Dear Neha,
INTRODUCTION
India's pharmaceutical market currently stands ninth in the world market for pharmaceuticals with a 1.5% share. The market was valued at more than $3 billion last year (1998). At its annual growth rate of 15% (almost double the world's 6% annual growth rate), this market is expected to reach $6 billion by 2001 and should more than double to $13.3 billion in 2006. India's official OTC market currently stands at over $130 million, and the industry's heart disease sector is expected to grow from $90 million now to more than $350 million in 2005.
Current demand in the Indian pharmaceutical sector stands at about $4 to $5 billion and is forecasted to increase at an annual rate of 15 - 20% in the future. Nevertheless, the average per capita expenditure on pharmaceuticals in India is only $3 compared to $412 in Japan, $222 in Germany, and $191 in the US. This is due in part to the prevalence of alternative healing methods in India, such as ayurvedic medicine and homeopathy, but also because prices for drugs have been kept artificially low by the Indian government. In fact, India's pharmaceutical industry is one of the most highly regulated industries in the country. Price controls have a strong effect on profitability in the industry, and weak patent protection poses a long-term threat to investment in India's drug market. Foreign firms also find it difficult to operate in India due to arbitrary Bureau of Industrial Cost and Pricing (BICP) pricing changes, arbitrary local FDA decisions, high import duties (about 42%), and complex import procedures.
However, while the pharmaceutical sector in India will most likely stay regulated in the short term, there are plans for reform. The sheer size and growth of India's domestic pharmaceutical industry are making it increasingly difficult for the government to regulate prices for every single firm, and pressure from the World Trade Organization is also speeding up discussions within the national government to improve patent protection. As a result, foreign pharmaceutical firms can expect improved market opportunities in India's enormous drug market over the next several years.
MARKET STRUCTURE OF THE INDIAN PHARMACEUTICAL INDUSTRY
The Indian pharmaceutical industry is highly fragmented -- there are now more than 20,000 domestic manufacturers of end-use pharmaceuticals, particularly because of the industry's low capital requirement and the lack of product patents. Only about 300 of these are in the organized sector. This structure causes intense competition, especially in the bulk drug markets, with profitability falling as demand expands.
For value purposes, drugs in India are generally classified into two categories -- bulk drugs and formulations. Due to India's low overhead costs, bulk drugs comprise the largest sector in the country's pharmaceutical market. India's bulk drug sector also makes up about 6% of the international bulk drug market. Drug intermediates are used as raw materials for the production of bulk drugs, which are either sold directly or retained by companies for the production of formulations. Formulations can be subdivided into generic drugs and branded or "ethical" drugs, the latter of which are made under process patent and sold under a separate brand name. Expected short-term growth for the two types of drugs has been 20% for bulk drugs and 15% for formulations.
The import of finished pharmaceuticals is almost negligible and confined to very specific types like anti-cancer drugs. In 1994, the import of drugs, pharmaceuticals, and intermediates was estimated at $450 million and included the following: antibiotics, penicillin and its salts, erythromycin and its preparations, vitamins and provitamins, vaccines (polio, human and veterinary), preparations containing insulin, caustic and other hormones, and tetracycline and its preparations.
Essential drugs comprised of antibiotics, antibacterial, anti-TB, anti-parasitic, and cardiovascular constitute a major portion of the turnover of the industry. Indian companies dominate this class of drugs with a market share of 71%. Multinational companies are reluctant to enter these markets as most of them are under government price controls.
REGULATORY ENVIRONMENT
There are two major government agencies responsible for drug regulation and control:
1) the Drugs Controller of India (DCI), and
2) the State Food and Drug Administrations (FDAs).
The DCI, under the Ministry of Health, has five main functions:
1) Controlling the quality of imported drugs,
2) Coordinating the activities of State FDAs,
3) Enforcing new drug legislation,
4) Granting approval to new drugs, and
5) Controlling the quality of imported drugs.
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.
Current Reforms: Maharashtra FDA
The most powerful state-FDA is located in the western state of Maharashtra, where the country's pharmaceutical industry has been concentrated for the past 46 years. Over 50% of manufactured drugs in India are currently produced in Maharashtra, and Maharashtra's FDA, therefore, plays a large role in determining national policy on the import and local manufacture of pharmaceuticals in India. It monitors drug quality and safety through pre- and post-licensing checks, as well as through periodic inspections and drawing drug samples from companies from time to time.
Maharashtra's FDA underwent some major changes over the past few years to improve its efficiency and raise its credibility. Under the present Commissioner, Anil Kumar Lakhina, the Indian FDA has revamped its structure, introduced a new drug management system, and instituted a new electronic drug renewal application procedure via its website. It has also started codifying all pharmacopoeial, patent, and proprietary combinations of drugs -- there are currently 50,000 drugs all licensed by the FDA, and 4,300 of them have already been codified.
Drug Application Procedures
Foreign pharmaceutical firms looking to export drugs to India must first obtain a license from DCI, which is granted upon assurance that the firm's manufacturer abroad complies with Indian production and safety standards. These standards are becoming more harmonized with international Good Manufacturing Practice (GMP) and ISO requirements. Next, before any drugs are released for import into India, the importer must submit the following documents to the Central Drug Control Organization:
1) documents of import (Bills of Entry),
2) protocols test and analysis,
3) a sample of the product(s) label, and
4) a drug sample.
The drug sample is tested by the government, which in turn releases a consignment to the importer if the test results approve the drug as meeting "standard quality." Importers are also permitted to import drugs for experiment, test research, or clinical trial under a test license.
Companies looking to manufacture drugs locally must go through a "preparatory" or Pre-Licensing Phase to show that their manufacturing facilities are up to standard. After being granted a license, the manufacturer must also produce a test batch of drugs that is approved by the government for safety.
All companies must also follow specific labeling requirements. Both importers and local manufacturers must label every product with the following information:
1) name of the drug;
2) a correct statement of the net content of the drug;
3) content of active ingredients;
4) name and address of the manufacturer;
5) batch or lot number preceded by the words "Batch," "B," "Lot No.," or "Lot";
6) manufacturing license number (if applicable);
7) number of the license under which the drug is imported (if applicable); and
8) date of manufacture and expiration date, which must not exceed 60 months. Pharmaceutical companies must have their label and pack insert approved by the DCI before the drug is marketed.
The specific requirements for drug approval and renewal of imported and locally manufactured drugs are available from the Maharashtra FDA. As mentioned above, drug renewal applications are now accepted via the web, but until computer signatures are legitimized, new drug applications will still have to be completed in hardcopy.
PRICE CONTROL
Since 1961, pharmaceuticals in India have fallen under heavy price regulation. Domestic drug prices in India are among the lowest in the world; the Organization of Pharmaceutical Producers of India (OPPI) says that year-on-year price increases for pharmaceuticals in the country are lower than the wholesale price index each year and considerably lower than the CPI. This applies to both controlled and decontrolled drugs, where increases were just 1.1% and 3.6%, respectively, for 1997 over 1996. This has severely affected the profitability of the industry, especially since the prices of basic raw materials and the costs of packing have shot up over the past five years. Pharmaceutical manufacturers have also suffered from high transaction costs, including obstacles and difficulties associated with administrative processes, dishonesty of public agents, delays in obtaining finance, and transportation bottlenecks.
Price controls are implemented under a Drug Price Control Orders (DPCO). Under Section 3 of the Essential Commodities Act, there have been four major revisions of DPCOs in 1970, 1979, 1987, and 1995. In 1995, the DPCO was revised twice -- once on January 6th and again on July 19th -- to coordinate the price descriptions of controlled and decontrolled formulations. Drugs falling under DPCO are generally either of the following:
1) those that have a minimum annual turnover of Rs 4 crore (US$1 million), and
2) those of popular use in which there is a monopoly situation (a monopoly in India exists if for any bulk drug, with an annual turnover of US$250,