Industry Analysis

The Pharmaceutical Industry

Introduction to the pharmaceutical industry in India

Pharmaceutical industry in India is currently worth 36.7 Billion USD which is around 1.85 % of Indian GDP.
Out of this the formulations market accounts for around 12.2 Billion USD which is roughly 1.1 % of the
global market. Though the Indian market is comparatively small (14th) in terms of value, it is the third
largest in terms of volume sales. The Indian Pharmaceutical industry has shown a constant growth rate
after the economic liberalization. Pharmaceutical exports from India have grown at a CAGR of 21 % over
the last decade. In FY 2014-15 the industry have seen a CAGR of 9 % which is expected to raise at around
13 % in 2015-16.
Sector Overview Indian Pharmaceutical industry can be categorized as below
Branded
Active Pharmaceutical
Ingredients / Bulk Drugs
Generic
Pharmaceutical industry

Chronic
Formulations
Acute

Active Pharmaceutical ingredient/Bulk drugs means the ingredients which are used to produce
pharmaceutical drugs, pesticides that is biologically active.
Formulations refers to therapeutic drugs used for chronic (Neurological, Anti-diabetes, Gastro-intestinal,
Cardiovascular etc.) and acute (Anti-infective, Respiratory, Pain, Gynecology etc.) deceases. There are
about 10,500 manufacturing units and over 3,000 pharma companies in India. This is the sector from
where the major exports comes from. But the Indian market is dominated majorly by branded generics
which constitute nearly 70 to 80 per cent of the market.
The major companies which accounts for the majority of exports are - Ranbaxy, Cipla, Dr. Reddy's.,
Aurobindo, Lupin, Orchid Chemicals & Pharmaceuticals, Panacea Biotec Ltd, Atul Ltd, Ipca Laboratories
Etc.
The Domestic Formulation industry - The domestic formulations industry is highly fragmented in terms
of both, number of manufacturers and products. There are 300-400 organized players and about 15,000
unorganized players. However, organized players dominate the market in terms of sales. In 2014-15, the
top 10 formulations companies accounted for 44.9 per cent of total sales (PIC1). The market has seen the
double digit growth rate for past few years. Low penetration of health insurance, government projects
like NLEM in India is a major obstacle for the market.

Indian Exports- India exports to more than 200 countries. After a continuous growth year over year, the
exports of pharmaceutical products in India decreased from USD 11140.50 Million in 2013 (PIC2) to USD
6826.09 Million in 2014. The U.S. governments Consumer Product Safety Commission (CPSC) and FDA
launched a series of regulatory actions and bans, due that the Indian drug export faced huge hindrance.
USA imports around 40 % of their pharmaceuticals from India which is 25 % of Indias pharmaceuticals
export, the highest followed by the European Union and Africa at second and third positions respectively.

Domestic market
share(PIC1)

Export of
Pharmaceutical
Products(PIC2)

8.9
6.2

3.6 3.6 3.5 3.4

DOMESTIC MARKET SHARE(IN %)

Sun

Abbott

Cipla

Cadila

Mankind

Alkem

Galxo

Lupin

Pfizer

Emcure

2.7

5191.18

6676.43

8483.46

10062.7

11140.5
6826.09

EXPORT (USD MILLION)

2009

2010

2011

2012

2013

2014

Government regulations The regulatory authorities play a big role in determining the business in
pharmaceuticals industry as they monitor three
key parameters (Patent, Price and Quality).
Central
The Central and State Govt. are responsible to
Govt
maintain Drugs and Cosmetics Act. The State
authorities(like DCO) are responsible for
regulating the manufacturing, sale and
distribution of drugs, whereas the central
authorities (line DCGI) are responsible for
Coordinating
State
DCGI
Activities
DCO
approving new drugs, clinical trials, laying down
the standards for drugs, controlling the quality of
imported drugs and coordinating the activities of
state drug control organizations. There are
authorities which maintains Patients and price to
State Govt
keep the market competitive.
The US market is highly regulated and being a
major export target of India the US regulatory
boards has huge impact on Indian industry. FDA
works with other state and central boards to regulate the market in the United States.
Competitive landscape The Indian market can be divided into two parts Domestics (36%) and Export
(64%). The completion can be divided into two sections Formulation and Bulk drugs.
As the market is very fragmented the completion is neck to neck for the generic drugs. The bigger players
gets clear advantage here, but the market is not dominated my any individual player though the shares
vary. On the other hand within export markets, regulated markets offer better realizations, but also

require higher investments. Large players, which garner larger proportion of sales from regulated markets,
accordingly enjoy better profitability and returns.
The bigger formulation players in the market having better infrastructure and strong R&D is focusing more
on the regulated export market which is more profitable. Small and medium players, who are largely
present in the domestic market, and to some extent, in semi-regulated markets, have markedly lower
operating margin. Also small and medium players are more affected by the raw material cost compared
to their large counterpart, but the market is growing for both.
Large players are increasingly focusing on 'contract manufacturing opportunities' and providing services
such as custom synthesis and manufacturing bulk drugs for both off-patent and on-patent drugs to generic
players and innovators, respectively. Small players are operating in price-sensitive semi-regulated
markets. Better profitability for large-sized players has also helped these companies register higher
returns compared with small and mid-sized players.
Risks in the market The highly competitive market has multiple threats from India as well as outside of
India. Here are the few notable mentions below
DPCO brings anti-diabetic and cardiovascular segments under price control added to the National
List of Essential Medicines (NLEM), 2011. That means currently 40% of the market comes under
DPCO price control which gave the industry a 7 Billion USD blow.
U.S. Food and Drug Administration (FDA) has tightened checks on its approval process.
Indian pharma companies are in poor digital health, very few of them has active engagements.
Indian medical insurance scenario is very poor.
The low cost markets and fluctuation in the price of raw materials makes the market very
competitive for the small and medium sized players.
Lack of investments in infrastructure
Restrictions imposed by social bodies on the testing on animals slows down R&D.
Opportunities The Industry is mainly growth driven and India which is already in a good position with
the 1.252 billon population market. Here are few factors which is driving the industry given below
Manufacturing costs in India are approximately 35-40 % of those in the US due to low installation
and manufacturing costs.
Government initiatives like 'Pharma Vision 2020', aims to make India a global leader in end-toend drug manufacturing, are bringing investments to the industry.
The projected human resource requirement in the Indian pharma sector is estimated to be about
21, 50,000 by 2020. Huge skilled and cheap labor pool is an added advantage in the near future.
The Union Cabinet has allowed FDI up to 100 per cent under the automatic route for
manufacturing of medical devices subject to specified conditions.
Companies are investing in rural areas, as 70 % of Indians reside in rural areas.
The health insurance in India is seeing a constant growth.
Big merges like Sun pharma and Ranbaxy will rejuvenate the market and strengthen the industry.
Summary - The Indian pharma market size is expected to grow to USD 55 billion by 2020. The growth in
Indian domestic market will be on back of increasing consumer spending, rapid urbanization and raising
healthcare insurance and so on. Also the life style segments such as cardiovascular, anti-diabetes, antidepressants and anti-cancers will continue to be lucrative and fast growing owing to increased
urbanization and change in lifestyle patterns. Medical tourism experienced an annual growth rate of 30%,
making it a USD 2 billion industry. With high investments and improved R&D Indian manufacturers are
making niche portfolios in various segments in international markets. These initiatives will optimize growth
and margins and will give the industry an exponential growth post patent cliff.

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