A pestle analysis of pharmaceutical industry
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The pharmaceutical industry not only develops but also produces and markets drugs licensed for use as medications. Pharmaceutical companies' deals in generic and brand medications. They are subject to a variety of laws and regulations regarding the patenting, testing and marketing of drugs.
Initially, The Indian pharmaceutical industry grew at a very slowly from 1947 to 1970, all due to the lack of incentives and the failure of the government which was unable to set-up a concrete regulatory framework.
Now, the Industry is characterized by numerous governmental regulations and policy changes, stiff price controls, rigorous controls on formulations, and absence of international patent protection. During 1970, the Indian Patents Act (IPA) and the Drug Price Control Order (DPCO) were passed. Though DPCO acted as buffer against pharmaceutical companies making free pricing illegal, it fulfilled the goal of providing quality drugs to the public at reasonable rates.
The Introduction of the IPA, which did not recognize product patents but only process patents - provided a major thrust to the industry and companies which through the process of reverse-engineering, began to produce bulk drugs and formulations at lower costs. This led to high fragmentation in the industry, due to the emergence of a number of small firms.
India Manufactures over 400 bulk drugs and around 60,000 formulations, which are distributed by 5,000,000 chemists all over the country.
Indian pharmaceutical Industry is passing through a wave of consolidation, with the objective to strengthen their brand equity and distribution in what is essentially a branded-generics market.
In the present, the growth of a domestic pharmaceutical company is critically dependent on its therapeutic presence. The old and mature categories like anti-infective, vitamins, and analgesics are de-growing while; new lifestyle categories like Cardiovascular, Central Nervous System (CNS), Anti-AIDS, Anti-Cancer and Anti Diabetic are expanding at double-digit growth rates.
Various Pharmaceutical companies in India
It is India's largest pharmaceutical firm with the returns of Rs 4,198.96 Crore (Rs 41.989 billion) in 2007
Dr. Reddy's Laboratories
With a turnover of Rs 4,162.25 Crore (Rs 41.622 billion) in 2007, it is second largest drug firm in India by sales.
it generated an annual revenue of Rs 3,763.72 Crore (Rs 37.637 billion) in 2007 and made it the third among largest pharmaceutical firms.
Sun pharmaceutical Industries had an overall earnings of Rs 2,463.59 Crore (Rs 24.635 billion) in 2007.
It's total profit of Rs 2,215.52 Crore (Rs 22.155 billion) was in 2007.
India's sixth largest pharmaceutical company by sales, Aurobindo posted Rs 2,080.19 Crore (Rs 20.801 billion) annual returns in 2007.
With 2007 turnover touching Rs 1,773.41 Crore (Rs 17.734 billion, GSK is India's seventh largest pharmaceutical firm.
Cadila's earnings was Rs 1,613.00 Crore (Rs 16.13 billion) in the fiscal year 2007, establishing itself as India's eight largest drug company.
With an annual revenue of Rs 983.80 Crore (Rs 9.838 billion) in 2007, Aventis pharmaceutical has made a place for itself in the top ten pharmaceutical companies in India
Ipca is India's 10th largest pharmaceutical company by sales and in 2007 it had a turnover of Rs 980.44 Crore (Rs 9.804 billion)
There is political uncertainty, Combination of diverse political thoughts have got together to cobble together a rag-tag coalition. Hence any consistent political or economic policy cannot be expected. This muddies the investment field.
The Minister in charge of the industry had been threatening to impose even more stringent Price Control on the industry than before. Thus it is throwing many investment plans into the doldrums.
DPCO, which is the bible for the industry has in effect worked contrary to the stated objectives. DPCO nullifies the market forces from encouraging competitive pricing of goods dictated by the market. Now the pricing is done by the Government, based on the approved costs irrespective of the real costs.
The country goes in for the IPR (Intellectual Property Rights) regime which is popularly known as the Patent Act. This Act impacts the Pharmaceutical Industry the most. Thus an Indian company could not escape paying a patent fee to the inventor of a drug by manufacturing it using a different chemical route. Indian companies went against this law and used the reverse-engineering route to invent alternate manufacturing methods. A lot of money was saved this way. This also encouraged competing company to market their versions of the same drug. This means that the impurities and trace elements that were found in different brands of the same substance were different both in qualification as well as in quantum.
Therefore many brands of the same medicine were truly different. Here Branding actually meant quality and purer brand actually had pure active ingredients and lesser or less toxic impurities.
Product patent regime will now eliminate all this. Patented drug would be manufactured using the same chemical routes and would be manufactured by the inventors or licentiates using the chemicals with same specifications. Hence all the brands with the same active ingredient will not have any difference in purity and impurities. The different brands will have to compete on the basis of non input-related innovations such as packaging, colour, flavours etc.
Indians spends a very small proportion of their income on healthcare. This has stunted the demand and therefore the growth of the industry.
Per capita income of avg. Indian as low as Rs. 12,890, therefore, spending on the healthcare takes a low priority. An Indian visits a doctor only when there is an emergency. This has led to a flourishing of unqualified doctors and spread of non-standardized medication.
The Incidences of Taxes are high. Excise Duty (State & Central), Custom Duty, Service Tax, Profession Tax, License Fees, Royalty, Pollution Clearance Tax, Hazardous substance (Storage & Handling) license, income tax, Stamp Duty and a host of other levies and charges have to be paid. On an average it amounts to no less than 40-45% of the costs.
The number of Registered Medical practitioners is low because of this. Due to which the reach of Pharmaceuticals is affected adversely. There are nearly 5million Medical shops. Also this affects adversely the distribution of medicines and also adds to the distribution costs. India is a high interest rate regime. Therefore the cost of funds is double that in America which adds to the cost of goods.
Adequate storage and transportation facilities for special drugs are lacking. Studies had indicated that nearly 60% of the Retail Chemists do not have adequate refrigeration facilities and stored drugs under sub-optimal conditions. Thus affecting the quality of the drugs administered and of course adds to the costs.
India has poor roads and railway network. Therefore, the time of transportation is higher. This calls for higher inventory carrying costs and longer delivery time. All this adds to the uncalculated costs. It's only during the last couple of years that good quality highways have been constructed.
Poverty and associated malnutrition dramatically affected the incidence of Malaria and TB, preventable diseases continued to play havoc in India for decades even after they were eradicated in other countries.
Poor Sanitation and polluted water sources ended the life of about 1 million children who were under the age of five. In India people preferred using household treatments which handed down for generations for common ailments. The use of magic/ tantrics/ hakims is still prevalent in India.
Increasing pollution has added to the healthcare problem. Smoking, drinking and poor oral hygiene is still adding to the healthcare problem. Large joint families transmit communicable disease among the members.
Cattle-rearing encourage diseases that are communicated by animals. Early child bearing affects the health standards of women and children. Ignorance of inoculation and vaccination has prevented the eradication of diseases like polio, chicken-pox, small-pox, mumps and measles.
Advanced machines have dramatically increased the output and reduced the cost. Computerization has boosted the efficiency of the Pharma Industry.
Newer medication, active ingredients are being discovered. In January 2005, the Government of India had more than 10,000 substances for patenting.
Ayurveda is now a well recognized science and hence is providing the industry with a cutting edge. Advances in Bio-technology, Stem-cell research have given India a step forward.
Humano-Insulin, Hepatitis B vaccines, AIDS drugs and many such molecules have given the industry a pioneering status.
Newer drug delivery systems are the innovations of the day. The huge unemployment in India prevents industries from going fully automatic as the Government as well as the Labour Unions voice complains against such establishments.
The pharmaceutical industry is now a highly regulated and compliance enforcing industry. As a result of which there are immense legal, regulatory and compliance overheads for the industry to absorb. This tends to restrict it's dynamism but in recent years, government has begun to request industry proposals on regulatory overheads to encourage innovation in the face of mounting global challenges from external markets.
In Pharmaceutical industry, there is huge PSU segment which is highly inefficient. The Government puts the surpluses generated by efficient units into the price equalization account of inefficient units thus unduly subsidizing them. On a long term basis this has made practically everybody inefficient.
Effective the January, 2005 the Government has shifted from charging the Excise Duty on the cost of manufacturing to the MRP thereby making the finished products more costly. Just for a few extra bucks the current government has made many a life saving drugs unaffordable to the poor.
The Government provides extra drawbacks to some units located in specified area, providing them with subsidies that are unfair to the rest of the industry, bringing in a skewed development of the industry. As a result , Pharmaceutical units have come up at place unsuitable for a best cost manufacturing activity.
S.W.O.T. Analysis of Pharmaceutical Industry
Cost of production is low.
Large pool of installed capacities
Efficient technologies are present for large number of Generics.
Huge amount of skilled technical manpower.
Increase in liberalization of government policies.
Aging of the world population.
Growing attention towards health.
New diagnoses and new social diseases.
Spreading prophylactic approaches.
Saturation point of market is far away.
Better therapy approaches.
Better delivery systems.
Spreading attitude for soft medication (OTC drugs).
Spreading use of Generic Drugs.
Easier international trading.
New markets are opening.
Fragmentation of installed capacities.
Low technology level of Capital Goods of this section.
Non-availability of major intermediaries for bulk drugs.
Lack of experience to exploit efficiently the new patent regime.
Very low key R&D.
Low share of India in World Pharmaceutical Production (1.2% of world production but having 16.1% of world's population).
Very low level of Biotechnology in India and also for New Drug Discovery Systems.
Lack of experience in International Trade.
Low level of strategic planning for future and also for technology forecasting.
Containment of rising health-care cost.
High Cost of discovering new products and fewer discoveries.
Stricter registration procedures.
High entry cost in newer markets.
High cost of sales and marketing.
Competition, particularly from generic products.
More potential new drugs and more efficient therapies.
Switching over form process patent to product patent.
To make India a potentially strong pharmaceutical hub following weakness has to be overcome with:
Low investments in innovative R&D and lack of resources in order to compete with MNCs for New Drug Discovery and to commercialize molecules on a worldwide basis.
Lack of strong linkages between industry and academia.
Low medical expenditure and healthcare spend in the country
Production of spurious and low quality drugs tarnishes the image of industry at home and abroad.
R&D efforts of Indian pharmaceutical companies hampered by lack of enabling regulatory requirement.
Despite of unique strengths like expertise in process chemistry, availability of abundant and high quality talent, and growing hospital infrastructure, the country still accounts for less than 1 percent of the US$ 130 billion in worldwide spending in pharmaceutical research and development.
CRAMS: Inherent competitive advantages and cost-effective manufacturing capabilities has now become one of the most preferred destinations for Contract Research and Manufacturing Services (CRAMS). India has huge potential to tap the $20 billion CRAMS business that is expected to reach $31 billion by 2010. India has opportunity to grab this business. Pharma multinationals are also exploiting India's competencies in the field of information technology and its strong and low cost IT skill sets by setting up centres for their global clinical data management functions in India.
CRO: Contract able researches also offer significant opportunity to the Indian pharmaceutical industry that is becoming a global R&D hot-spot for innovative pharmaceutical companies. The global contract research opportunity was $14 billion in 2006 and was expected to reach $24 billion by 2010.
Identifying opportunities & enablers.
To Map Indian pharmaceutical industry to realize its full potential and to become globally competitive.
Addressing global challenges that impact India pharma industry.
Global alliances, Mergers and Acquisitions.
Government should provide infrastructures for talent & research.
Providing regulatory protection.
Giving financial incentives to encourage innovations & research.
Encouraging public -private partnership in infrastructure development.
Example of overcoming threats and grabbing new opportunities
1. The lack of research and development (R&D) productivity, expiring patents, generic competition and high profile product recalls are driving the mergers and acquisition (M&A) activity in the sector. The Lots of mergers and acquisitions in the past shows that the Indian pharma industry is all set to take on the global markets. Nicholas Piramal has acquired 17 per cent in Biosyntech, a Canadian pharma packaging company in July 2005. While in June 2005, Torrent acquired Heumann Pharma, a generic drug company that was earlier a part of Pfizer. Matrix's acquisition of the Belgian firm Docpharma was the largest acquisition deal. Sun Pharmaceutical Industries has announced its plan for acquisitions in the US.
Indian generic companies are increasingly fighting patent cases on these secondary patents and Resulting in earlier generic entry hence contributing to affordability of drugs in developed countries
Indian companies still continues to market and export generic drugs which are off patent. US is the ideal destination for Indian companies. In US alone, major blockbuster drugs are going off patent in next few years. Further it is estimated that generic market can reach US $ 80 billion in coming few years in value terms and Indian companies stand a good chance of tapping a major chunk of this pie.
2. Lupin being among the top three Indian pharmaceutical companies by 2007 and aimed at achieving the US$ 1 billion mark. In order to compete with the foreign players, Indian pharma companies have started strengthening R&D activities, entering the global generics market, venturing into contract research and started exploring segments like herbals and ayurveda; while have already established foreign pharma companies established R&D centres and clinical trial centres in India to cut drug delivery costs. Lupin too made significant investments in R&D, infrastructure, exports, herbal markets and other therapeutic segments to compete effectively with domestic and global pharma majors. According to Lupin's top management, "As the country switches on to the product regime, radical changes are expected to affect the pharmaceutical sector. A deep-rooted shift in business policy has taken place within the company by placing a strong emphasis on R&D to create proprietary intellectual property. The budget for this activity was stepped up substantially during the year to ensure that the company has a complete portfolio of products to take on the patent regime.
3. The downfall of many companies is due to not changing with the style of marketing. The analysis of Indian companies revealed that their progress is basically from the new products. Cipla has shown a tremendous growth in the market only due to focus on the new product hence they became No. 1 in 2004. Similarly, the Sun Pharmaceuticals have shown a phenomenal growth by adopting same strategy. This has resulted in their occupying 5th position in 2004. The new product success rate is going down because the companies are more interested in introducing new products and generating volume sales and not brand building. There are very few products which could have registered more than 1 Crore sales. The current scenario in the pharmaceutical industry is to launch new product then get some market share and if the response is good, pick up the brand and build the same in subsequent years.This has given dividend to companies like Ranbaxy, Cadila, Cipla, Sun Pharmaceuticals.
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