Demand Analysis of

Drugs and Pharmaceuticals Industry in India

Managerial Economics: Assignment – Term I

MDI Murshidabad PGPM 2019-2021

Group A7:
Sriyam Chomal
Sumedha Jain
Aditi Murarka
Abhishek Sathpathi
Laupyam Pattnaik
Krishna Avhad Yuvraj
Nitin Ganesh
Demand Analysis of Drugs and Pharmaceuticals Industry in India
INTRODUCTION TO DRUGS AND PHARMACEUTICALS INDUSTRY .........................................................................................3

THEORETICAL MODELS ........................................................................................................................................................4

PRICE ELASTICITY OF DEMAND: .......................................................................................................................................................4

INCOME ELASTICITY OF DEMAND: ....................................................................................................................................................4
CROSS ELASTICITY OF DEMAND: ......................................................................................................................................................4

EXHIBITS ..............................................................................................................................................................................5
1. MARKET SHARE OF DRUGS & PHARMACEUTICALS COMPANIES IN THE PAST DECADE [2008-09 TO 2017-18].......................................5
2. PRICE ELASTICITY OF DEMAND IN THE PHARMACEUTICAL INDUSTRY ................................................................................................6
3. INCOME ELASTICITY OF DEMAND IN THE PHARMACEUTICAL INDUSTRY .............................................................................................6
4. REVENUE TREND IN THE DRUGS AND PHARMACEUTICAL INDUSTRY ................................................................................................6

DEMAND ANALYSIS .............................................................................................................................................................7

INDUSTRY ANALYSIS: .....................................................................................................................................................................7

ELASTICITY OF DEMAND: ................................................................................................................................................................7
Price elasticity of demand: ..................................................................................................................................................7
Income elasticity of demand: ..............................................................................................................................................7
Cross elasticity of demand: .................................................................................................................................................7

REFERENCES: .......................................................................................................................................................................7

Managerial Economics – Assignment

MDI Murshidabad PGPM 2019-2021
Demand Analysis of Drugs and Pharmaceuticals Industry in India
Introduction to Drugs and Pharmaceuticals Industry
 As of March 2018, the Indian Pharmaceuticals industry is the third largest in terms of volume and
thirteenth largest in terms of value, as per a report by Equity Master.
 India is the largest provider of generic drugs globally with the Indian generics accounting for 20 per cent
of global exports in terms of volume.
 The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and
2020, will outperform the global pharma industry, which is set to grow at an annual rate of 5 per cent
between the same period.
 The growing size of Indian population will be a key factor in influencing the growth of this sector.
 The Indian population is experiencing a shift in disease profile. Traditionally the acute disease segment
holds a significant share in the Indian pharmaceutical market.
 The varied functions such as- “Research and manufacturing” and “clinical research” are core strengths of
the industry.
 With efforts of the government and the unending drive of the industry, India has gained immense
importance and carved a niche for itself in the pharmaceutical domain.

Managerial Economics – Assignment

MDI Murshidabad PGPM 2019-2021
Demand Analysis of Drugs and Pharmaceuticals Industry in India
Theoretical models
The law of demand states an inverse relationship between price of a commodity and its quantity demanded.

It is the concept of elasticity, however, that helps us measure the sensitivity of a variable subject to a change in
another variable. Mentioned below are the three types of elasticity applied in the given assignment:

Price Elasticity of Demand:

 Price elasticity talks about the responsiveness of quantity demanded of a commodity to changes in price.
In mathematical terms, it is the ratio of percentage change in quantity demanded to the percentage change
in price.
 Demand is elastic when the calculated ratio is greater than 1, inelastic when the ratio is lesser than 1. If
the calculated ratio however equals 1, the demand is said to be unitary elastic.

Income Elasticity of Demand:

 Income elasticity refers to the responsiveness of quantity demanded of a commodity to a change in
income.
 It can be calculated by dividing the percentage change in quantity demanded by the percentage change in
income. Income elasticity of demand is negative for an inferior good and positive for a normal good.

Cross Elasticity of Demand:

 Cross Elasticity of demand refers to the responsiveness of quantity demanded of one commodity to a
change in price of another commodity.
 For calculation purposes, we divide the percentage change in quantity demanded of one good by the
percentage change in the price of another good. It is used to determine if two goods are complements or
substitutes. If the two goods are substitutes, their cross price elasticity of demand is positive, whereas for
complements, the cross price elasticity is negative.

Managerial Economics – Assignment

MDI Murshidabad PGPM 2019-2021
Demand Analysis of Drugs and Pharmaceuticals Industry in India
Exhibits
1. Market Share of Drugs & Pharmaceuticals companies in the past decade [2008-09 to 2017-18]
2008- 2009- 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017-
Company name
09 10 11 12 13 14 15 16 17 18
Cipla 4.6% 4.6% 4.4% 4.2% 4.4% 4.1% 4.1% 4.0% 3.3% 4.0%
Aurobindo Pharma 2.6% 2.7% 2.8% 2.6% 3.0% 3.2% 3.4% 3.5% 3.5% 3.7%
Lupin 2.8% 3.2% 3.2% 3.2% 3.8% 3.9% 3.9% 4.1% 4.5% 3.5%
Dr. Reddy's Labs 4.2% 4.2% 4.2% 4.1% 4.5% 4.4% 4.2% 3.9% 3.5% 3.4%
Mylan Laboratories 1.1% 1.4% 1.8% 2.1% 2.6% 2.9% 3.1% 3.4% 3.3% 3.2%
Sun Pharmaceutical 3.8% 2.2% 2.3% 2.5% 1.3% 1.3% 3.4% 2.8% 2.8% 2.8%
Hikal Ltd. 0.3% 0.3% 0.2% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 2.7%
Glenmark Pharma 0.8% 0.5% 0.8% 0.9% 1.1% 1.1% 2.2% 2.3% 2.8% 2.2%
Intas Pharmaceuticals 1.1% 1.4% 0.6% 0.7% 0.9% 1.0% 1.0% 1.8% 1.9% 2.1%
Cadila Healthcare 1.7% 1.7% 1.6% 1.5% 1.3% 1.3% 1.6% 2.2% 1.1% 2.0%
Alkem Laboratories 1.1% 1.2% 1.1% 1.2% 1.3% 1.2% 1.3% 1.4% 1.7% 1.9%
Sun Pharma Labs - - - - 0.1% 1.8% 1.8% 1.8% 1.9% 1.9%
Others (472) 67.35% 67.88% 68.50% 68.09% 66.09% 59.19% 55.43% 54.89% 57.02% 53.66%
HHI Index 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01

Market share : Drugs and Pharmaceutical companies

for the year 2017 - 2018

Cipla

Aurobindo Pharma

Lupin

Dr. Reddy's Laboratories

Mylan Laboratories

Sun Pharmaceutical

Hikal Ltd.

Glenmark
Pharmaceuticals
Intas Pharmaceuticals

Cadila Healthcare

Alkem Laboratories

Sun Pharma Laboratories

Others (472)

Managerial Economics – Assignment

MDI Murshidabad PGPM 2019-2021
Demand Analysis of Drugs and Pharmaceuticals Industry in India
2. Price elasticity of demand in the pharmaceutical industry
% change
Quantity Unit Price Price
Year
demanded (Rs.) Quantity Price Elasticity
2008-09 71,16,852 1,34,020 - - -
2009-10 87,97,518 1,19,201 19.10% -12.43% -1.5367
2010-11 1,00,06,445 1,25,981 12.08% 5.38% 2.2449
2011-12 1,00,97,562 1,48,183 0.90% 14.98% 0.0602
2012-13 1,80,83,944 91,113 44.16% -62.64% -0.7051
2013-14 2,54,49,131 73,722 28.94% -23.59% -1.2268
2014-15 1,41,85,875 1,42,366 -79.40% 48.22% -1.6467
2015-16 2,02,22,565 1,10,576 29.85% -28.75% -1.0383
2016-17 1,52,87,921 1,56,452 -32.28% 29.32% -1.1008
2017-18 1,67,17,688 1,43,513 8.55% -9.02% -0.9486

3. Income elasticity of demand in the pharmaceutical industry

% change Income
Year Quantity Income
Quantity Income elasticity

2008-09 71,16,852 1,268 - - -

2009-10 87,97,518 1,358 19.10% 6.58% 2.9038
2010-11 1,00,06,445 1,410 12.08% 3.75% 3.2235
2011-12 1,00,97,562 1,469 0.90% 4.00% 0.2257
2012-13 1,80,83,944 1,545 44.16% 4.88% 9.0421
2013-14 2,54,49,131 1,640 28.94% 5.83% 4.9673
2014-15 1,41,85,875 1,752 -79.40% 6.36% -12.4752
2015-16 2,02,22,565 1,874 29.85% 6.54% 4.5648
2016-17 1,52,87,921 1,987 -32.28% 5.69% -5.6711
2017-18 1,67,17,688 2,104 8.55% 5.55% 1.5404

4. Revenue trend in the Drugs and Pharmaceutical industry

Revenue trend : Drugs and Pharmaceutical

Industry [2008-09 to 2017-18]

3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-

Sales (in Rs. million)

Managerial Economics – Assignment

MDI Murshidabad PGPM 2019-2021
Demand Analysis of Drugs and Pharmaceuticals Industry in India
Demand Analysis
Industry Analysis:
 As reflected by the consistent Herfindahl–Hirschman Index (HHI) score of 0.01, the drugs and
pharmaceutical industry is a highly competitive and fragmented industry. [Refer Exhibit 1]
 With nearly 500 players in the market , the market leader [Cipla Limited] holds only 4% of the market
size followed by 3.7% and 3.5% held by Aurobindo Pharma and Lupin Limited respectively. [Refer
Exhibit 1]
 Opportunity: Due to the fragmented nature of the industry, there is no monopolistic pressure. Therefore,
new entrants have a place in the industry.
 Challenge: The fragmented nature of the industry contributes to pricing pressures due to its competitive
nature.

Elasticity of demand:

Price elasticity of demand:

- Barring the years 2010-11 and 2011-12, the industry follows the law of demand i.e. an increase in the
price of the product has led to a decrease in the quantity demanded, and vice versa.
- Negative price elasticity in the industry has been consistent over the years and rest of the factors
remaining constant, the same can be expected to be followed in the forthcoming years.
[Refer Exhibit 1]

Income elasticity of demand:

- Taking into consideration the Income per capita of India for the period under consideration, it is
evident that the income elasticity reflects the nature of a normal good in this industry.
- However though, there are notable exceptions in the year 2014-15 and the year 2016-17.
[Refer Exhibit 2]

Cross elasticity of demand:

- Following are the complimentary products which has led to a significant hike in the industry over the
years:
• Health insurance : Greater penetration of health insurance has aided the increase in consumption
which is a trend likely to grow exponentially over the next decade.
• Hospitals : Investment in healthcare infrastructure has been growing at a CAGR of 16 – 17 percent,
thereby leading to greater accessibility to the industry.

References:
1. https://www.equitymaster.com/research-it/sector-info/pharma/Pharmaceuticals-Sector-Analysis-
Report.asp
2. https://www.ibef.org/download/Healthcare-June-2019.pdf
3. https://industryoutlook.cmie.com/kommon/bin/sr.php?kall=wshowtab&icode=0101012030000000&tabn
o=0008
4. Data sources:
- CMIE Industry Outlook for Sales, Demand and Price related information.
- World Development Indicators for GDP and Population of India for the respective years.

Managerial Economics – Assignment

MDI Murshidabad PGPM 2019-2021