Industry Analysis: Indian Pharmaceutical Industry

Submitted By: Abhishek(10810001) Anant Dhingra(10810004) Anuj Madaan(10810009) Maninder Pal Singh(10810029) Ravi Pratap Singh(10810050)

Agenda
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Introduction Reason For Choosing Pharmaceutical Industry Pharmaceutical Industry- Age, History and Origin Market Structure Growth : Pharmaceutical Industry Competition- Indian Pharmaceutical Industry Export-Import: Pharmaceutical Industry Effect of Foreign Investment

Effect of Foreign Investment Government Regulation and Policies Laws and Acts : Pharmaceutical Industry Taxation System Comparative Analysis of Pharmaceutical Industry in BRIC Nations Future Outlook

IntroductionPharmaceutical Industry

Indian Pharmaceutical Industry

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

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 Acharya P.C.Ray. In the year 1901 Acharya P.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.

Market Segments
Pharmaceuticals

Contract research and manufacturing services (CRAMS) Formulations

Active pharmaceutical ingredients (APIs)

India is a fast-growing CMO and custom research outsourcing (CRO) destination with a growth rate for CMO thrice the global market rate

Indias 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

Strength
Cost Effective Strong Manufacturing Base SWOT Analysis Availability of high quality skilled workforce. Excellent marketing and distribution network Diverse ecosystem

Weakness
Less investment in research and development Lack of coordination between industry and academia. Negligible expenditure on healthcare in the country. Manufacture of fake and low quality medicines bring

SWOT Analysis
Opportunities
Increased export potential Marketing ties ups with multinational companies to sell their products in domestic market. Immense scope to position India as a centre for international clinical trials. Key player in global pharmaceutical R&D. Export of generic drugs to developed markets

Threats
Product patent regime is a major threat to domestic industry unless the industry takes up R&D initiative aggressively. Drug Price Control Order puts undue pressure on product prices, affecting the profitability of the pharmaceutical companies. The new MRP based excise duty regime threatens the business of smaller pharmaceutical companies

Reason For Choosing Pharmaceutical Industry

Reason For Choosing Pharmaceutical Industry

Drugs and pharmaceutical industry plays a vital role in the economic development of a nation India is one of the fastest-growing pharmaceutical markets in the world, and its market size has nearly doubled since 2005 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 20052015 and establish its presence among the worlds leading 10 markets India is also the third-largest market in the world in terms of volume and fourteenth in terms of value

Reason For Choosing Pharmaceutical Industry Contd

India accounts for 8 per cent of global pharmaceutical production. Indian firms produce about 60,000 generic brands across 60 therapeutic categories. In addition, Indian firms manufacture approximately 500 different active pharmaceutical ingredients (APIs) Moreover, according to an Ernst & Young and industry body study, the increasing population of the higher-income group in the country, will open a potential US$ 8 billion market for multinational companies selling costly drugs by 2015 Further, IMS Health India, which tracks drug sales in the country through a network of nationwide drug distributors, estimates the healthcare market in India to reach US$ 31.59 billion by 2020

Pharmaceutical Industry- Age, History and Origin

Indian Pharmaceutical Evolution

Phase V Phase IV Phase III Development Phase Phase II Phase I Early Years Market share domination by foreign companies Process Government Control development Indian Patent Act Production 1970 infrastructure Drug prices capped creation Local companies begin to make an impact Export initiatives Growth Phase Innovation and Research

Rapid expansion of New IP law domestic market Discovery Research International Convergence market development

Research orientation

Relative absence of organized Indian companies

1970

1980

1990

2000

2010

Indian Pharmaceutical Evolution: Contd

Industry Trends

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

Market Structure : Pharmaceutical Industry

Market Structure
Division of Industry
Market Structure
Industry Type
I V Fluids 1%

Number of Companies

Multinational 9% Indian - Bulk Drugs 22% Gelatin Capsules 0%

Indian - Bulk Drugs

113

Indian Formulations 9%

Gelatin Capsules

Indian - Bulk Drugs & Formln Lrg

27

Indian - Bulk Drugs & Formln M/S 14%

Indian - Bulk Drugs & Formln M/S

92

Indian - Formulations
Indian - Bulk Drugs & Formln Lrg 45%

118

I V Fluids

Multinational

10

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

East India Phar. 1% Proto Developers 1%

Indian - Bulk Drugs & Formln M/S Market Share

Hindustan Max GB Mangalam Drugs 1% 1%

Raptakos, Brett Jagsonpal 1% RPG LifeScience. Pharma 1% 1% Themis Medicare Blue Cross Lab. 2% 2% Cadila Pharma. 4% Indoco Remedies 4%

Bharat Serums Biological E 1% 1%

Others 12%

Intas Pharma. 14%

Alkem Lab 10%

Aditya Medisales 10%

Strides Arcolab 4%

Claris Lifescien 6% Unimark Remedies 6%

Ind-Swift Labs. 7%

Surya Pharma. 10%

Market Structure
Indian - Bulk Drugs Market Share
Indian - Bulk Drugs Market Share

Neuland Labs. Dishman Pharma. 2% 2% Granules India Aarti Drugs 2% 3% Parabolic Drugs 3% Shasun Pharma. 3% Hikal 3%

Wanbury 2%

others 16%

Lupin 20%

Jubilant Life 14%

Elder Pharma 4%

USV 5% Nectar Lifesci. Aristo Pharma. 5% 5%

Orchid Chemicals 7%

Divi's Lab. 5%

Market Structure
Gelatin Capsules and I V Fluids Market Share
Gelatin Capsules Market Share I V Fluids Market Share
Guj. Guj. Inject(Ker) Inject 0% 0% Capsugel India 9% Ahlcon Parent(I) 7%

Medi Caps 19%

Sunil Healthcare 48% Venus Remedies 45%

Parenteral Drugs 48% Natural Capsules 24%

Market Structure
Indian - Formulations Market Share
Indian - Formulations Market Share

Others 24%

Ankur Drugs 15%

Ind-Swift 10% Medicamen Biotec 1% Lincoln Pharma. 2% Roussel India 2% Sanjiv.Parant. 2% Kilitch Drugs 2%

Sharon Bio-Med. 7%

Cadila Labs. 2% Plethico Ajanta Pharma. Bliss GVS Pharma Pharma 6% 2% 6% Albert David Kar.Antibiotics 3% Arvind Remedies 3% 4%

Twilight Litaka 7%

Market Structure
Multinational Market Share
Multinational Market Share
Solvay Pharma. 4% Astrazeneca Phar 6% Abbott India 14% Wyeth 6% Merck 7% Glaxosmit Pharma 28% Fulford (India) 2%

Novartis India 8%

Pfizer 11% Aventis Pharma 14%

Indian - Bulk Drugs & Formln Lrg

Market Share
TOP TO COMAPNIES 1. Ranbaxy Labs 2. Cipla
Ranbaxy Labs. 15%

J B Chem & Pharm Unichem FDC 2% Labs. 2% 2% Alembic Glenmark 3% Pharma. 3%

Torrent Pharma. 4% Ipca Labs. 4% Cadila Health. 5%

Market Share
Others 5%

3. Dr Reddys Labs
4. Aurobindo Pharma
Cipla 15%

5. Piramal Health 6.Sun Pharma Inds. 7. Wockhardt

Wockhardt 5% Sun Pharma.Inds. 7%

Piramal Aurobindo Health Pharma 7% 9%

Dr Reddy's Labs 12%

8. Cardila Heath 9. Ipca Labs 10. Torrent Pharma

Growth : Pharmaceutical Industry

Indian - Bulk Drugs & Formln Lrg

Sales Turnover(in Rs. Crore)

40,000.00 35,000.00 30,000.00 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 0.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Capitalline

Sales Turnover

Indian - Bulk Drugs & Formln Lrg

Reported Net Profit(in Rs. Crore)

Reported Net Profit

7,000.00 6,000.00 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 0.00 Reported Net Profit

2001 1,233.38

2002 2,002.41

2003 2,259.27

2004 2,401.54

2005 1,843.02

2006 2,772.34

2007 3,995.89

2008 2,320.41

2009 4,551.27

2010 5,732.56

Source: Capitalline

Competition in Indian Pharmaceutical Industry

Analysis of major players

Indian - Bulk Drugs & Formln Lrg

Sales Turnover and Reported Net Profit on 2010 (in Rs. Crore)
6,000.00 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 0.00 -1,000.00 -2,000.00 -794.21 525.76 1,854.90 1,081.49 503.3 846.1 209.19 1,593.02 1,148.73 443.22 898.65 3,268.03 2,708.58 2,568.82 1,853.58 1,425.28 5,411.68 4,543.80 5,608.67

207.37

Sales Turnover

Reported Net Profit

Source: Capitalline

Your Logo

Indian - Bulk Drugs & Formln Lrg

R&D Expenditure(in Rs. Crore) over 10 years
700 600 500 400 300 200 100 0 2001 2002

2003
2004 2005 2006 2007 2008 2009 2010 2 per. Mov. Avg. (2001) 2 per. Mov. Avg. (2005) 2 per. Mov. Avg. (2010)

Source: Capitalline

Ranbaxy
11 State-of-the-art manufacturing facilities in countries like India, Brazil, South Africa Product Portfolio caters to nutrition, infectious diseases, gastroenteritis, 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

Dr. Reddys Laboratories

Presence in more than 100 companies Dr. Reddys 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

Sun Pharmaceuticals
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
3 Major group companies: Cacaco Pharmaceutical Laboratories (based in Detroit, Michigan)

Sun Pharmaceuticals Industries Inc. (Michigan)

Sun Pharmaceuticals (Bangladesh)

Aurobindo Pharma
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

Export-Import: Pharmaceutical Industry

Government Initiatives

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

Pharma Export

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.

Exports
Over 60 per cent of Indias 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 Reddys, 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.

Sales and Exports growth

Exports of Top 8 Pharma Companies

10 Year growth (year wise)

4000

3500

3000

Wockhardt Ltd

Piramal Healthcare Ltd

2500 Ranbaxy Laboratories Ltd Aurobindo Pharma Ltd 2000 Cipla Ltd Torrent Pharmaceuticals Ltd 1500 Sun Pharmaceuticals Industries Ltd Shasun Pharmaceuticals Ltd 2 per. Mov. Avg. (Aurobindo Pharma Ltd)

1000

500

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Import: Pharmaceutical products

Year Import(in Rs. Crore) %Share Import to India
NETHERLAND KOREA RP JAPAN 1% 1% 1% Others INDONESIA 8% 2% IRELAND 3% UK 4% BELGIUM 4% DENMARK 4% FRANCE 4% SWITZERLAND 33%

2009-2010

519,6

0.3811

20102011(AprSep)

279,5

0.3770

CHINA P RP 5%

ITALY 6%

GERMANY 9%

USA 15%

Effect of Foreign Investment : Pharmaceutical Industry

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.

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.

Impact of Foreign Investment

Indian drug industry has in the last five years seen half a dozen big takeovers by foreign companies. $3.6 billion acquisition of promoters stake in Ranbaxy Laboratories in 2008 by Japans Daiichi Sankyo Co. Ltd. US drug maker Mylan Inc. paid $734 million to acquire Hyderabad-based Matrix Laboratories in 2006. German health care group Fresenius SE spent $219 million to take over Dabur Pharma in 2008.

Impact of Foreign Investment

US drug and nutrition firm Abbott Laboratories paid $3.72 billion to acquire Piramal Healthcare Ltds domestic drug formulation business and spent $726 million to buy out Ahmedabad-based consumer health company Paras Pharmaceuticals.
French drug multinational Sanofi-Aventis SA acquired a majority stake in Indian vaccines company Shanta Biotech in 2009 for 550 million

Government Regulation and Policies : Pharmaceutical Industry

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

The India Patents Act, 1970

The 1970 Act imposed substantial limits on patent rights; these limits were intended to encourage indigenous inventions and secure their production in India on a commercial scale (India Patents Act 1970, 83) First, and most importantly, pharmaceutical products could not be patented 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 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 And fourth, the Act imposed very broad compulsory licensingprovisions for pharmaceutical process patents. Within three years of the grant, the patents were deemed licenses of right, meaning that anyone could use the process if they paid a royalty (Chaudhuri 2005, 37-8). In sum, pharmaceutical products had no protection, and pharmaceutical processes were protected for only three years if a royalty were paid and five years if no royalty were paid

Results
Remarkable growth in the pharmaceutical industry in India India and Japan: only two countries where western MNCs do not dominate India: net exporter and self sufficient in drugs Drug prices among the lowest in the world Source of good quality cheap drugs for the rest of the world India has the largest number of US FDA approved manufacturing facilities outside USA It was not product patent protection but its abolition which operated as a pull mechanism in India by provided the Indian companies the space of operations and the opportunity to develop and innovate Aided by the push programs of public investments in manufacturing and R&D, what Indian companies innovated are processes for manufacturing. And it is this capability which has permitted India to have an international presence and be a global source of drugs

Post-TRIPS Patent Laws (1995Present)

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

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

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 Indias innovation capability.

Govt. Regulations and Legal Aspects

Policy and regulatory framework (3/4)

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

State Food and Drug Administrations (FDAs)

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.

Laws and Acts : Pharmaceutical Industry

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)

The Drugs and Cosmetics Act 1940

The object of the Act is to regulate the import, manufacture, distribution and sale of drugs. Under the provisions of this Act, the Central Government appoints the Drugs Technical Advisory Board to advise the Central Government and the State Governments on technical matters arising out of the administration of this Act. The board can constitute subcommittees for the consideration of a particular matter

The Pharmacy Act 1948

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.

Registration of Pharmacists
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

The Drugs and Magic Remedies (Objectionable Advertisements) Act 1954

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; and b) the maintenance or improvement of the capacity of the human being for sexual pleasure;

Narcotic Drugs and Psychotropic Substances Act, 1985

This is an Act to consolidate and amend the law relating to Narcotic Drugs Its 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

Taxation System: Pharmaceutical Industry

'Tax'ing Indian Pharma

Direct taxes 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

Indirect taxes 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 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.

Issues with Taxation System

Indian - Bulk Drugs & Formln Lrg 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 & Formln Lrg 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 & Formln Lrg 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 & Formln Lrg 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

Issues with Taxation System

Indian - Bulk Drugs & Formln Lrg 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 & Formln Lrg 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.

Future expectations
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.

Comparative Analysis of Pharmaceutical Industry in BRIC Nations

Comparison with emerging economies China and Brazil

2005 Figures 2015 Projected Figures

Market Size

Market Size

Rank Country 9. 11. 14. China Brazil India

Market size USD 13 bn USD 9 bn USD 6 bn

Rank Country 5. 11. 10. China Brazil India

Market size USD 38 bn USD 20 bn USD 20 bn

Comparison with emerging economies China and Brazil

India 1 China Brazil

Patent Protection started from 2005.

Patent protection started in 1990s but strictly regulated from 2005

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 patent protected drugs is 9% in total market.

Share of Patent protected drugs is 5% in total market

Share of MNCs in the total market is almost 24%

Share of MNCs in total market is 25-30%

Share of MNCs in total market is 65-70%.

Future Outlook : Pharmaceutical Industry

Future Scenario
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
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

Predicted Future Growth

Vision 2020
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
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. Indias 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

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