CHAPTER 2: EXECUTIVE SUMMARY

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.

India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per
year. It is one of the largest and most advanced among the developing countries.
The following form the basis of the technological strengths of the Indian pharmaceutical
industry: Self-reliance displayed by the production of 70% of bulk drugs and almost the
entire requirement of formulations within the country, low cost of production, low R&D
costs, innovative scientific manpower and Strength of National Laboratories.

The objective of the research is to study the phenomenal progress achieved by Indian
pharmaceutical industries in terms of production and formulation of drugs in the global
market and as well to study the strategies adopted by big players and suggest some
policies, measures for promotion of the industry, and growth of the market.

Indian companies which wish to retain their current position in the market and maintain
their growth not only in the domestic market, but also to make in roads in the global
markets need to venture into molecular research. There is a need to create conditions for
the Indian scientists and research workers currently employed overseas for their return.

3
There is need to make use of information technology in R&D work which is not fully
being used in India. When a company ventures into real molecular research, it is not
enough to monitor one’s progress. The Indian companies need to monitor patent
applications filed elsewhere in the world and their progress. They also need to learn to
file their objections to protect their own inventions. They have to access information and
data available from various agencies/organizations in the world; and to analyze and
interpret the same to identify & seize new opportunities. The Indian companies also need
to periodically assess databases with a view to avoid wasteful expenditure.

4
 CHAPTER 3: INTRODUCTION

The pharmaceutical industry has shown tremendous progress in terms of infrastructure

development, technology base creation and a wide range of production. Even while
undergoing restructuring, it has established its presence and determination to flourish in
the changing environment. The industry now produces bulk drugs belonging to all major
therapeutic groups. Strong scientific and technical manpower and pioneering work done
in process development have contributed to this. The growth rate has been around 15%
for bulk drugs and 20% for formulations during nineties. The performance on the export
front is also noteworthy, clocking a growth rate of more than 20% in 1997-98.
Nevertheless, the scope to increase the volume of exports is tremendous.

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.

5
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.

Following the de-licensing of the pharmaceutical industry, industrial licensing for most of
the drugs and pharmaceutical products has been done away with. Manufacturers are free
to produce any drug duly approved by the Drug Control Authority. Technologically
strong and totally self-reliant, the pharmaceutical industry in India has low costs of
production, low R&D costs, innovative scientific manpower, strength of national
laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich
scientific talents and research capabilities, supported by Intellectual Property Protection
regime is well set to take on the international market.

ADVANTAGE INDIA

Competent workforce: 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.

Cost-effective chemical synthesis: Its track record of development, particularly in the

area of improved cost-beneficial chemical synthesis for various drug molecules is
excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs.

6
Legal & Financial Framework: India has a 53 year old democracy and hence has a
solid legal framework and strong financial markets. There is already an established
international industry and business community.

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.

THE GROWTH SCENARIO

India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per
year. It is one of the largest and most advanced among the developing countries.
The following form the basis of the technological strengths of the Indian pharmaceutical
industry: Self-reliance displayed by the production of 70% of bulk drugs and almost the
entire requirement of formulations within the country, Low cost of production ,Low R&D
costs ,Innovative Scientific manpower and Strength of National Laboratories .

Over 20,000 registered pharmaceutical manufacturers exist in the country. The domestic
pharmaceuticals industry output is expected to exceed Rs360 billion in the financial year
2005, which accounts for merely 1.3% of the global pharmaceutical sector. Of this, bulk
drugs will account for Rs 54 bn (21%) and formulations, the remaining Rs 210 bn (79%).
In financial year 2004, imports were Rs 30 bn while exports were Rs97 bn.

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While overall pharmaceutical exports have grown in 1999-2000, India’s exports to a few
of its leading markets have declined. For instance, according to a CHEMEXCIL report,
India’s pharmaceutical exports to USA have declined to Rs.671.8 crores in 1999-2000
from Rs.724.5 crores in 1998-99; Germany to Rs.325 crores from Rs.375 crores; Hong
Kong to Rs.356 crores from Rs.404.5 crores and exports to China have declined to
Rs.179.5 crores from Rs.137 crores.

Notwithstanding the decline in exports to some key markets, India’s export prospects
remain bright. As against a global pharmaceutical industry of over $300 billion, India’s
export sales are in the region of $1.5 billion The potential for growth is enormous, a 20
per annual growth in exports over the next five years will take the overall export figure to
$4 billion by 2005. The next five years will witness a spate of patent expires of
blockbuster drugs that will accord opportunities to supply bulk drugs and formulations to
advanced markets.

STEPS TO STRENGTHEN THE INDUSTRY

Indian companies need to attain the right product-mix for sustained future growth. Core
competencies will play an important role in determining the future of many companies in
the post product patent regime after 2005. Indian companies, in an effort to consolidate
their position, will have to increase look at merger and acquisition option of either
companies or products. This would help them to offset loss of new product options,
improve their R&D efforts and improve distribution to penetrate markets.

Indian pharmaceutical industry also needs to take advantage of recent advances in

biotechnology and information technology. The future of the industry will bee
determined by integration capabilities, it’s R&D, its consolidation through merger and
acquisition, co-marketing and licensing agreements.

8
DOMESTIC AND EXTERNAL TRADE

DOMESTIC TRADE: - More than 85% of the formulations produced in the country are
sold in the domestic market. India is largely self-sufficient in case of formulations. Some
life saving, new generation under-patent formulations continue to be imported especially
by MNCs, which then market them in India. Overall, the size of the domestic
formulations market is around Rs.160 bn and it is growing at 10% p.a.

EXPORTS: -Over 60% of India’s bulk drug production is exported. The balance is sold
locally to other formulators. India pharmaceutical exports are to the tune of Rs.87 bn, of
which formulation contribute nearly 55% and rest 45% comes from bulk drugs. In the
financial year 2002, export grew by 21%. India pharmaceutical imports were to the tune
of Rs.20.3 bn in FY. 2001. Imports have registered a CAGR of only 2% in the past 5
years. Imports of bulk drug have slowed down in the recent years.

The exports of pharmaceuticals during the years 1998-97 were Rs. 49780 million. From a
meager Rs.46 crores worth of pharmaceuticals, Drugs and fine chemicals exports in
1980-81, pharmaceutical, pharmaceutical exports has risen to approximately Rs.6152
crore, a rise of 11.91% against the last year exports. Amongst the total exports of India,
the % share of drugs, pharmaceutical and fine chemicals during (2000-2001) was 401%
an increase of 7%.

FUTURE PROSPECTS

As per WTO, from the year 2005, India will grant product patent recognition to all new
chemical entities, bulk drugs developed then onwards. The Indian government’s decision
to allow 100% foreign direct investment into the drugs and pharmaceutical industry is
expected to aid the growth of contract research in the country. Technology transfer to
100% Indian subsidiaries of MNCs is expected only in 2005.

9
Indian pharmaceutical interest in making a mark on the global scene got a boost when Dr.
Reddy’s licensed two of its anti-diabetic molecules to Novo Nor disk and when Ranbaxy
licensed its Novel Drug Delivery System (NDDS) OF CIPROFLOXACIN TO Bayer.
MNCs in India faced the problem of having a very high DPCO coverage, weakening their
bottom lines as well as hindering their growth through the launch of new products. DPCO
coverage is expected to be diluted further in the near future benefiting the MNCs. New
legislation is also expected to be diluted further benefiting the MNCs. New legislation is
expected in the OTC segment increasing the number of brands in the over the counter
(OTC) segment.

The Indian Pharmaceutical Industry is also getting increasingly U.S. FDA complaint to
harness the growth opportunities in the areas of contract manufacturing and research.
Indian companies such as Ranbaxy, Sun pharma, and Dr. Reddy are increasingly
focusing on tapping the U.S. generic market, projected to be around $18 billion by 2004.

RESERCH AND DEVELOPMENT

Research and development is the key to future of pharmaceutical industry. The

pharmaceutical advance for some of the diseases peculiar to a tropical country like India
and also for finding solutions for unmet medical needs. Industrial R&D groups can carry
out limited primary screening to identify lead molecules or even candidates drugs further
in vivo screening, pre-clinical pharmology, toxicology, animals and human
pharmacokinetics and metabolic studies before taking them up for human trails. In such
collaborations, harmonized standards of screening can be assured following established
good laboratory practices.

The R&D expenditure by the Indian pharmaceutical industry is around 1.9% of the
industry turnover. This obviously, is very low when compared to investment on R&D by

10
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.

When it comes to clinical evaluation at the time of multi-center trails, 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 pharmaceutical outsourcing management association and
bio/pharmaceutical out sourcing report, pharmaceutical companies are utilizing
substantially the services of contract research organizations (CROs).

Indian pharmaceutical industry, with its rich scientific talents, provides cost-effective
clinical trail 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.

The pharmaceutical and biotechnology industry is eligible for weight deduction for R&D
expense up to 150%. These R&D companies will also enjoy tax holiday for 10 years. A
promotional research and development fund f Rs. 150 croes is set up by the government
to promote research and development in the pharmaceutical sector.

The Indian pharmaceutical industry has achieved significant milestone over the years.
The industry attains self-sufficiency in case of formulations and gained global
recognition as a producer of low cost high quality bulk drugs. Several Indian companies
have expanded globally with presence in even developed markets like USA and Europe.
In the recent past, leading pharmaceutical companies have demonstrated their ability to
engage in commercially viable research and development activities and grow ro be major
players in international market.

11
Indian pharmaceutical industry is on the threshold of a new era with the introduction of
intellectual property rights (IPR) regime, which would be effective from 1st Jan 2005. The
government of India issued an ordinance on December 26, 2004 relating to patent
amendment act to comply with commitments made by India to WTO to become TRIPS
complaint by the end of the CY04. The issuance of the ordinance entails of product patent
protection to drugs, food and chemicals and deletion of provisions relating to Exclusive
Marketing Rights (EMRs).

PRODUCT PATENT REGIME COMES INTO FORCES

Introduction of product patent law would mean that Indian companies would no longer be
allowed to reverse engineer molecules that are under patent protection globally.
However, Indian companies would still be able to compete in the domestic market for
generic, i.e. drugs on which the patent has expired. As a result, the number of product
launches in the domestic market may decline. Also even through reduction in price
control coverage may provide pricing power to manufactures; it is implausible that there
will be significant price rise in case of existing products. The extent of pricing power
would depend on various factors, such as availability of substitutes, the numb of played,
availability of unbranded generics, and phase of the product life cycle.

As a result, the option available to the Indian companies would be to either operate in the
generic market or invest in R&D and invest new chemical entities and dosages forms so
as to achieve growth in long run. It is also likely that the Indian players who do not have
strong R&D capabilities and a diversified product portfolio may become contract
manufacturers for other player – Indian as well as multinational. In long run, introduction
of new products through innovative research or in-licensing agreements would be critical
for growth.

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Strong intellectual property right (IPR) protection is likely to enhance the interest of
MNCs in India and facilitate introduction of new products from their parent company
portfolio. It is expected that the new products would be priced at a premium, but the
extent of premium would be determined by the factor such as market size for that
product, price-volume relationship, purchasing power of individuals, and extent of
competition from existing therapeutically equivalent substitutes. Although, the share of
MNCs is expected to increase, Indian companies will most likely continue to dominate
the market the short term. This is because Indian companies have a wide range of
products in various therapeutic segments, and such products are likely to continue to
account for a substantial market share in the domestic market. Some Indian companies
are also expected to introduce innovative products in domestic market post-2005.

GENERIC WILL CONTINUE TO DRIVE GROWTH

The Indian pharma industry will continue to grow at an accelerated pace by seizing
greater share of the fast growing global generics market. The industry is expected to
significantly boost its share of the generics market on the back of its expertise in process
engineering and its low cost advantage. The global generics market is growing
significantly, and drugs worth USD 40 bn are likely to go off patent by 2005 and another
USD70 bn drugs will go off patent by the end of year 2008. Indian companies are
expected to grab around 30% share of increasing generic market in the future.

INCREASING FOCUS ON RESERCH AND DEVELOPMENT

Major Indian companies such as Ranbaxy, Dr Reddy, Nicolas Piramal etc, are increasing
focus on research and development. The research and development activities of Indian
companies are targeted both at new drug development as well as novel drug delivery
system. The research and development expenditure of leading companies has jumped
significantly to cross Rs.1000 crore during FY04. In value terms companies like Ranbaxy
and Dr Reddy led the way in R&D spending.

13
CRAMS ANOTHER BIG OPPORTUNITY

Indian pharmaceutical industry, particularly small and medium size drug units, is
increasingly looking at contract manufacturing as one of the best survival options in the
product patent regime. Domestic pharma companies who do not have the strength to
establish their own brands and compete with the leading player in the industry are likely
to grab the contract manufacturing opportunities. Several MNCs are also exploring the
possibility of outsourcing drugs at various stage of production, including the finished
dosages, to these companies.

Indian pharma companies can leverage their strength in terms of low cost of production
and availability of quality manpower to grab a greater share of global research spends
leading to sustainable and significant growth for the industry in foreseeable future. Indian
production costs are almost 50% less than compared to developed countries. In views of
this cost advantage, domestic companies have additional business opportunity to become
contract manufacturers for global MNCs. Also, low clinical trial costs and easy
availability of patient for clinical trials, will encourage the global pharma player to
conduct clinical trial in India.

INTRODUCTION OF VAT A BIG TRIGGER

The pharma industry will benefit as most leading companies currently pay a weighted
average sales tax of 8 to 12 %. At 4 % VAT, pharma sector could gain 4-8%, as the
industry expects that medicine are likely to be levied a VAT of 4%.

Companies with strong brands such as sun pharma, cipla, gsk pharma, and Pfizer are
likely to be benefit more as they have relatively greater pricing power. Also, some
companies may choose to pass on part or entire saving to grab prescription share and
boost sales.

14
TRIPS AND INDIAN PHARMACEUTICAL INDUSTRY

The Indian pharmaceutical industry represents a successful high technology based

industry, and has witnessed consistent growth over the last three decades. It is the 14 th
largest in the world accounting for a market of Rs. 125 billion and 4th largest market by
volume. The industry exports generic drugs to CIS countries, Africa, and recently to the
highly regulated US, Japan and European markets. The industry is characterized by a low
degree of concentration; a large number of firms with similar market shares, a low level
of R&D intensity ratios with a high level of brand proliferation. The need and incentive
for innovation was undermined by low purchasing capability of the domestic market
along with the ease of imitation and horizontal product differentiation; features that are
representative of an industry behind the technological frontier. There are several new
opportunities foreseen for pharmaceutical industries on TRIPS era and are as under:

1. Up to January 1, 2005, drugs worth approximately Rs.1500 billion have become

off patent. This is an excellent opportunity for the industry to sell formulations
and bulk drugs through out the world. Indian pharma industries possess strong
process re-engineering skills and lower cost of development.

2. Out sourcing and strategic alliances of Indian pharmaceutical industries for

production of bulk drugs, formulations for patented and off-patent products and
research in areas of drug discovery, new drug delivery systems/formulation
development and clinical research with MNCs have already triggered.

3. Indian pharmaceutical industries can use technical and man power skills for
research and innovations to modify older drugs and formulations of off patent
drugs for Indian and export markets.

4. Pharmaceutical companies, research organizations, and universities/institutions of

higher learning may obtain monopolistic patent rights for production and
marketing of their inventions for a period of 20 years throughout the world.

15
One of the advantages of the universal patent regime is that private venture capital firms
become willing to invest in technology based start up companies. Technical knowledge
flows more readily from university laboratories to the market place and local firms
become willing to devote substantial resources to internal research. Available evidence
shows that patents are important for chemicals and for pharmaceuticals basically because
of the huge R&D costs incurred by the firms. Also, the purpose of the patent is to provide
a form of protection for the technological advances and thereby reward the innovator not
only for the innovation but also for the development of an invention up to the point at
which it is technologically feasible and marketable. The higher cost of the R&D proves to
be an effective entry barrier for new firms and hence only firms with large flow of funds
become responsible for industrial inventive activity. In India, only a few firms have
sophisticated R&D facilities and others benefit mainly from the spillovers of the resultant
R&D. But, in order to move on to the higher echelon, firms need to invest in R&D. More
often small firms become hesitant to invest due to risks associated with R&D activities.
However, Indian pharmaceutical industries still have edge because of low R & D costs
and abundance of technically skilled manpower

TRIPS AND PHARMACEUTICAL MARKETING

In the recent years pharmaceutical marketing is undergoing rapid transformation and

have been accelerated in post TRIPS era. With support of government, many Indian
companies prospered and led to mushrooming of loan licensing arrangements. However,
in the post TRIPS era these companies are facing lot of uncertainty due to lack of
apposite strategy to face competition. In the present scenario Co-marketing seems to be a
viable option for small and medium scale industries to face steep competition ahead. This
strategy already has been started by big Indian companies. Co-marketing is joining of two
or more companies to provide products to end customer and are in the form of:

• Manufactured by one & marketed by other

• Manufactured on loan license and marketed by small/ big/MNC companies

• Two or more companies joining hand to market products

16
For sustaining in the highly competitive market, small companies can either form
marketing company to market selected products or companies can join together to market
each other's products on cost sharing basis according to product sales contribution.
Mergers of companies to co-market the product are new positive trend and are the right
step to enhance marketing strength of participating companies. Small companies will
benefit more of such participating marketing. Few years of post TRIPS era are going to
be tough for Indian pharmaceutical industries. Hence to sustain the thrust, Indian
companies need to have more scientific base marketing strategies, rather then "hit and
action" approach.

17
 CHAPTER 4: INDUSTRY SWOT ANALYSIS

It is often said that the pharma sector has no cyclical 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 long-term. True in some sense. But are there
risks? This article gives a perspective of the Indian pharma industry by carrying out a
SWOT analysis (Strength, Weakness, Opportunity, and Threat).

Before we start the analysis lets look a little back in the industry’s last six years
performance. The Industry is a largely fragmented and highly competitive with a large
number of players having interest in it. The following chart shows the breakup of the
growth (YoY) of Indian pharmaceutical industry in last six years.

*Volume growth of existing products

The SWOT analysis of the industry reveals the position of the Indian pharma industry in
respect to its internal and external environment.

18
STRENGTHS:

1. 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.

2. 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.

3. 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%.

4. 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 help Indian companies to develop
processes, which are cost effective.

WEAKNESS:

1. The Indian pharma companies are marred by the price regulation. 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.

2. Indian pharma sector has been marred by lack of product patent, which prevents
global pharma companies to introduce new drugs in the country and discourages

19
 innovation and drug discovery. But this has provided an upper hand to the Indian
pharma companies.

3. 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.

4. 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

OPPORTUNITIES

1. 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.

2. Large number of drugs going off-patent in Europe and in the US between 2005 to
2009 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.

3. 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.

20
 4. Being the lowest cost producer combined with FDA approved plants, Indian
companies can become a global outsourcing hub for pharmaceutical products.

THREATS:

1. There are certain concerns over the patent regime regarding its current structure.
It might be possible that the new government may change certain provisions of
the patent act formulated by the preceding government.

2. Threats from other low cost countries like China and Israel exist. However, on the
quality front, India is better placed relative to China. So, differentiation in the
contract manufacturing side may wane.

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.

21
 CHAPTER 5: GLOBAL PHARMA INDUSTRY

The drop in market capitalization of pharma companies on the US bourses, gives one a
clear indication of the unprecedented pressure on MNC pharma companies to sustain
growth. The issues, which are giving a nightmare to these companies, are wide ranging
including patent expiration and dearth of new products.

Further, intense competition from generic companies, especially from emerging countries
like India is adding to the problems. The most immediate problem for these companies is
the falling productiveness from their research labs. Despite a surge in R&D budgets, the
number of new products coming out of research pipelines is getting squeezed. For an
industry that attributes its high prices to the need to reinvest in R&D and boosting
success ratio in research, productiveness becomes paramount. And judging by numbers,
the days of price premiums seem poised to ebb out. Studies on R&D productivity show
that a large portion of the R&D budget is absorbed into the clinical trials, which is the last
stage of drug development. Ten years ago, for safety and efficacy 1,000 patients were
enough. But now regulators are stressing on higher number of clinical trials to be done
before a drug could be approved. This is not only increasing R&D budgets but also
increasing the time to market for new drug discoveries, leaving a short period for them to
cash in through patent exclusivity. The industry desperately is in need of a wonder drug,
which just does not seem to be coming out from their pipelines.

While on one hand, the R&D / marketing budgets of these companies are soaring, there is
increasing pressure from the governments all around the world on placing limits on
pricing drugs. To large extent, the demand for drugs in developed markets has a strong
relation with public health budgets, as healthcare is funded by states. Consequently,
rising drug pricing is making governments and non-profit organizations stand up and
raise their voice against the excessive pricing policy adopted by drug companies.

The problems of the Pharma industry do not stop there. Expiring patents and a rush of
generic competitors are eating into the profitability of these companies. As patent expires,

22
discoverers are at risk of losing volumes and revenues, as generic competition offers a
cheaper alternative. The generic market is expected to approach double-digit growth over
the next three years, compared to a mere 5% growth expected for branded formulations.

The most recent examples of generic threat to these companies are the patent challenge
on Augmentin (antibiotic) and Norvasc (Cardiovascular) of Glaxo and Pfizer
respectively. These are multi-billion dollar and strategically important patents for
multinationals. Augmentin for example contributes to more than 8% of GSK's worldwide
revenues. Domestic generic companies, Dr. Reddy's and Ranbaxy, are aggressively
challenging the patents for these drugs. As the pharma industry tides through uncertain
times, the solution seems to be in a new round of consolidation. Successful mergers to a
large extent would help these companies introduce newer molecules to fuel growth and
squeezing their marketing costs. Bigger companies with more products have more
bargaining power with states and insurance companies, which to a large extent dictate
pharmaceutical sales in the US.

The Pfizer deal to acquire Pharmacia has already kicked in another round of
consolidation in the industry. More deals are likely to follow soon. The principal
argument for striking merger deals is the cost cutting and leveraging of sales force in the
short term, while waiting for new therapies to make their way out of their labs. However,
it needs to be seen how successful can these mergers be in the long run, which are right
now driven by dry spells in global pharma R&D labs.

GLOBAL MERGERS, LOCAL EFFECTS

The latest in the series of global pharmaceutical acquisitions took place last week when
Knoll AG was acquired by Abbott Inc. This infact would be the 13th acquisition over the
last five years that have taken place among the top global pharma majors. What has
prompted this global consolidation? What would be the impact of such consolidation on
the local domestic companies? How would it impact shareholders of MNC pharma
companies?

23
The global consolidation has been primarily led by the increasing costs of Research and
Development (R&D). It costs anywhere between US$ 240 million to US$ 450 million to
discover a new drug. While companies earlier could use price increases to boost bottom
lines and there by reduce the pressure on them to bring new drugs to the market,
customers are getting more and more price conscious. Besides, research efforts did not
have to translate naturally into new products as the costs of discovery could be absorbed
thanks to healthy profits. That is no longer the case now. With older products constantly
under a threat from generics apart from newer, better ways of treatment international
companies need to have access to wider portfolio of products apart from a healthy
product pipeline.

Glaxo–Wellcome had justified its merger with SmithKline Beecham on precisely these
grounds: (a) a powerful R&D capability combining both companies’ expertise with a
budget of approximately US$ 4 billion (b) an enhanced platform to discover and develop
new medicines more efficiently (c) an extensive product pipeline with a total of 30 new
chemical entities (NCEs) and 19 vaccines in clinical development (phase II/III), of which
13 NCEs and 10 vaccines are in the late stage development (phase III) and (d) a
marketing force of 40,000 employees globally including over 7,200 sales representatives
in the USA. Even earlier, during the Ciba–Sandoz merger, Ciba gained access to
Sandoz’s product pipeline, which it did not have.

These global mergers imply increasing consolidation in select therapeutic areas in the
domestic market. For instance Glaxo–SmithKline will emerge as a market leader in four
of five largest therapeutic categories: anti–infectives, central nervous system (CNS)
drugs, respiratory and alimentary, a leading position in the vaccines market apart from a
strong position in the over the counter medicines. Similarly Novartis (formed from the
merger of Ciba and Sandoz) has emerged a strong player in the anti–TB market.

24
 Acquirer Acquiree Merged Company
Glaxo Plc. Wellcome Plc. Glaxo–Wellcome
Hoechst Marion Merrel Hoechst Marion
Dow
Pharmacia Upjohn Pharmacia & Upjohn
Ciba Sandoz Novartis
Hoechst Marion Roussel Hoechst Marion Roussel
Astra Zeneca Astra Zeneca
Hoechst Marion Rhone Poulenc Aventis
Roussel
Glaxo– SmithKline Glaxo–SmithKline
Wellcome Beecham
Pharmacia & Monsanto Pharmacia Corpn.
Upjohn
Novartis Agro Zeneca Syngenta
Pfizer Warner Pfizer
Lambert
Abbott Inc. Knoll AG Abbott–Knoll

It also implies lesser opportunities for Indian companies to enter into alliances with
international companies. One reason for this would be that the marketing forces of say a
Glaxo–SmithKline combine would give it enough strength to take on a Ranbaxy in the
anti–infective arena. (At present, Glaxo and Ranbaxy have an alliance for the marketing
of cephalexin. Whether this arrangement would hold after the merger, remains to be
seen.)

And how would it impact shareholders in MNC companies? While existing shareholders
would definitely benefit from a dominant player in its specialised therapeutic area, an
unwanted side effect of these mergers is that almost every MNC pharma company has
ended up with a 100 percent subsidiary. The takeover of Warner Lambert (known as
Parke Davis in India) by Pfizer and the presence of a two parallel 100 percent
subsidiaries in India have led to a uncertainty about the prospects of Parke Davis thereby
affecting its valuations. Similarly, Knoll already has another vehicle for introducing its

25
products into India viz. its parent’s wholly owned subsidiary. Whether, Abbott, which so
far did not have a 100 percent subsidiary, will inherit this, remains to be seen. SmithKline
Beecham Asia, a 100 percent subsidiary of SmithKline group is likely to serve as the 100
percent arm of the merged Glaxo–SmithKline. There is an apprehension that new
products would be introduced through these wholly owned subsidiaries rather than
through the listed company. And since for a pharmaceutical company, anywhere between
25 percent – 40 percent of the turnover accrues from new products introduced over the
last three years, it would imply a stagnating topline for the listed companies, a couple of
years down the line. The relatively higher valuations that MNC pharma companies have
enjoyed over the last 25 years could then be a thing of the past.

GENERICS BUSINESS: AN INTRODUCTION

The sharp run in the domestic pharma stocks in the last few months was largely attributed
to these companies lapping up on opportunities in the export market. You must have
definitely heard about the hot generic opportunity, which these pharma companies are
targeting. However, some of the regulatory terms may have left you confused?

Let us understand what are generic drugs in the first place. Generic drugs are the
chemical and therapeutic equivalents of brand-name drugs, typically sold under their
generic chemical names at prices below those of their brand-name equivalents. These
drugs are required to meet similar governmental standards as their brand-name
equivalents and must receive regulatory approval prior to their sale in any given country.
Generic drugs may be manufactured and marketed only if relevant patents on their brand-
name equivalents (and any additional government-mandated market exclusivity periods)
have expired, been challenged and invalidated, or otherwise validly circumvented.

By 2005, 15 of the leading 35 blockbuster molecules in the world are expected to go off
patent, which makes the opportunity highly lucrative for generic companies. Besides this,
rising healthcare costs and an ageing US population that requires larger medical attention
is intensifying pressure on the government and legislators to reduce healthcare related
expenses. Thus there is pressure on the government to enable a faster generic entry to put

26
a cap on the healthcare cost. This could be justified by the fact that means approval time
for a generic drug has come down to around 18 months from an average of more than 26
months in 1995.

However, one should understand the fact that above figures are not representative of the
figures that would translate into sales numbers for generic companies. This is due to the
fact that once the drug goes off patent, the generic one is sold at a heavy discount to the
branded one. Let us consider a recent case of Dr. Reddy’s in case of fluoxetine generic
sale. After the patent expiry, there was a heavy price erosion of more than 60-70% in the
price of the drug, compared to the branded one. The discount however, is dependent on a
case-to-case basis.

In the US, Drug Price Competition and Patent Restoration Act (Hatch-Waxman Act)
introduced in 1984, permits manufacturers to file ANDA’s (Abbreviated New Drug
Application) for generic versions of all post-1962 approved pharma products. This
application is abbreviated in the sense that the generic drug is not required to go through
rigorous new drug development procedures but is only required to prove that the generic
version is bio-equivalent to the original drug.

27
Let us now understand how a pharma company enters the generics market. First, the
company files an ANDA and applies to market its drug as soon as the patent period
expires. This is called the Para III certification. On the other hand, a Para IV certification
is one in which the generic manufacturer challenges that the existing patent on which the
innovator is currently selling the drug as invalid, unenforceable or that the patent would
not be infringed by the manufacture or sale of the generic drug. The Act also provides a
180 days marketing exclusivity for the first company to file Para IV ANDA. Another way
to enter the generic market is to enter to raw material supply arrangement with ANDA
filers.

While on one hand, these players devise their game plan to ensure fastest entry of their
generic drug to the market; brand name manufacturers on the other hand devise numerous
strategies to delay competition from lower cost generic versions of their products.

One of the most effective of these strategies is the development of an optically pure
version of a drug or the development of its metabolite just prior to the expiration of its
patents. A shift in market preference to the “new” product protects the branded market.
Hence, considerable resources expended by generic manufacturers in drug development,
application submission and approval of the original generic versions may produce
reduced revenues for generic drug companies.

Apart from the company’s capability, what matters most in the generic business is timing,
patience, regulatory and litigation skills and financial muscle to fight legal battles. This is
particularly true in case of Para IV application, which requires huge investments as the
whole process begins with challenging an existing patent in a court of law. Obviously,
this invariably follows by a counter claim from the innovator to protect his patent. It is
estimated that if a Para IV application disappoints a generic company, the loss on account
of litigation and procedural costs is in the range of US$ 2-3 m. For example, recently Dr.
Reddy’s lost a tentative Para IV approval for Omeprazole after several months of

28
litigation. Apart from the opportunity lost, the company had incurred US $ 2.3 m, which
now has to be written off.

According to the report, pharmaceutical companies will have to strive harder to navigate
successfully the increasingly complex global environment driven by competing market
and consumer pressures, regulatory changes, and a constant need for life-saving
innovations. The debates over fair drug pricing form the centerpiece of Progressions and
it highlights the need for pricing to be addressed quickly and globally as part of the
process of enhancing the industry’s reputation. Progressions make an attempt to refocus
the discussion over health care expenses from the cost of medicine to the cost of disease
to society. Compliance and Risk are the most pressing concerns for the stakeholders in
the Pharmaceutical industry. A strong culture of risk management and compliance
reporting will bolster pharmaceutical companies’ traditional business models and
strengthen the public’s trust in the industry,” says the report. Pharma companies have had
to pay the U.S. government over $1 billion since 2002 to settle fraud and abuse
allegations in the U.S. Institutions such as the World Trade Organization and the World
Health Organization play an increasingly important role in shaping the pharmaceutical
industry on a global, regional, and domestic level. The Report relates the perspectives of
senior policymakers in the U.S. and India on the impact of these supra-national
organizations.

Convergence and partnering among various sectors – medical devices, biotech pharma
will drive innovation. To help the industry and its stakeholders balance the policies that
drive innovation with clearly positive contributions to society, Ernst &Young has
developed a ‘Pillars of Innovation’ framework. This can help decision makers in both the
public and private sectors determine the appropriate policy mix to enhance an innovative
environment and to drive better health outcomes and stronger economic growth.
In FY03, Indian pharma exported nearly 40 per cent of its total output. Valued at $2471
million that year, exports grew by nearly 20 per cent over the previous year. In the five-
year period of 1998-2003, the industry's exports have increased at an average annual rate

29
of 11.1 per cent, despite appreciation of the rupee. In the first six months of FY04,
pharma exports from India increased by 15.8 per cent to $1415 million.

Pharma exports from India are quite well-diversified in terms of destinations. The US
accounted for 17 per cent of pharma exports in FY03. Germany and Russia were the next
two major destinations, having shares of 6.1 per cent and 4.2 per cent respectively. Shares
of American and African destinations have increased steeply in recent years. In FY00,
these two country groups had shares of 19.2 per cent and 11.9 per cent respectively; these
increased to 27.4 per cent and 13.2 per cent respectively in FY03.

The pharma industry is research-driven and innovative products drive the sales growth
for the industry. Because of the heavy expenditure involved in R&D and the intellectual
property rights protection, the global pharma industry also has a concentration at the top.
The top ten players account for more than 40 per cent of the global pharma sales. The
industry has also witnessed a consolidation drive in last few years, which has led to
several high-profile mergers.

Though the Indian industry does not compare favorably in terms of size with the leading
international pharma companies, certain global trends offer attractive opportunities for
Indian

EXPORT PERFORMANCE

India is now being recognised as a globally competitive pharmaceutical manufacturing

location. This can enhance India's position in the global pharma market, which is already
growing at a healthy rate. Leading players from India look set to leverage the generic
opportunity in the developed markets.

At the same time, smaller manufacturers with scale disadvantage could face survival
concerns after India shifts to the product patent system in 2005. The players with smaller
scale and low research capability would need to reorient themselves as contract

30
manufacturers in the coming years, where competition could be stiff from other low-cost
locations like China. Thus, even as the pharma industry and exports continue to grow in
future, the emerging industry dynamics could result in consolidation.

The coming year will be one of waiting and watching for the major pharmaceutical and
venture capital firms interested in India. Any setbacks in protecting IP for these firms will
set India back by many years in global investment.

The Enron episode and its impact in power-related investment in India is the analogy that
comes to mind. On the other hand, a sincere adherence and enforcement of the IP regime
along with other ongoing initiatives like government support for biotech research parks,
tie-ups between government research labs like NCL and industry will ensure a rapid
growth of the healthcare industry.

With nearly one in five research scientists in US pharma companies being of Indian
origin, there is no reason why India should not be able to repeat the success of the
software industry. Only this time around the task will be harder and need more discipline
on the part of all stakeholders – the government, pharma companies and the public.

EMERGING TECHNOLOGY AND TRENDS IN PHARMA INDUSTRY

The Indian pharmaceutical industry is one of the world’s largest industry, ranking fourth
in terms of volume and 13th in terms of value in the global pharmaceutical market. The
industry registered sales turnover of US $5.5 billion in 2004, growing with an annual
growth rate of eight per cent.

It is the adoption of emerging technologies by the Indian pharmaceutical industry that has
led to better and efficient processes in terms of cost benefits, purity of the product, yields
and enhanced safety of products rolling out of the industry, at large. This article is an
overview of some of these emerging technologies which has helped us in being a cut
above the rest.

The pharmaceutical industry has been on a growth curve that has seen a steady rise since
independence. The industry has catapulted from the multinational monopoly stages

31
(during 1960s) to the present stage of having Indian multinational set-up and one of the
change agents that has been the strength of R&D revolution.

Over the last decade, the pharmaceutical industry has achieved and developed a lot of
expertise on formulation and development for a number of sustained release
formulations. Such formulations have gained the confidence of medical fraternity and
seen good commercial success in the Indian pharma market due to the ease of use and
helping to ensure high patient compliance.

The pharma industry is also foraying into areas of Novel Drug Delivery Systems (NDDS)
which enable that the prescribed dosage reach directly to the specific affected
location/organs, ie, targeted delivery approach over a predetermined period of time. Since
many of these NDDS have to be sterile (e.g. implants) the availability of advanced tools
and technologies in aseptic processing and the additional initiatives of validation
concepts being in place, R&D groups feel enabled to work on these sterile NDDS with
confidence.

With the current scenario of disappearance of geographical barriers in the global pharma
market, the Indian pharma sector is galloping on its own strengths. Expertise in synthetic
chemistry and pharmaceutical manufacturing has allowed the Indian pharmaceutical
sector to position itself as the provider of quality products at highly competitive price.
Our industry has exploited this advantage to make forays in the global generic market. As
a result of this, many leading Indian pharmaceutical companies have become some of the
most efficient manufacturing units in the world.

With patent expiry of many blockbuster molecules now, the Indian pharmaceutical
industry stands at a threshold of a golden era to mark its presence in the global generic
market. With the availability of expertise and validation services of international
standards (now in India itself), many Indian pharmaceutical companies have already got
themselves into an enviable position by procuring regulatory approvals, enabling them to
market their products in developed countries.

Another emerging trend in pharmaceutical industry is manufacturing and sterility testing

under isolators. At the Pharmaceutical Science Advisory Committee meeting held on

32
October 22, 2002, committee guests agreed that FDA should encourage the use of
isolator technology via an open regulatory environment. Isolator technology allows for
fewer opportunities for microbial contamination during critical operations, e.g., vial
filling, sterility testing etc. It also offers increased product and operator safety by
complete containment of the drug which is very critical for products like cytotoxics,
biological etc.

Some leading Indian pharma companies have adopted the use of this technique to have
sterility assurance for the product as well as ensure containment. It is achieved keeping in
mind safety for operating personnel. Specialised process monitoring tools are available
for isolators with respect to microbial air-monitoring and sterility testing, making
processes and environments inside of an isolator better and easier to maintain and
monitor. Rapid microbiological techniques that help in easing out the burden of
maintaining products in process and aid in assessing the quality of the products, under the
PAT regime is another of the proofs to demonstrate the emerging aspects of science
working for the industry!

Another of the famously acceptable techniques, which is changing the face of aseptic
processing is disposable technology. The recognition of disposable manufacturing
technology is increasing and seen as a versatile alternative to traditional stainless steel
based facilities in the Biopharmaceutical industry. Greater flexibility for operations, plug
and play devices have caught the attention of organisations aiming to get to the market
place quicker.

Gathering data during validation studies for the disposables during research can be used
to accelerate its use and implementation at manufacture by using an equivalent disposable
system. Some of the specific tools that are available to Indian pharmaceutical
manufacturer are capsule filters, disposable sterile connectors, filling machines with
disposable filling head, microbial monitoring devices etc. These are just few examples of
various technologies and tools which are gaining popularity mainly due to cost
economics, ease of use, not being labour intensive and being accepted due to validation
possibilities to prove consistency, safety, purity and quality. Looking ahead into the
futuristic trends that may revolutionize the industrial practices, one may state that any

33
technology that makes the process of bringing a blockbuster to the market at lightning
speed will be a clear winner!

EYE ON GLOBAL MARKET

In the domestic sphere, a close look at the plant up gradation and expansion clearly spells
out the strategy of Indian pharmaceutical companies, which is to penetrate the developed
markets. ‘‘Almost all the brown field expansions are aimed at tapping foreign markets.
India Inc is building up strongholds in the overseas market with an increased acceptance
of the ‘Made in India’ tag overseas in the pharmaceutical segment,’’ quote analysts.

According to Pharmaplan India managing director, Dr Ashok Singhal, the investment in

the sector would be nothing less than Rs 5000 crore. Pharmaplan undertakes turnkey
projects and concept studies apart from GMP audits for the pharmaceutical sector.

Dr Singhal quipped that the industry is eyeing the global market alone while pumping
money in manufacturing facilities. U.S. Food and Drug Administration (FDA) standard is
the mantra of the key pharma companies running to quench their thirst in markets abroad.
Outside U.S.A., it is the Indian pharma sector which is on top, vying for FDA standards
in their plants.

More than or close to 50 per cent of revenues of top pharmaceutical companies comes
straight from overseas markets. Previously the foray has been to less regulated markets,
like the African countries, Eastern Europe, and CIS countries. However, the trend is
changing with more focus on regulated markets of US, and Europe and the next stop
being Japan. With specialty products and branded generics, this is a crucial shift from the
bulks/generics supplier slot.

34
UPGRADE AND MOVE AHEAD

The fast changes in regulatory and global market equations are compelling the
pharmaceutical industry to explore newer technological avenues to cut cost and time,
ensure operational efficiency, usher in world class standards and to work out innovative
strategies to peg up the bottom line. A closer look at the technology profile over the past
couple of years will prove that the Indian pharmaceutical industry has been shopping
around for technology and skilled top level manpower.

According to new research from the MIT Program on the pharmaceutical industry, many
companies today are searching for ways to increase productivity, decrease costs and
develop new treatment modalities that will enhance profitability. The trend is not limited
to India, it indicates. However, Indian companies are appeared to have undertaken plant
upgradation to match global standards only when they are compelled to.

Had they not been eyeing global markets, and had the US FDA not been maintaining
stringent quality control norms, may be Indian companies would have cared a damn to
invest in newer technologies, quipped an industry observer. To substantiate his statement
he pointed out the example of Indian pharma biggies who maintain international
standards for their plants where export products are manufactured and their strategy of
outsourcing production from small players for the domestic market. This is ridiculous!

Indian drug authorities need to adopt stringent measures, said the source. But the lack of
strong political will hinder such strong decision-making and to add to this are the
implementation hiccups.

Dr Singhal of Pharmaplan who has been instrumental in many pharmaceutical plant

expansions observes that upgradation of existing plants is nearly impossible, because
these are not made leaving room for upgradation. These plants will require total
reconstruction owing to inherent problems in the existing infrastructure.

Industry observers and analysts opine that the new plants being built in tax havens like
Himachal Pradesh or J&K are merely to avail of the tax benefits offered. These mainly
cater to the domestic market. The major expansion in line with international standards are

35
undertaken not only by top wrung companies but mid-size players like Ind-Swift,
Jubilant, Aurobindo, Cadila, Mankind, with an eye on overseas markets. This key
strategy has been the major trend in the industry over the past couple of years, pointed
out an industry expert.

MANUFACTURING TECHNOLOGY

In line with the pharmaceutical sector, the allied technology supplier also has been
witnessing heights. Global players through alliances and own ventures have been setting
shop here to cater to the increasing needs of the industry. This new project management
companies also have set foot in India. Pharmaplan is an excellent example of such a
company that has been growing with the industry. A couple of years into Indian
existence, Pharmaplan established office in Bangalore two years ago and is looking at
new offices in at least two more locations. US and European companies like the MW
Zander, H&G Jacobs, Dalal MacDormatt-Shepherds Process, Bovis Landlease are also
sharing the pharmaceutical project pie. Pharmaplan handles about six per cent of the total
market, Dr Singhal said.

The technology/equipment supplier has not been sitting idle either, pointed out an
industry expert. One-stop-shop is the concept. That means value added engineering with
integration of new technologies. One of the preferred models by international companies
is to work in collaboration with Indian companies. The emerging collaborations also
indicate the thirst of technology companies to cater to the increasing hi-tech requirements
of the Indian pharmaceutical industry thus to capture a significant share of the market
offering products in the affordable price bracket.

There is an increasing competition in the sector among foreign as well as indigenous

engineering/technology companies, and there is an increasing acceptance to Indian
vendors. The competitiveness of the indigenous player is gradually opening avenues
abroad as well, said and industry analyst.

36
However, the domestic pharmaceutical sector is yet to catch up with the fast pace of
technological intake developed markets, Dr Singhal of Pharmaplan feels. He pointed out
that many of the technologies widely used abroad have just started trickling into domestic
industry. Computer automation technology (like the SAP) in manufacturing, process
automation technologies, robotic technologies, new clean room technologies are a few
that fall in the list, he cited.

PACKAGING TECHNOLOGY

The pharmaceutical packaging projected to cross US$18 billion this year has been
witnessing fast advances. This is triggered by the changing delivery mechanisms, shifting
preference to provide better patient compliance, methods to check spurious/fake drugs,
and the compelling legislation across the globe.

Moving from blister packs to plastic bottles/containers and inhalers, the newer delivery
routes such as transdermal patches, pulmonary delivery, intravenous drugs & target
delivery mechanisms are calling for newer packaging technologies.

The sector demands constant innovation. It also needs to take care of environmental
factors, transportation and storage conditions. The packaging industry is continuously
deriving mechanisms to provide tailored, individual packaging solutions. This is aimed at
ensuring maximum benefit from the medicine administered. Bar coding too has become
an integral part of effective packaging facilitating tracking the product and easy recall if
needed. This is very crucial in drugs sector where quality is top concern.

When it comes to ensuring quality and consistency for medicines, pharmaceutical

companies are adopting advanced methods. The process of upgrading existing product
lines to absorb modern technologies also ensures better monitoring; examples include use
of robotic top loading solutions, pointed out an industry source.

37
GLOBAL PHARMACEUTICAL MARKET-INDIA’S STRENGTH

The Indian Pharmaceutical Industry has shown tremendous progress in terms of

infrastructure development, technology base and a wide range of production. From
conventional drugs such as Tinctures and Vaccines, the industry now produces bulk
drugs belonging to all major therapeutic groups requiring complicated manufacturing
process and has also developed excellent facilities for the production of different dosage
forms. The strength of the industry lies in developing cost effective technologies in the
shortest possible time for drug intermediates and bulk actives without compromising on
quality. This is realized though the country's strengths in organic synthesis and process
engineering. India specializes in process development to work out low cost synthesis
routes.

PRODUCTION

As reported in recent issue of SCRIP World Pharmaceutical News, UK, India ranks 4th
world wide accounting for 8% of World's production by volume and 1.5% by value. India
ranks 17th in terms of export value of bulk activities and dosage forms. Indian exports are
destined to more than 200 countries around the globe including highly regulated markets
of Europe, Japan Australia and the US.

The Exports of drugs, pharmaceuticals and fine chemicals have shown an excellent
growth rate as may be seen from the following figures:-

S. No. Year Exports Rate of growth over

(Rs. Crores) previous year (%)
1. 1997-98 5419.31 --
2. 1998-99 6256.7 15.44%
3. 1999-2000 7230.16 15.57%
4. 2000-2001 8729.89 20.74%
Source: Annual Report: Department of Chemicals and Petrochemicals, Ministry of Chemicals and
Fertilizers, Government of India, New Delhi.

38
Region wise Exports of Drugs, Pharmaceutical and Fine Chemicals from India during the
years 1998-99 to 2000-2001

(Percentage Share)
S. No. Year Exports Rate of growth over
(RS Crores) previous year (%)
1. 1997-98 5419.31 --
2. 1998-99 6256.7 15.44%
3. 1999-2000 7230.16 15.57%
4. 2000-2001 8729.89 20.74%
Source: Directorate General of Commercial Intelligence and Statistics (DGCIS), Kolkata
and Ministry of Chemicals & Petrochemical, Government of India, New Delhi

INDIA'S MAJOR PHARMA EXPORTS DESTINATIONS

During the year 2000-2001 major pharma export destinations from India were as follows:

India's Major Pharma Exports to Various Destinations for the Year 2000-2001

S.No. Country Value (RS Million)

1. USA 9831
2. Russia 4968
3. Hong Kong 4424
4. Germany 4289
5. Nigeria 3451
6. China PR 2604
7. UK 2458
8. Singapore 2143
9. Netherlands 1908
10. Vietnam SR 1869
11. Sri Lanka 1734
12. Canada 1676
13. Spain 1643
14. Mexico 1617
15. Italy 1444
16. Thailand 1498
17. Japan 1396

39
Source : Director General of Commercial Intelligence and Statistics, Kolkata and
Ministry of Chemicals and Fertilizers, Government of India, New Delhi.

QUALITY

Many Indian companies maintain highest standards in purity, stability and conform to
international SHE norms (Safety, Health and Environmental protection) in production.
Citing an example, Global DSM group closed some of its plants abroad and is now
sourcing semi-synthetic penicillin from their Joint Venture in India. Further an Indian
Company which specialises in the manufacture of Ibuprofen, has tied up with the original
innovator Cos., namely Boots, UK and Glaxo SmithKline, UK, to supply Ibuprofen and
Rantidine to these MNCs. Chirotech, UK, Nagase & Co., Japan, Eli Lilly, US are some of
the other International Companies having manufacturing contracts with Indian
companies, for S-Naproxen, S-Ibuprofen and Nizatidine, respectively. Anti TB-drug
segment is another area where India is a world leader. These tie-ups have been possible
due to the highest quality standards maintained by large number of Indian companies as
these bulk drugs are used by the buyer companies in the active dosage forms which are
subject to stringent assessment by various regulatory authorities in the importing
countries.

Considering that pharmaceutical industry is an industry involving sophisticated

technology and stringent Good Manufacturing Practices (GMP) requirements, 40% of the
share of Indian pharma exports going to highly developed Western countries speak not
only of excellent quality of Indian pharmaceutical products but also the reasonableness of
the prices. Many Indian companies, in addition to having WHO GMP certification, have
also been getting plant approvals from international regulatory agencies like USFDA;
MCA, UK; TGA, Australia; HPB, Canada; MCC, Africa and ISO 9000 certification.

OPPORTUNITIES FOR THE FUTURE

40
Strategic marketing alliances with European Companies, filing of Abbreviated New Drug
Approvals with USFDA, either directly or through US Companies( for such products
whose patents in US are about to expire) are one of the new areas being explored by
Indian Companies. With $30 billion worth of drugs reported to be coming off patent
between years 2002-2009, India is going to be a leading generic drug supplier on the
strengths of its developing cost efficient technological processes for the Generic
Versions. With the increasing number of off-patent bulk drugs and capabilities of Indian
scientists in process technology, the share of Indian products in world market is expected.

Further, it has been observed that globally, healthcare costs are under strong pressure in
many of the countries and these countries can look forward to India. India's strengths also
lies in the production of low-cost dosage forms from all therapeutic groups without
compromising on quality to suit the cost containment exercises attempted by Health
Authorities in various countries.

Another critical area of interaction could be technical cooperation with internationally

known National Laboratories like Indian Institute of Chemical Technology (IICT),
Hyderabad, Centre for Cellular Molecular Biology (CCMB), Hyderabad, National
Chemical Laboratory, Pune, Central Drug Research Institute, Lucknow which are all
centers of excellence in the field of Pharmaceuticals and Biological sciences. Global
Companies like DuPont, Merck, Pfizer USA, Glaxo SmithKline UK, Yamanouchi Japan
have tied up with institutes like IICT for cost effective technologies and have ongoing
collaborations with IICT. CCMB is doing fundamental research work on biomedical and
societal areas and also on Antimicrobial Peptides to combat infection, high research
relating to ageing and cataract. Thus, we can conclude that for global companies who
have their vision focused on cost effective and quality research activity in the area of
Drug Development and manufacturing, India is a must-not-miss destination.

CONCLUSION

41
Thus, we have observed that now the Indian Pharmaceutical Industry has matured into
adulthood. Despite Control on this industry, it has managed itself competently and
competitively. It has creditable record in terms of production, quality and exports. It has a
vast capacity, which is not yet fully tapped. Liberalization has barely touched this
industry but most of the companies are very much enthusiastic regarding government's
willingness to make it more free and competitive by gradual reduction of the number of
controlled drugs and introducing product patents. We are aware that people need modern
medicines and these medicines need to reach the remote and interior parts of the country,
at an affordable price. Hence, for this industry more and more investment is required,
both for capacity generation and research. Further, price formulation mechanism should
be simple and transparent. Hence, companies need to get some incentives in the form of
high profitability for better prospect but at the same time it has to be a mandatory policy
to monitor drug prices closely so that it does not go beyond the reach of poor people.

42
 CHAPTER 6: LITERATURE REVIEW

Aggarwal and Thakkar have done a research on strategies for marketing

pharmaceutical products. They were able to find out the following findings.
The pharmaceutical industry is characterized by high R&D costs and increasing
competition. New pharmaceutical products are often provided patent protection to help
companies recoup their R&D costs. The end of this period of market exclusivity is a
challenging period for these companies. Marketers need to develop creative product,
promotional, and pricing strategies for those products nearing patent expiration. First,
provides an overview to the history of drug patents. Second, discusses with
recommendations the strategies commonly adopted by companies with products facing
patent expiration. The history of the modern patent legislation can be traced to the
seventeenth and eighteenth centuries. At this time, pharmaceutical proprietary or
"nostrums" were made on a large scale in some monasteries in Italy, France, and
Germany. Some of these nostrums were so highly regarded that the rulers bought the
formulas from their inventors and published them for the benefit of their people.
Companies may take various steps to lessen the impact of patent expiration of the product
on product sales.

A study examined ads for the drug Chlorpropamide (Diabenese) and Diazepam (Valium)
before and after patent expiration in order to evaluate information content and type of
appeals (Taylor et al., 1995). Results demonstrated that prior to patent expiration there
was greater use of comparisons to therapeutic equivalents and a significantly greater
number of references to the research results. After patent expiration, however, there was a
much higher number of advertisements that focused on competition between brand and
generic products. Companies with products facing patent expiration can start promoting
those products to niche markets.

43
Product-related strategies By switching products from prescription to over-the-counter
(OTC) status, on patent expiration, innovator companies can extend their brands'
franchise while staving off competition from generics. According to one industry
expert, when the brand name product expires after 17 years of patent protection, the
generics almost always capture 50 percent to 70 percent of the prescription market
.Pricing is the most important factor for the marketing manager. However, it is one of the
most challenging tasks to be performed. The marketing manager is faced with the dual
responsibility of cost curtailment as well as trying to recover the R&D expenditure and
other expenses that have gone into the product.

The strategies adopted by different companies to survive the phase of patent expiration
have been examined. The discussion has also brought out the importance of pricing in
case of products facing patent expiration. Typically, companies increase their price when
approaching expiration of the patent which makes it easier for generics to eat away their
market share. Although it is necessary to recover the costs that have gone into the
product's development, it is not necessary that these costs can be recouped only during
the patent life of the product. These costs can still be recovered after the patent expires, if
the marketing strategies are well planned. Patent expiration need not be the end of the
product but with such smart marketing it can be a beginning. The company can save its
declining market share by following such strategies.

Creyer and Cole have done a research on the consumer behavior and public policy
implications of switch drugs i.e from Rx to OTC. The study revealed the following
information.

The rapid proliferation of drugs being switched from prescription (Rx) to over-the-
counter (OTC) status within the USA has raised a number of important consumer
behavior and public policy concerns. The following issue served as the focus of our
research. Given the increasing assortment and widespread availability of Rx to OTC
switch drugs, how might consumers' health care preferences change?

44
That is, what factors influence whether a consumer is more likely to visit their physician
rather than self-medicate symptoms of heartburn and indigestion with a new switch drug?
Patents for all brand name prescription drugs eventually expire. When this happens,
manufacturers of generic drugs quickly enter the market, drastically reducing the profits
of the pharmaceutical firm that developed, tested, and originally introduced the drug to
the market. . One way a pharmaceutical firm, whose patent for a specific drug has
expired, can expand their market, is to switch that drug from prescription (Rx) to OTC
(over-the-counter) status. In the USA during the last 20 years, more than 600 drugs
containing ingredients that were once available by prescription only are now sold OTC,
that is, without a physician's prescription. Competition in the OTC drug market can be
fierce and the pay-offs high. Two acid blockers, TagametHB and PepcidAC, were
granted OTC status in 1995. In 1996, Zantac entered the market. Priced significantly
higher than traditional antacids, which simply neutralize stomach acid, acid blockers
actually prevent the production of stomach acid. . A visit to a physician will no longer be
required to purchase that drug, which may save consumers both time and money.

Purchase of an OTC drug will raise health care costs. On the other hand, if a consumer
has a health insurance plan that covers Rx drugs, or most of the cost of Rx drugs, then the
purchase of an OTC drug will raise his or her health care costs. Consider the strategy
used by Pharmacia & Upjohn, Inc. to promote Rogaine, a drug used in the treatment of
certain types of baldness. Rogaine was introduced as a Rx drug for the treatment of male
baldness in 1988.

In 1991 it was authorized for sale by prescription only for the treatment of baldness in
women. Heavily advertised in both print and broadcast media, Rogaine built a high level
of awareness among consumers throughout the 1990s. The FDA then cleared Rogaine for
sale OTC on February 6, 1996, just four days before its patent expired. Product-labeling
issues become a more important consideration when a drug is switched from Rx to OTC
status, product-labeling issues become a more important consideration.

45
To summarize, when a consumer is not familiar with the drug, or drugs, that can be used
to treat his or her ailment, we suggest that they are likely to seek the advice of a
physician in hope of finding a "better alternative." Consumers may also be more
likely to visit the physician when the switch drug is an unattractive for some reason,
such as when it is judged to be low quality or when it is not perceived to provide
value. We also suggest that elderly consumers are less likely than younger
consumers to adopt switch drugs, based in part on health and safety considerations.

Collings have done a study on HRD and lab our market practices in a US
multinational subsidiary: the impact of global and local influences. This paper examines
the extent to which the human resource development (HRD) and labour market dynamics
of a US multinational subsidiary in Ireland are influenced by global and local factors.
Specifically the study examines the dynamic between central control and subsidiary
autonomy in relation to HRD and labour market management.
The author explores the extent to which the subsidiary is constrained or enabled by
virtue of its US heritage, and the relative impact of the Irish environment on its operation.
The findings indicate that the subsidiary possesses considerable autonomy in relation to
content aspects of HRD interventions while corporate interest was primarily focused on
budgetary issues. Turning to labour market management, it is argued that the subsidiary's
long-term focus is characteristic of the welfare capitalist approach to HR management.

In interpreting the results of this study, one should be aware of the limitations of the
research. In this context, we look first at the fact that the views of employees and union
representatives were not included in the findings. This was due to an inability to gain
access because of the difficult industrial relations climate, in terms of complex IR
negotiations which were taking place in the company at the time the research took place.

46
Thus, having reviewed the literature pertinent to the discussion on country of origin and
country of operation effects and identified the distinctive characteristics of the US
institutional context, this section seeks to grapple with the complex story, that is the
management of HRD and the internal labour market. This paper focuses specifically on
HRD in one Irish subsidiary of a USA MNC. However, this Irish study forms part of a
larger European study covering four European countries - Germany, Spain, the UK and
Ireland

Slater has done a study on The importance of the pharmaceutical industry to the UK
economy. His findings are given below.
The objective of this paper is to indicate the importance of the pharmaceutical industry
to the UK economy. Data on various aspects of the industry are presented and examined.
As background information a collection of policies and pressures on the pharmaceutical
environment are identified and discussed. The evidence shows what the UK economy
stands to lose if it loses its pharmaceutical industrial base. Concludes that policy and
pressure affecting drug products also affect drug companies; some of this is not realized
when drug product policies are considered; the people of the UK will still need drugs
whether or not the UK has a pharmaceutical base; the UK economy stands to lose a
significant amount of benefits if it loses its pharmaceutical industrial base.

There can be no doubt that the people of the UK will still need drugs, whether or not the
UK has a pharmaceutical industry. Various policies and pressures on the pharmaceutical
environment are indicated. This paper identifies and discusses characteristics and
attributes of the pharmaceutical industry to the well being of the UK economy.
The author identifies two of the pressures from the EU environment. Under the pan-EU
drug licensing system which came into force in January 1995, pharmaceutical companies
can apply for pan-EU licenses making the drug eligible to go on all member states'
markets. From January 1998 some of the optional routes in the system became
compulsory.

47
The second pressure in the UK market is the increasing prospect for cheaper products to
be imported from other member states. This may be facilitated by larger, more powerful,
wholesalers and vertical integration between wholesalers and retailers. Some of the
additional pressures that the current UK government has been considering and some of
the emerging pressures on the pharmaceutical market not initially linked to government
policy. The policy options in are not mutually exclusive and affect both the supply and
demand side of the pharmaceutical market.

In order to appreciate the value of the pharmaceutical industry to the UK economy, or

conversely what the UK economy stands to lose if it loses its pharmaceutical industrial
base, this section identifies and discusses a selection of characteristics and attributes of
the industry in the UK. The primary purpose is not only to present an indication of the
range of factors relating to the pharmaceutical industry in the UK but to also signal the
magnitude of these factors as they relate to UK pharmaceutical business, and trends over
time. There are currently 464 pharmaceutical companies registered in the UK and this has
risen from 286 in 1975, 310 in 1980, 326 in 1984, 352 in 1987. The number of companies
may change because of new entrants, mergers and acquisitions, and exits.

This paper indicated part of the wider contribution of the pharmaceutical industry to the
UK economy. The evidence can be used to signal what the economy stands to lose, if it
loses it pharmaceutical industrial base. Policies of past governments and options for the
present government, including supporting peer review committees, show some of the
pressures on the demand for and supply of pharmaceuticals in the UK. Policies and
pressures affecting the drugs bill also affect drug companies and, in turn, the welfare of
the wider economy. While it may seem an obvious point to make, it is a point that is often
neglected in policy debate at local, regional and national level. The people of the UK will
still need drugs, whether or not the UK has a pharmaceutical base.

Slater has done a study on the Recent legal and policy developments affecting the EU
pharmaceutical business environment.

48
The article aims to identify and explore recent legal and policy developments affecting
the EU pharmaceutical business environment. Areas addressed are: the declaration of
industry policy from the European Commission and the MEPs' recent response to this,
drug licensing, member state trade in pharmaceuticals, price and profit controls, and state
aid. States none of these areas are quite so mutually exclusive, and that there is more to
the EU pharmaceutical industry than just the drugs it provides and while there is a
growing trend towards a single EU market in pharmaceuticals it is highly unlikely that a
single market will be achieved in the next decade. Argues that EU policies must facilitate
a strong, profitable, pharmaceutical industry. Regardless of how successful the EU
pharmaceutical industry is, it is still behind the USA and looks likely to remain so. The
EU as a pharmaceutical area is beginning to be eclipsed by newly-emerging areas in the
Fast East and whether or not EU governments have formal, explicit pharmaceutical
industry policy, these governments will still affect the pharmaceutical environment. The
pharmaceutical industry in the EU is one of the most important industries. Not only do its
products help save lives but they also improve the quality of millions of people's lives
daily. However, there is more to the pharmaceutical industry than what their products do
for the well being of people. The pharmaceutical industry in the EU directly employs
over 500,000 people and the same number of people again indirectly. In the UK the
pharmaceutical R&D spend is one-third of all UK industries' R&D spend. This section
catalogues and comments on recent legal and policy developments affecting the EU
pharmaceutical environment. Five main areas are explored:

The declaration of industrial policy from the EC and MEP's sentiments in response to the
declaration- Although the EU has long been concerned with pharmaceuticals it was not
until the 1990s that the first industrial policy document emerged.

Market licensing is a perennial concern in pharmaceutical markets relates to the safety,

efficacy and quality of the products made available. Each nation's market licence is valid
only for a certain pre specified period of time, e.g. five years from the date of grant.

Member state trade in pharmaceuticals in which trade between member states takes place
for two related reasons: the location of firms in one country; and opportunities for profit

49
making in trade. Price and profit controls- It continues to be claimed that where prices
differ then the high price member states are subsidizing the lower price member states.
State aid-The provision of state aid to industries has long been a concern for EU officials.
However, it is not always clear whether state aid is detrimental to economic welfare State
aids in various regions are either trying to generate enterprise in a new area or trying to
offset industrial decline in the region. State aid can also facilitate the restructuring of
industries.

Lurquin has done a study on Streamlining the supply chain in the pharmaceuticals
industry. The pharmaceutical industry is now facing major challenges that have led to
the restructure and redesign of strategic processes. The supply chain is one of these
strategic processes. In their attempt to build a world class supply chain, companies are
facing a number of obstacles that need to be addressed in order to"debottleneck" it.
Investigates ways of streamlining the supply chain by finding and eliminating bottlenecks
along the various processes. Introduces original proposals to turn this process to major
competitive advantage in terms of cost of goods, service, quality
and capital utilization. Traditionally the pharmaceuticals industry was used to stability,
reliable profit and a dominant attitude to customers. Overall it was not prepared for this
change. The reaction of the leaders was, however, very prompt and centred on three
major axes: Mergers and acquisitions Return to core business Developing core
capabilities. Various core capabilities were identified and next to research and marketing,
the supply chain emerged as a core capability with most companies. There are factors
hindering supply chain robustness can be characterized as follows

Lack of or unclear information. This can cover demand, but also other elements such as
effective capacity, supplier responsiveness, lab our flexibility and many others. Restricted
view. Every participant has a limited view of a specific part of the supply chain with no
access to what is happening upstream or downstream. Forecasting accuracy/reaction time
balance. Forecasts are, by definition, inaccurate and this inaccuracy increases with the
time horizon, so the longer the reaction time, the less accurate is the forecast. Insufficient

50
or unbalanced capacity. This means that the capacity effectively available is either
insufficient or not balanced across the supply chain. Inadequate technology deployment.
The perfect illustration of this is the high speed packaging line with a long and complex
changeover handling a fragmented non-standardized range.

A number of companies addressing supply chain debottlenecking allocate significant

attention and resources to this, but surprisingly fail to address this segment of the supply
chain. The main reasons for problems in this area are linked with rigidity of the supply
market. There are two main causes generally associated with this:
Technical causes are generally of internal origin, such as specific requirements not in
line with market capabilities. Market structure causes. These are generally associated
with a monopolistic or oligopolistic situation. . Appropriate methods have been
developed at length in books related to purchasing strategies and have, therefore, not
been developed here.

The debottlenecking of the supply chain can be turned from a costly strategy into a major
competitive advantage, delivering major improvements in terms of costs, service, quality
and capital utilization. It presupposes however, a radical culture change, sustainable
commitment from the management, a global approach and coherent rigorous
methodology.

Doherty and Ennew have done a study on The marketing of pharmaceuticals:

standardization or customization. The author discusses the relative merits of standardized
and customized marketing strategies for organizations operating in international markets.
Suggests that the suitability of either strategy is heavily dependent on market and
environmental conditions. Reports on an examination of the characteristics of the
pharmaceutical industry and the extent to which the marketing environment favors
standardization. Presents empirical evidence of the extent to which marketing is
standardized and suggests that the link between market characteristics and the degree of
standardization is weak Global strategies have the potential to offer considerable benefits
to organizations which can implement them effectively. However, the opportunity for

51
organizations to use marketing standardization as a means of developing global strategies
depends on the global potential of the industry and the existence of supportive industry
conditions.

Marketing, competitive and production strategies are key levers for organizations in the
development of effective global strategies. The ability of an organization to use these
levers and the resulting potential for globalization is very much dependent on the
characteristics of the relevant industry and market.
In the case of marketing, the degree of homogeneity in customer needs is cited as a major
reason for the development of standardized marketing campaigns. There are four types of
strategic driver which will determine the applicability of standardized or global strategies,
namely market, cost, competitive and government drivers. Market drivers encompass a
range of factors relating to consumer needs, transferability of marketing and distribution
channels. Cost drivers are concerned with the extent to which organizations can realize
cost savings as a result of globalization. Government drivers encompass the range of
government policies which may inhibit the development of a global strategy and
competitive drivers deal with the activities of competitors and the inter linkages between
markets. A basic principle of strategy formulation, is the need to develop a match or "fit"
between the organization and its environment.

The relevant industry conditions or strategic drivers which must be examined are market
factors, cost factors, competitive factors and government factors.

Marketing standardization is one of the elements which contributes towards an effective

global strategy. However, the suitability of either standardized or customized marketing
depends on the characteristics of the industry and markets within which an organization
operates. An exploratory analysis of the pharmaceuticals market in Europe suggests that
the conditions favoring standardization in marketing are relatively weak and where there
is marketing standardization it is highest in relation to the core product features
(formulation, dosage and tablet size). Other aspects of marketing such as communication

52
pricing and packaging still appear to be relatively different across markets reflecting
variation in market needs and market conditions. It is possible that the absence of a strong
relationship between the two may be a reflection of the importance of internal cultures
and beliefs in creating pressure for standardization or customization as opposed to
external conditions driving such strategies. From the academic perspective, the absence
of a clear empirical link between the degree of standardization and the characteristics of
the relevant markets may suggest that the heavy emphasis placed on external factors as
drivers of strategic choice in global markets may need to be qualified.

Pioch and Schmidt have done a comparative study of UK and Germany as good
neighbors in the pharmacy community. Located as intermediaries between
patients/customers and national health systems, community pharmacies have to negotiate
increasing government demands for free advice, pressure on their earnings and an
increasingly deregulated market. A comparative assessment of the German and UK
markets highlights the tensions pharmacists face as healthcare providers and retailers,
assessing the ways in which each group copes with growing competitive challenges.
Based on a grounded theory study of community pharmacies in Berlin/Brandenburg and
the Greater Manchester area the role of pharmacies within their local neighborhoods is
discussed and the potential for the transfer of marketing intelligence between the two
countries evaluated.

The independent small shop has been the numerically dominant retail form in many
countries for a very long time. These small shops have provided a sense of location and
locale and have often been identified with `ways of life' and social and community
infrastructures. While much of the discussion centered on food provision, issues of access
to local health care via local pharmacies are now also stressed by the UK Government:
"Community pharmacies play a vital role, particularly in rural and poorer areas”.
Likewise in Germany - which represents the up-to-recently dominant organization of
pharmacies in the EU - chemists are seen as providing a trust relationship between the
pharmacist as health care provider and patients.

53
The functions of small retailers in their local community have been summarized by Smith
and echoed by others as Providing consumers with goods and services, Offering
diversity, colour and choice, Instilling dynamism and stimulating local adaptation.
Generating and maintaining employees in their area. Against this ideal, independents face
numerous problems, stated by Baron for the food sector as encompassing high operating
costs and other financial issues, inadequate management, lack of understanding of
consumers and shifting consumption patterns, linked to, low priority of market research,
Building economic linkages with other (local) businesses.

Five functions of local retailers served as a guide to data presentation under three main
headings: Providing goods and services. Locally adapted diversity, co lour and choice.
Developing economic linkages and local employment.

A fourth heading - particularly considering pharmacies at the heart of the neighborhood

was added to assess pharmacists' role in relation to their customer base. In conclusion,
pharmacies are compared to other small independent retailers together with thoughts on
how professionals from the UK and Germany could exchange best practice and
suggestions for further research.

Cravens and Glover have done a study on pricing complexities in the pharmaceutical
industry. Pharmaceutical companies have received a tremendous amount of attention in
the media regarding increases in drug prices at rates much in excess of the rate of
inflation. Synthesizes the numerous issues affecting drug pricing and the role that the
auditor should play in determining a "fair" price. Evaluates the role of the auditor with
regard to the call from investors for additional information in the annual report and more
in-depth analysis of management's ethical and operational practices. The pharmaceuticals
industry represents a unique area for consideration, given ethical and regulatory pressures
and the nature of the drug development and distribution process. With the complexities of
this process, considers the auditor's responsibility to understand unfair pricing practices
along with the ability to detect such practices. Pricing has always been a crucial decision

54
in the field of marketing. Most organizations provide a product or service to a consumer,
and price setting ultimately impacts on revenues, profits, growth and even individual
compensation.

Pharmaceutical companies have been under siege over the last few years for escalating
drug prices, often greatly exceeding the general rate of inflation. A recent report from the
US General Accounting Office notes that prices for certain drugs have shown a double-
digit rate of inflation, while the overall US inflation rate has been less than 4 per cent.
If pricing is of critical importance to any organization, consider the additional
importance of drug pricing for pharmaceutical manufacturers.

Boyd and Walker provide a framework for setting prices. The first step is to set an
objective for the pricing strategy. Once the overall objective is identified, subsequent
activities focus on determining the exact price of the product. This involves estimating
demand overall and the price elasticity of demand. The next important phase is
determining the costs involved in producing the product. After an internal consideration
of product costs, the next phase involves an examination of the prices charged by
competitors and the costs that they incur. Finally, an actual method is selected to compute
the price level, and any adjustments or modifications to the standard price are
determined.

According to Boyd and Walker pricing objectives may be classified into five general
categories.

Maximizing sales growth and penetration; maintaining quality or service differentiation;

maximizing current profit; survival; or social objectives

Drug pricing is important from regulatory and economic as well as ethical perspectives.
Aside from ethical issues relating to the complexities of pricing a necessary good, drug
manufacturers face additional concerns specific to their industry. The product life cycle
for pharmaceuticals may be extremely complex, requiring pricing adjustments .In

55
addition, manufacturers must face tremendously longtime horizons for product
development. Even without ethical considerations and problems with public image,
pricing is a crucially important and complicated task for the pharmaceutical industry. The
focus of an external audit has been to render an opinion of the financial statements.
This article raises the issue of the auditor's role in the pricing policies of clients, focusing
on the pharmaceuticals industry. Since the industry is receiving a tremendous amount of
regulatory and media attention, we feel that this will continue to be a major issue while
accordingly requires increased evaluation of the auditor's role in the process.

Bouchet et. al have done a study on the impact of information use on decision making in
the pharmaceutical industry.. The Research was conducted in the UK to know the impact
of information use on decision making in the pharmaceuticals industry. The results would
help and give information to service managers to better understand the information needs
of their clients. The purpose of this study was to measure aspects of the impact of
information on decision making in the pharmaceutical industry. The pharmaceutical
industry is an important one for the UK economy. This study focuses on the
pharmaceutical sector and four other complementary studies are looking at a range of
other industrial sectors to enable a comparative analysis of the impact of information use
on decision making by UK managers.

The methodology of the earlier research carried out by Marshall had to be altered in two
ways (the approach to participants and the distribution of questionnaires) to fit in with the
particular nature of the pharmaceutical industry and the differences in company culture in
the UK compared to that of the USA and Canada. Participants were asked to seek
information for a decision making situation from their information services using their
usual methods of contact, during a two-week period. They were asked not to inform any
of the information services staff as to when they were participating in this study to ensure
that their request was treated like any other. When they were satisfied with the
information they had obtained, they were to complete the questionnaire and return it.

56
Participants were only asked about the general type of information requested not about
the specific details of the decision making situation. The study took 100 actual instances
of information use within 13 pharmaceutical companies and followed them through to
their impact on decision making. An overwhelming majority of respondents felt that the
information provided by the information service had made a significant impact on
decision making. They confirmed the findings from the Marshall study which suggested
that, when the information service is used in decision making situations, it is perceived by
those undertaking the decisions to make a significant impact on their actions .

One respondent felt that his search had not had any impact on decision making because:
the query was put by an information scientist to an external database. The query was not
formulated properly, so I got some false hits. It would not have been possible to make a
rational decision without the info dept input. The search uncovered several novel
compounds, and a patent, of direct relevance to plans. Obviously the better informed the
clearer the decision making process. One of the reasons given by some respondents as to
why the information had not led to the situation being handled differently was because it
was not yet at a decision making stage.

Insight into how managers obtain information for decision making can help professionals
in the company information service in two ways. First, it can help them to assess
information requirements more clearly. Second, studies of this kind can help the
information staff to state a commercially-significant case for their service. In a "quality"
environment, information services are necessarily about the concept of "fitness for
purpose", and surveys on the impact of information supply on corporate decisions must
be undertaken in order to match purpose and provision.

Big players to the global markets in the world carry out the study in India on the
pharmaceutical exports. This very comprehensive research begins with an examination
of the economic structure of the Indian drug industry and continues with a presentation of

57
the biotechnology segment. This innovative segment of the drug industry is presented at
greater length in all relevant aspects: R&D, the role of biotechnology within the
traditional sector of the industry, and the specific research on the major diseases present
and future drugs are meant to treat (heart disease, cancer, nervous disorders, AIDS,
diabetes, and others ) .

58
 CHAPTER 7: CONCEPTUAL FRAMEWORK

In continuation of chapter literature review we discussed the theoretical concepts of four

P’s of International Marketing Mix. This chapter of Conceptual Framework contains the
model used in the literature review being modified in context or relation to the topic of
the research, which is Export of Indian Pharmaceuticals. Conceptual framework will
acknowledge that how pharmaceutical are developed and sold specifically for
international markets along with their methods of distribution and pricing strategies etc.
Let’s begin this chapter with the explanation of above model created:

CONCEPTUAL FRAMEWORK FOR EXPORT OF PHARMACEUTICALS.

THEORY SUITABLE
OF FOUR P’S SWOT
COMPETITIVE OF
ADVANTAGE INTERNATIONAL ANALYSIS
OF NATIONS MARKETING MIX

DYNAMIC
ASSESMENT
FAVOURABLE COMPLETE
AND
USAGE KWOWLEDGE
DETERMINANTS WITH
UNDERSTANDING

LONG TERM
SUCCESSFUL
EXPORTS

59
The above Model of conceptual framework for Export of Pharmaceuticals has been made
after extensive study and research from the published literature, secondary information
from the market, and market survey conducted on my own. This is the model developed
by the author, which will help the readers of this research to understand the requisites
necessary for being successful in exports.

The model above shows that to be successful as a nation or to gain competitive

advantage, all the determinants of Diamond Model should be favorable and if are not
favorable, they should be molded with the support of government in such a manner, so
that they contribute in betterment of export conditions. Along with favorable
determinants of diamond model, the four P’s of International Marketing Mix also
requires dynamic review from time to time followed by innovation and adoption as per
the needs, requirements and suitability of the different export markets at different times.

The above model also states that the complete and clear knowledge of the SWOT
Analysis is must for the smooth functioning of the business, its understanding also helps
the exporters to prepare for weaknesses and threats and also grab the opportunities if any
by using the strengths available.

FOUR P’S OF INTERNATIONAL MARKETING MIX RELATED TO INDIAN

PHARMACEUTICALS EXPORTS:

PROMOTIONAL STRATEGY: The main mode of promoting the exports in the major
market like United States Of America and other important markets, is by participating in
the specific pharmaceuticals related trade shows conducted in India in which buyers from
various parts of the world are invited, or by taking part in International Trade Fairs and
shows overseas with the help of Pharmaceuticals Export Promotion Council of India.
This is considered as the best way of reaching large number of potential customers by

60
showing all special and latest products in one go especially in large, geographically
spread out markets.

After patent expiration, however, there was a much higher number of advertisements that
focused on competition between brand and generic products. A significantly higher
proportion of appeals differentiating the products from the competitors' products after
patent expiration were found.

Typically a product nearing patent expiration has been in the market for 17 years;
therefore the promotional activities should try to take maximum advantage of this and
must take further steps to strengthen the position of the brand name. Brand names due to
their popularity often make it difficult for the entry of generics. For example, Listerine is
still a hot favorite despite the fact that its patent expired almost half a century ago. Such
products become a household name. The brand name over the years can become so
strongly associated with the product that it is considered to be the product itself. Thus
Colgate has almost become synonymous with the word toothpaste and "Xerox" is often
used as a verb. At one time the word "Bayer" was synonymous with Aspirin.
Companies with products facing patent expiration can start promoting those products to
niche markets.

PRODUCT: By switching products from prescription to over-the-counter (OTC) status,

on patent expiration, innovator companies can extend their brands' franchise while
staving off competition from generics. According to one industry expert, when the brand
name product expires after 17 years of patent protection, the generics almost always
capture 50 percent to 70 percent of the prescription market.

PHYSICAL DISTRIBUTION OF PHARMACEUTICALS IN INTERNATIONAL

MARKETS: There are agents and distributors in the international markets who look
after the distribution network. Some big companies are having overseas offices which
look after the international dealings in the foreign markets.

61
PRICING FOR INTERNATIONAL MARKET: India provides pharmaceuticals to
various parts of the world at comparatively lower prices due to cheap and abundant
supply of labour force.

Due to the same, the cost of production tends to be low and therefore the price in the
export market can be kept competitive in order to keep an edge, while competing with
other multinationals supplying to the same target market. Perhaps at the stage of patent
expiration, pricing is the most important factor for the marketing manager. However, it is
one of the most challenging tasks to be performed. The marketing manager is faced with
the dual responsibility of cost curtailment as well as trying to recover the R&D
expenditure and other expenses that have gone into the product In nut shell merely having
low prices to compete is not enough for survival in the long term, and there must be a
synergy between price, merchandising and marketing.

SWOT ANALYSIS AS A PART OF CONCEPTUAL FRAMEWORK

Here SWOT analysis is shown as a part of conceptual framework in order to give a clear
view of strengths and weakness of Indian pharmaceuticals industry and also study the
opportunities available for the industry from the various parts of the world along with
threats which can cause damage to the Indian industry as a whole if we compete with the
other nations in the open economy. Swot analysis on the whole play the role of a
summary containing the pros and cons of the industry.

Strengths

• Cost Competitiveness

• Well Developed Industry with Strong Manufacturing Base

• Well Established Network of Laboratories and R&D infrastructure

• Access to pool of highly trained scientists, both in India and abroad.

• Strong marketing and distribution network

62
 • Rich Biodiversity

• Competencies in Chemistry and process development.

Weaknesses

• Low investments in innovative R&D.

• Lack of resources to compete with MNCs for New Drug Discovery Research and
to commercialize molecules on a worldwide basis.

• Lack of strong linkages between industry and academia.

• Lack of culture of innovation in the industry

• Low medical expenditure and healthcare spend in the country

• Inadequate regulatory standards

• Production of spurious and low quality drugs tarnishes the image of industry at
home and abroad.

Opportunities

• Significant export potential.

• Marketing alliances to sell MNC products in domestic market.

• Contract manufacturing arrangements with MNCs

• Potential for developing India as a centre for international clinical trials

• Niche player in global pharmaceutical R&D.

63
Threats

• Product patent regime poses serious challenge to domestic industry unless it

invests in research and development

• R&D efforts of Indian pharmaceutical companies hampered by lack of enabling

regulatory requirement. For instance, restrictions on animal testing outdated
patent office.

• Drug Price Control Order puts unrealistic ceilings on product prices and
profitability and prevents pharmaceutical companies from generating investible
surplus.

• Export effort hampered by procedural hurdles in India as well as non-tariff

barriers imposed abroad.

• Lowering of tariff protection

64
 CHAPTER 8: RESULT AND DISCUSSION

This chapter deals with the information that was collected through the questionnaires by
a popular research organisation. The questionnaire was administered to 33 lakh
consumers in india

1. CONSUMERS PERSPECTIVE ON PHARMACEUTICAL INDUSTRY

GROWTH

Table 1.1 : Consumer perception of pharmaceutical industry growth.

The pharmaceutical industry has shown tremendous progress in terms of infrastructure
development, technology base creation and a wide range of production.
For the purpose of analysing the consumers perception about the growth of
pharmaceutical industry the age-wise data was analysed in the following table and graph.

Age Group Yes No Can’t say

25-35 years 10 1 1
36-46 years 12 0 3
47-57 years 3 0 3

14
12
10
responses

25-35
8
36-46
6
47-57
4
2
0
yes no can't say

Graph 1.1

65
Most of the respondents in all age groups felt that the Indian pharmaceutical industry is
growing. It can be seen in the graph plotted above. They feel that there has been
tremendous growth and progress in this sector.

Table 1.2 : Brand awareness among consumers

For analysing the awareness regarding several brands of drugs available in the market,
the age-wise awareness was analysed in the following table and graph.

Age Group Yes No

25-35 years 10 2
36-46 years 14 1
47-57 years 4 2

15
responses

10
yes
no
5

0
25-35 36-46 47-57

Age group

Graph 1.2

Most of the respondents bought painkiller medicines with references to brands but the
age group between 36-46 years years were most conscious and 47-57 years years age
group were least. As it can be clearly seen in the table and the graph above.
Table 1.3 : Need for expenditure on R & D by Indian companies

66
To know whether the consumers felt that Indian companies need to spend more on R &
D, the following graph and table have been drawn.

Age Group Yes No

25-35 years 12 0
36-46 years 14 1
47-57 years 3 3

Almost all the respondents felt that there is a need for higher expenditures on R & D. 29
Lakh of the respondents felt that Indian companies should spend more on R&D out of
33lakh . The age group of 36-46 and 25-35 years agreed the most whereas the age group
of 47 – 57 years remained neutral.

Table 1.4 : The monthly income of the respondents.

The data was collected to know the monthly income of the respondents in all age
brackets. The analysis is given in the table and graph below.

Monthly Income
Age group Rs 10,000-25000 Rs 25000-40000 Rs 40000-55000 Rs 55000 above
25-35 years 3 4 2 3
36-46 years 2 2 4 5
47-57 years 3 1 3 2

67
 6
responses 5
4 25-35
3 36-46
2 47-57
1
0
Rs 10,000- Rs 25000- Rs 40000- Rs 55000
25000 40000 55000 above
monthly income

Graph 1.4

The respondents were very generous to reveal their income. Most of the respondents
were having high income. 10 lakh respondents were having Rs. 55000 above income out
of which most of them are in the age bracket of 36-46 years and least in 47-57 years. The
table and graph above show the findings.

Table 1.5 : Monthly expenditure incurred on medicines by consumers.

With the view to ascertain the monthly expenditure of the consumers on buying medicine
the following graph and table were developed.

Monthly Expenditure on medicines

Age group Below10% of income 10% of income 20% of income 30% and above
25-35 years 3 2 1 0
36-46 years 5 3 2 1
47-57 years 6 5 2 3

68
 7
6
5
responses
25-35
4 36-46
3
47-57
2
1
0
Below10% of 10% of 20% of 30% and
income income income above
monthly expenses on medinines

Graph 1.5

Most of the respondents spent below 10% of their income on medicines and among them
the age bracket of 47 – 57 were the most. The least no. of respondents spent 30% and
above of their income on medicines. But still there were 3 respondents in the age highest
age bracket who spent highly on buying medicines.

Table 1.6 :Consumer perception of Product reliability of various companies.

To ascertain the product reliability among the consumers towards various companies in
the pharmaceutical industry. The data was analysed and interpreted in the table and graph
below.
Company Name Reliability
RANBAXY 10%
GLAXO 13%
DR.REDDY 15%
DR.MOREPAN 25%
PANACEA BIOTEC 14%
CADILA 23%

69
 Reliability
Percentages 30%
25%
20%
15%
10% Reliability
5%
0%

Y
O
Y

LA
AN

C
D
X

TE
ED

DI
BA

LA

EP

A
R
AN

R
G

BI

C
R.

O
R

.M

EA
D

DR

C
NA
PA
Company name

Graph 1.6

In the table above are mentioned a few big players in the pharma industry in terms of
revenue generations. The respondents were asked to rate them in terms of reliability on
the same scale as mentioned above. The calculations were done in terms of percentage
and found out that the lower the percentage the higher its reliability. Ranbaxy was
termed as most reliable followed by Glaxo , Panacea Biotec ,Dr Reddy, Cadila,and then
Dr. Morepan.

Table 1.7: Consumer perception in terms of quality of the products.

To analyse the perception of consumers towards the quality of the products , the data has
been evaluated in the table and graph below.

Company name Quality

RANBAXY 12%
GLAXO 11%
DR.REDDY 20%
DR.MOREPAN 23%
PANACEA BIOTEC 14%
CADILA 20%

70
As far as quality of the products are concerned the calculations were done in the form of
percentages. The lower the percentage the higher the quality. As we can see in the graph
the highest rated in quality is Glaxo followed Ranbaxy, Panacea Biotec , Dr Reddy ,
Cadila and Dr Morepan.

Table 1.8: Consumer perception towards the of price of the products.

To know whether the pricing of products were reasonable in the minds of the consumers ,
the following data was interpreted in the table & graph given
below .

Company Names Price

RANBAXY 11%
GLAXO 12%
DR.REDDY 15%
DR.MOREPAN 18%
PANACEA BIOTEC 21%
CADILA 23%

71
 Price

RANBAXY
CADILA 11%
23% GLAXO
12%
DR.REDDY
PANACEA
15%
BIOTEC
21% DR.MOREP
AN
18%

Graph 1.8

The prices prevailing in the Indian markets of various products manufactured by the
companies were taken into account. The lower the percentage the better its pricing. One
could analyze that Ranbaxy was the best in pricing of products followed Glaxo,Dr
Reddy,Morepan ,Panacea and then Cadila . Most of the respondents felt that Panacea
Biotec products were highly priced.

Table 1.9: Perception of consumers on Indian drugs.

To rate whether the Indian drugs were better than foreign made drugs among the
consumers in all age groups, data was collected and analysed in the following table
& graph.

Age Group Yes No

25-35 years 10 2
36-46 years 12 3
725
47-57 years 1
The respondents strongly felt that Indian medicines were more reliable and effective
than foreign medicines. 27 lakh respondents out of 33 agreed in almost all age groups.
While 6 lakh did not agree in which 3 lakh were in the age group of 36-46 years and 2
lakh in 25-35 years and 1 in 47- 57 years age bracket.

Table 1.10 : Consumer Awareness about sale of Indian medicines abroad.

To check the awareness among Indian consumers about sale of Indian drugs done in the
foreign markets on a large scale , the information is interpreted age wise in the following
graph & table.

Age Group Yes No

25-35 years 9 4
36-46 years 13 2
47-57 years 4 2

73
 14
12
10
8 25-35
6 36-46
47-57
4
2
0
Yes No

Graph 1.10

26 lakh out of 33 respondents knew the fact that Indian medicines were being sold in the
foreign markets on a very large scale. The age groups of 36-46 years were the most
knowledgeable ones and the highest in number.

2. ANALYSIS OF THE RETAILERS.

A structured interview was conducted with the retailer’s officials. The following findings
were revealed.

When asked whether the consumption of medicines had increased in the last three years
all the retailers strongly agreed to the fact. They felt that there was a strong incline in the
consumption among the consumers . All the retailers felt that the Indian pharmaceutical
product quality has increased tremendously from the past. This meant that Indian
medicines were capable of being sold in the foreign markets on a very large scale. The
prospects are quite good for the Indian industry to enter the foreign markets. On the basis
of quality and popularity among the painkillers available in the market Nimulid
manufactured by Panacea Biotec Ltd. was rated the highest as compared to other

74
prescription drugs. All the retailers sold all kinds of drugs such as prescription , otc ,
allopathic, ayurvedic, herbal , vaccines etc.

The retailers feel that India has a better cost advantage in terms of production and R&D
cost over multinationals around the world which gives the Indian industry a competitive
edge. In the Indian market the most popular drug manufacturing company is Glaxo
which is a multinational company and has grown over the years. This is because their
products are high on quality are being sold internationally as well.The new pricing policy
though have increased the prices of the products in India but the demand has still
remained the same. Retailer’s in the Indian market strongly feel that the Indian pharma
Industry should spend more on R&D for better drug development and production of
quality products in order to capture foreign potential markets.
3. ANALYSIS OF THE COMPANY.

A structured interview was conducted with the company officials. The following findings
were revealed.

When asked the company personnel of what are the major constrains in exporting
pharmaceutical products they said certification from regulatory bodies was one of the
major constrains. In the U.K. market the drugs can only be imported after getting the
U.K. MCA certification and approval. This is a very stiff task as the concerned authority
visits the plant first and then gives its approval only when they feel that the product is of
high quality. Then government has certain trade barriers for example in the Gulf
countries a product can only be sold if it is registered in two or more Gulf countries. Then
I asked them that which drugs they manufacture. They are into antibiotics, ayurvedic,
vaccines such as oral polio and hepatitis B.

The company Panacea Biotec is the only manufacturer of oral polio vaccine in the
country and supplies to the Indian government. The company is into exports of
formulation drugs in the form of tablets, capsules, gels , syrups. It has been exporting on
a large scale to European and CIS countries. It has good amount of sales to the U.S.

75
countries as well. The fastest moving drug is NIMESULIDE, named Nimulid in exports
of the company. It is exported on a large scale to Russian and African countries.
According to the company the U.K. market is the most profit making market in the world
in terms of growth as well. U.K. market is heavily growing in the generic market share.

The pharmaceutical companies are also wanting to capture the U.K. market to enhance its
over all profitability and are currently working on it. The pharmaceutical companies
strongly feels that there is a need to develop a separate R&D department for international
products. The pharmaceutical companies works through its distributors in the overseas
market and has plans to set up offices internationally. The reasons for insufficiency of
orders are price war and lack of marketing of the product. This is because marketing a
product internationally is very expensive and not feasible in terms of high costs.

The pharmaceutical companies are willing to work at a minimum profit margin of 25-35
percent in the international markets for making it a feasible venture. The pharmaceutical
companies are currently engaged in expanding its exports to the U.K. markets and the
Gulf Countries.

Its overall net export sales have been varying from Rs 260 Crs to Rs 270 Crs in the last
three years. The pharmaceutical companies rated its overall profits, exports , foreign
market share as a steady increase in the past three years. The pharmaceutical companies
also feels that finding business information for export promotion and grasping export
related data is very easy by the means of Internet. The whole country profile can be
obtained through the channel of Internet. It is a reliable source of information.

76
 CHAPTER 9: STRATEGY FOR STRENGTHENING THE
INDUSTRY

Indian companies need to attain the right product-mix for sustained future growth. Core
competencies will play an important role in determining the future of many Indian
pharmaceutical companies in the post product-patent regime after 2005. Indian
companies, in an effort to consolidate their position, will have to increasingly look at
merger and acquisition options of either companies or products. This would help them to
offset loss of new product options, improve their R&D efforts and improve distribution to
penetrate markets.
Research and development has always taken the back seat amongst Indian
pharmaceutical companies. In order to stay competitive in the future, Indian companies
will have to refocus and invest heavily in R&D. The Indian pharmaceutical industry also
needs to take advantage of the recent advances in biotechnology and information
technology. The future of the industry will be determined by how well it markets its
products to several regions and distributes risks, its forward and backward integration
capabilities, its R&D, its consolidation through mergers and acquisitions, co-marketing
and licensing agreements.
Exports form a vital component of the growth strategy of most Indian pharmaceutical
companies. The industry has made rapid strides in this area in the last few years and
export sales of companies such as Ranbaxy have been growing at a faster rate than their
domestic sales. The compounded annual growth rate of pharmaceutical exports over the
last five years has been more than 20 per cent although in 1999-2000, exports grew by 11
per cent.

In 1999-2000, on a region-wise basis, India’s biggest export markets are East Asia
(Rs.1527 crores); West Europe (Rs. 1488 crores); Africa (Rs.780 crores); North America
(Rs.766 crores) and East Europe (Rs.670 crores). On a country-wise basis, India’s five
largest export markets are USA (Rs.671 crores); Russia (Rs.493 crores); Germany
(Rs.325 crores); Hong Kong (Rs.356 crores) and Nigeria (Rs.257 crores).

77
Exports of drugs from India to various countries .
( Rs.Crores)

Name of the Country 2003-2004

USA 672

RUSSIA 493

GERMANY 325

HONG KONG 356

NIGERIA 258

U.K. 257

SINGAPORE 245

NETHERLANDS 219

IRAN 180

BRAZIL 163

VIETNAM 141

CHINA 137

ITALY 151

SPAIN 129

NEPAL 123

SRI LANKA 124

JAPAN 120

THAILAND 118

Source : CHEMIXCI

CHAPTER 10: CII REPORT ON PHARMACEUTICAL INDUSTRY

INTRODUCTION

78
The Indian pharmaceutical industry is one of the fast growing sectors of the Indian
economy and has made rapid strides over the years. From being an import dependent
industry in the 1950s, the industry has achieved self-sufficiency and gained global
recognition as a producer of low cost high quality bulk drugs and formulations. Leading
Indian companies have developed infrastructure in over 60 countries including developed
markets like USA and Europe. In the last few years, several pharmaceutical companies
have demonstrated that they possess the ability to engage in commercially viable research
and development activities and become significant players in the international market.

Industry scenario

The pharmaceutical industry comprises 20,053 manufacturing units and provides

employment to approximately 33 lakh people. The total production in the country in
1999-2000 was Rs.19,737 crores with formulations accounting for Rs.15,960 crores and
bulk drugs contributing Rs.3,777 crores. The total capital investment in the
pharmaceutical industry was Rs.2,500 crores with R&D expenditure being Rs.320 crores.
The country’s exports stood at Rs.6,631 crores in 1999-2000, imports were Rs.3,441, a
net surplus of Rs.3,190 crores. (Source : OPPI)

The leading 250 pharmaceutical companies control 70 per cent of the market with the
market leader having a share of around seven per cent. Over 60 per cent of India’s bulk
drugs production is exported and the balance is sold locally to other formulators. With
more than 85 per cent of formulation production in the country sold in the domestic
market, India is largely self-sufficient in the case of formulations, even though some life
saving, new generation, under patent formulations continue to be imported, especially by
MNCs.

GROWTH OF PHARMACEUTICAL INDUSTRY (Rs.Crores)

1965- 1980- 1997-98 1998-99 1999-2000

66 81
Capital 140 500 1840 2150 2500.00

79
 Investment
Production For 150 1200 12068 13878 15960.00
: mula
tions
Bulk Drugs 18 240 2623 3148 3777.00
Import 8.20 112.54 2868.00 3128.00 3441.00
Export 3.05 46.38 5353.00 5959.00 6631.00
R&D 3 14.75 220.00 260.00 320.00
Expenditure
Source : OPPI

India is one of top five manufacturers of bulk drugs in the world and is among the top 20
pharmaceutical exporters in the world. The industry manufactures almost the entire range
of therapeutic products and is capable of producing raw materials for manufacturing a
wide range of bulk drugs from the basic stage.

The government has taken measures to give impetus to domestic production of drugs and
formulations, creating an environment conducive for chanelising new investments into
the pharmaceutical sector. However, the industry and experts feel that time has come for
the government to announce new policy initiatives, particularly relating to the research
and development and pricing regime, in order to propel the industry into a new growth
orbit as well as to face the challenges of a WTO-led trading system and a TRIPS-driven
product patent environment.

Given a conducive policy environment, the R A Mashelkar committee report has set the
following targets for the industry by the year 2005:

• Achieve five times of 1997-98 turnover (Rs.14,691 crores)

• Attain cumulative dollar exports growth rate of 20 per cent per annum.

• List at least 20 pharmaceutical companies in NASDAQ.

• Attract atleast Rs.500 crores investment in new start-up R&D companies.

80
 • Attain three times increase from the 1997-98-market capitalization figure.

In the field of pharmaceutical R&D, the committee has set the following targets:

• Attain investment in R&D of Rs.1000 crores per annum.

• File ten new INDs annually.

• File over 500 patents annually.

• Export pharma R&D worth over Rs.200 crores per annum.

STRATEGIES AND TRENDS

• FOCUS ON R&D:

Major Indian companies such as Ranbaxy, Dr Reddy’s Laboratories, Nicholas

Piramal, Cipla, Lupin and Wockhardt are investing and concentrating on R&D. The
R&D activities of Indian companies are targeted both at New Drug Discovery
Research as well as Novel Drug Delivery Systems (NDDS). Ranbaxy and Dr Reddy’s
Laboratories have so far led the way.

• CO-MARKETING ALLIANCES:

In order to increase market penetration and increase their presence in select

therapeutic segments, both domestic and multinational companies have entered into
product specific marketing arrangements. For instance, Ranbaxy has entered into
marketing alliances with Cipla, Glaxo and Hoechst and Nicholas Piramal has tied up
with Hoechst.

81
• PRODUCT RATIONALIZATION / BRAND AND COMPANY
ACQUISITION:

Domestic pharmaceutical companies are following a two-pronged strategy. On one

hand, they are rationalizing their product portfolio by phasing out low volume
products that do not fit with their future strategy. On the other hand, they are scouting
for brand acquisitions and even company acquisitions in order to increase their
therapeutic reach and market penetration.

• NEW PRODUCT LAUNCHES:

Domestic companies are expanding their therapeutic reach by launching new

products in high margin segments, thereby increasing product portfolio and
increasing critical mass. However with the introduction of WTO led product patents
in 2005, domestic companies would lose their freedom to introduce products in the
market.

• EXPANDING DISTRIBUTION NETWORK:

Companies are increasing market penetration through enhanced distribution channels,

particularly in the rural markets. This will increase the ambit of access to modern
medicines as well as facilitate licensing of products for MNCs in the post product
patent regime.

• UPGRADED MANUFACTURING FACILITY:

Increasingly companies are in the process of upgrading their manufacturing facilities,

adopt GMP standard and getting international regulatory approvals from USFDA

82
 UKMCA. Approvals from these agencies would facilitate export to developed
countries.

• CONTRACT MANUFACTURING:

Companies are planning to set up contract manufacturing and global sourcing bases
for supplying bulk drugs and intermediates to MNCs.

• TAPPING INTERNATIONAL GENERIC MARKET:

Companies are setting up subsidiaries abroad and entering into strategic alliances to
exploit long term opportunities in the international generic market in the next five to
ten years. They have started applying for DMFs, product registrations and ANDAs
worldwide.

• Medium term strategy is to concentrate on products that are going off patent in the
next five to ten years. The long-term objective is to enter higher platform of drug
delivery systems & niche R&D.

EXPORTS

Exports form a vital component of the growth strategy of most Indian pharmaceutical
companies. The industry has made rapid strides in this area in the last few years and
export sales of companies such as Ranbaxy have been growing at a faster rate than their
domestic sales. The compounded annual growth rate of pharmaceutical exports over the
last five years has been more than 20 per cent although in 1999-2000, exports grew by 11
per cent.

83
In 1999-2000, on a region-wise basis, India’s biggest export markets are East Asia
(Rs.1527 crores); West Europe (Rs. 1488 crores); Africa (Rs.780 crores); North America
(Rs.766 crores) and East Europe (Rs.670 crores). On a country-wise basis, India’s five
largest export markets are USA (Rs.671 crores); Russia (Rs.493 crores); Germany
(Rs.325 crores); Hong Kong (Rs.356 crores) and Nigeria (Rs.257 crores).

Exports (Rs.Crores)

YEAR Finished % of Total Bulk Drugs % of Total Total

Formulations including
Quinine Salts

1997-98 3180 59 2173 41 5353

1998-99 3194 54 2764 46 5959

1999-2000 - - - - 6631

Source : OPPI

While overall pharmaceutical exports have grown in 1999-2000, India’s exports to a few
of its leading markets have declined. For instance, according to a CHEMEXCIL report,
India’s pharmaceutical exports to USA have declined to Rs.671.8 crores in 1999-2000
from Rs.724.5 crores in 1998-99; Germany to Rs.325 crores from Rs.375 crores; Hong
Kong to Rs.356 crores from Rs.404.5 crores and exports to China have declined to
Rs.179.5 crores from Rs.137 crores.

Notwithstanding the decline in exports to some key markets, India’s export prospects
remain bright. As against a global pharmaceutical industry of over $300 billion, India’s
export sales are in the region of $1.5 billion The potential for growth is enormous, a 20
per annual growth in exports over the next five years will take the overall export figure to
$4 billion by 2005. The next five years will witness a spate of patent expires of
blockbuster drugs that will accord opportunities to supply bulk drugs and formulations to
advanced markets.

TOP COUNTRIES OF EXPORTS OF INDIAN PHARMACEUTICALS

84
 ( Rs.Crores)

Name of the 1999-2000

Country

USA 672

RUSSIA 493

GERMANY 325

HONG KONG 356

NIGERIA 258

U.K. 257

SINGAPORE 245

NETHERLANDS 219

IRAN 180

BRAZIL 163

VIETNAM 141

CHINA 137

ITALY 151

SPAIN 129

NEPAL 123

SRI LANKA 124

JAPAN 120

THAILAND 118

Source : CHEMIXCIL

RESEACH ANE DEVELOPMENT

In a country where research and innovation have traditionally been neglected by domestic
industry, the pharmaceutical industry is realising the importance of R&D. The successes
enjoyed by a few companies such as Ranbaxy and Dr Reddy’s in the R&D field have

85
shown the way for others. Several Indian pharmaceutical companies including Cipla,
Lupin, Wockhardt, Nicholas Piramal and Torrent are today engaged in R&D activities.

Investment in pharmaceutical R&D has been rising steadily. From Rs.220 crores in 1997-
98, R&D expenditure rose to Rs.260 crores in 1998-99 and to Rs.320 crores in 1999-
2000. This figure is projected to jump up to Rs.1500 crores by 2005. At present, R&D
spend accounts for two per cent of the pharmaceutical industry’s turnover. This is
estimated to rise to five per cent by 2005.

Notwithstanding the increase in R&D expenditure, the R&D spend of domestic industry
will remain a fraction of the amount invested by ORC’s. Experts, however, point out that
R&D costs in India are much less than those in the developed world and it is possible to
conduct both New Drug Discovery Research and Novel Drug Delivery System
programmes at competitive rates. The Investigational New Drug stage may cost $100 to
150 million overseas but costs only around Rs.40 to 60 crores in India, says the
Mashelkar Committee report. The report adds that while clinical trials cost approximately
$300 to 350 million abroad, they cost about Rs.100 crore in India.

Apart from comparative cost advantage, Indian R&D efforts are also aided by the
presence of a well-established network of research laboratories and a skilled pool of
scientific personnel. These need to be leveraged and utilized in an effective manner.
Greater collaboration between Industry-Government and academia in this area is required
to achieve this.

Most Indian companies realise that it will be difficult for them to commercialise their
discoveries on an international basis on their own. Therefore they are entering into
licensing deals and strategic alliances with international companies. This way their
development costs will get shared and returns will accrue faster.

R & D Expenditure

Year ( Rs. Crores )

1998-81 14.75

1997-98 220.00

86
 1998-99 260.00

1999-2000 320.00

R & D Expenditure as % of Sales 2.0%

Source : OPPI

Research and Development Plans of Some Pharmaceutical Companies :

• Ranbaxy Laboratories is currently undertaking drug discovery and development

in four therapeutic areas: metabolic disorders (diabetes, dyslipidemia, obesity and
associated disorders); cancer; inflammation and anti-infectives. The new
initiatives it may take up in the next few years will be aimed at new molecule
research. Ranbaxy spent about Rs.56 crore on R&D (3.6 per cent of turnover) in
1999 and plans to spend six per cent of its turnover on R&D by 2004.

• The company has received government permission to begin phase 2 clinical trials
for its Benign Prostatic Hyperplasia (BPH) molecule and also plans to begin
phase 1 clinical trials for its asthma molecule. It also plans to file an IND
application for an anti fungal molecule by the first quarter of 2001.

• Dr Reddy’s Laboratories has identified drug discovery as one of its long-term

strategy. The research focus has been in the therapeutic areas of metabolic
disorders, cancer, inflammation and bacterial infection, apart from process
research. At Dr Reddy’s Research Foundation, hundreds of molecules have been
synthesised over the last year and promising ones have been chosen for further
evaluation and testing.

The company’s total expense on R&D in 1999-2000 was Rs.17.9 crores. During
1999-2000, its first anti-diabetic compound, DRF-2593, licensed to Novo
Nordisk, entered phase 2 clinical trials and the second lead compound, DRF-2725
entered Phase 1 clinical trials. The company filed for 28 product patents and 13
process patents in India, US and PCT countries.

87
• Nicholas Piramal India Ltd’s R&D budget in 1998-99 was Rs.24.6 crores (5.7 per
cent of turnover) which came down to Rs.9.2 crores in 1999-2000 (two per cent of
turnover). The company has committed four per cent of its sales to R&D
expenditure in 2002-03. Two of its NCEs, the anti-cancer IM-962, a joint research
initiative with a US company and Aablaquin, a product licensed from CDRI, are
currently undergoing clinical trials and the company feels that atleast three of its
five NCEs currently under research should reach clinical trial stage by 2002-03.

• Wockhardt Ltd’s R&D spend for the 12-month period ended December, 1999 was
Rs.45 crores (around eight per cent of total turnover) and it expects its annual
R&D expenditure in the coming years to be in the region of Rs.40 crores to Rs. 50
crores. The NDDS segment constitutes a major thrust area in R&D for the
company. It plans to file ten ANDAs for launching NDDS based generic products
in the international markets by 2001.

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KEY ISSUES

For India to emerge as a leader player in the knowledge era, the domestic pharmaceutical
industry must be encouraged to achieve its full potential. Several Indian pharmaceutical
companies have demonstrated in the last few years that they possess the capabilities to
successfully carry out financially rewarding research and development activities and
become significant players in the international market.

A conducive and facilitative policy environment will take the domestic pharmaceutical
industry to a higher growth orbit and enable it to face the challenges posed by a WTO led
trading system and TRIPS driven intellectual property right regime. In recent times,
government has set up a few committees comprising both official and industry
representatives to suggest measures for framing a conducive policy environment but
industry is dissatisfied at the pace of the implementation of these recommendations.

• PRICE CONTROL

One of the biggest issues facing the pharma industry relates to the price control regime.
The objective of price control was to ensure adequate availability of quality medicines at
affordable prices. While this is a laudable objective, the price control system restricts
domestic companies from generating investible surpluses.

The product patent regime will make it obligatory for Indian companies to invest in R&D
if they want to survive. Similarly, the WTO led global trading system will result in
import tariffs coming down. For Indian companies to compete with cheap imports, they
will have to invest in cost-effective and high quality technology and processes.

Therefore, the onset of both the product patent regime as well as tariff reduction will
make the requirement for investible surpluses more important than ever before. In this
context, a liberalised price control regime becomes even more important.

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 • RESEARCH AND DEVELOPMENT

R&D costs in India are much less than that in the developed world and both New Drug
Discovery Research and New Drug Delivery Systems programmes can be conducted at
very competitive rates. India also has a well-established network of research labs and a
strong pool of skilled scientific personnel. The success of a few companies in this area
has also demonstrated to the rest of the industry that investments in R&D can yield
handsome returns.

On the negative side, however, R&D activities in India are adversely impacted by lack of
financial resources, inadequate regulatory framework which relates to a host of issues
such as lab-testing of animals; outdated and inadequate patent office; long delays in
getting required approvals for conducting trials, to name a few problems.

Besides liberalisation of the price control regime, the R A Mashelkar committee set up by
the government has proposed a series of recommendations to deal with these and other
issues for boosting R&D activities in the country. The report deals with a wide range of
issues, such as fiscal incentives and an appropriate R&D regulatory framework and its
recommendations should be expeditiously implemented to give an impetus to R&D
activities. The recommendation regarding exemption from price control of companies,
which meet the five standards specified by the committee, deserves special attention.

• EXPORTS

India’s pharmaceutical exports are currently in the region of $1.5 billion and the industry
feels they have the potential to grow at 20 per cent per year taking the overall export
figure to $4 billion by 2005. In the coming years, the patent of several blockbuster drugs
will expire and this will give Indian companies an opportunity to supply bulk drugs and
formulations to international markets. Besides liberalisation of the price control system
and action on the R&D front, which would stimulate the export effort of companies,
procedural issues need to be eased for boosting exports.

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ACTION PLAN

PRICE CONTROL

Modify the existing Drug Policy Control Order and liberalise the drug policy regime to
give domestic pharmaceutical companies an opportunity to generate surpluses.

The current system of price control should be replaced by a simple, less intrusive, and
transparent system of macro management to cover only formulations. Price control of
bulk drugs has become unnecessary as imports are permitted freely. The span of control
should come down from the current 40%level to less than 15%. Under the new pricing
formula, the only criteria for keeping formulations of a drug under price control should
be "monopoly’’ or "inadequate competition.

R&D

• To promote investments in research and development, the government should

exempt amount received by Indian companies in consideration for the use of any
research based intellectual property rights such as invention, patent, design from
tax, provided this amount is utilised for the purpose of in-house research and
development within a period of five years.

• Tax holiday benefit for ten years should be extended to new research and
development undertakings established by existing Indian companies having R&D
as one of their main objects and who are also engaged in the manufacture of
research based products.

• Expenses incurred on regulatory approval including clinical trials and review of

drugs by the Food & Drug Control Authorities (worldwide, commonly known as
regulatory expenditure) should be covered for weighted deduction.

• Duty free imports of R&D equipment and consumables.

• Expedite implementation of Mashelkar Committee recommendations.

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 • There is an urgent need to develop, notify and implement clear guidelines for all
stages of clinical trials. The guidelines should specify the time period for
evaluation of results by the concerned authority, beyond which the applicant will
be deemed to have been granted approval for the next phase. Delays in processing
erode the patent life of a product.

REGULATORY

At present, the infrastructure to deal with patent applications in the country is woefully
inadequate and needs to be upgraded. There is a need to increase the number of patent
offices and examiners in the country; modernise the patent offices and provide training to
the concerned officials to educate them about product patent system and EMR.

AVAILABILITY

A system of ensuring affordable medicines to the needy by enlarging the scope of the
"sarvapriya’’ scheme could be evolved. Essential drugs for the Below the Poverty Line
(BPL) population could be dispensed at subsidised rates through the Primary Health Care
centres. The subsidy bill could be footed by the pharmaceutical industry.

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 CHAPTER 11:CONCLUSION

Indian companies which wish to retain their current position in the market and maintain
their growth not only in the domestic market, but also to make in roads in the global
markets need to venture into molecular research. There is a need to create conditions for
the Indian scientists and research workers currently employed overseas for their return.
There is need to make use of information technology in R&D work which is not fully
being used in India. When a company ventures into real molecular research, it is not
enough to monitor one’s progress. The Indian companies need to monitor patent
applications filed elsewhere in the world and their progress. They also need to learn to
file their objections to protect their own inventions. They have to access information and
data available from various agencies/organizations in the world; and to analyze and
interpret the same to identify & seize new opportunities. The Indian companies also need
to periodically assess data bases with a view to avoid wasteful expenditure.

There is a growing need for trained patent attorneys, as more and more research
scientists, academic institutions and commercial organizations are seeking to protect their
inventions. They should be familiar not only with the Indian patent offices but should
have at least working knowledge of how some of the major patent offices in the world
operate. They should be aware of data bases available and know how to access them. It is
estimated that by the end of year 2005, the patent office will have a backlog of 10 years,
because the applications filed now are kept in a ‘mail box’ which will be opened only
after the transition period is over and the appropriate legislative frame work is in place.
but it would then be an enormous task and unless the patent office is able to recruit and
retain trained personnel, the inventors and researchers will find to their dismay that their
applications are in the queue which may take months of years to clear up.
So the patent office needs to put its act together and draw up an action plan that needs to
be closely monitored to ensure that it is ready to face the challenges of 2005 and after.

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The allocation of funds for investment in the required hardware and software and the
application of information technology for processing patent applications are major areas
where a lot more requires to be accomplished.

The Govt. needs to promote invention culture, to encourage scientists and research
workers to register patents, to reverse the flow of brain drain and attract NRI scientists to
return home. Apart from all this, government also needs to provide legislative
framework, encourage investments in R&D. The government has started giving tax
rebates to the companies to encourage more investments in R&D.

Gatt Agreement is effective from 2005. Only those companies will survive, which will
have their product patent / molecule. Thus pharmaceutical companies should give thrust
on research to develop its own molecule. If it is unable to develop its on molecule it
should join hands with giant multinational companies.

Pharma Industry size is not viable for large investment in India. Therefore most of the
companies are entering in foreign markets. Pharmaceutical Companies should give more
thrust on export. Profits on the bulk drugs are low as compared to formulations.
Therefore pharmaceutical companies should concentrate more on formulations.
pharmaceutical companies should given more stress on R&D to produce the formulation
at low cost so that it can become a supplier to multinational companies of the world.
Pharmaceutical Companies should promote its products in such a manner it should be
able to reach to the foreign markets.Special packaging at fairs and exhibitions be
introduced to attract the attention of the international potential buyers.

pharmaceutical companies has capabilities to manufacture the cost effective drugs with
the help of skilled human resources and modern plants employing State-Of-Art
technology.
Pharmaceutical Companies are developing new processes to reduce the cost
manufacturing products.

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 CHAPTER 12: RECOMMENDATIONS & SUGGESTIONS

 Export targets of various markets be fixed at the start of the financial year. Target
should be fixed in view of the market potentials of each market and sales of other
competitive brands.

 Export promotion tours in the existing and future potential markets by the
marketing executives should be undertaken frequently to know about the market
condition and product standards.

 Dealers and Distributors should be selected in such a manner that they should
have good communication and coordination with company policies.

 To use its potential fully, the sale promotion executive and the dealers of the
company should make coordinated efforts to attain maximum sales for the
company products, by visiting the shops and retailers in the field.

 Maximum expenditure should be done on R&D for better drug development.

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 BIBLIOGRAPHY

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Reports

“Indian Pharmacy - UK” report (2003), Market Intelligence

Websites

www.cmie.com

www.ntu.ac.uk

www.cii.com.
http://www.censusindia.net/index11a.html
www.pharma.com
www. pharmatech .com

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