The History of the Pharmaceutical Industry

The origins of the pharmaceutical industry can be traced back to the chemical
industries (of 19
th
century) in the upper Rhine Valley of Switzerland. These
industries were producing dye stuffs. When dye stuffs were found to have
antiseptic properties, a number of these industries turned into pharmaceutical
industries e.g. Hoffman-La Roche, Sandoz, Ciba-Geigy, etc.

By 19
th
century, many of the drug stores in Europe and North America had
developed into larger pharmaceutical companies. Most of todays major
pharmaceutical companies were founded in the late 19
th
and early 20
th
centuries.

The industry expanded rapidly in the sixties, benefiting from new discoveries. In
the 1960s attempts were made by the U.S. Food and Drug Administration (FDA) to
increase regulation of pharmaceutical industries and to limit financial links
between companies and prescribing physicians. Pharmaceutical companies were
required to prove efficacy and safety of the drug in clinical trials before marketing
them.
The history of Indian pharmaceutical market in 1970's was almost non-existent.
Today, India has gained immense importance and carved a niche for itself in the
pharmaceutical domain. In fact, it has emerged as a big mart for the pharmaceutical
industry. In today's world, Indian pharmaceutical industry ranks 3rd in terms of
volume and 14th in terms of value.

Today in India, Pharma Industry rank's first of India's science-based industries with
wide ranges of capabilities in the complex field of drug manufacture and
technology. The industry is estimated to be worth $4.5 billion, which is growing at
8-9% annually. It is one of the best and highly organized sectors. The sector
specializes in term of technology, quality and range of medicines manufactured.
The product of the industry ranges from simple headache pills to sophisticated
antibiotics and also complex cardiac compounds.

The Indian Pharma Industry has around 70% of the country's demand for bulk
drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets,
capsules, orals and injectibles. 250 large units and about 8000 Small Scale Units,
form the core of the pharmaceutical industry in India. The units produced have the
complete range of medicines which are ready for consumption by patients.

Future growth prospects of Pharma industries:
The growth of Pharmaceutical industry in India is US$ 3.1 billion with growing
rate at 14% year. In terms of the global market, India currently holds a modest 1-
2% share, but it has been growing at approximately 14% per year during the last
four year.
India gained its foothold on the global scene with its innovatively engineered
generic drugs and Active Pharmaceutical Ingredients (API), and it is now seeking
to become a major player in outsourced clinical research as well as contract
manufacturing and research. India also has a vast pool of trained pharmaceutical
scientists, doctors and researchers, which opens up avenues for joint collaborative
research for new drug discoveries along with joint intellectual property rights.
Pharma industry promotes the sustainable development in the vital field of
medicines by boosting the quality producers and many units approved by
regulatory authorities in USA and UK. The companies associated with this sectors
which are international have stimulated, assisted and spearheaded the dynamic
development in the past 53 years and helped to put India on the pharmaceutical
map of the world. The growth of Indian Pharma Industry has grown tremendously
since 2008-09 in terms of exports. The Indian pharmaceutical industry has grown
from a humble Rs 1,500 crore turnover in 1980 to approximately Rs 1,00,611 in
2009-10.
The Indian Pharmaceutical industry consists of more than 20,000 registered units
which are highly fragmented. It has been expanding in a tremendous manner in the
last two decades and includes 250 pharmaceutical companies which control 70% of
the market.
A report from the U.S. consulting firm Mckinsey & Co. projects that the Indian
pharmaceutical market will balloon to $55 billion by 2020 if the population
continues to grow at its current rate and prevalence of illnesses continues its rapid
rise.
The 1.3% annual rise in the population, plus a steady increase in disease, will make
the patient pool in India 20% larger in ten years that it is today.
At $55 billion in annual sales, the pharmaceutical industry will be four times its
current $12.6 billion size. If things go super well, according to what Mckinsey
calls the aggressive growth scenario, the industry could grow even faster to $70
billion by 2020.
The Indian drug market, currently valued fourth in terms of volume and 13
th
in
terms of value is expected to become one of the largest in the world. IMS estimates
the healthcare market in India at Rs 1,40,000 crore by 2020. The Indian
pharmaceutical market is expected to touch $40 billion (Rs 1.8 lakh crore) by
2015, predicts the global management consulting major, Mckinsey & Co.

Six trends will influence the growth of the Indian Pharmaceutical market over
the next decade:
Doubling of disposable income and the number of middle class households
Expansion of medical infrastructure
Greater penetration of health insurance
Rising prevalence of chronic diseases
Adoption of product patents and
Aggressive market penetration led by smaller companies


Top 10 Pharma companies in India 2014 (based on their
sales, profit and loss):
1. Cipla
2. Dr. Reddys
3. Ranbaxy
4. Lupin
5. Aurobindo Pharma
6. Sun Pharma
7. Cadila Health
8. Torrent
9. Jubilant life
10. Wockhardt




Government policies in pharmaceutical Industry:
Pharmaceutical policy comprises the interplay of regulation for the purposes of
safety and efficacy, health and social policy (access and equity), and support for
industry (economic) development. There is in each nation state a distinct policy
and regulatory mix reflecting the attributes of domestic policy networks, including
relative strengths of different types of drug firms. Major pharmaceutical
companies, mostly based in the USA, operate globally integrated innovation,
production, and marketing networks. Globalisation increasingly entails outsourcing
production of chemical raw materials, manufacturing, clinical trials, and other
steps in the production chain to low-cost locations such as India and China. Since
the early 1990s product safety controls have, in the main, been standardised across
developed countries through the International Conference on Harmonization
process sponsored by regulatory agencies and industry associations in the USA, the
European Union, and Japan.

When we talk about pharmaceutical policy, it implies a branch of health policy that
covers various aspects of the pharmaceutical industry like as the development of
new medicines, provision and use of medications within a health care system,
considering both brand name and generic drugs. Pharmaceutical policies also cover
products derived from living sources referred as, biologics which are different
from chemical compositions, vaccines and natural health products.


The main pharmaceutical policies of India under the following
heads:

Drug Price Control Order (DPCO): Drugs and formulations have been subjected
to price control from a very long time, almost 3 decades now. The economic
reforms presented by the Government of India in July 1991, targeted the
Pharmaceutical Industry only in 1994 and that too partially. Price control in a large
number of industries has already been abolished.

Intellectual Property Rights (IPR): The Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) provides for minimum norms and standards
in certain categories of intellectual property rights which are discussed in
this section.


Pharmaceutical Policy 2002: The basic objectives of Government's Policy
relating to the drugs and pharmaceutical sector were enumerated in the Drug
Policy of 1986. The drug and pharmaceutical industry in the country today faces
new challenges on account of liberalization of the Indian economy, the
globalization of the world economy and on account of new obligations undertaken
by India under the WTO Agreements.

Pharmaceutical policy includes:
Contents
Funding of Research in the Life Sciences
Patent Law
Licensing
Pricing
Reimbursement
Formulary management
Eligibility
Prescribing
Pharmacy services


Porter's Five Forces Strategy Analysis for Pharmaceutical
Industry in India:
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 US and Europe.
Porter's Five Forces Model helps strategic business managers analyze the industry
in which their companies operate to determine what can be done to get an
advantage over their existing competitors and also to determine how attractive a
particular industry would be for new entrants.

Porters five forces are:
1) Industry competition
2) Barriers to entry
3) Threat of substitutes
4) Bargaining power of suppliers
5) Bargaining power of buyers

Industry competition: (High)
Pharma industry is one of the most competitive industries in the country
with as many as 10,000 different players fighting for the same pie
The rivalry in the industry can be gauged from the fact that the top player in
the country has only 6% market share, and the top five players together have
about 18% market share
High growth prospects make it attractive for new players to enter in the
industry
In Pharma industry product differentiation is not possible since India has
followed process patents till date, with laws favouring imitators
Product differentiation is not the driver, cost competitiveness is. However,
companies like Pfizer and Glaxo have created big brands in over the years,
which act as product differentiation tools
Barriers to entry: (Low)
Pharma industry is one of the most easily accessible industries for an
entrepreneur in India
The capital requirement for the industry is very low, creating a regional
distribution network is easy, since the point of sales is restricted in this
industry in India
Quality regulations by the government may put some hindrance for
establishing new manufacturing operations
High entry barriers due to costs associated with research & development of
new drugs (i.e. years of investment in R&D for a drug that may/may not
work)
The impending new patent regime will raise the barriers to entry

Threat of substitutes: (High)
Demand for Pharma products continues and the industry thrives
One of the key reasons for high competitiveness in the industry is that as an
on going concern, Pharma industry seems to have an infinite future
Demand for generic versus brand name drugs has increased because of the
costs
Generic drug companies do not have the high costs associated with the
research & development of new drugs and that allows them to sell at cheaper
prices

Bargaining power of buyers: (Medium)
End user of the product is different from the influencer (read doctor). The
consumer has no choice but to buy what doctor say
Hospitals & other health care organizations buy in bulk quantities and exert
pressure on pharmaceutical companies to keep prices in check
Regular patients have lost bargaining power due to price increases in generic
drugs
The buyers are scattered and they as such does not wield much power in the
pricing of the products
Government with its policies, plays an important role in regulating pricing
through the NPPA (National Pharmaceutical Pricing Authority)
Bargaining power of suppliers: (Low)
Pharma industry depends upon several organic chemicals
The chemical industry is again very competitive and fragmented
The chemicals used in the Pharma industry are largely a commodity
Sales for the pharmaceutical industry concentrate in a handful of large
players and that has decreased the bargaining power of suppliers
The suppliers have very low bargaining power
The companies in the Pharma industry can switch from their suppliers
without incurring a very high cost.

Conclusion:
This model gives a fair idea about the industry in which a company operates
and the various external forces that influence it
Industry is not static in nature, it is dynamic
The larger players in the industry will survive with their proprietary products
and strong franchisee
In the Indian context, companies like Cipla, Ranbaxy and Glaxo are likely to
be key players
The change in the patent regime, will see new proprietary products coming
up, making imitation difficult
The barriers to entry will increase going forward
Government too will have bigger role to play.