pharma trade in India long

Pharma Trade
PREPARED BY:
NIPUN PALEJA
BATCH A
A027

Outlook
1. Introduction
2. Pharma export growth trend
3. Exports (Region wise, Country wise and Category wise)
4. Favourable policy measures that support growth
5. Imports
6. Distribution channel in India
7. Mapping changes in Pharma distribution
8. PESTLE Analysis
9. Evaluation of Distribution channel
a) Effectiveness
b) Efficiency
10. Key Implications
11. Way forward:
a) Replenishment Model:
b) Trade management team for OTX products
12. Summary of benefits of replenishment model and trade management model
13. e-pharmacy overview
14. Benefits
15. How an e-pharmacy model support ‘Jan Aushadhi programme’ and ‘CSC’
16. e-pharmacy model
17. Potential concerns and solutions

Introduction
Leading pharma
producer
One of the highest
exports
Among fastest growing
industries
Growing generics
market
Ranked 4th in terms of
attracting FDI
• Indian pharmaceuticals market is third largest in terms of volume and 13th -
largest in terms of value globally
• India accounts for 20 per cent of global exports in generics. In FY16, India exported pharmaceutical
products worth USD16.89 billion, with the number expected to reach USD40 billion by 2020
• Pharma exports in India grew at 9.44 per cent in FY16, registering an amount of US$16.9 billion. The
exports are expected to register double digit growth in FY17, with exports growing at 8 percent in
January 2017
• The country’s pharmaceutical industry is expected to expand at a CAGR of
12.89 per cent over 2015–20 to reach USD55 billion
• The generics market stood at USD26.1 billion in 2016 from USD21 billion in
2015. India’s generics market has immense potential for growth
• Pharmaceutical sector in India attracted 4 per cent of the total FDIs into India,
with, cumulative FDI inflows worth USD14.70 billion were made during April
2000 to March 2017
Source: IBEF Report – Pharmaceuticals June 2017

PHARMA EXPORT TO CONTINUE WITNESSING HIGH GROWTH
Indian pharma companies are capitalising
on export opportunities in regulated &
semi-regulated markets
In FY16, India exported pharmaceutical
products worth USD16.89 billion, with the
number expected to reach USD40 billion by
2020
Department of Pharmaceuticals targets to
export USD18.02 billion worth of
pharmaceuticals in 2017. Indian drugs are
exported to more than 200 countries in the
world, with the US as the key market
India is the world’s largest provider of
generic medicines; the country’s generic
drugs account for 20 per cent of global
generic drug exports (in terms of volumes)
USFDA approvals to Indian companies
totalled 201 in FY2015-16, up from 109
approvals received in FY2014-15.
Source: IBEF Report – Pharmaceuticals June 2017
10.1
12.6
14.5
15.4
16.89
0
2
4
6
8
10
12
14
16
18
FY12 FY13 FY14 FY15 FY16
Exports ($ Billion)

REGION FY-15 ($mn) FY-16 ($ mn) GROWTH % CONTRIBUTION %
North America 4517.94 5704.07 26.25 33.77
Africa 3089.03 3348.55 8.40 19.83
EU 2445.49 2549.31 4.25 15.09
LAC 1076.99 1032.68 -4.11 6.11
Asean 1055.62 1031.09 -2.32 6.11
Middle East 956.12 978.51 2.34 5.79
South Asia 616.27 624.49 1.33 3.70
CIS 701.22 614.94 -12.30 3.64
Asia (excluding Middle East) 511.68 506.37 -1.04 3
Oceania 263.36 294.33 -11.76 1.74
Other European countries 139.57 140.08 0.36 0.83
Other America 59.49 63.60 6.91 0.38
Others 0.27 1.16 338.30 0.01
GRAND TOTAL 15433.06 16889.18 9.44 100
Region wise Exports in Fy-16 $ mn
Source: Pharmexil annual report 2015-16

Region wise Exports in Fy-16 $ mn

Country wise Exports in Fy-16 $ mn
India's export to top 10 countries during 2015-16 ($ mn)
RANK COUNTRY
FY-15
($ mn)
FY-16
($ mn)
GROWTH %
CONTRIBUTION
%
1 USA 4309.72 5502.96 27.7 33
2 South Africa 511.36 606.8 18.7 4
3 UK 543.24 564.29 3.9 3
4 Nigeria 420.5 437.26 4.0 3
5 Russia 424.8 374.02 -12.0 2
6 Germany 372.67 347.53 -6.7 2
7 Kenya 284.2 333.21 17.2 2
8 Brazil 376.19 325.22 -13.5 2
9 Netherland 243.48 243.49 0.0 1
10 Australia 206.2 233.25 13.1 1
OTHERS 7740.7 7926.15 2.4 47
GRAND TOTAL 15433.06 16889.18 9.44 100
33
4
3
3222211
47
CONTRIBUTION %
USA South Africa UK
Nigeria Russia Germany
Kenya Brazil Netherland
Australia OTHERS

Category wise Exports in Fy-16 $ mn
Category
FY – 15
($ mn)
FY – 16
($ mn)
Contribution
%
Growth
%
Drug formulation
and biologics
11214.16 12645.51 75 12.76
Bulk drugs and drug
intermediates
3564.57 3585.05 21 0.57
Surgicals 299.46 300.02 2 0.19
Herbal products 236.41 249.84 1 5.68
AYUSH 118.46 108.76 1 -8.19
GRAND TOTAL 15433.06 16889.18 100 9.44
75
21
21 1
Contribution %
Drug formulation and biologics
Bulk drugs and drug intermediates
Surgicals
Herbal products
AYUSH

FAVOURABLE POLICY MEASURES SUPPORT GROWTH
Reduction in approval time for new facilities1
• Steps taken to reduce approval time for new facilities
• NOC for export licence issued in 2 weeks compared to 12 weeks earlier
Support for technology upgrades and FDIs2
• Zero duty for technology upgrades in the pharmaceutical sector through the Export Promotion Capital Goods (EPCG) Scheme
• In 2017, the government to create a digital platform to regulate and track the sale of quality drugs, and it can be used by
people living in the country as well as abroad
Pharma Vision 20203
• Pharma Vision 2020 by the government’s Department of Pharmaceuticals aims to make India a major hub for end-to-end drug
discovery
Exemptions4
• Full exemption from excise duty is being provided for HIV/AIDS drugs & diagnostic kits supplied under National AIDS Control
Programme funded by the Global Fund to fight AIDS, TB & Malaria (GFATM).
• The customs duties on the said drugs are also being exempted
IBEF Report – Pharmaceuticals June 2017

FAVOURABLE POLICY MEASURES SUPPORT GROWTH
International Events5
• Pharmaconex, Egypt - held during 18‐20th April 2015 at Cairo, Egypt.
• CPhl, China - during 24‐26th June 2015. 23 Indian companies participated in the show.
• CPhl, Istanbul - For the Second time, Council participated in CPhI Istanbul held in 3rd - 5th June 2015
• CPhI Worldwide during 13-15 October 2015
• Arab Health during 25‐28th January 2016
• BSM cum Expo at Latin America - during 23rd August -5th Sep.2015 at Peru, Paraguay, Chile, and Argentina, where about 42
Indian companies participated
IBEF Report – Pharmaceuticals June 2017

1747.65
1553.62
937.48
795.34
254.57
0
200
400
600
800
1000
1200
1400
1600
1800
2000
FY 12 FY 13 FY 14 FY 15 Fy 16
Imports (USD million)
Imports (USD million)
Imports
• The country is almost self-sufficient in a case
of formulations.
• The imports are being made on quality and
economic considerations and not necessarily
due to non-availability from domestic
sources.
• Imports of Pharmaceutical Products in India
decreased to 254.57 USD Million in 2016
from 795.34 USD Million in 2015.
• Imports of Pharmaceutical Products in India
averaged 645.06 USD Million from 1996 until
2016, reaching an all time high of 1747.65
USD Million in 2012
Source: https://tradingeconomics.com/india/imports-of-pharmaceutical-products

Distribution
Channel in
Pharma

Distribution channel in pharma
Source:: TCS White paper - Streamlining Distribution in the Pharmaceutical Industry

Manufacturer
CFA
(1%)
Stockist
(10%)
Sub-stockist
(8%)
Pharmacy retail
(20%)
Consumer
Distribution channel in pharma
INR 69 INR 70 INR 80
MRP
INR 100
INR 72 INR 80
31% of MRP is absorbed in distribution channel
Source:: E&Y - OPPI report – unlocking potential of pharma distribution channel

Mapping Changes In Rx Distribution
Growth (in type and volume) of pharmaceutical products and medical devices
Globalization of pharmaceutical logistics with the rise in global trade of both active
ingredients delivered to formulation manufacturing sites, and finished products delivered
globally
Managing Cost to Serve more effectively
From the distribution perspective, there are three imperatives driving the change in pharma
distribution

PESTLE analysis
• Healthcare spending increasing in emerging markets
• Traceability requirements on the rise in line with new legislationsPolitical
• Reduction of supply chain costs a priority for CEOs
• Market penetration, globalization, and geographical expansions have witnessed growthEconomical
• Treatment moving away from traditional care models
• Need to optimize healthcare costsSocial
• Limited or lack of system integration
• Limited technical enablement with partnersTechnological
• Regulatory changes such as the Drug Supply Chain Security Act (DSCSA) that require third-
party logistics providers (3PL) to re-organize their services, introducing new potential risks and
necessitating contract revisions
Legal
• Need to ensure 'Green' operations
• Sustainability pressures on packaging
• Ensure safe and accounted disposal
Environmental

Evaluating Distribution Channel
 Distribution in Indian pharma industry has primarily been an operational
function with its focus limited up to operations at the CFA level.
Beyond this is a largely opaque but critical, extended supply chain with
multiple stakeholders, which links supply to the end consumer.
Parameters:
1. Effectiveness of the post CFA supply chain in making products available to
the end consumer which manifests in loss of sales over the retail counter.
2. Efficiency of the supply chain in terms of cost of making products available
to the end consumer, which manifests itself in excess inventory levels in the
channel and a month-end “skew” in stockist inventory

Effectiveness – Non-availability leading to sales loss
1. Reach and Services

2. Working Capital Constraints

The possibility of loss of sale is the least in metros due to relatively higher awareness and
service levels and the highest (relatively) for OTX products in rural areas, especially for
small ones.
In summary, it is the small OTX brands which are most susceptible to sales-loss due to
non-availability in Tier 2 and rural areas. While issues of reach, service levels and awareness
levels contribute to this sales loss, a key role is played by the working capital constraints of
the stockists
3. Awareness

Efficiency – Lack of visibility of post CFA supply chain leading to
excess inventories
Visibility of the post-CFA supply chain is limited, and is traditionally through the visits of the
sales force to stockists/retailers as well as through the monthly stock and sale statements of
stockists.
As a consequence of this opacity in the chain, pharma companies rely on primary sales to
stockists as a metric for measurement of performance
Driven by sales targets on primary sales, the sales force may resort to pushing stocks to
distributors at month end, which may result in a month end skew in stockist inventories
In case of variances in demand, primary sales is not aligned to secondary sales and there is
an inventory pile-up at stockists

Key Implications

Way Forward
For the issues of distribution effectiveness and efficiency identified in the study, the
key levers to address the root causes are –
Key
levers
Increasing visibility of
channels
Release working capital
at the stockist
Ensure generated efficiencies are
passed down the channel up to
retailers

Replenishment model for improving efficiencies in the
channel
Increase visibility of secondary sales
Will assist in optimizing inventories and unblocking capital in the channel
without resulting in stock-outs
Provides a good opportunity to increase efficiency in the distribution channel by
removing month-end skew in sales
This model can be leveraged to develop a leaner supply chain, going forward

Replenishment model for improving efficiencies in the
channel

Replenishment model – Transaction flow & potential points
of failure

Replenishment model – Success factors
Success factors
Use of secondary sales as the primary
indicator of demand and performance
across the organization
Sales incentives on
secondary sales
Demand & supply planning based
on secondary sales data
Manage issues which can lead to
potential resistance from
stockists
Ensure adequacy of IT
infrastructure by adopting a phased
approach
Develop a business case highlighting
benefits of the replenishment model to
counter distributor resistance

Trade management team for OTX products
For successful implementation of the replenishment model for OTX products, it is
imperative to manage the channel, which may require investment in a separate ‘trade
management team’
The key role of this team would be to ensure propagation of the generated
efficiencies such as unblocked capital, down the channel right up to the end
stakeholder i.e. retailer, and to engage these stakeholders to leverage these
efficiencies

Summary of the benefits of the replenishment model and trade management model

Overview
Global market: $29.3
Bn
(as of 2014)
Market is currently
led by North America
and Europe.
Growing at a CAGR of
17.7%
Valuation of US $128
Billion by 2023
At a nascent stage in
India
Source:: http://indiainbusiness.nic.in/newdesign/upload/E-Pharmacy-in-India-Last-Mile-Access-to-Medicines_v5.pdf
http://holisollogistics.com/online-pharmacy-way-forward-supply-chain-perspective/
India Market:
$11.5 mn
(as of 2014)
Factors driving demand
1. Rising number of people with unmet medical needs
2. Increasing penetration of the Internet in both urban and rural India

Benefits

Benefits
Increased convenience
Improved Accessibility
Cost advantage
Improved patient compliance and education
Authenticity
Benefits: For consumers / patients

1. Increased convenience
Consumers would be able to order medicines in a convenient manner from
their mobile phones or computers.
This will significantly help patients who are old and sick and not in a condition
to go out to find a pharmacy.
This is also pertinent with the increasing nuclear family concept, working
couples, increasing number of elderly population, and urban development in
the periphery of the metro cities

2. Improved Accessibility
With the use of technology and access to inventory of multiple stores at a time, e-
Pharmacies can aggregate supplies, making otherwise-hard-to-find medicines available
to consumers across the country.
Retail pharmacies can only keep a limited inventory, resulting in the consumer having to
visit multiple stores to procure the medicines.
e-Pharmacies also enable access to rural areas where there is limited presence of retail
pharmacy.
e-Pharmacies allow the consumer to choose from a wide range of affordable generic
equivalents for a particular branded drug, which is not possible in the current offline
model.

3. Cost Advantage
e-Pharmacies enable pharmacy entrepreneurs to broaden their customer
base while reducing working capital, overhead costs, and increase margins,
which translates into cost advantage to end consumers.

4. Improved patient compliance and education
e-Pharmacies may provide value-added information to consumers, such as
drug interactions, side effects, medicine reminders, and information on
cheaper substitutes.
This power of knowledge enables the consumer in improving compliance.

5. Authenticity
All medicine purchases are digitally stored making it easy to track the supply
chain, thereby decreasing the risk of counterfeit medicines, drug abuse, and
self-medication.

Benefits: For Regulators
Tracking of data
Medicine
Authenticity
Documentation Innovation
Benefits

1. Tracking of data
All the transactions could be efficiently tracked with complete details of the
medicines, batch number, dispensing pharmacy name and address,
prescribing doctor, name and address of the patient, etc., thereby reducing
the problem of drug abuse and self-medication.
E-Pharmacies could store and analyze large amounts of data on consumers
across the nation, which would be very useful for planning public health
policies.

2. Medicine authenticity
The technology-enabled tracking systems of the e-Pharmacy model assist in
back-tracing the channel / manufacturer / supplier of the counterfeit
medicines, thereby making the market a lot more transparent and authentic.

3. Documentation
100% orders are documented with records of the prescriptions.
Every order dispensed through e-Pharmacy has a valid bill and tax to the
Government is paid in full.
Since the e-Pharmacy model has a stringent documentation process, the
taxes paid on all transactions will largely benefit the Government.

4. Innovation
The model will be in sync with the global models, thus spurring innovation in
the industry.

Additional Business Opportunity
Inventory Consolidation
Upgrade of Retail Pharmacy
Enhanced services of Pharmacist
Benefits: Pharmacist

1. Additional business opportunity
An e-Pharmacy model will enable existing pharmacies to start online
operations and serve a broader set of customers, or a network of pharmacies
integrating to one platform and accessing a broader customer base.

2. Inventory consolidation
An e-Pharmacy model ensures consolidation of inventory.
This would reduce working capital requirements, remove wastage from
system, and increase margins, thus making the e-Pharmacy, a sustainable
value-added service model.

3. Upgrade of Retail Pharmacy
The e-Pharmacy model has the benefit of technology to streamline and make
inventory planning, processes, and systems more efficient.

4. Enhanced services of pharmacist
The e-Pharmacy model enhances the services of the pharmacist to the
consumers.
Routine questions about medications could be answered by online
pharmacists using e-mail or other real-time chat options.
Knowledge of a patient’s diagnosis, list of drugs the patient is already taking,
and established drug monitoring parameters, largely unavailable to the
pharmacists at present, could be made accessible through this model.

How an e-Pharmacy Model Supports the Jan Aushadhi Program

Awareness
•The e-Pharmacy model could create
awareness about the program by listing
all Jan Aushadhi drugs on its platform.
•The model enables consumers to search
for Jan Aushadhi equivalents for their
prescribed drugs.
Access
•To locate the nearest Jan Aushadhi Store
that has the medicine they need anytime,
anywhere on their fingertips.
• The e-Pharmacy model could strengthen
the traditional brick-and-mortar model
and increase the access of quality and
affordable medicines.
•The consumers would be able to order
medicines in a convenient manner, from
their mobile or computer. This would
significantly benefit patients who are sick
and old and not in a condition to leave
home.
Tracking
•All medicines purchased and searched
could be effectively tracked and could be
analyzed for future planning.
The e-Pharmacy model supports the Jan Aushadhi Program in
three different aspects

How an e-Pharmacy Model aligns with the CSCs?
e-Pharmacy model could be effectively aligned to CSC goal of improving
delivery of essential health services in rural India by
Improving Access
Transparency
Reliability of services at an
affordable cost
Ensuring efficacy

How an e-Pharmacy Model aligns with the CSCs?

Suggested e-Pharmacy Model

Potential Concerns and Solutions
• Create a registry of e-Pharmacies with a logo, which needs to be displayed
prominently by the authorized players
• Consumers can cross verify from the regulator’s website about the authenticity of the
player
Fake and
Illegal sites
• All the medicines with potential for abuse like Schedule X and other habit-forming
drugs could be prohibited
• All prescription medicines should only be processed against an electronic copy of
valid prescription
• Entire audit trail including the name and address of the patient should be digitally
stored and tracked
Drug abuse
• The e-Pharmacy should have a team of qualified pharmacists for validation of a
prescription and for handling any drug related queries from the patients
• Contact information of the pharmacists should always be clearly disclosed for any
drug related query from the custom
Medication
Error

Potential Concerns and Solutions
• All medicine purchases to be tracked effectively and to be subject to
audits
• Digital transaction trails ensuring recording of full transaction payment,
valid bill, and batch number of medicines should be available
Counterfeit
Medicines
• e-Pharmacies should fulfill the orders as per the prescription of
the registered medical practitioner in exactly the same manner
as offline pharmacies
Substitution
• e-Pharmacies to maintain record of every transaction with details around
patient’s name, address, telephone number, and email
• e-Pharmacies to record the batch number and expiry date of the drug for
all its transactions
Pharmacovigilance

1. http://holisollogistics.com/online-pharmacy-way-forward-supply-chain-
perspective/
2. https://tradingeconomics.com/india/imports-of-pharmaceutical-products
3. E&Y - OPPI report – unlocking potential of pharma distribution channel
4. IBEF Report – Pharmaceuticals June 2017
5. TCS White paper - Streamlining Distribution in the Pharmaceutical Industry
6. Pharmexil annual report 2015-16
7. FICCI – E-Pharmacy in India: Last mile access to medicine – Frost and Sullivan
References

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