India, Science and Technology:  2008

S&T and Industry

 

 

 

Pharmaceutical Industry

 

 

 

S. Visalakshi, Varun Satia & Parvathi K. Iyer

 

Indian pharma industry (IPI) is one of the largest and most advanced among the developing countries. It has over the years made significant progress in infrastructure development, technological capability and hence produced a wide range of products. The industry now produces bulk drugs under all major therapeutic groups. It has a sizable technically skilled manpower with prowess in process development and downstream processing. It has a capital investment of about Rs. 2150 crores (CII 2002). It produced bulk drugs of value of Rs. 3777 crores and formulations worth Rs. 15860 crores in 1999-00. It is estimated that the figures for the above could rise upto Rs. 4344 and 17843 crores respectively (IDMA 2001). The balance of trade in the pharma sector, which was 16.05 in 1960-61 and 650.6 in 1990-91, has grown into an imposing 5129.0 (IDMA 2001). It is evident from the above statement that the rate of growth of value of exports is more than imports (Rs. 6631.0 crores of exports against Rs. 1502.0 crores of imports). There is an increasing interest and investments in R&D: Rs. 260 crores in 1998-99. Bulk drugs have grown at a rate of approximately 15%, formulations by 20% in the nineties. It provides employment for over 28,00,0000 persons both directly and indirectly (employment in ancillary industries and distribution trade) (OPPI) (Patel 2000).

The industry is highly fragmented. It has about 250 large units and around 2500 small units in operation. At present 70% of requirement of the country in bulk drugs and all the demands for formulations are met by the domestic industry.

 

Evolution of the industry

Indian Pharma industry is about 120 years old. Production of modern medicine by indigenous company began with Bengal Chemicals in late 1800’s. Alembic chemicals (in 1907) and Bengal immunity (in 1919) were established. The then operational Patent Act was highly restrictive for Indian companies as MNCs were holding patents for products, processes etc. This situation changed after independence when public sector units were established and efforts were made to create technical institutions for generating skilled manpower. Though a few drugs of low value were produced indigenously, most of the basic drugs were imported.

Then came the Patent Act of 1970 which was implemented by 1972. The special provisions for food and healthcare have really played a major role in the development of the indigenous industry and paved the way for a stronger, self-sufficient and even competitive pharmaceutical industry of today. By mid seventies the indigenous industry developed capabilities to produce a large number of drugs by adapting technologies from other countries under different therapeutic groups like antibiotics, anti-inflammatory, vitamins, antipyretics, etc. (Narayana, 1983). Some of the policies adopted like self-reliance, import substitution, monopolies and restrictive trade practices act, Foreign exchange regulation Act etc greatly aided research by technical institutes which could help the industry in their processes optimization, trouble shooting and quality maintenance and also paved a way for the development of most valuable process reengineering capability in the IPI.

Though the current IPI has capabilities to produce pharmaceutical compounds, around 100 units have their own R&D setups (DSIR 2003). Some of the companies have equally good R&D units and sophisticated societies but have not tried to get DSIR recognition. Others are only engaged in production activities. The public sector units which were doing quite well in the 1980’s were starved of funds. Absence of influx of new skills and ever increasing overheads, added to lack of modernization of infrastructure, lead to gradual decline of this sector in the 90’s. Current status of Indian Pharma industry can be summarized in the form of Tables 1& 2.

 

Particulars	Description
Capital Investment	25000 Millions Rs.
Total Production	197370 Million Rs.
Bulk Drugs	159600 Million Rs.
Formulations	37770 Million Rs.
Export	66310 Million Rs.
Import	34410 Million Rs.
Patents Filed	1000
Patents Granted	307

Source: Organization of Pharmaceutical Producers of India

 

 

Particulars	Description
Total Manpower Employed	28.6 Lakhs
Director Employment	4.6 Lakhs
Indirect Employment	24 Lakhs
FDI	779.28 Million Rs.
FDI Projects (Technical)	24
FDI Projects (Financial)	19
R&D expenditure (2% of total sales)	3200 Million Rs.

              NOTE: The FDI values are given for the calendar year 1999, and have been obtained from Department of Industrial Policy and Promotion (DIPP).

Source: Organization of Pharmaceutical Producers of India (2002)

 

Indicators		1965-66	1999-2000
Capital Investment		140	2500
Production	Formulations	150	15960
	Bulk Drugs	18	3777
Import		8.2	3441
Export		3.05	6631
R&D Expenditure		3	320

Source: Organisation of Pharmaceutical Producers of India

 

Structure

For the purpose for collecting data on the pharmaceutical industry, a database named Prowess, provided by CMIE, was used. There were 597 listed companies that were found under the drugs and pharmaceutical category, from which we eliminated companies that were dealing only in Ayurvedic medicines, as well as one company that did not seem to produce any pharmaceutical product. We were, therefore, left with 591 companies. This represents the set of companies used for most of the analysis in this chapter. The ownership data has been given in Table 3. The companies listed under Private Foreign, Foreign Groups and NRI Business Houses are foreign companies, while the rest are Indian. Therefore, a total of 46 companies (7.78%) of the 591 listed companies are foreign companies.

 

Owner	Number of companies
Indian Groups	123
Foreign Groups	13
NRI Business Houses	2
Central Govt.	13
State Govt.	2
Joint State and Private Venture	2
Private Indian	405
Private Foreign	31

Source: Prowess database, CMIE, 2008

 

Table 4 provides the state-wise data of registered offices for 553 of the 591 companies taken initially. There was no data available in Prowess for the rest of the companies. The states of Maharashtra (38.34%), Gujarat (14.65%), and Andhra Pradesh (14.47%) account for bulk of the companies in the pharmaceutical sector.

 

State	Number of Companies
Andhra Pradesh	80
Delhi	31
Gujarat	81
Karnataka	22
Madhya Pradesh	19
Maharashtra	212
Tamil Nadu	35
West Bengal	17
Others	56

Source: Prowess database, CMIE, 2008

 

The incorporation year was given for 574 of the 591 companies in Prowess. Based on that, the companies’ age was calculated at the end of 2007 (Table 5). The majority of the companies (65.70%) lie between the ages of 11 and 25 years.

 

Age	Number of companies
1-5	6
6-10	29
11-15	131
16-20	133
21-25	113
26-30	53
31-35	26
36-40	15
41-45	9
46-50	12
51-60	21
61-70	13
71-80	7
81-90	4
91-100	1
>100	1

Source: Prowess database, CMIE, 2008

 

Out of the 591 companies examined, 200 companies have shown merger and acquisition activity in the past 12 years. This includes companies who have acquired/sold a part of their assets.

 

Total number of companies	591
Companies with M&A activity between 1995- 2007	200
Percentage of companies with M&A activity	33.84%

Source: Prowess database, CMIE, 2008

 

Further, Beena S has compiled a database of mergers and acquisitions in the pharmaceutical industry, and has classified the data on ownership and size (Tables 6 and 7). This data indicates that a majority of firms showing M&A activity are Indian firms, which may be hoping to gain a competitive edge by adding new products, technologies and markets.

 

Ownership	Merging firms		Merged Firms
	No.	Percent	No.	Percent
Domestic	20	64.52	38	65.52
Foreign Subsidiaries	11	35.48	20	34.48
Total Available	31	100	58	100

Source: Beena, 2006

 

 

Size	Merging firms		Merged Firms
	No.	Percent	No.	Percent
Large (> Rs. 1000 Million)	28	59.57	1	3.57
Medium (Rs. 10-1000 Million)	18	38.3	27	96.43
Small (< Rs. 10 Million)	1	2.13	0	0
Total Available	47	100	28	100

Source: Beena, 2006

 

The data for foreign direct investment (FDI) inflow in the pharmaceutical sector has been obtained from the Department of Industrial Policy and Promotion (DIPP) for the years 1991-2008. This data includes both financial and technical cases of FDI inflow (Tables 8 and 9).There is a significant decrease in number of financial cases since 2004. A similar drop has been observed in technical cases from 1999. This sudden decrease in FDI inflow in the pharma sector, when compared with the increase in total FDI received in all sectors over the years, needs to be investigated further.

 

Year Jan-Dec	No. of FDI cases Approved	Amount of FDI Approved in Rs. (in millions)	Amount of FDI Approved in US$ (in millions)
1991	2	7.95	0.32
1992	9	291.15	11.13
1993	17	299.11	9.76
1994	21	1,628.55	51.91
1995	19	1,869.68	59.54
1996	26	1,182.15	34.37
1997	25	1,828.88	50.99
1998	16	911.35	23.07
1999	19	779.28	18.55
2000	39	3,046.37	70.85
2001	41	3,726.95	82.82
2002	43	1,345.28	28.03
2003	46	2,388.27	51.92
2004	45	8,648.53	188.01
2005	12	318.05	7.29
2006	2	35.02	0.78
2007	1	6.17	0.16
2008	3	2,794.11	70.91
Total	386	31,106.85	760.41

Source: DIPP, 2008

 

Year Jan-Dec	No. of FDI cases Approved
1991	2
1992	15
1993	17
1994	26
1995	31
1996	19
1997	31
1998	30
1999	24
2000	23
2001	13
2002	18
2003	16
2004	4
2005	1
2006	1
2007	2
2008	0
Total	323

Source: DIPP, 2008

 

The following table lists the foreign acquisitions of some top Indian pharmaceutical companies in the last few years. This represents the FDI outflow in the pharmaceutical sector.

 

Company	Focus Area	Transaction Date	Target	Transaction Value
Dishman Pharma	Contract Manufacturing and research services	April 2005	Synprotec (UK)	US$ 3.5 million
Dr. Reddy’s	U.S. generics, specialty products, API’s, formulations, custom synthesis	May 2004	Trigenesis (USA)	US$ 11 million
		N.A.	BMS Laboratories and Meridian Healthcare (UK)	US$ 16 million
		November 2005	Roche’s API Business (Mexico)	US$ 59 million
Glenmark Pharma	Drug discovery research, formulations	April 2004	Kinger Lab (Brazil)	US$ 5.2 million
		March 2005	Uno-Ciclo (Brazil)	US$ 4.6 million
		October 2005	Servycal SA (Argentina)	N.A.
Hikal	API’s contract manufacturing	September 2004	Marsin (Denmark)	US$ 6 million (for 50.1% stake)
Jubilant Organosys	CRAMS, Pharma specialty chemicals, intermediates, formulations, medicinal chemistry and clinical services	March 2005	MCHEM (China) (JV)	N.A.
		June 2005	Docpharma (Belgium)	US$ 263 million
		September 2005	Explora Laboratories (Switzerland)	N.A.
		N.A.	Fine Chemicals Corp. (South Africa)	N.A.
Nicholas Piramal	CRAMS space- Contract manufacturing, API’s, branded formulations	July 2004	Dobutrex brand acquisition (USA)	N.A.
		December 2004	Rhodia’s inhalations business (UK)	US$ 14 million
		July 2005	Biosyntech (Canada)	US$ 6 million
		October 2005	Avecia Pharma (UK)	US$ 16.9 million
Strides Arcolab	Generics, OTC and nutraceuticals	July 2005	Manufacturing Plant (Poland)	8 US$ million
		August 2005	Beltapharm (Italy)	EUR 1.6 million for 70% stake
Sun Pharma	Branded formulations, U.S. genrics, API’s	August 2005	Two facilities from Valeant Pharma (Hungary, USA)	US$ 10 million
		N.A.	Careco (U.S.)	US$ 7.5 million
		December 2005	Able Laboratories (U.S.)	US$ 23.5 million
Ranbaxy	U.S. and Europe generic markets	January 2004	RPG Aventis (France)	US$ 84 million
		N.A.	18 generic products of Efarmes S.A. (Spain)	N.A.
		June 2005	Brand-Veratide from P&G (Germany)	US$ 5 million
Torrent	Formulations, European generic market	June 2005	Heumann Pharma (Germany)	N.A.
Zydus Cadila	Contract manufacturing and generics	August 2003	Alpharma (France)	US$ 6.6 million
Wochardt	Biogenerics, U.S, and Europe generic market, branded generics	July 2003	CP Pharma (UK)	US$ 20 million
		May 2004	Esparma (Germany)	US$ 11 millino

Source: KPMG (2006)

 

Performance

If we observe the overall industry, we find that both imports and exports have risen at a significant rate over the past 7 years (Tables 11 and 12). However the total amount of exports continues to be far greater than the total amount of imports in the pharmaceutical industry. This positive trade balance is an important feature of the Indian pharmaceutical industry.

 

Year	Exports (US $million)
2000-01	1920.08
2001-02	2068.28
2002-03	2655.51
2003-04	3312.99
2004-05	3972.81
2005-06	4994.52
2006-07	5508.41

Source: Foreign Trade and Balance of Payments, CMIE, 2007

 

 

Fig 1: Total Exports by Pharma Companies during 2000-2007

Source: Foreign Trade and Balance of Payments, CMIE, 2007

 

Year	Imports (US $million)
2000-01	375.32
2001-02	426.20
2002-03	593.21
2003-04	644.17
2004-05	705.08
2005-06	1027.75
2006-07	1295.77

Source: Foreign Trade and Balance of Payments, CMIE, 2007

 

 

Fig 2: Total Import by Pharma Companies during 2000-2007

Source: Foreign Trade and Balance of Payments, CMIE, 2007

 

Figure 3 gives the market share of Indian and foreign companies from 1999 to 2003. It clearly shows that the market share of Indian companies has risen in this period.

 

 

Fig 3: Market Share comparison between Indian and Foreign Companies

Source: FICCI, 2005

 

Table 13 gives the percentage contribution of the pharmaceutical industry to India’s GDP from 1999 to 2004.

 

Year	Bulk Drugs           (in Rs. million)	Formulations        (in Rs. million)	% Contribution
1999-00	37,770	158,600	1.11%
2000-01	45,330	183,540	1.20%
2001-02	54,390	211,040	1.28%
2002-03	65,290	241850	1.37%
2003-04	77,790	267,920	1.37%

Source: www.who.int/intellectualproperty/events/en/indian-pharma.pdf

 

The total annual sales data for the year 2007 was obtained from Prowess for 507 companies (Table 14). There was no data available for the rest of the 591 companies. These 507 companies can be divided into three categories- small, medium, and large- based on their turnover. Small companies have been defined as those with annual turnover less than Rs. 5 crores, medium companies as those with annual turnover between Rs. 5 crores and Rs. 500 crores, and large companies as those with turnover greater than 500 crores. Using the above classification we provide the distribution of small, medium and large companies in Table 15.

 

Sales (In Crore Rs.)	Number Of Companies
<1	60
1-5	73
5-10	46
10-20	62
20-40	82
40-100	72
100-200	42
200-500	39
500-1000	21
1000-4500	10

Source: Prowess database, CMIE, 2008

 

 

Type of Companies	Number Of Companies
Small	133
Medium	343
Large	31

Source: Prowess database, CMIE, 2008

 

To evaluate a company’s willingness to invest in Research and Development (R&D), we took the average annual R&D expenditure (RDE) data for 5 years between 2003 and 2007. This data was available and non- zero for only 64 companies of the 591 companies selected initially in the given period (Table 16).

 

R&D (in Crore Rs.)	Number of companies
< 0.1	4
0.1-0.5	8
0.5-1	5
1-2	8
2-5	9
5-10	6
10-25	5
25-40	8
40-75	4
75-100	3
>100	4

Source: Prowess database, CMIE, 2008

 

If we compare the sales and RDE data for these 64 companies, we find that there has been an increase in both Annual Sales and Annual R&D Expenditure (Fig. 4).

 

 

Fig 4: Average Annual Sales and Average RDE comparison (2003-2007)

 

R&D Intensity (RDI) is defined as the ratio of expenditures by a firm on research and development to the firm's sales. Average Annual RDI % has been calculated for the previous 64 companies for which this data was available (Table 17).

 

RDI (%)	Number Of Companies
< 0.5	14
0.5-1	6
1-2	12
2-4	13
4-8	11
8-12	5
12-16	3

Source: Prowess database, CMIE, 2008

 

 

Fig 5: Average Annual RDI (2003-2007)

 

Out of these 64 companies, 10 are foreign companies, 53 are private Indian companies while one is a joint state and private venture. If we compare the performance parameters of foreign companies and Indian private companies, we find that the average turnover of the 10 foreign companies is slightly more than that of the 53 Indian companies (Figure 6). However, when we compare Annual R&D Expenditure (Figure 7) and RDI (Figure 8), we find that there is a significant gap between the R&D inclination of Indian and foreign companies. The average RDE and RDI values for the Indian companies are much more than those of the foreign companies.

 

 

Fig 6: Comparison of Annual Sales from 2003-2007, between Foreign MNC’s and Indian Companies

 

 

Fig 7: Comparison of RDE from 2003-2007 between Foreign MNC’s and Indian Companies

 

 

Fig 8: Comparison of RDI from 2003-2007 between Foreign MNC’s and Indian Companies

 

Table 18 gives the royalty paid by pharmaceutical companies from 2003-2007. Although the number of companies paying royalty has decreased slightly in 2007 when compared to 2003, there are still many companies which are acquiring and absorbing new technologies to compete in the global marketplace. This decrease could possibly be due to the increasing amount of money spent on in-house research facilities.

 

Year	No. of companies paying royalty	Royalty amount paid           (in Rs. Crores)
2003	52	40.08
2004	53	42.81
2005	53	38.99
2006	46	51.80
2007	46	53.19

Source: Prowess database, CMIE, 2008

 

The patent data has been collected for these 591 companies from Ekaswa C, a database of the Patent Facilitating Centre (http://www.indianpatents.org.in/db/db.htm). The foreign MNC’s whose only patents have come from their parent company, and none from Indian subsidiaries, have been placed in the zero patents category (Table 19).

 

Average No. Of Annual Patents	Number Of Companies
0	517
<1	16
1-2	14
2-5	14
5-10	10
10-20	7
20-40	9
40-75	3
>75	1

Source: Ekaswa C, Patent Facilitating Centre (http://www.indianpatents.org.in/db/db.htm)

 

 

 

The publication data was obtained from www.scopus.com for the 64 companies that we had selected earlier. Table 20 provides distributes the 64 companies based on the number of publications from year 2000 onwards. This data reflects the inclination of the pharmaceutical industry towards basic sciences.

 

Number of publications	Number of companies
0	24
1-5	16
6-10	10
11-15	3
16-20	2
20-30	2
30-50	2
50-100	3
>100	2

Source: www.scopus.com

 

Conclusion:

The analysis of the Indian pharmaceutical industry has revealed that the industry has grown impressively in the last decade. There has been an increasing inclination to invest in R&D, reflected by the increasing R&D expenditure and R&D intensity. This may be a result of stricter patent laws as a result of accession of India to WTO. The Indian companies are also beginning to make an impact on the global markets with almost a fifth of the total turnover coming from foreign sales as well as a large number of USFDA approved manufacturing units. Indian companies have invested more in R&D activities, and come out with more new products, processes and have greater number of publications compared to foreign MNCs in India. This may be the reason explaining the decrease in their spending on royalty during this period. There has been increased activity of mergers and acquisitions in the IPI, which may be to improve their capability to compete with global players. Thus we see that there is change in the structure of the IPI and notable improvement in their performance, during the last decade.

 

 

 

 

References:

• Beena S. (2006), Mergers and Acquisitions in the Indian Pharmaceutical Industry. Nature, Structure and Performance, http://mpra.ub.uni-muenchen.de/8144 accessed on 25 September, 2008.
• KPMG India (2006). Indian Pharmaceutical Industry Collaboration for Growth.
• www.in.kpmg.com/pdf/Indian%20pharma%20outlook.pdf accessed on 25 September, 2008, pp.30.
• Narayana O.L. (1983). Pharmaceutical Industry in India, NCAER, Delhi.
• Patel B. V. (2000). Diagnostic study of drugs and pharmaceutical clusters in Ahmedabad and Vadodhra, PERD, Ahmedabad and UNIDO, New Delhi.

 

 

 

 

 

 

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