2nd June 2011, Goa

Indian pharmaceutical industry overview: Challenges and Opportunities Daara B Patel The Indian Pharma Industry has been performing

exceptionally well with turnover rising from about Rs. 10 crore (US$ 2 million) in 1948 to a healthy Rs. 1,17,000 crore (US$ 26 billion) in 2010. Pharma exports are booming at Rs. 62,500 crore (US$ 13.9 billion), with formulation exports at US$ 5.8 billion and APIs at Us$ 8.1 billion. The country ranks 3rd worldwide by volume of production and 14th by

value thereby accounting for around 10% of worlds production by volume and 1.5% by value. volumes for our quality and competitive prices. There are over 10,500 manufacturing units in India acroos 3000+ pharma companies making it an intensely competitive market. Maharashtra with 1928 formulation units and 1211 API units is the heart of the Indian Pharmaceutical Industry, closely followed by Gujarat with 1129 and 397, West Bengal with 694 and 62, Andhra Pradesh with 472 and 98, Tamil Nadu with 472 and 98 units and other states accounting for the other units. The industry provides employment to over 42 lakh persons directly and indirectly. This speaks

Over

60,000

formulations,

covering

almost

every

therapeutic segment is made available to ensure abundant availability of common medicines at most reasonable and comparatively lowest prices in the Indian market. The competition in the market is intense, with the presence of about 6 to 200 brands per molecule, putting pressure on companies to bring down the prices. For example,

Ciprofloxacin has over 180 brands and Atorvastatin has about 96 brands competing in the market.

Of around 1200 inhouse R&D centers recognized by DSIR, the major work involved is in drugs and Pharma sectors with a set-up of about 200 approved inhouse R&D. By some estimates, global R&D spends may touch US$ 100 billion by 2012, which will be around 10% of Pharma market that time. If outsourcing is done from Indian companies, the share can be 1-3% of the figure, which could be between US$ 1 billion-3 billion. About a third of total R&D investment by the global Pharma industry, estimated at US$ 40-50 billion, could be made in India over the next 10 years. Contract research in India is growing at an annual rate between 20% to 25%. Clinical trials represent 65% of this market and new drug discovery makes up the remaining 35%. India enjoys many comparative advantages over its neighbours, including an educated workforce that speaks English, the worlds largest democracy and second largest population, the world's tenth largest economy, a
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sophisticated IT sector, and a young, entrepreneurial class that is eager to take advantage of the countrys ongoing economic liberalizations. The middle class totals 350 million people, which is larger than the entire U.S. population. By 2020, 47% of Indians will be between the ages of 15 and 59, compared with 35% now. It is estimated that by 2023, India will have over 500 million employable population. The working-age populations of the U.S. and China are projected to shrink. India is thus destined to have the world's largest pool of workers and consumers. CVS disorders are expected to emerge as the biggest killers in India by 2015. India already is the diabetic capital of the world. Naturally, therapeutic segments like antiulcerants, antihypertensives, CVS & CNS drugs are showing growth rates of 25-30%. With greater awareness towards preventive aspects of health & campaigns by the government, the consumption of vaccines has increased. Increase in literacy, exposure to various media, availability of information about the new therapies will create more awareness of the drugs and eventually result in increased consumption of the drugs in India.

Globally,

increasing

cost

of

healthcare

is

pushing

stakeholders to look out for cost-effective treatment options. Rising cost concerns have pushed the generics market to the limelight from the governments perspective. On another note, due to the fading of blockbusters due to patent cliff and resultant realignment of corporate priorities, pharma companies are also according generics a higher priority than in the past. This confluence of focus by different stakeholders has the potential to push the generics onto its next wave of growth, which a country like India can leverage upon to play a larger role in the global pharma market. Lower prices have been a significant factor in the rapid uptake of generics. For instance, in Europe though generic products contribute to 50% of market sales by volume, they contribute only 20% to overall value sales, suggesting the huge cost benefits brought about by generics. Similarly in the US, though generics contribute to three fourth of prescriptions, in value terms, the generics are just one tenth of the market, mirroring the cost benefits typically generated by generics.

Today, India produces some of the lowest priced and extremely affordable drugs in the world, especially because labour costs are 50 to 55% cheaper than in the West. Industry experts indicate that infrastructure costs are 40% lower and fixed costs are estimated to be 12% to 20% less that in the United States and Western Europe. Consequently, India can produce APIs that cost 60% less than in the West and can open a production plant in India which is 40% cheaper than in developed countries. India is a world leader in anti TB segment and has also developed cost effective processes for some of the latest patented medicines like Glitazones, Rofecoxib, Celecoxib, Stains, Montelukast etc. and hence many countries source their medicines from India. How can we forget the fact that

many Foreign tourists and officials carry bag loads of medicines from India as it is a known fact that Prices of medicines made in India are the lowest in the world. Increasing development competition, time, soaring drug focusing discovery only on

management

specialized core area and thereby contracting other services etc is driving many pharma majors to look for procuring equivalent quality from external sources such as India that
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will boost their cost savings. Also with many of the blockbuster drugs getting off-patent and with increasing R&D costs, its hard for the companies to maintain their bottom-line and remain unaffected. Many companies are also tying up with leading Indian research institutes like IICT, Hyderabad, ICMR, Indian Institute of Sciences, Bangalore and National Chemical Laboratories, Pune. A few pharma MNCs are also availing Indias potential drug discovery base through opening independent R&D labs in India or partnering with independent Indian drugs discovery services companies and research institutes. Indias competitive advantage lies in its lower production and research costs, its large pool of low cost technical and scientifically trained personnel. For example, while the cost of hiring a chemist in the US is as high as US$ 250,000-300,000 per year, Indian discovery research outfits charge global pharma companies around US$ 60,000 per chemist which is roughly one fifth of what the pharma companies pay abroad. Major global NGOs such as the Clinton Foundation, Bill & Melinda Gates Foundation, Doctors Without Borders, the
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UNCTAD etc source their medicinal requirements for their global welfare programs from India.

Innovative drug discovery with about 235 Clinical Trials is underway on about 13,000 patients in the areas of CVD, cancer, Diabetes, Psychiatric, infections and the number of trials is anticipated to cross 2000 by 2013. The Clinical Trials market in India expanded rapidly at a growth rate of over 30% in 2010, growing from US$ 470 million in 2005 to an estimated US$ 1 billion. India is already recognized as the global supplier of quality affordable generic drugs. With the world most eager to benefit from Indias Performance and Potential to deliver world class quality affordable products and services in pharmaceuticals, in Clinical Trials, in R&D, in IT, in Services etc Indias objective will be fulfilled as the Outsourcing Capital of the World. The Indian regulatory environment for pharma The focus of all countries without exception is to provide greater access to affordable, safe and effective medicines. To
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approve and regulate the access to pharmaceutical products, India enacted the Drugs and Cosmetics Act in 1940 and the Rules thereunder in 1945. This Act was brought under the purview of the Essential Commodities Act, 1955 to ensure continued availability of drugs. The Drugs and Cosmetics Act does not specifically define generic drug, though it defines Drug, Patent and Proprietary Medicine, New Drug etc. To ensure that all Indian Manufacturers adhere to Good Manufacturing Practices (GMP) which is at par with WHO GMP, the Government revised the Schedule M in 2004 and GLP in 2010. GCP and other good practices are also being revised to conform to international standards. Government has also revised Schedule Y to permit and conduct Phase II to IV Clinical Trials, Schedule Y1 making registration of all CROs mandatory etc. The Government revised the Drugs and Cosmetics Act to introduce very strict penal provisions for the manufacture and sale of spurious drugs. In their zeal, they however gave unlimited powers to even junior drug inspectors and police officers, allowing them to take matters into their own hands
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without proper procedure which could potentially be invoked to harass and stop production of genuine drug manufacturers. IDMA persistently followed up with the Drugs Controller General of India and the Health Ministry requesting them to notify Guidelines under the Drugs and Cosmetics Act & Rules for these officers to practice while following up a case. We also ensured that the Health Ministry issued directive under 33-P to State Health Departments to ensure that these Guidelines are followed. A new challenge has recently emerged with the Police bypassing the Drugs and Cosmetics Act and taking action under Section 328 of Indian Penal Code that treats even substandard drugs as deliberate attempts for causing hurt by means of poison with intent to harm. Similarly certain anomalies have crept into our regulatory policies that block the growth of our Pharmaceutical industry. For example, the present practice and system is that whenever any new API (molecule) is developed and approval is taken for export, the same API is not permitted
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to be sold to the Indian formulators. This means, foreign formulators can outsource their API requirement from India but Indian formulators cant buy such new API product from the suppliers of his own country. This anomaly needs to be set right. Due to this, the Indian formulators are not able to compete with foreign Innovators and Exchange of Scientific / business knowledge or transaction is restricted between Indian API manufacturer and Indian formulator. There are many other Acts that regulate the Pharma industry, such as the Pharmaceutical Policy; DPCO, Drugs and Magic Remedies (objectionable Advertisements) Act 1954, Medicinal and Toilet Preparations Act 1955 etc. These Acts altogether ensure the regulation, production and continued availability of affordable quality pharmaceutical products in India. The Government needs to allocate a certain level of capital (in the form of a specific fund or a scheme) wherein assistance could be given to players looking to upgrade their assets or deploying the assets wherein specific technology is required. The Pharma sector currently is also a large employment generator, especially in the states of
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Gujarat, Maharashtra, Andhra Pradesh, Goa and Punjab and such encouragement would serve social motives too. Conformance to global standards Many Indian companies maintain highest standards in Purity, Stability and International Safety, Health and Environmental (SHE) protection in production and supply of APIs even to some innovator companies. This speaks of the high standards of quality management by a large number of Indian Pharma companies as these bulk actives are used by the buyer companies in manufacture of dosage forms which are again subjected to stringent assessment by various regulatory authorities in the importing countries. India is fast taking on the mantle as the Global Pharmacy for Affordable Quality Generic Medicines. The Indian pharmaceutical industry is among the worlds largest and most developed and is very strong in Quality, Manufacturing and Therapies with proven chemistry & manufacturing skills. The industry has consistently shown significant design capabilities for manufacturing

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intermediates, APIs, formulations, biotech products and herbals.

Indias Pharma manufacturing skills are recognised by various countries and Indian companies are welcomed to market their products there. It is borne by the following facts: As on Mar. 2011, India has filed 2489 type-II Active DMFs for a total of 632 molecules with US FDA 1950 ANDAS (inclusive of Tentative approvals) from 27 companies have been approved by USFDA The largest number of US FDA approved facilities outside US are in India. With more and more units seeking approval, the US FDA has already set up a base in India at Mumbai and Delhi to facilitate and speed up the process USP has also set up excellent facilities in Hyderabad

1/3rd of all DMFs & 30% of all approved ANDAs during 2008 & 2009 in US are from India, ranking next only to USA.
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 153 EDQM (European Directorate of Quality Medicine) Bulk drug facilities have been approved The country has 153 EDQM approved facilities for 195 molecules out of the total 693 molecules approved by EDQM. India also has over 1,200 WHO GMP Certified Plants

Product patents & drug price controls The landmark Indian Patents Act Patent Act, 1970 superceeded the 1911 Act that granted product patents for food, medicine or drug and allowed only process patents for these products. Thus an era of non-patented medicinal products thrived, legally revolutionising the way pharmaceuticals need to be produced, made available at affordable prices while maintaining the quality of the original molecule for the masses.

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Also India is TRIPS compliant with an advanced legal system and independent judiciary, with secured IP rights, with rule of law generally prevailing, an improved corporate governance etc. These give confidence to foreign companies to outsource from India. The Patents (Amendment) Act, 2005, conforming to Indias commitment to WTO, reintroduced product patents for pharmaceutical products. To ensure that patents are not granted for mere discovery of a new form of a known substance which does not result in the enhancement of the efficacy of that substance, a unique Section 3(d) was introduced, which while resisting evergreening, also safeguards the continued availability of Indian generic drugs and their early approvals.

The Health Ministry is working on revising the National List of Essential Medicines (NLEM) covering about 348 drugs under 27 categories, such as anti-cancer, anti-allergic, cardiovascular, immunologicals,

opthalmologicals etc. It is understood that 61 drugs have been earmarked as essential medicines for tertiary level treatment, 31 anti-cancer drugs included under tertiary list,
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181 drugs common to all categories and 106 drugs under secondary list.

In our meetings with Honble Minister of Health and Family Welfare Shri Ghulam Nabi Azad, we pointed out that only 50-60 drugs from the drugs listed in the NLEM are regularly prescribed by Doctors at Government hospitals and dispensaries and these may be kept under price control to benefit BPL families. We have also proposed two lists : (1)List of Essential medicines for Price Control (2)List of items, for which prices will be monitored and maintained The industry is already burdened with price controls in one way or the other, and this is probably the only industry where both input costs as well as profit margins are controlled. Though the Drug Price Control Order (DPCO) was set up to ensure availability and accessibility of medicines, it has ended up driving out of the market globally-recognised drugs that were, in any case, affordable it did this by driving prices down to such levels where firms were unable
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to supply. This, in turn, hurts patients. There is a lack of transparency in how prices are fixed under the DPCO and the government takes suo moto decisions whilst reducing the prices without taking into account inflation, labour costs, raw-material costs and increase in cost of utilities such as electricity, water, furnace oil, petrol, diesel etc. There is no price control on any item or service of daily necessity food, shelter, clothing, transport,

communication, education, or on doctors fees and hospital charges. So, why should there be price controls only on medicines? Also, excessive control will be counterproductive, with cost of treatment to the consumer rising. The lack of adequate margin in price- controlled products will result in the decontrolled products being promoted. Investments will not take place and manufacturers will be unable to attract and retain talent or promote employment which the country needs badly. IDMA has consistently recommended a Dual Pricing system wherein only Patented Products which are likely to create a monopoly are kept under Price Control and prices of all

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other

drugs

be

monitored

allowing

markets

and

competition to decide the affordable prices. The effects of lax controls on over-the-counter medicines The Indian Pharma industry, in many ways is one of the most regulated industries, which is necessary to a large extent. As drugs are manufactured, distributed and sold all over the country, ways and means of checking their distribution and sale are a must to ensure that the correct medicines as prescribed by the doctors reach the purchasers in the right dosages by qualified pharmacists at the retail chemists. Over-the-counter medicines allow drugs to be available without a proper prescription from qualified Medical Practitioners. This is not advisable in a country like ours, where the vast majority of the population is illiterate and their knowledge of self-medication is limited. The medicines if taken without proper guidance, which could also result in misuse and an over-dosage of which could cause serious harm to the patients. Also the current system in India does not have adequate regulatory controls regarding labelling of OTC products. It is therefore
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necessary that drugs are sold only by qualified personnel as prescribed by medical practitioners.

In conclusion, I would like to emphasise here that IDMA has all along been working closely with the Government of India, and the Industry to develop and boost the growth of our pharma industry to its full potential. We have requested the Govt. to involve all Stake Holders including the Pharma Industry in formulating the new Pharmaceutical Policy which will take the Indian Pharma Industry to the Next Level to become the No. 1 (value added) Generic Manufacturer of the World. Thank you.

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