes
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Governed by the provisions of Income-tax Act, 1961
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Under the provisions of section 35(1) of the Act, a deduction of 100 percent expenditure, not being expenditure in the nature of cost of any land and building is available in respect to scientific research related to the business
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Expenditure on developing the SEZ is exempt from all duties of customs, excise, CST and service tax.
'Tax'ing Indian Pharma Indirect taxes
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Customs duty consists of Basic Customs Duty (BCD)-12.5 percent
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Additional duty of customs under section 3(1) ('CVD')-16.32 percent and additional duty of customs under section 3(5) (ADC)-four percent
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Excise duty is levied at 16 percent on the transaction value of goods manufactured in India
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Drugs and medicines classified under chapter heading 3003.10 and 3003.20 are subject to excise duty on the basis of the MRP
'Tax'ing Indian Pharma Indirect taxes
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11 states have introduced a system of levying tax on MRP at a single point ie first sale in the state is subject to VAT on the basis of MRP and subsequent sales
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CST rate is four percent against furnishing of prescribed declarations. Otherwise, the rate of tax is 10 percent or the VAT rate prevailing in the originating state, whichever is higher
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Rate of service tax is 12 percent, together with education cess at two percent i.e. 12.24 percent.
Issues with Taxation System Indian - Bulk Drugs & Formln Lrg
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India is perceived as an attractive destination to outsource R&D work and contract manufacturing
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The only tax benefit available for Research & Development activities for such companies is the weighted deduction
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Companies engaged in R & D activity do not get weighted deduction in respect of expenditure not approved by DSIR though the R & D facility is an approved one. So government to need to clarify existing provisions
Issues with Taxation System Indian - Bulk Drugs & Formln Lrg
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Customs duty on import on Life saving drugs and medical services
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Rationalization of custom duty for formulations
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SAD (Special Additional Duty) refunds are taking more than a year to get processing the refund and the processes involved are cumbersome
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Government should reduce custom duty on all Life Saving medical devices to 5%
Issues with Taxation System Indian - Bulk Drugs & Formln Lrg
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Physician samples should be exempted from payment of Excise Duty
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As per the section 4A of the Central Excise Act, 1944, an abatement of 35% allowed for the purpose of levying Excise Duty on Pharmaceuticals
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The excise duty rate of APIs should be reduced from 10% to 4%, so as to make it at par with formulations
Issues with Taxation System Indian - Bulk Drugs & Formln Lrg
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Different VAT rates for pharma goods in different states / different description in schedule entries related to life saving drugs/ medical equipment
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Transaction costs are increasing to the dealers, as the definition of goods in section 8(3) not permitting them cover all goods
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The tax rate of 4-5% on medicines and the list of tax-exempt goods and declared goods should be uniform across all states. Specifically, Life saving drugs and life saving medical equipment should be included in exempt goods or zero rate of percent VAT category
Issues with Taxation System Indian - Bulk Drugs & Formln Lrg
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Provisions of the credit rules do not permit the Brand Owner to avail the credit if it is the not the manufacturer of the finished goods. Even the job worker cannot avail the credit as he does not pay for the input service. Further, the corresponding invoices of services are not in their name and said services not directly received by them.
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There exists a confusion and litigation as the State Governments are still levying sales tax on supply of software, where as the definition of sale in few state VAT legislations includes right to use.
Issues with Taxation System Indian - Bulk Drugs & Formln Lrg
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Transfer Pricing is treated as concealment of income and harsh penalties of 100-300% are levied.
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Scheduled formulations on which price control is applicable through a maximum permissible prescribed mark-up on the transfer price, downward adjustment due to transfer pricing regulations would affect established end selling.
Future expectations • The likely implementation of GST will be closely watched by the pharmaceutical industry as the total tax rate might go up, if the GST rates are not fixed in line with current indirect tax incidence. • Further, there can be excise and customs duty concessions on a few more drugs in life saving list.
Comparative Analysis of Pharmaceutical Industry in BRIC Nations
Comparison with emerging economies China and Brazil 2005 Figures
2015 Projected Figures
.
Market Size
Market Size
Rank Country
Market size
9. 11. 14.
USD 13 bn USD 9 bn USD 6 bn
China Brazil India
Rank Country
Market size
5. 11. 10.
USD 38 bn USD 20 bn USD 20 bn
China Brazil India
Comparison with emerging economies China and Brazil India
China
Brazil
Patent Protection started from 2005.
1
Patent protection started in 1990s but strictly regulated from 2005
2
Share of patent protected drugs is 9% in total market.
2
Share of Patent protected drugs is 5% in total market
2
Share of patent protected drugs is 15% in total market.
3
Share of MNCs in the total market is almost 24%
3
Share of MNCs in total market is 25-30%
3
Share of MNCs in total market is 65-70%.
1
1
patent protection started since 1994 and is strictly in line with countries like US.
Future Outlook : Pharmaceutical Industry
Future Scenario •
With several companies slated to make investments in India, the future scenario of the pharmaceutical industry in looks pretty promising. The country's pharmaceutical industry has tremendous potential of growth considering all the projects that are in the pipeline. Some of the future initiatives are: According to a study by FICCI-Ernst & Young India will open a probable US$ 8 billion market for MNCs selling expensive drugs by 2015
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The study also says that the domestic pharma market is likely to reach US$ 20 billion by 2015
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The Minister of Commerce estimates that US$ 6.31 billion will be invested in the domestic pharmaceutical sector
Future Scenario • Public spending on healthcare is likely to raise from 7 per cent of GDP in 2007 to 13 per cent of GDP by 2015 • Dr Reddy's Laboratories has tied up with GlaxoSmithKline to develop and market generics and formulations in upcoming markets overseas • Lupin, a Mumbai based pharmaceutical company is looking to tap opportunities of about US$ 200 million in the US oral contraceptives market • Due to the low cost of R&D, the Indian pharmaceutical off-shoring industry is designated to turn out to be a US$ 2.5 billion opportunity by 2012
Predicted Future Growth
Vision 2020 • Responsibilities and Resources would make an important beginning in the transition of efficient and effective use of pharmaceutical in building a prosperous and healthy India. • In doing so, following issues have been identified for realizing the Pharma Vision 2020. • The Indian pharmaceutical industry shall ensure that essential drugs at affordable prices are available to the vast population of this sub-continent and also continue providing employment for millions. • India will emerge as a major global player in the field of pharmaceuticals exports and as a provider of quality medicines at low costs. It shall also emerge as a major player in the generic drugs market in USA and Europe.
Vision 2020 • India will emerge as a major global player in the field of pharmaceuticals exports and as a provider of quality medicines at low costs. It shall also emerge as a major player in the generic drugs market in USA and Europe. • India shall attain new heights in herbal drugs research in shaping Indian Systems of Medicine into a popular system of medicine of the future for holistic health care and ensuring health care for all - especially for the welfare of the poor. • India’s Patents Act should ensure that it does not exceed the requirements of TRIPS, and that prioritizes access to medicines and public health, while retaining the right to participate in the compulsory license scenario. India should lead a movement of developing
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