Indian Pharmaceutical Industry In Africa Economics Essay
The social, demographic and economic context, in which the global pharmaceutical industry operates, is changing.
Developed economies with spiraling healthcare costs are looking to rein in healthcare expenditures.
In developing economies as Africa, CIS & Middle-East the pharmaceutical industries are also undergoing a phase of dynamic change. The changes are brought about by revolutionary initiatives taken by the government of the constituent nations and the world around. Rising health consciousness, prevalence of diseases, and healthcare expenditure will help the Middle East & Africa pharma market to grow at a CAGR of around 9.5% during 2011-2013. The pharma market in this region will continue to grow due to the high demand of drugs, even though there are multitudes of political issues in the region, which can potentially harm the industry. It is found that South Africa, Saudi Arabia, Algeria, and Egypt are the main defining markets in the region, and they will continue to dominate the market in future also. However, other countries, such as the UAE, Nigeria, CIS, and Israel have a lot of untapped potential, which can be utilized by the pharma companies.
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To capitalize on the opportunities in the Middle East & Africa pharma market, the multinational companies are looking to penetrate the market through individual or collaborative efforts. Joint ventures and other distribution agreements with the local companies will provide multinationals the advantage of having a better understanding of the market and its demands.
Emerging economies in general and India in particular offer a ray of hope for the global pharma industry. India's product development skills and scientific talent are being increasingly sought by pharma MNCs to tackle the challenges of growth and innovation. Indian pharma companies are also looking to move up the value chain and change the perception of India as a cheap manufacture base to that of a genuine intellectual contributor. Various policies being introduced are related to the strengthening of the IPR protection laws, providing incentives, and tax exemptions to the foreign and domestic companies, and improving the marketing & distribution channels as well.
Health is defined both as cause and effect of economic development. Therefore, the pharmaceutical industry is specifically recognized in the UN Millennium Development Goals, as an actor that can contribute to economic development. In addition, the pharmaceutical industry provides significant socio-economic benefits to the society through creation of jobs, supply chains, and through community development. There are expectations, however, by some stakeholders that pharmaceutical industry should contribute more to economic development, through their own activities and indirectly, through improvements in healthcare infrastructure and capacity. This reflects the complex role of companies in healthcare, as well as the special obligation inherent in a sector whose products and services are needed by people when they are most vulnerable.
Indian pharmaceutical industry is one of the high performing knowledge based segments of the manufacturing sector. The industry has achieved a global status through firm level strategies, industry initiatives and also with appropriate policy support. At present, Indian pharmaceutical industry meets around 95% of the country's domestic demand for medicines. In addition to catering to the needs of the domestic demand, the pharmaceutical industry is also engaged in contract manufacturing, contract research, clinical trials, contract R&D, and direct exports to developed and developing country markets. Indian pharmaceutical industry is entering an era in which it is not only going to play a pivotal role in providing generics medicine to the world but also in the process of becoming a global hub for R&D activities, which may be in the area of new drug discovery or different stages of clinical trails. The industry is gaining momentum to face the challenges of new patent regime and increasing competition from low cost manufacturing and R&D destinations like China. Such challenges are helping the industry to modify the business strategies and thereby to retain its competitive position. Many Indian pharmaceutical companies have adopted the strategy of inorganic growth though joint ventures, foreign direct investments, mergers and acquisitions (M&A). A well-developed manufacturing base, low cost R&D, large pool of skilled man-power are some of the factors for success of Indian pharmaceutical industry in these segments of business.
According to an analytical research study "Middle East and Africa Pharma Sector Forecast to 2012", the pharmaceutical market in the region is expected to grow at a CAGR of around 9.5% during 2011-2013. Currently, the regional market is in a state of evolution due to the definitive regulatory changes in the corresponding nations. The policy changes are aimed at boosting the domestic pharma industry, and to encourage the influx of key foreign private players in the industry. Countries, such as South Africa, Saudi Arabia, Algeria, and Egypt are currently dominating the pharmaceutical industry of the whole region. These countries have better position than others in terms of infrastructure and the regulatory environment. The MEA (Middle-East & Africa) pharmaceutical industry is highly dependent on imports, with most of the drugs and therapeutics being procured from the European countries. Besides, generics hold a considerable share in the market due to their affordability factor. The Governments of the MEA nations are promoting pharma manufacturing by introducing friendly policies, incentives, and investments in the industry. Overall, the growth of the industry is expected to bolster in near future. Preliminary results of the Russian national population census have shown rather sad statistics: Russia's population decreased by 2.2 mn over the last eight years. This decrease occurred primarily because the mortality rate. Decreasing population is one of the key factors adversely affecting Russia's economic development. Obviously, curbing the demographic crisis requires that the government efforts in this field include, among other things, the improvement of quality and affordability of drugs for the population. Today, notwithstanding the fact that the pharma market steadily expands, and the drug range grows, the problem of high prices prevails. A high price is a factor limiting consumer access to pharmaceuticals. As CIS nations to take a step forward to address their healthcare systems, Indian pharma companies are using the proposition to grab the opportunities available in these emerging markets.Â
Overview of the Pharmaceutical Sector
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In the process of industrialization, pharmaceuticals have been a favorite sector for policy makers in the developed as well in many developing countries, including India. This special policy preference has been due to the criticality of the pharmaceutical products for the health security of the populace as well as for developing strategic advantages in the knowledgeâ€based economy. The growth of the pharmaceutical industry in the developing region is largely confined to a few countries like India, China, Singapore, Korea, Czech Republic, Brazil, and Argentina.
Global pharmaceutical market is highly dynamic and is characterized by greater levels of R&D expenditure and extensive regulation of its products. Global pharmaceutical sales are estimated to be US$ 643 billion in 2006, a growth of 7% over the previous year. Sales have grown from US$ 334 billion in 1999 to US$ 643 billion in 2006, witnessing a CAGR of 10%. North America is the major pharmaceutical market accounting for around 48% of global pharmaceutical sales, followed by Europe (30%), Japan (9%). Leading therapy classes in world pharmaceutical market include lipid regulators (with a market share of 5.8%), oncologic (5.7%), respiratory agents (4%), acid pump inhibitors (4%), and anti-diabetics (3.5%).
According to PwC's pharma 2020 report, Challenging business models, global pharma companies will have to fundamentally change their operating model to capitalize on future growth opportunities.
Trends shaping the global industry are:-
Emphasis will be on outcomes.
Changing Demographic Trend
Compliance monitoring will become a win-win for patients, payers and providers.
Focus will shift from treatment to prevention.
Increasing Mergers and Acquisitions
New technologies will drive R&D.
Outsourcing of Pharmaceutical R&D
The current linear phase R&D process will give way to in life testing and live licensing.
There will be greater international regulatory cooperation.
The blockbuster sales model will disappear.
The supply chain functions will generate revenue.
More sophisticated direct to-consumer distribution channels will diminish the role of wholesalers.
Several pharmaceutical firms like Lilly and BMS have already begun to use more collaborative models. The pressure to change to new business models, triggered by internal and external factors has led to increasing mergers, acquisition, alliances and partnerships in the pharmaceutical sector.
The entry patterns of pharmaceuticals are important to understand for several reasons. The cost of untreated conditions in markets with no entry may be substantial. In addition, there are many monopoly and duopoly markets. Competition usually results in lower prices, and given the widespread concern about the cost of pharmaceuticals, it is valuable to know what impedes further entry into a market.
Players in the pharmaceutical industry include: branded drug manufacturers, generic drug manufacturers, firms developing biopharmaceutical products, nonprescription drug manufacturers, and firms undertaking contract research. In addition, there are also enablers of the industry such as universities, hospitals and research centers that play a role in R&D activities.
Country Specific overview on the Pharmaceutical Industry
Despite all the extraordinary achievements it's a harsh reality that every year millions of people die across the world, mostly in low income developing countries, due to unavailability and inaccessibility of necessary medicines. According to the World Health Organization (WHO), on average, 50% (Roger Bate, 2008) of the world population lacks access to life-saving medicines in some countries in the African continent.
Many developing countries, in the continent including some OIC member countries, has insufficient or no manufacturing capacities in the pharmaceutical industry. Local industry covers a tiny fraction of domestic pharmaceutical demand and they rely heavily on imports and medicinal aid. In addition, the share of medicines in "Out-of-pocket" health payments (i.e. paid by the patient) is ranging between 40 to 60% in these countries. Consequently, medicines are neither available nor accessible to a large fraction of population and hundreds and thousands of people die of preventable and treatable diseases. Most of the countries in African continent areros characterized by low domestic pharmaceutical base.
Egyptian pharmaceutical market, which is estimated at around US$ 1.7 billion in 2007, is one of the major flourishing markets in the MENA region. According to some reports, Egyptian pharmaceutical industry comprised of about 30 companies and local production satisfies more than 90% of domestic. On the other hand, Egypt is contributing 30% of supply in the MENA pharmaceutical market.
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"Morocco is one of the important markets and this manufacturing facility further reinforces our commitment to the people of Morocco and the African continent," said Ranbaxy's African head Mahendra Bhardwaj. A recently-published report from Espicom notes that recent changes to Morocco's national health insurance schemes and will provide "substantial additional funding for the health sector", particularly for those on lower incomes.
In Algeria U.S. exporters can find substantial opportunities if they have patience and effective Algerian agents or distributors to help translate these opportunities into sales. Given the time and resources necessary to successfully develop this market, Algeria is not an ideal export market for small to medium-sized enterprises. Healthcare, pharma stand as one the most promising markets in Algeria.
Since 2000, Sub-Saharan Africa has experienced consumer spending growth of 4% per year, which propelled it to $600 billion in 2010. The region of SSA accounts for 24% of global burden of disease and represents less than 1% of global health expenditures. Nearly 50% of SSA's total health expenditures are being financed by the patients. According to World Health Survey 2003, the average share of medicines in out-of-pocket health payments in SSA (14 countries) is 37%, while at country level, this share varies from 11% in Chad to 62.2 % in Burkina Faso. In 2006, pharmaceutical market in SSA was valued at US$ 3.8 billion, corresponding to 0.6 % of global market. In SSA, 37 out of 44 countries have some pharmaceutical production and local manufacturer account for 25-30% of local demand. However, pharmaceutical production is highly concentrated among a few countries. In 2006, SSA produced US $ 1.07 billion worth of pharmaceuticals out of which more than 70% (i.e. US$ 735 million) was contributed by South Africa alone. Nigeria was the second leading producer with a share of 10% (i.e. US$ 107 million). Among other OIC member countries, Senegal produced US$ 22 million, Côte d'Ivoire produced US$ 14 million and Uganda produced US$ 9 million worth of medicines in 2006.
Companies searching for new emerging market growth opportunities should not thus overlook Africa. While the continent's sheer size would merit attention, Africa offers much more than real estate alone: Rapidly improving income levels, infrastructure, and business environments promise to drive continued growth in Africa's consumer markets. In fact, consumer spending is expected to reach nearly $1 trillion in 2020, according to a 2011 Euro-monitor report. However, most companies need to adjust their strategies and expectations when entering the continent. Logistics can be unreliable and infrastructure readiness lags behind much of the developed world. As a result, fully understanding a company's potential opportunities on the continent can be challenging.
Pharmaceutical market in the MENA region accounted for about 1.8 per cent of the world market, or around US$12 billion in 2006 [Pharmaceutical & Biotechnology Middle East (PABME)]. Most of the countries in MENA region are characterized by low domestic pharmaceutical base. In MENA region GCC countries have highest per capita medicines consumption estimated at US$ 52 while in other countries, the figure is estimated at about US$20 in 2004. Among the GCC countries Saudi Arabia has the largest number of local pharmaceutical manufacturing plants totaling 27 with an investment of US$ 619 million. As shown in Figure 3, Saudi Arabian pharmaceutical industry produced medicines worth of US$ 320 million in 2006 compare to US$ 187 million in 2000. However, local production satisfies only 15% of the demand and imports account for 85% of the domestic market.
Jordan is another major market in the MENA region. Jordanian pharmaceutical industry consists of 17 factories and accounts for 3.5% of the total workforce employed in the country's industrial sector and is second largest export earning industry after garment manufacturing. In 2005, Jordanian pharmaceutical industry produced US$ 350 million worth of medicines compare to US$ 185 million in 2003. Local production satisfies about 50 % of domestic market.
In the MENA region, UAE is one of the most expensive pharmaceutical markets with per capita medicine expenditure estimated at about US$ 80. Globally, generics pharma demand is growing dramatically -CAGR of nearly 12% -driven by patent expirations and healthcare costs. GCC generics demand will grow from $300M to $1B by 2020, from approximately $500M to $2.5B by 2020 for MENA -a CAGR of greater than 15%, which could be higher depending on GCC/ MENA government healthcare policies. Generics manufacturers are looking to achieve market access by acquiring HCC-based generics companies, and to expand production capacity through green-field facilities or acquisitions in LCC locations. Kuwait, UAE and Oman among others offer another fresh perspective for demand. The GCC countries are characterized by low pharmaceutical production base domestically. The disparity in both these groups is epitomized by the fact that local manufacturing satisfies 90% of consumption in Egypt while the Kingdom of Saudi Arabia is a net importer of pharmaceutical products with 85% of pharmaceutical consumption being imported. The diverse economic conditions, business practices and varying domestic manufacturing capabilities coupled with shifting disease profiles also reflect on the regulatory environment for the pharmaceutical industry. Thus far, pharmaceutical products in the region has centered on imports of drugs with local production mainly focusing on generics. The pharmaceutical regulatory climate in the region has tended to favor local drug makers. However, with international pressure to instill fair-trade practices especially in the context of World Trade Organization (WTO) memberships and the European Union Agreements, government are acknowledging the need to clarify on product registration and intellectual property rights issues. Data Exclusivity and Intellectual Property remains a key area of concern. There is no uniformity in the product patent laws and as such there are large discrepancies in the way intellectual property rights (IPR) are implemented across the region. These pitfalls notwithstanding, the Middle Eastern market offers a mosaic of opportunities for pharmaceutical companies seeking to expand international operations. The current economic and security risks involved in the changing geopolitical scene in the region is expected to remain at least in the next five years as the governments embark on a regulatory and economic reform process.
CIS - Commonweath of Independent States
"CIS countries are large markets forÂ pharmaceutical products where Indian products and their value for money proportion are well accepted. Price realization is also much better in these markets, as these Markets are free of price control"
(Pharmaceutical Export Promotion Council)
The growing CIS pharmaceutical market represents a strong and lucrative business opportunity, with an estimated market size of USD 20 billion. An ageing population, changing lifestyles, steadily rising incomes and increased Government spending in health-care are all indicators that back pharma companies as Lupin has decided to expand its presence in this region. In particular, Russia and Ukraine are of prime interest. Local partnerships have been established keeping in mind their future potential and cross-functional synergies. The CIS business has been built around offering differentiated products with a long term view of creating strong niches from product mix, comprising Value Added Generics, Branded Generics and the Company's Branded Business. Bearing in mind changing market dynamics, eminent pharma companies as Lupin is putting added emphasis on brand building exercises for its products such as IXIME, Dr. KASHEL, SOFTOVAC, RIBAVIN, ONE-BE and GATISPAN.Â
The CIS pharmaceutical market is considered to be one of the most dynamic and growing in the world. It continues to grow in average 10-12% per year since 2003. Against 8% drop of the country GDP in 2009 the market grew by 22% in RUB and dropped 5% in USD. In 2010 the sales grew only 6% due to consumer activity slow down and introduction of the DLO state price regulation by the new Federal Law "On Turnover of Medicines". The growth may resume to 12% in 2011 provided that the market regulation is not getting tighter.
There is a risk that the growth of the market might be hampered (due to its distribution structure) by 50% number decrease of drugstores in 2011 and medicines' availability decline in remote and rural areas of Russia. This tendency is forecasted in connection with the raised social tax burden for drugstores from previous 14% to 34%. In the perspective of its sustainable 12% growth, the Russian pharma market volume should reach RUB 400-500 billion (USD 13-16 billion) by 2011 and RUB 1000-1500 billion (USD 30- 50 billion) by 2020 in consumer prices, provided that the domestic per capita consumption of medicines rises up to the average European level and the demographic situation improves up to 142-145 million citizens till 2020 according to the strategic social-economic development concept of the Russian Federation. The per capita consumption of medicines in Russia was USD 123 in 2009 and remains the highest on CIS space though 4-5 times lower compared to Europe. The international companies mainly sell branded generics in Russia which allows the present distribution structure of the Russian pharma market. The main consumer of medicines here is the direct consumer making the choice driven by advertisements and marketing. International producers continue to profit of this situation. Due to low competitiveness of the nationally produced medicines the imported products dominate on the Russian market allowing the international companies to invest mainly in marketing promotion rather than in R&D. Out of the DLO list of 2009 containing 463 medicines - 181 names were purely imported drugs - out of it only 70 names were innovative medicines. Only 31 names out of 463 were the medicines produced locally. 251 names of DLO list were both imported and nationally produced - which indicates insufficient production volumes of the national pharma. The Russian pharmaceutical industry supplies both the national health care system and hospital sector with 70% of medicines in physical volume (68 and 72% correspondently) which makes only 19 % in value of the medicines' turnover of the Russian healthcare sector. The Russian pharmaceutical industry mainly produces low profit generics
Today the Russian pharmaceutical industry processes around 8000 tn. of substances per year, most of them are imported and less than 25% are nationally produced. The Russian pharmaceutical industry is practically not present on the international markets. The issue of standard harmonization still remains open and represents a source of regular problems. There are plans to fully convert the national pharma production to GMP standards by 2014. There are around 600 licensed national pharmaceutical manufactures almost in all subjects of the Russian Federation, most of them are located in Moscow, Nizhniy Novgorod, Kursk, Kurgan Regions, Bashkortostan, Tatar Stan, Western Siberia - in Novosibirsk, Tomsk and Omsk. The Russian pharmaceutical industry employs around 65 thousand people - only 10% having sufficient qualification. Around 10 thousand employees should be additionally trained to insure the innovative production launching. The insufficiency of qualified personal is the main reason for licenses' purchase on the first two stages foreseen the Strategy. The Russian pharmaceutical industry is strongly concentrated - 10 major companies produce 30% of all national medicines in value terms.
Table1. Basic macroeconomic indices of CIS countries (Q1-309 / Q1-308)
Consumer price index, %
National currency exchange rates to USD established by national (central) banks
CIS on avg.
The Indian Pharma Industry
"The Indian pharmaceutical industry is a success story providing employment for millions and ensuring that essential drugs at affordable prices are available to the vast population of this sub-continent."
Indian pharmaceutical industry is mounting up the value chain. From being a pure reverse engineering industry focused on the domestic market, the industry is moving towards basic research driven, export oriented global presence, providing wide range of value added quality products and services, innovation, product life cycle management and enlarging their market reach. The old and mature categories like anti-infective, vitamins, and analgesics are de-growing while; new lifestyle categories like Cardiovascular, Central Nervous System (CNS), and Anti-Diabetic are expanding at double-digit growth rates. The Indian companies are putting their act together to tap the generic drugs markets in the regulated high margin markets of both developed and developing countries. On one hand the US market remains to be the most lucrative market for the Indian companies led by its market size and the intensity of blockbuster drugs going off patent and on the other size countries like Africa, Saudi Arabia and Russia are gaining huge importance due to their emergent markets. Indian companies such as Ranbaxy, Sun Pharma, and Dr. Reddy's are increasingly focusing on tapping the generic market at various parts of the world.
The Indian pharmaceutical industry is now discovering new opportunities of growth in clinical research, contract research, manufacturing and innovation opportunities. This path can lead the Indian pharmaceutical industry to huge success endeavors.
TABLE 2: SWOT Analysis of the Indian Pharma Industry in Emerging Markets
(a) Strong Low cost manufacturing sector
(b) Significant breadth and depth of product
(c) Low cost of growing Human resources in the Pharma sector
(a) High emphasis on generics both for domestic and international markets where filing and approval of ANDAs and DMFs have left little room for R&D on drugs development
(b) Inadequate R&D Infrastructure
(c) Poor Industryâ€Academia linkage
(d) Lack of required highâ€end product development capable human resources
(e)Lack of time driven regulatory infrastructure (f) Poor SME base for highâ€end manufacture
(a) Global opportunity for increasing Generics and bioâ€generics market both in developed and emerging countries due to pressure on
budgetary limitations of these countries as well as emergent patent cliff due to off-patenting
of major highâ€value drugs
(b) Low cost good skill destination for contract
research and manufacturing and resultant opportunities in drug discovery as well as
(c) High growth of domestic market attracting multiâ€nationals both for brown field and green field investments in production and capacity building
(a) Everâ€greening strategy of MNCs for denying and limiting the patent cliff opportunities with debatable recourse to TRIPs and FTAs
(b) Increasingly stringent regulatory and nonâ€tariff barriers to generics markets in developed countries
(c) Increased competition for generics and bioâ€generics production in terms of high capacity
and production costs
(d) Highâ€entry barriers to enable market share in development of new drugs
The Key Success Factors of the Indian Pharmaceutical Industry
1. Creation of an internal improvement structure with goals being clearly identified and deployed.
2. Facilitating creation of internal champions and leaders at various levels, through a defined structure of ownership and empowerment.
3. Strong focus on problem solving ability at shop-floor.
4. Sustained focus towards identification and elimination of wastes and any abnormalities.
5. Ability to challenge existing paradigms and a strong drive to overcome existing paradigms and evolve new ways of working.
6. Creation of cross-functional process based structure to overcome operational silos.
7. Sustained leadership focus through reviews at various levels and forums.
8. Celebrating success and sharing the rewards through an objective and well defined criteria.
9. Creation of an environment that allows participation of masses in improvement initiatives.
10. Training and development - technical skills, problem solving skills and soft skills.
Emerging Market Entry-Keys to Success
The Entry Strategies of the Indian Pharmaceutical Industry in Africa, CIS & the Middle-East
Competitive advantages of the Indian pharmaceutical industry also critically hinges upon the types of global strategies adopted by its firms. Internationalization strategy that tends to complement and upgrade the technological strength of Indian pharmaceutical companies can be very crucial for sustaining and enhancing their competitive position in the world market. For many companies large and small, entering new, complex markets can be daunting. An emerging market entry plan should create clarity as to the role emerging markets will play in your broader corporate strategy. The ultimate aim is to create long-term value, and profitability.
This raises primarily a few questions:-
I. How will you enter?
Entry barriers can vary greatly from market to market and region to region in larger national markets. Typical issues needed to overcome might include a lack of infrastructure, which can create challenges in areas like product distribution and supply chain management. Go it alone, striking out on your own can provide a high degree of control over brand presentation, quality, local business practices, and intellectual property. It also means that the company alone captures all of the upside from market success. However, it will also likely take longer to establish a local market position, and your company's probable lack of local market knowledge could lead to expensive mistakes. Finding a partner Partnering with a local player has the potential to create a "win-win" situation, enabling the market entrant to capitalize on the partner's current presence and local market knowledge to establish operations, build market share and rapidly overcome local obstacles. Such an alliance could also provide a less capital-hungry way to enter the market, since the potential exists for sharing a partner's already established retail and/or wholesale footprint. However, a foreign company might have to contend with a local partner whose strategic interests could at some point diverge from its own, along with longer times to make decisions, which also reflects potentially different priorities. Furthermore, the loss of control increases the risk of brand damage even as the partner is sharing in any profits, thus reducing returns and lowering the potential value that the foreign company could realize in the event of a market exit.
Acquire, on the one hand, buying an established player in an emerging market provides a foreign company with a ready-made local position that it can fully integrate into its global operations over time. The opportunity often arises to add value to such an acquisition by making use of the parent company's global skills, assets, and access to capital. And having a local asset can help to "ease the way" in the event that a market exit is required. On the other hand, arriving at a reliable valuation is difficult, considering that prices in many markets are on the rise, and dealing with family-owned business structures can be complex and time consuming. Potential entrants must be very clear about what they are buying into and lock in value through retention payments or other means such as distribution and supply contracts. The choice of which route to take should reflect a company's goals and priorities, the size of the market opportunity, the state of local market development, and the specific nature of any entry barriers. In order to help determine the best entry strategy, each company should ask itself the following questions:
1. How well do we understand this market? Do we "know what we don't know"?
2. Do we have the skills and patience to pursue a "go-it-alone" strategy? What are the implications if we fail?
3. Are there local companies with whom we could partner? Do we understand their goals, priorities and decision making process? What is our track record in similar partnerships elsewhere and what have we learned from them?
4. What can we learn from the experiences of other foreign companies entering this market?
5. What risks do we run of losing control of our brand, product and service quality, or intellectual property in this market, and how can we minimize these risks?
6. Are there attractive acquisition targets available? What is our track record in mergers and acquisitions and what have we learned from these experiences?
As a resolution to all the questions the following strategies has been devised: -
HOME COUNTRY PRODUCTION
Higher manufacturing and labor standards
High intellectual property right protections
No language barrier
Easier to identify reputable manufacturers
Quicker turnaround and quicker shipping
More accessible for face-to-face and on-site meetings
Domestic market appeal of "Made in Africa" stamp
Much higher manufacturing costs
Unavailability of resources
There are two specific ways to tap the overseas market basing operations in the home country.
Direct Export - Herein the manufacturer is the protagonist. He and his company are solely responsible for both manufacturing and exporting of the Products along with Sales & Marketing and other additive functionalities.
Here the both risk and return is the maximum and there is more expertise, and control by the manufacturing company.
Foreign Tourists - The simplest and the most cost effective form of exports. It happens when foreign visitors / officials working in India purchases from the stores for themselves or on behalf of the parent offices abroad thereby adding to the foreign exchange earning of the country.
It can also happen through tie - ups with the several foreign branch offices or agencies located in India.
Export Houses - The most important among them are the export/merchant houses with play active role in promoting exports to foreign locations. Here the manufacturers entrusts the job of selling the products abroad to specialist agencies - The Export Houses.
Export houses consist of Exporting managers, Export agents and confirming houses.Â
All three are local middlemen
They have experience in the foreign markets
Has political & economic connections
Merchants & Agents have specialist skills for counter trade
Manufacture does not bear the overhead cost of exporting
The producers has little or no control over his market
The Goodwill created is the merchants and not the producers
The contract is short term
Agents push those products that sell and can neglect others
manufacturer loose control if he relies too much on them
Merchants and agents are best suited by short term contracts
The export revenue now contributes almost half of the total revenue for the top three pharmaceutical majors: Dr Reddy's, Ranbaxy and Cipla.
"India is expected to double pharmaceutical exports in the next two years, with the Pharmaceutical Export Promotion Council (Pharmexcil) eyeing overseas sales worthÂ Rs.Â 1,22,500 crore ($25 billion) by the end of 2013-14. The figure stood at around $10 billion in 2010-11. To achieve thisÂ ambitious target, exports would need to grow at a compounded annual growth rate (CAGR) of around 34%, which is much above the 15% growth rate in the last five years.
"Countries such as Japan and China and regions such as North Africa, West Asia and Latin America offer immense potential for Indian exporters," said a pharma analyst at a global consultancy. "High healthcare expenditure and rising population make these countries a lucrative market for Indian drug exporters."â€¦@HT News
Consortium Approach - Another form of indirect export is the consortium approach i.e., a limited number of manufacturers of the same product joining together and exporting it on a cooperative basis. In this type of arrangement, export management function is performed for several firms at the same time. There is closer cooperation and control as compared to merchant exporter or export house. Export orders will be procured on a joint basis and distributed amongst the constituent units. The individual units will be permitted to use their own letterheads and brand name. This arrangement confers more bargaining power on the consortium since the parties coming together can bargain over a position of strength. As in the case of exporting through export house, there is a possibility of saving in unit freight on account of consolidated shipment. Under-cutting is reduced to a great extent and all economies of scale associated with joint operation can be reaped.
The greatest disadvantage of consortium approach is that for this approach to succeed there should be perfect understanding among the members and each one should put in his best. As is well-known, cooperation can succeed only to the extent the individual members want it to succeed. Misunderstanding may arise over main issues and the presence of unscrupulous members is enough to spoil the business or the entire consortium.
High cost of shipping of product to the export market;
Tariffs and non-tariff restrictions in the importing country;
Nationalist feelings in the country concerned not favoring import products;
Large size of the country, particularly regional groupings justifying establishment of manufacturing facilities in that country/region;
Greater scope to be in constant touch with the changing requirements of the foreign customer which is particularly true of fashion goods;
Lower production costs due to availability of cheaper/plentiful factor(s) of productions and
Advantages of acquiring an existing foreign product with all his facilities
Lower perceived quality (although this is changing)
Lower/different manufacturing and labor standards
Low intellectual property protection
Culture & Language barrier
Difficulty in verifying manufacturer and visiting on-site
Longer shipping time
Foreign manufacturing can take one or more of the following forms:
CRAM (Contract Research & Manufacturing)
Joint Venture and
Wholly-owned foreign production (100% ownership)
Assembly - Assembly refers very specifically to the physical integration of component parts. In a slightly different way, the pharmaceutical industry may also be considered to be engaged in assembly though here the ingredients are "mixed" and not "assembled". For assembly, the firm may have its own arrangements abroad or leave it to a local party to assemble the product. A company may go for this sort of arrangement either to avoid high transportation cost of the final product or to take advantage of the cheap labor available in the export market or to get over the high tariff and non-tariff restriction.
Two major concerns (though independent but have links to each other) for many big pharmaceutical firms in the recent years are:
a) Many blockbuster drugs are going off-patent in the coming years putting pressure on top pharmaceutical companies to undertake greater level of R&D activities to keep-up the growth of both top-line and bottom-line;
b) Increasing timeline of drug discovery and development, prolonged regulation-mandated testing, complex review processes, rapidly escalating R&D expenditures and competition are compelling pharmaceutical companies to outsource various R&D related activities. Many studies have pointed out that developing a new medicine is a long and costly process, while the chances of success are very low. Statistics show that only 1 out of 5000 compounds tested eventually reaches the consumers, and only 3 out of 10 drugs that reach the market would earn enough money to recover the cost incurred on R&D. Thus, many top ranking pharmaceutical firms are increasingly facing the pressure to bring out new products into the market while endeavoring to reduce cost for R&D. It is estimated that globally, on an average, 20% of R&D is sourced outside the company either on a contract basis or on an investment basis. This trend provides possibilities of outsourcing the R&D work to low cost destinations like China and India. Contract research includes drug discovery and pre-clinical as well as clinical research. Clinical trials are used to determine whether a new drug or treatment is safe and effective. Globally the market size of contract research was around US$ 10 billion in 2005 and is expected to exceed US$ 20 billion by 2009. The contract research business in India is valued at US$ 100 - 120 million. India has certain advantages in this regard, which include:
_A well-developed pharmaceutical industry with manufacturing base
_ Low R&D cost
_ Availability of qualified scientific man power
_ Large patient population base for clinical trials
All these parameters have made India an attractive destination for many big pharmaceutical companies to source out their R&D activities, particularly clinical trials. Besides, being a member of WTO, India has moved towards TRIPS compliance, and clinical trials conducted in India are no longer confined to evaluating new medicine for their own market. For e.g., GSK and Ranbaxy have entered into an arrangement for drug discovery and clinical development, covering a wide range of therapeutic areas. According to the deal, Ranbaxy will identify potential drugs and develop them in initial stages, while GSK will take care of the later stages of clinical trials. Aurigene Technologies Ltd, a subsidiary of Dr. Reddy's Lab has announced two separate tie-ups to discover potential drugs; one with a US company, Forest Laboratories Holdings Ltd, to develop novel small molecule drug candidate for obesity and metabolic disorder, and the other one with Merck Serono International S.A to work on identifying small molecule drugs to treat autoimmune diseases. Government of India is also taking some initiatives to encourage contract R&D by setting up infrastructure for pre-clinical research for vaccine and drug development in the country. The Indian Council of Medical research (ICMR) is setting up two such large facilities, one in Mumbai and the other in Hyderabad. Besides, the Government has also reduced the time taken for regulatory clearances to conduct clinical studies in India.
With the increasing pressure on the margins, major pharmaceutical companies are outsourcing their manufacturing activities (along with R&D activities) to low cost destinations like India and China. It has been estimated that almost 30% of the global manufacturing activities are outsourced in the pharmaceutical sector. Out of the total manufacturing activities outsourced, more than two-thirds are related to outsourcing of primary manufacturing (APIs, intermediates) and the remaining one-third is related to outsourcing of secondary manufacturing in dosage form. It is estimated that the cost of setting up of a FDA approved manufacturing plant in India is almost half of the cost to be incurred in USA. Labor cost in India is cheaper by 20% to 30%, as compared to developed countries. Initial capital expenditure is also much lower in India as compared to other developed countries. India has the largest number of US-FDA approved manufacturing plants, outside USA. Automatic approval of FDI up to 100% in this sector has encouraged the outsourcing trend further. All these factors have encouraged many large producers from developed countries to outsource manufacturing of pharmaceuticals to Indian producers.
Contract manufacturing may include manufacturing of Active Pharmaceutical Ingredients (APIs) for New Chemical Entities (NCEs) or generics. Indian pharmaceutical firms are engaged in the contract manufacturing of patented drugs, custom synthesis and scale-ups, specialized generics, old generics and old molecules. Nicholas Piramal has entered into contact manufacturing in 2003, investing close to US$ 200 million in this segment. Additional investment is envisaged in the coming years towards creating additional capacity for the contract manufacturing business.
The company has already announced six contracts and expects contract manufacturing to account for 50% of total revenue. GlaxoSmithKline has outsourced contract manufacturing of API to Indian pharmaceutical companies like Disham Pharma, Shasun Chemicals, Matrix Laboratories and Divi's Laboratories.
Lowest-cost option to expand market reach, but carries a high brand risk and limits the potential to exploit local market opportunities. Though the current trend is more on out-licensing, yet there is increasing licensing activities, both in-licensing and out-licensing, with large pharmaceutical companies licensing out their later stage R&D activities, particularly clinical trials. Licensing deals are increasingly being used to increase product portfolio, supplement research effort and strategically enter new markets.
Companies in Africa are increasingly interested in license technology to modernize their factories.
Licensing is an arrangement wherein the licenser gives something of value to the licensee in return for certain performance and payments from the licensee. The licenser may agree to give one or more of the following:
Trade Mark Rights
In return, the licensee usually promises
(a) To produce the licensor's products covered by the rights;
(b) To market these products in the assigned territory; and
(c) To pay the licenser some amount related to the sales volume of such products. It may be noted that the licensee markets the products of the licenser in addition to producing it, whereas contract manufacturing covers only manufacturing.
Joint Ventures are very much like licensing arrangements, but in the former the international firm has, normally, equity participation and management voice in the local firm.
Wholly-Owned Foreign Production - Wholly-owned foreign production involves greatest commitment to a foreign market. More than complete ownership, it gives complete control over all the activities of the firm.
There are two ways in which one can acquire 100% ownership in a foreign country:-
(a) Acquiring an existing foreign production unit, and
(b) Developing one's own facilities from scratch.
Acquisition: Acquiring a foreign company with all its resources is a much quicker way to enter a market than developing one's own facilities. Acquisition means getting qualified management personnel and labor, gaining instant local knowledge and contract with the local market and government and, most of all, removing a potential competitor from the scene. Horizontal acquisition is what we call it.
When Is Acquisition Appropriate?
Developed market for corporate control
Acquirer has high "absorptive" capacity
Establishment of a New Facility: A firm normally builds up its own facilities from scratch where:-
(a) It does not find a national producer willing to sell out or the national government does not allow it and
(b) There are no local firms having the requisite standard of facilities. Establishment of its own set up helps the firm to incorporate the latest technology and equipment and avoids the problems of trying to change the traditional practices of the local firm. It is also known as the Green Field Entry.
Advantages of wholly owned operations are:
100% ownership means 100% profit
Greater experience in international operations;
No scope for conflict of interest with any local party; and
Complete control leading to better integration of various national organizations into a synergistic international system.
Disadvantages of wholly owned operations are:
They are costly in terms of capital and management resources;
They may result in negative public relations;
There always is the possibility of expropriation by the host government; and
Lack of involvement of a national partner who might act as a bridge between the international firm and the country concerned.
II. How will you build a profitable position?
Once the leadership of your company has chosen a market and agreed on an entry strategy, the focus should then be put on how to create a defensible position that has the potential to satisfy your long-term objectives.
III. How will emerging market activities fit into your global business model?
Because emerging markets typically require different approaches, processes and governance policies compared to more developed markets, organizations usually cannot simply replicate a standard operating model within an emerging market or across multiple ones. Each new market therefore has the potential to add significant amounts of complexity to a company's global operating model.
What is so unique about entry in the Pharma Landscape???
IPR - When the American, & European pharmaceutical companies are busy filling the "Evergreen" patents, in India out of approx. 23,500 pharmaceutical companies only ten are rich enough to have original research in international level. Hence IPR in Pharmaceuticals in India is severe point of concern since liberalization.
Intellectual Property Rights (IPRs) have been defined as "ideas, inventions and creative an expression on which there is a public willingness to bestow the status of property (David 1993)." IPRs provide certain exclusive rights to the creators of the IP, to enable them reap commercial benefits from their creative efforts or reputation. The purpose of IPR legislation is to protect against the unauthorized imitation, copying or deceptive usage of identifying marks.
Types of IPR
Since inception, only patent, trademarks, and industrial designs were protected under 'Industrial Property', but now the term 'Intellectual Property' has a much wider meaning. IPR enhances technology advancement in the following ways:
a) Provides a mechanism of handling infringement, piracy, and unauthorized use.
b) Provides a set of information to the general public since all forms of IP are published except the trade secrets.
IP protection can be sought for a variety of intellectual efforts including
(ii)Industrial designs:- features of any shape, configuration, surface pattern, composition of lines and colors applied to an article whether 2-D, e.g., textile, or 3-D, e.g., pens
(iii)Trademarks relate to any mark, name or logo under which trade is conducted for any product or service and by which the manufacturer or the service provider is identified. Trademarks can be bought, sold, and licensed. Trademark has no existence apart from the goodwill of the product or service it symbolizes
(iv)Copyright relates to expression of ideas in material form and includes literary, musical, dramatic, artistic, cinematography work, audio tapes, and computer software.
(v)Geographical indications are indications, which identify as good as originating in the territory of a country or a region or locality in that territory where a given quality, reputation, or other characteristic of the goods is essentially attributable to its geographical origin.
A patent is awarded for an invention, which satisfies the criteria of global novelty, non-obviousness, and industrial or commercial application. Patents can be granted for products and processes. As per the Indian Patent Act 1970, the term of a patent was 14 years from the date of filing except for processes for preparing drugs and food items for which the term was 7 years from the date of the filing or 5 years from the date of the patent, whichever is earlier. No product patents were granted for drugs and food items.
A copyright generated in a member country of the Berne Convention is automatically protected in all the member countries, without any need for registration. India is a signatory to the Berne Convention and has a very good copyright legislation comparable to that of any country. However, the copyright will not be automatically available in countries that are not the members of the Berne Convention. Therefore, copyright may not be considered a territorial right in the strict sense. Like any other property IPR can be transferred, sold, or gifted.
Role of Undisclosed Information in Intellectual Property
Protection of undisclosed information is least known to players of IPR and also least talked about, although it is perhaps the most important form of protection for industries, R&D institutions and other agencies dealing with IPR. Undisclosed information, generally known as trade secret or confidential information, includes formula, pattern, compilation, program, device, method, technique, or process. Protection of undisclosed information or trade secret is not really new to humanity; at every stage of development people have evolved methods to keep important information secret, commonly by restricting the knowledge to their family members. Laws relating to all forms of IPR are at different stages of implementation in India, but there is no separate and exclusive law for protecting undisclosed information/trade secret or confidential information.
Pressures of globalization or internationalization were not intense during 1950s to 1980s, and many countries, including India, were able to manage without practicing a strong system of IPR. Globalization driven by chemical, pharmaceutical, electronic, and IT industries has resulted into large investment in R&D. This process is characterized by shortening of product cycle, time and high risk of reverse engineering by competitors. Industries came to realize that trade secrets were not adequate to guard a technology. It was difficult to reap the benefits of innovations unless uniform laws and rules of patents, trademarks, copyright, etc. existed. That is how IPR became an important constituent of the World Trade Organization (WTO).
The Role of Patent Cooperation Treaty
The patent cooperation treaty (PCT) is a multilateral treaty entered into force in 1978. Through PCT, an inventor of a member country contracting state of PCT can simultaneously obtain priority for his/her invention in all or any of the member countries, without having to file a separate application in the countries of interest, by designating them in the PCT application. All activities related to PCT are coordinated by the world intellectual property organization (WIPO) situated in Geneva.
In order to protect invention in other countries, it is required to file an independent patent application in each country of interest; in some cases, within a stipulated time to obtain priority in these countries. This would entail a large investment, within a short time, to meet costs towards filing fees, translation, attorney charges, etc. In addition, it is assumed that due to the short time available for making the decision on whether to file a patent application in a country or not, may not be well founded.
Inventors of contracting states of PCT on the other hand can simultaneously obtain priority for their inventions without having to file separate application in the countries of interest; thus, saving the initial investments towards filing fees, translation, etc. In addition, the system provides much longer time for filing patent application in the member countries.
The time available under Paris convention for securing priority in other countries is 12 months from the date of initial filing. Under the PCT, the time available could be as much as minimum 20 and maximum 31 months. Further, an inventor is also benefited by the search report prepared under the PCT system to be sure that the claimed invention is novel. The inventor could also opt for preliminary examination before filing in other countries to be doubly sure about the patentability of the invention.
Management of Intellectual Property in Pharmaceutical Industries
More than any other technological area, drugs and pharmaceuticals match the description of globalization and need to have a strong IP system most closely. Knowing that the cost of introducing a new drug into the market may cost a company anywhere between $ 300 million to $1000 million along with all the associated risks at the developmental stage, no company will like to risk its IP becoming a public property without adequate returns. Creating, obtaining, protecting, and managing IP must become a corporate activity in the same manner as the raising of resources and funds. The knowledge revolution, which we are sure to witness, will demand a special pedestal for IP and treatment in the overall decision-making process.
Competition in the global pharmaceutical industry is driven by scientific knowledge rather than manufacturing know-how and a company's success will be largely dependent on its R&D efforts. Therefore, investments in R&D in the drug industry are very high as a percentage of total sales; reports suggest that it could be as much as 15% of the sale. One of the key issues in this industry is the management of innovative risks while one strives to gain a competitive advantage over rival organizations. There is high cost attached to the risk of failure in pharmaceutical R&D with the development of potential medicines that are unable to meet the stringent safety standards, being terminated, sometimes after many years of investment. For those medicines that do clear development hurdles, it takes about 8-10 years from the date when the compound was first synthesized. As product patents emerge as the main tools for protecting IP, the drug companies will have to shift their focus of R&D from development of new processes for producing known drugs towards development of a new drug molecule and new chemical entity (NCE). During the 1980s, after a period of successfully treating many diseases of short-term duration, the R&D focus shifted to long duration (chronic) diseases. While looking for the global market, one has to ensure that requirements different regulatory authorities must be satisfied.
It is understood that the documents to be submitted to regulatory authorities have almost tripled in the last ten years. In addition, regulatory authorities now take much longer to approve a new drug. Consequently, the period of patent protection is reduced, resulting in the need of putting in extra efforts to earn enough profits. The situation may be more severe in the case of drugs developed through the biotechnology route especially those involving utilization of genes. It is likely that the industrialized world would soon start canvassing for longer protection for drugs. It is also possible that many governments would exercise more and more price control to meet public goals. This would on one hand emphasize the need for reduced cost of drug development, production, and marketing, and on the other hand, necessitate planning for lower profit margins so as to recover costs over a longer period. It is thus obvious that the drug industry has to wade through many conflicting requirements. Many different strategies have been evolved during the last 10 to 15 years for cost containment and trade advantage. Some of these are out sourcing of R&D activity, forming R&D partnerships and establishing strategic alliances.
Nature of Pharmaceutical Industry
The race to unlock the secrets of human genome has produced an explosion of scientific knowledge and spurred the development of new technologies that are altering the economics of drug development. Biopharmaceuticals are likely to enjoy a special place and the ultimate goal will be to have personalized medicines, as everyone will have their own genome mapped and stored in a chip. Doctors will look at the information in the chip(s) and prescribe accordingly. The important IP issue associated would be the protection of such databases of personal information. Biotechnologically developed drugs will find more and more entry into the market. The protection procedure for such drug will be a little different from those conventional drugs, which are not biotechnologically developed. Microbial strains used for developing a drug or vaccine needs to be specified in the patent document. If the strain is already known and reported in the literature usually consulted by scientists, then the situation is simple. However, many new strains are discovered and developed continuously and these are deposited with International depository authorities under the Budapest Treaty. While doing a novelty search, the databases of these depositories should also be consulted. Companies do not usually go for publishing their work, but it is good to make it a practice not to disclose the invention through publications or seminars until a patent application has been filed.
While dealing with microbiological inventions, it is essential to deposit the strain in one of the recognized depositories who would give a registration number to the strain which should be quoted in the patent specification. This obviates the need of describing a life form on paper. Depositing a strain also costs money, but this is not much if one is not dealing with, for example cell lines. Further, for inventions involving genes, gene expression, DNA, and RNA, the sequences also have to be described in the patent specification as has been seen in the past. The alliances could be for many different objectives such as for sharing R&D expertise and facilities, utilizing marketing networks and sharing production facilities. While entering into an R&D alliance, it is always advisable to enter into a formal agreement covering issues like ownership of IP in different countries, sharing of costs of obtaining and maintaining IP and revenue accruing from it, methods of keeping trade secrets, accounting for IP of each company before the alliance and IP created during the project but not addressed in the plan, dispute settlements. It must be remembered that an alliance would be favorable if the IP portfolio is stronger than that of concerned partner. There could be many other elements of this agreement. Many drug companies will soon use the services of academic institutions, private R&D agencies, R&D institutions unde
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