1. Industry Analysis: Indian Pharmaceutical Industry Submitted By: Abhishek(10810001) AnantDhingra(10810004) AnujMadaan(10810009) Maninder Pal Singh(10810029) Ravi PratapSingh(10810050)

2. Agenda Introduction Reason For Choosing Pharmaceutical Industry Pharmaceutical Industry- Age, History and Origin Market Structure 1 8 Growth : Pharmaceutical Industry 2 9 Competition- Indian Pharmaceutical Industry 3 10 Export-Import: Pharmaceutical Industry 4 11 Effect of Foreign Investment 5 12 Effect of Foreign Investment 6 Government Regulation and Policies 7 Laws and Acts : Pharmaceutical Industry Taxation System Comparative Analysis of Pharmaceutical Industry in BRIC Nations 13 Future Outlook 14

3. Introduction- Pharmaceutical Industry

4. The pharmaceutical industry in India is among the most highly organized sectors. This industry plays an important role in promoting and sustaining development in the field of global medicine. Due to the presence of low cost manufacturing facilities, educated and skilled manpower and cheap labor force among others, the industry is set to scale new heights in the fields of production, development, manufacturing and research. In 2008, the domestic pharma market in India was expected to be US$ 10.76 billion and this is likely to increase at a compound annual growth rate of 9.9 per cent until 2010 and subsequently at 9.5 per cent till the year 2015. Indian Pharmaceutical Industry

5. Indian Pharmaceutical Industry Indian pharmaceutical industry has grown over a period of time and has seen many ups and down during its evolution. The architect of the Indian pharmaceutical industry would be AcharyaP.C.Ray. In the year 1901 AcharyaP.C.Ray founded Bengal Chemicals and Pharmaceuticals Works Ltd. It started by making drugs from indigenous materials and then went on to manufacture quality chemicals, drugs, pharmaceuticals and employed local technology, skills and resources.

7. Market Segments India is a fast-growing CMO and custom research outsourcing (CRO) destination with a growth rate for CMO thrice the global market rate India’s manufacturing prowess in formulations is validated by the fact that it manufactures 60,000 packs across 60 therapy areas India is the third-largest player in the world with 500 different APIs

8. SWOT Analysis

9. Reason For Choosing Pharmaceutical Industry

11. India is one of the fastest-growing pharmaceutical markets in the world, and its market size has nearly doubled since 2005

12. The Indian pharmaceutical market is expected to reach US$ 20 billion by 2015, growing at a compound annual growth rate (CAGR) of 11.7 per cent during 2005–2015 and establish its presence among the world’s leading 10 markets

14. Pharmaceutical Industry- Age, History and Origin

16. Discovery Research

18. International market development

20. Production infrastructure creation

22. Drug prices capped

24. Relative absence of organized Indian companies1970 1980 1990 2000 2010

25. Indian Pharmaceutical Evolution: Contd…

26. The pharma industry generally grows at about 1.5-1.6 times the Gross Domestic Product growth Globally, India ranks third in terms of manufacturing pharma products by volume The Indian pharmaceutical industry is expected to grow at a rate of 9.9 % till 2010 and after that 9.5 % till 2015 In 2007-08, India exported drugs worth US$7.2 billion in to the US and Europe followed by Central and Eastern Europe, Africa and Latin America The Indian vaccine market which was worth US$665 million in 2007-08 is growing at a rate of more than 20% The retail pharmaceutical market in India is expected to cross US$ 12-13 billion by 2012 Industry Trends

27. Market Structure : Pharmaceutical Industry

28. Market Structure Division of Industry

29. Market Structure Indian - Bulk Drugs & Formln M/S Market Share

30. Market Structure Indian - Bulk Drugs Market Share

31. Market Structure Gelatin Capsules and I V Fluids Market Share

32. Market Structure Indian - Formulations Market Share

33. Market Structure Multinational Market Share

34. Indian - Bulk Drugs & FormlnLrg Market Share

35. Growth : Pharmaceutical Industry

36. Indian - Bulk Drugs & FormlnLrg Sales Turnover(in Rs. Crore) Source: Capitalline

37. Indian - Bulk Drugs & FormlnLrg Reported Net Profit(in Rs. Crore) Source: Capitalline

38. Competition in Indian Pharmaceutical Industry Analysis of major players

39. Indian - Bulk Drugs & FormlnLrg Sales Turnover and Reported Net Profit on 2010 (in Rs. Crore) Source: Capitalline Your Logo

40. Indian - Bulk Drugs & FormlnLrg R&D Expenditure(in Rs. Crore) over 10 years Source: Capitalline

41. 11 State-of-the-art manufacturing facilities in countries like India, Brazil, South Africa Product Portfolio caters to nutrition, infectious diseases, gastro-enteritis, pain management, cardiovascular ailments and central nervous system related ailments 9 SBUs for various categories of drug manufactured by Ranbaxy Well-known for highest R&D budget among pharma companies in the world Ranbaxy

42. Presence in more than 100 companies Dr. Reddy’s Laboratories is very much customer friendly and tries to meet medical needs of the people 16 countries have the representative offices and 21 countries have third party distribution Dr. Reddy’s Laboratories

43. Known as the manufacturer of specialty Active Pharmaceutical Ingredients and formulations Concerned with chronic treatments such as cardiology, psychiatry, neurology, gastroenterology, diabetology and repiratory ailments. API include peptides, steroids, hormones, and anti-cancer drugs. Sun Pharmaceuticals

44. 3 Major group companies:- Cacaco Pharmaceutical Laboratories (based in Detroit, Michigan) Sun Pharmaceuticals Industries Inc. (Michigan) Sun Pharmaceuticals (Bangladesh) Sun Pharmaceuticals

45. One of the most respected generic pharmaceuticals and API manufacturing company in the world Operates in over 100 countries Over 180 APIs, 250 formulations,110 DMFs and 90 ANDAs Product segments involve- Antibiotics, Anti-Retro Virals, CVS,CNS, Anti-Allergics AurobindoPharma

46. Export-Import: Pharmaceutical Industry

47. The government of India has undertaken several including policy initiatives and tax breaks for the growth of the pharmaceutical business in India. Some of the measures adopted are:Pharmaceutical units are eligible for weighted tax reduction at 150% for the research and development expenditure obtained. Two new schemes namely, New Millennium Indian Technology Leadership Initiative and the Drugs and Pharmaceuticals Research Program have been launched by the Government. The Government is contemplating the creation of SRV or special purpose vehicles with an insurance cover to be used for funding new drug research The Department of Pharmaceuticals is mulling the creation of drug research facilities which can be used by private companies for research work on rent Government Initiatives

48. In the recent years, despite the slowdown witnessed in the global economy, exports from the pharmaceutical industry in India have shown good buoyancy in growth. Export has become an important driving force for growth in this industry with more than 50 % revenue coming from the overseas markets. For the financial year 2008-09 the export of drugs is estimated to be $8.25 billion as per the Pharmaceutical Export Council of India, which is an organization, set up by the Government of India. A survey undertaken by FICCI, the oldest industry chamber in India has predicted 16% growth in the export of India's pharmaceutical growth during 2009-2010. Pharma Export

49. Over 60 per cent of India’s bulk drug production is exported. Domestic pharmaceutical exports, growing at 30 per cent per annum, touched a new height of US$4.8 billion in the financial year 2006-07. The export revenue now contributes almost half of the total revenue for the top three pharmaceutical majors: Dr Reddy’s, Ranbaxy and Cipla. The other major exporters are Wockhardt Limited, Sun Pharmaceutical Industries Ltd. And Lupin Laboratories. The formulations and exports are largely to developing nations in CIS, South East Asia, Africa and Latin America . In the coming years, opening up of US generics market and anti AIDS market in Africa will boost exports. Exports

50. Sales and Exports growth 1 2

51. Exports of Top 8 Pharma Companies 10 Year growth (year wise)

52. Import: Pharmaceutical products

53. Effect of Foreign Investment : Pharmaceutical Industry

54. FDI by Country The largest source of FDI in Indian pharmaceutical industry is Mauritius. Many global investors in India route their FDI through Mauritius to take advantage of the India-Mauritius bilateral tax treaty.

55. Impact of Foreign Investment Major impact of foreign collaborations had been in the areas like Technological Developments---R&D & New Product Development, Productivity Enhancement, Reduction in Imports, Increase in Exports, Improvement in Quality Standards, Decrease in Net Foreign Exchange Outflow, Increase in Return on Capital Employed , Enhancing Marketing Base (Domestic & International) and overall Profitability.

57. US drug maker Mylan Inc. paid $734 million to acquire Hyderabad-based Matrix Laboratories in 2006.

60. India Patents Act,1972: Evolution and Impact India provided product patent protection in pharmaceuticals till 1972 This did not have any positive effect because: the MNCs, who held the patents were not keen on manufacturing (and R&D) activities; they preferred imports to local production in India and prevented the Indian companies from doing so by using their patent rights. On the one hand, because of lack of competition, drug prices in India were very high. On the other hand, India was dependent on imports for many of the essential bulk drugs. The import dependence constricted consumption in a country deficient in foreign exchange and inhibited the growth of the industry

62. First, and most importantly, pharmaceutical products could not be patented

63. Second, firms were permitted to patent only a single process for making a pharmaceutical; a firm could not block competitors by patenting all possible processes for making a drug

64. Third, the term for pharmaceutical process patents shortened to five years from the grant of the patent or seven years from application filing, whichever was less, compared to 14 years from application filing for all other inventions

66. Post-TRIPS Patent Laws (1995-Present) In January of 1995, India became a founding member of the World Trade Organization (WTO) and agreed to the requirements of the WTO intellectual property agreement, Trade-Related Aspects of Intellectual Property Rights (TRIPS). Under the Agreements on Trade Related Aspects of Intellectual Rights (TRIPS), mandatory for all countries to provide product patent protection in all products including pharmaceuticals One important argument during TRIPS negotiations Developing countries too would benefit from stronger patent protection because it will stimulate private R&D investment for developing country diseases e.g., leishmaniasis, sleeping sickness, Dengue fever, which are neglected by the Western MNCs TRIPS has not led to much R&D for developing drugs for necessary for developing countries and neglected by MNCs as Indian companies are not yet ready to undertake R&D independently and do not have all the skills and the resources to do so

67. Govt. Regulations and Legal Aspects Govt. Regulations and Legal Aspects … (1/4) The Central Drug Standard Control Organization (CDSCO), which falls under the purview of the Ministry of Health and Family Welfare, is the primary regulatory body in India. The Drug Controller General of India (DCGI) presides over the CDSCO and is in charge of the approval of licenses for drugs at both the central and state levels In January 2005, India introduced the product patent regime in accordance with the TRIPS agreement with an amendment to the Indian Patents Act. Further, in 2008, the introduction of the Drugs and Cosmetics (Amendment) Act 2008 put forth stringent penalties and imprisonment FDI of up to 100 per cent in drugs and pharmaceuticals is permitted through the automatic route. For licensable drugs and pharmaceuticals manufactured by recombinant DNA technology and specific cell/tissue-targeted formulations, FDI requires prior government approval

68. Govt. Regulations and Legal Aspects Policy and regulatory framework … (2/4) The GoI plans to set up a pharmacopeial commission to support ayurveda, yoga and naturopathy, unani, siddha and homoeopathy (AYUSH) through guidelines laid down in the review of the Eleventh Plan As stated on the National Pharmaceutical Pricing Authority (NPPA) website, the NPPA is responsible for fixing and controlling the prices of 76 bulk drugs under the Essential Commodities Act The Department of Pharmaceuticals was formed on July 2, 2008, under the Ministry of Chemicals and Fertilisers with the objective of focusing on the development of the pharmaceutical sector in the country and to regulate various activities related to the pricing and availability of medicines at affordable prices, R&D, the protection of intellectual property (IP) rights and international commitments related to the pharmaceutical sector The GoI has been actively supporting the industry with various measures. It is embarking on a major multi-billion dollar initiative, with 50 per cent public funding through a PPP model, to harness India’s innovation capability.

69. Govt. Regulations and Legal Aspects Policy and regulatory framework … (3/4)

70. Govt. Regulations and Legal Aspects Policy and regulatory framework … (4/4) Budget measures There has been an increase in weighted reduction from 150 to 200 per cent on expenditure incurred on in-house R&D activities and from 125 to 175 per cent on activities outsourced to specific institutions The Union Budget of 2010 permitted a partial rollback in excise duty from 8 to 10 per cent (to impact raw-material costs) Policy measures The DCGI has made the registration of all clinical trials compulsory for trials initiated after June 15, 2009. Previously, the registration of clinical trials by various institutions and companies was voluntary The DCGI has discontinued the issuance of the WHO-GMP certificate for both pharmaceutical products and plant audits The GoI has issued the draft Drugs and Cosmetics (4th Amendment) Rules, 2009, which provides for product licenses for narcotic drugs and psychotropic substances to be issued by the Central Licensing Approval Authority (CLAA), which were previously issued by state licensing authorities

71. State FDAs, on the other hand, monitor the drug manufacture, sale, and testing by companies in their jurisdiction. There are also two main statutory bodies formed by Parliament: 1) the Drugs Technical Advisory Board, whose technical experts advise the Central and State Governments on special technical matters involving drug regulation, and 2) the Drugs Consultative Committee, where Central and State drug officials ensure that drug control measures are enforced uniformly in all states. State Food and Drug Administrations (FDAs)

72. Laws and Acts : Pharmaceutical Industry

73. Laws Pertaining To Manufacture And Sale Of Drugs In India The Drugs and Cosmetics Act, 1940 The Pharmacy Act, 1948 The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954 The Narcotic Drugs and Psychotropic Substances Act, 1985 The Medicinal and Toilet Preparations (Excise Duties) Act, 1956 The Drugs (Prices Control) Order 1995 (under the Essential Commodities Act)

75. Under the provisions of this act the Central Government constitutes a Central Pharmacy Council of India consisting of following members:a) Six members from the Teachers of pharmacy.b) Six members from practicing pharmacists or Pharmaceutical Chemists holding degree of diploma.c) One member elected by the Medical Council of India.d) The Director-General of Health Services.e) The Director of the Central Drugs Laboratory.f) The Chief Chemist, Central Revenues.g) One member to represent each state elected by members of State Councils who shall be a registered pharmacist.h) One member to represent each State Government who shall be either registered medical practitioner or a registered pharmacist. The Pharmacy Act 1948

76. The State Government has under the provisions of the Pharmacy Act to get a register of the State Pharmacists prepared and it is the State Pharmacy Council which has to maintain the register. The register shall contain the name and residential address of Pharmacist, the date of his first admission to the register, qualifications for registration, his professional address, the name of his employer and prescribed particulars Registration of Pharmacists

77. This Act is meant to control the Advertisements regarding drugs; it prohibits the advertising of remedies alleged to possess magic qualities and to provide for matters connected therewith. The Drugs and Magic Remedies Act prohibits a person from taking part in publication of any advertisement referring to any drug which suggests use of the drug for: a) the procurement of miscarriage in women or prevention of conception in women; andb) the maintenance or improvement of the capacity of the human being for sexual pleasure; The Drugs and Magic Remedies (Objectionable Advertisements) Act 1954

78. This is an Act to consolidate and amend the law relating to Narcotic Drugs It’s aim is to make stringent provisions for the control and regulation of operations relating to Narcotic Drugs and Psychotropic Substances and for matters connected therewith Narcotic Drugs and Psychotropic Substances Act, 1985

79. Taxation System: Pharmaceutical Industry

80. Governed by the provisions of Income-tax Act, 1961 Under the provisions of section 35(1) of the Act, a deduction of 100 percent expenditure, not being expenditure in the nature of cost of any land and building is available in respect to scientific research related to the business Expenditure on developing the SEZ is exempt from all duties of customs, excise, CST and service tax. 'Tax'ing Indian Pharma Direct taxes

81. Customs duty consists of Basic Customs Duty (BCD)-12.5 percent Additional duty of customs under section 3(1) ('CVD')-16.32 percent and additional duty of customs under section 3(5) (ADC)-four percent Excise duty is levied at 16 percent on the transaction value of goods manufactured in India Drugs and medicines classified under chapter heading 3003.10 and 3003.20 are subject to excise duty on the basis of the MRP 'Tax'ing Indian Pharma Indirect taxes

82. 11 states have introduced a system of levying tax on MRP at a single point ie first sale in the state is subject to VAT on the basis of MRP and subsequent sales CST rate is four percent against furnishing of prescribed declarations. Otherwise, the rate of tax is 10 percent or the VAT rate prevailing in the originating state, whichever is higher Rate of service tax is 12 percent, together with education cess at two percent i.e. 12.24 percent. 'Tax'ing Indian Pharma Indirect taxes

83. India is perceived as an attractive destination to outsource R&D work and contract manufacturing The only tax benefit available for Research & Development activities for such companies is the weighted deduction Companies engaged in R & D activity do not get weighted deduction in respect of expenditure not approved by DSIR though the R & D facility is an approved one. So government to need to clarify existing provisions Issues with Taxation System Indian - Bulk Drugs & FormlnLrg

84. Customs duty on import on Life saving drugs and medical services Rationalization of custom duty for formulations SAD (Special Additional Duty) refunds are taking more than a year to get processing the refund and the processes involved are cumbersome Government should reduce custom duty on all Life Saving medical devices to 5% Issues with Taxation System Indian - Bulk Drugs & FormlnLrg

85. Physician samples should be exempted from payment of Excise Duty As per the section 4A of the Central Excise Act, 1944, an abatement of 35% allowed for the purpose of levying Excise Duty on Pharmaceuticals The excise duty rate of APIs should be reduced from 10% to 4%, so as to make it at par with formulations Issues with Taxation System Indian - Bulk Drugs & FormlnLrg

86. Issues with Taxation System Different VAT rates for pharma goods in different states / different description in schedule entries related to life saving drugs/ medical equipment Transaction costs are increasing to the dealers, as the definition of goods in section 8(3) not permitting them cover all goods The tax rate of 4-5% on medicines and the list of tax-exempt goods and declared goods should be uniform across all states. Specifically, Life saving drugs and life saving medical equipment should be included in exempt goods or zero rate of percent VAT category Indian - Bulk Drugs & FormlnLrg

87. Provisions of the credit rules do not permit the Brand Owner to avail the credit if it is the not the manufacturer of the finished goods. Even the job worker cannot avail the credit as he does not pay for the input service. Further, the corresponding invoices of services are not in their name and said services not directly received by them. There exists a confusion and litigation as the State Governments are still levying sales tax on supply of software, where as the definition of sale in few state VAT legislations includes right to use. Issues with Taxation System Indian - Bulk Drugs & FormlnLrg

88. Transfer Pricing is treated as concealment of income and harsh penalties of 100-300% are levied. Scheduled formulations on which price control is applicable through a maximum permissible prescribed mark-up on the transfer price, downward adjustment due to transfer pricing regulations would affect established end selling. Issues with Taxation System Indian - Bulk Drugs & FormlnLrg

89. The likely implementation of GST will be closely watched by the pharmaceutical industry as the total tax rate might go up, if the GST rates are not fixed in line with current indirect tax incidence. Further, there can be excise and customs duty concessions on a few more drugs in life saving list. Future expectations

90. Comparative Analysis of Pharmaceutical Industry in BRIC Nations

91. Comparison with emerging economies China and Brazil 2015 Projected Figures 2005 Figures . Market Size Market Size Rank Country Market size 5. China USD 38 bn 11. Brazil USD 20 bn 10. India USD 20 bn Rank Country Market size 9. China USD 13 bn 11. Brazil USD 9 bn 14. India USD 6 bn

92. Comparison with emerging economies China and Brazil China India Brazil Patent protection started in 1990s but strictly regulated from 2005 Share of Patent protected drugs is 5% in total market Share of MNCs in total market is 25-30% patent protection started since 1994 and is strictly in line with countries like US. Share of patent protected drugs is 15% in total market. Share of MNCs in total market is 65-70%. Patent Protection started from 2005. Share of patent protected drugs is 9% in total market. Share of MNCs in the total market is almost 24% 1 1 1 2 2 2 3 3 3

93. Future Outlook : Pharmaceutical Industry

94. With several companies slated to make investments in India, the future scenario of the pharmaceutical industry in looks pretty promising. The country's pharmaceutical industry has tremendous potential of growth considering all the projects that are in the pipeline. Some of the future initiatives are:According to a study by FICCI-Ernst & Young India will open a probable US$ 8 billion market for MNCs selling expensive drugs by 2015 The study also says that the domestic pharma market is likely to reach US$ 20 billion by 2015 The Minister of Commerce estimates that US$ 6.31 billion will be invested in the domestic pharmaceutical sector Future Scenario

95. Public spending on healthcare is likely to raise from 7 per cent of GDP in 2007 to 13 per cent of GDP by 2015 Dr Reddy's Laboratories has tied up with GlaxoSmithKline to develop and market generics and formulations in upcoming markets overseas Lupin, a Mumbai based pharmaceutical company is looking to tap opportunities of about US$ 200 million in the US oral contraceptives market Due to the low cost of R&D, the Indian pharmaceutical off-shoring industry is designated to turn out to be a US$ 2.5 billion opportunity by 2012 Future Scenario

96. Predicted Future Growth

97. Responsibilities and Resources would make an important beginning in the transition of efficient and effective use of pharmaceutical in building a prosperous and healthy India. In doing so, following issues have been identified for realizing the Pharma Vision 2020. • The Indian pharmaceutical industry shall ensure that essential drugs at affordable prices are available to the vast population of this sub-continent and also continue providing employment for millions. • India will emerge as a major global player in the field of pharmaceuticals exports and as a provider of quality medicines at low costs. It shall also emerge as a major player in the generic drugs market in USA and Europe. Vision 2020

98. • India will emerge as a major global player in the field of pharmaceuticals exports and as a provider of quality medicines at low costs. It shall also emerge as a major player in the generic drugs market in USA and Europe. • India shall attain new heights in herbal drugs research in shaping Indian Systems of Medicine into a popular system of medicine of the future for holistic health care and ensuring health care for all - especially for the welfare of the poor. • India’s Patents Act should ensure that it does not exceed the requirements of TRIPS, and that prioritizes access to medicines and public health, while retaining the right to participate in the compulsory license scenario. India should lead a movement of developing Vision 2020

99. THANK YOU!