CHAPTER - 1

INDIAN PHARMACEUTICAL
^ INDUSTRY-
PREVAILING TRENDS
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CHAPTER I

Indian Pharmaceutical Industry - Prevailing Trends

Pharmaceutical Industry is driven by a global need to conquer diseases.

Medicines are developed to treat new diseases or improve upon the existing
treatment. An in-depth understanding of human physiology and disease
mechanism is a pre requisite to pharmaceutical R&D. To facilitate research,
companies usually concentrate on select therapeutic areas such as
antibiotics, quinolones, cough & cold preparations, ayurvedic products etc.

Pharmaceuticals are medicinally effective chemicals, which are converted

into dosage forms suitable for patients to imbibe. In its basic chemical form,
pharmaceuticals are called bulk drugs and the final dosage forms are known
as formulations. Bulk drugs are derived from four types of intermediaries
(raw materials), namely

o Plant derivatives (ayurvedic/herbal products)

o Animal derivatives (e.g., Insulin extracted from bovine pancreas)
o Synthetic chemicals
o Biogenetic (human) derivatives e.g., Human insulin

Doctors, post-diagnosis to cure a disease or disorder, primarily prescribe

formulations (brands) to the patients. To prevent misuse or incorrect
administration, most brands are disbursed by pharmacies/chemists only
under medical prescription and these are called ethical products. How ever,
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some brands such as pain balms, health tonics etc., can also be purchased by
the patients directly. These are called over the counter (OTC) products.

GLOBAL SCENARIO

The developed countries like the US, Western Europe and Japan are the
biggest markets (see table 1). Higher purchasing power and a well
developed health insurance and re-imbursement system implies that the
value of drugs sold is much higher there. Growth in these markets is also
higher as new blockbuster drugs drive growth.

Table 1
Global Pharmaceutical Market

Country Sales -1999 % Share % Growth

($ Bn)
US 81.8 41.3 11
Europe 46.5 23.5 7
Japan 31.5 15.9 -1
Latin America 12.9 6.5 2
South East Asia & China 13.5 6.8 8

Source: Economic Times Intelligence Group Report

Pharmaceutical industry is a continuous growth industry, immune to

economic recession and commodity cycles. Rising population, new disease
incidence or resurgence of certain diseases spurs the growth. Therapeutic
usage of pharmaceuticals varies across the globe. Hypertension and cardiac
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diseases are more prominent in developed countries while infectious

diseases like, typhoid, tuberculosis etc are largely prevalent in developing
nations.

The Indian pharmaceutical industry has grown rapidly (see table 2 &3) due
to the friendly patent regime and low cost manufacturing structure. Intense
competition (see tables 4,5,6 and 7 for Top Indian Pharmaceutical
companies, Number of brands and growth pattern, Best brands and major
therapeutic segments), high volumes and low prices characterize the Indian
market.
Table 2
Indian Pharmaceuticals Industry Past
Year Size
(Rs. in Crores)
1970-71 167
1974-75 334
1979-80 637
1989-90 2718
1993-94 5507
1995-96 7135
1998-99 12804
1999-00 14000

Source: Operations Research Group, Annual Reports

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Figure 1

Indian Pharmaceutical Industry (past)

Rs. in Crores

(Rs. In Crores)

aQT
A\ aQT9 ? <$>' <$> &
N°>V ^ Kc£> Kc$>
\-

Years

Source: Operations Research Group, Annual Reports

Table 3
Pharmaceuticals Industry Present & Future
Year Size
(Rs. in Crores)
2000-01 20,000
2001-02 23,000
2002-03 25,885
2003-04 29,541
2004-05 33,788
2005-06 38,730

Source: Economic Times Intelligence Group Report

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Figure 2

Indian Pharmaceutical Industry

(present & future)

45.000
40.000
(a
<D 35.000
L.
o 30.000
o 25.000
c 20.000
15.000
(/)
01 10.000
5,000
0
20 20 20 20 20 20
00
- 01 - 02 - 03 - 04 - 05 -

01 02 03 04 05 06
YEAR

Source: Healthcare 2001, Economic Times Intelligence Group Report

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Table 4
Major Indian Pharmaceutical Companies

Company 1999-2000 Market Share

Rs. in Crores (%)
Glaxo-Wellcome 754,: 5.89
Cipla 544 4.25
Ranbaxy 427 3.34
Hoechst-Roussel 375 2.93
Wockhardt-Merind 303i 2.37
Zydus-Cadila 300- 2.34
Knoll Pharma 293 > 2.30
Sun Pharma 283 2.21
Cadila Pharma 278 2.18
Lupin Labs 278; 2.17

Source: Operations Research Group, December 2000

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Table 5
Major Companies, Their Number of Brands & Growth pattern

Serial Company Number Year

Number of Brands (Market Share %)
1999 1996 1992
1 Glaxo-Wellcome 190 5.89 7.5 7.8
2 Cipla 229 4.25 4.2 3.4
3 Ranbaxy 85 3.34 3.7 4.6
4 Hoechst-Roussel 62 2.93 3.6 3.7
5 Wockhardt-Merind 185 2.37 1.4 -

6 Zydus-Cadila 188 2.34 2.11 1.7

7 Knoll Pharma 70 2.30 2.50 2.4
8 Sun Pharma 226 2.21 1.2 -

9 Cadila Pharma 137 2.18 1.7 -

10 Lupin Labs 85 2.17 2.20 2.6

Source: Operations Research Group, Annual Reports

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Table 6
Leading Brands by Value
Serial Brand Name Company Value
Number (Rs. In Crores)
1 Becosules Pfizer 70.13
2 Althrocin Alembic 67.84
3 Corex Pfizer 66.91
4 Sporidex Ranbaxy 61.92
5 Taxim Alkem 61.81
6 Cifran Ranbaxy 58.58
7 Voveran Novartis 58.52
8 Liv-52 Himalaya 53.15
9 Betenesol Glaxo Wellcome 51.46
10 Ampoxin Unichem 48.70
11 Digene Knoll 48.33
12 Zinetac Glaxo Wellcome 47.79
13 Dexorange Plus Franco Indian 47.39
14 Mox Gufic 47.06
15 Phexin Glaxo Wellcome 44.55
16 Ciplox Cipla 43.98
17 Combiflam Roussel 42.31
18 Septran Glaxo Wellcome 41.37
19 Ceftum Glaxo Wellcome 40.55
20 Polybion Emcure 39.43

Source: Operations Research Group, December 2000

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Table 7
Major Therapeutic Groups

THERAPEUTIC
GROUP Market Share (%)

Systemic Antibiotics 16.30%

Systemic Antibacterial 3.90%

Cough Syrups 6.50%

Vitamins 5.70%

Anti-Inflammatory 5.20%

Antacids 4.30%

Cardiac therapy 3.80%

Anti Diabetic 2.70%

Anti TB 2.40%

Anti Anemic 2.30%

Rest of the groups 47%

Source: Operations Research Group, December 2000

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Present scenario
Over 20,053 (see table 8) registered pharmaceutical manufacturers exist in
the country. The number of manufacturers increased drastically in the last
two decades. The leading 250 pharmaceutical companies control 70% of the
market share with market leader having nearly 7% of the market share. The
market share of Multi National Companies (MNC) has fallen from 75% in
1971 to around 35% in the Indian pharmaceuticals market (See table 9
Market shares - MNCs vs. Indian Companies), while the share of Indian
companies has increased from 20% in 1971 to nearly 65%. Public Sector
Units (PSU) have almost lost out completely.

Table 8
Number of Units

1969-70 2,257
1979-80 5,156
1989-90 16,000
1999-00 20,053
Source: Organization of Pharmaceutical Producers of India, Annual Report 1999-2000
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Pharmaceutical marketing is different from that of Fast Moving Consumer

Goods (FMCG) marketing. In the latter, the marketer is able to reach the
customers through mass media. While in the former the marketer does not
have access to the customers (patients) and need to reach them via
doctors/physicians, chemists. Hence, it is more complicated and becomes
crucial.
Table 9
Market shares - MNCs vs. Indian Companies

Year Share of MNCs (%) Share of Indian

Companies (%)
1975 75 25
1999 35 65
Source: Operations Research Group, Annual Reports

The industry has come a long way from humble beginnings. At the time of
Independence, there was little production. The industry was dominated by

MNCs, which imported most of the drugs and sold them in the local market.
(See table 10 - Temporal progress of the Pharmaceutical Industry) Indian
pharmaceutical companies started appearing by the 1960s. The local
pharmaceutical market got a big boost with the introduction of the Indian
Patent Act, which recognized only process patents, not product patents. This
allowed Indian companies to manufacture drugs discovered by international
firms. By the mid-1980s, imports were reduced significantly and by 1990s,
exports had become a major growth engine for most pharmaceutical
companies. The skill levels and cost advantage work in favor of India.
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Table 10
Temporal progress of the Pharmaceutical Industry
Decade Status
1950s Formulations Mostly imported, MNC dominance
1960s Formulations Domestic endeavor on imported bulk drugs
1970s Formulations Some imports
Bulk drugs Indigenous manufacture by domestic companies
1980s Formulations Marginal imports (< 5%)
Bulk drugs Significant indigenous manufacture
1990s Formulations Significant exports, minimal imports (< 2%)
Bulk drugs Self reliant (exports > imports)

Source: Report of Pharmaceutical Research Development Committee

The Drug Price Control Order (DPCO) has severely restricted profitability
and hence innovation. However, the government has been relaxing controls
in a slow but progressive manner. The span of control of DPCO has come
down from 90% in 1980s to 50% in 1995 and is likely to be further reduced
as per the latest proposed changes.

E-Commerce. The New Weapon:

E-Commerce is a powerful new weapon that can be deployed with

customers, with vendors and other business partners, with employees, and
even with competitors; a weapon that can capture value.
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The Internet is exploding the trade off between richness and reach beyond
corporate boundaries. For example, a medical representative can visit only
some physicians in a given month, but now the same representative can
share a great deal of complex information with the few customers he/she
visits.

Due to this phenomenon, businesses face a new set of opportunities: The

opportunity to leverage the broad and deep interface provided by the Internet
to create a new sources of value along their customers.
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2. PROBLEM STATED:

From the above it is seen that Pharmaceutical industry is a promising sector

and has a vast potential for growth in the years to come. Unlike FMCG,
which is simple and directly appeals to the customers, in the pharmaceutical
industry the manufacturer cannot have direct access to the customer.
Therefore, the marketing chain that connects the manufacturer and the
customer is complicated and involves various channels. So, the marketer has
to promote their brands to Doctors and make the stocks available at the retail
outlet with the help of the local wholesaler or stockist. On receipt of
prescriptions chemist will honour such a prescription if the respective brand
is available. Other wise the prescription gets bounced. With around 20,000
pharmaceutical companies and each company on an average 5 brands, that
means around 1,00,000 brands. With such a stiff competition,
pharmaceutical companies brand managers find it difficult and have to
constantly find ways and means of marking their presence in the market
place.

The following table (Table 11) gives an idea of the number of brands that
are being covered by Operations Research Group (ORG).
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Table 11
Growth of number of Brands
Year No. of Brands
1971 3017
1975 3432
1980 4024
1985 4166
1990 5298
1994 6330
1996 7000
1999 9900

Source: Operations Research Group, Annual Reports

Under the above circumstances, there is an urgent need in the

pharmaceutical industry is to define the brand success. What is success in
the market? What makes a pharmaceutical brand success? Normally
discussion in marketing literature centers only around theoretical inputs on
Brands and their success stories in general. But this is also restricted to
consumer durables and consumer non-durables area only. Many tried to
define brand success in general and most of the definitions are strategic in
nature.

That means they deal more with organizational success rather than the brand
level, that too in the Indian context with special reference to pharmaceutical
industry. So there is no coherent theory of success of a pharmaceutical
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brand. Thus, one of the aims of this research is to define brand success for a
pharmaceutical brand. In fact, no study has been conducted so far on this
topic scientifically in the Indian context. An attempt is also made to study
the impact of E-commerce on pharmaceutical product success.