Why can't India make high quality products
The Indian pharmaceutical industry came to the fore in 2001 when the second largest Indian pharmaceutical company, Cipla, offered countries in Africa an AIDS drug for US $ 300 that costs US $ 12,000 in the US. This was possible because the Indian company made an "all-in-one generic pill" that contained all three active ingredients for an AIDS treatment. This type of production is significantly more difficult elsewhere because the patents for it from three different companies Ultimately, the drop in prices was based on the lax patent law in India.
Because there was no effective patent protection in India from 1970 to 2005, many Indian pharmaceutical manufacturers copied expensive original preparations from foreign manufacturers and produced them using alternative manufacturing processes. This was more cost-effective than the expensive development of original preparations, because in the end the financial risk of doing your own research was eliminated. This block of expenditure can reach up to € 600 million for one drug. So far, such funds could only be raised by large corporations in industrialized countries. The competitiveness of generics manufacturers is determined by cost-efficient production, in which Indian companies are currently ahead. As a result, India's share of the global generics market is, at a fifth, noticeably higher than in the pharmaceutical industry as a whole (around 2%). This is why India is also known as the "pharmacy of the poor". This is important not least for the domestic market, because around 140 million of a total of 192 million Indian households have no more than € 1,900 available per year and can therefore buy expensive western ones Cannot afford preparations.
New patent law since 2005
The Indian pharmaceutical industry has been in a state of upheaval for several years. The main reason for this was the amendment to the patent law in 2005. Previously, it was not the active ingredient itself, but only the manufacturing process that could be patented for seven years. Because of this Indian patent protection legislation, there used to be repeated disputes with large western pharmaceutical companies, especially from the USA. As is customary internationally, the industry is now subject to product and process patents with a term of 20 years.
From 1996 to 2006, the subcontinent's nominal pharmaceutical sales increased by 9% annually and thus expanded noticeably faster than the global pharmaceutical market as a whole (+ 7%). The Indian companies expanded their capacities considerably and made the country largely self-sufficient. Nevertheless, India, with industry sales of around € 10 billion, only has a share of just under 2% in the world pharmaceutical market (1996: 1.5%). The country ranks 12th internationally, behind Korea, Spain and Ireland and ahead of Brazil, Belgium and Mexico. In Asia, the Indian pharmaceutical industry ranks fourth with 8%, but lost market share to China because sales growth there was almost twice as high and sales volume was almost four times higher than in India.
The Indian pharmaceutical industry consists of around 20,000 licensed companies with around 500,000 employees. In addition to many small companies, there are also internationally known companies such as Ranbaxy, Cipla or Dr. Reddy's. With sales of around € 1 billion, Ranbaxy is now the seventh largest generics manufacturer worldwide. The most important segment on the domestic market is currently infectious agents with a quarter of sales. This is followed by cardiovascular preparations, pharmaceuticals to combat colds and pain relievers, each with a tenth. In contrast, drugs against lifestyle diseases (e.g. diabetes, asthma, obesity) and so-called lifestyle drugs such as anti-depressants, cessation agents for smokers and anti-wrinkle agents are currently of little importance. In total, the Indian pharmaceutical industry produces around 70,000 different drugs, i.e. more than are produced in Germany (60,000).
Compared to the large industrialized countries, the importance of the Indian pharmaceutical industry - despite the high growth rates - is still very low. In the USA, sales are 14 times higher, in Japan five times and in Germany four times higher. The difference in per capita sales is even more impressive. In the western industrialized countries it comes to an average of € 400 per year, which is around 40 times more than in India.
Growth through higher population numbers
High growth rates in the gross domestic product, a rising population and, as a consequence of the first two factors, an increasing middle class are the drivers of the Indian pharmaceutical market. The pharmaceutical industry in India is receiving a strong boost from population growth. According to estimates by the UN, the population is likely to increase from the current 1.1 billion to 1.4 billion by 2020. By 2020, there will be as many people in India as there are today in Germany, France, Great Britain and Italy. In 2025, India is likely to have replaced China as the most populous country on earth. The increase results not least from the higher life expectancy. This is due, among other things, to improved preventive healthcare. Of course, the average life expectancy in India is still well below that in Western countries. While it is 64 for men in India and 66 for women, in Germany it is 76 and 82 years, respectively.
The aging of Indian society offers significant market opportunities. According to an estimate by the UN, the proportion of the population aged over 65 is likely to increase from currently 5 to 8% in 2025. That would then be around 55 million over 65-year-olds more than today. Accordingly, typical age-related diseases such as cancer and cardiovascular diseases will also increase. The industry is also receiving impetus from the gradual spread of lifestyle diseases such as obesity and diabetes.
The development of "original" drugs is increasing
Since 2005, the Indian pharmaceutical industry has no longer been protected by lax patent law. Innovation must therefore now take precedence over imitation. Large manufacturers have been adapting their business models and accelerating drug research for some time. You don't want to limit yourself to producing cheap generics in the long run. While a number of companies are well positioned in the generic market, many of them aim to mature into research-based companies. However, manufacturers in this segment are exposed to strong international competition. It will therefore be many years before India becomes a serious competitor for Western pharmaceutical companies with its patented products. According to the company, around 40% of sales at the drug manufacturer Ranbaxy in 2012 come from in-house developments, which would be around a tenth lower than that of similarly large western pharmaceutical companies. In order to increase the speed of development and to share the financial risk, strategic alliances between Indian and foreign companies are likely to occur more frequently.
The leading Indian companies now spend almost a tenth of their income on research and development, but the rate for large western companies is 20%. Dr. Reddy's started a basic research program in 1994, followed by Ranbaxy and Wockhardt in 1997. Last year, twelve companies were involved in researching new active ingredients. They concentrate on drugs against malaria and AIDS, because the demand potential in these segments is very high.
115,000 new chemists per year
The highly qualified personnel of the Indian pharmaceutical industry, despite the low labor costs, made it possible to offer high-quality products at competitive prices at a relatively early stage. Around 115,000 chemists in India graduate with a diploma each year and around 12,000 with a doctorate. In contrast, the numbers in Germany are significantly lower at just under 3,000 and 1,500, respectively. After many chemists from India emigrated abroad in recent years, they are now increasingly assessing their development opportunities in their home country, so that in the coming years fewer will go abroad or even return to their home country from abroad.
Attractive location for clinical studies
Despite the disadvantages in some areas, the Indian pharmaceutical companies are playing their competitive advantages over the traditional manufacturers in the western industrialized countries. The labor costs of the Indian pharmaceutical industry are around 30% of the European level or 20% compared to the USA. Overall, pharmaceutical production in India is up to 50% cheaper than in western industrialized countries. India is an attractive research location for international pharmaceutical companies primarily because of its low development costs. Clinical tests can be carried out more easily and often produce even more accurate results. This is due to the fact that, thanks to the larger population, significantly more suitable test subjects can be found in India than in the West. Medicines are only approved for the market after they have been successfully tested in a series of human tests. To do this, companies usually need several thousand people per drug. This means that around 100,000 volunteers have to undergo a preliminary examination. Drug manufacturers in the West have often failed because their test subjects were already taking a number of other drugs, so that the effect of the new drug could hardly be proven. In addition, around 40 to 70% of the test persons jump off again here. In contrast, the companies in India report a stamina rate of well over 90% for their test subjects, not least because participation in the test is associated with an improvement in their income. However, a problem could arise here if ethical aspects gain more and more importance because too little attention is paid to side effects due to the relatively high monetary incentive.
Several large international companies have already discovered India as a location for clinical studies. Eli Lilly is currently running several projects in India, where Pfizer is testing drugs against malaria. The market for contract research in India could reach almost € 2 billion by 2010, compared to € 600 million in 2006. Overall, the world market for contract research is likely to grow from € 8 billion by 2010 to € 20 billion.
Custom production is gaining in importance
Indian companies also see lucrative business opportunities in contract manufacturing for international pharmaceutical groups. The capacities for this are largely available after the massive expansion of the facilities for generic production. Ranbaxy, for example, already produces for the German companies Hexal and Ratiopharm. According to an analysis by the India Brand Equity Foundation (IBEF), total contract production worldwide amounts to around € 25 billion, which should increase to around € 40 billion by 2010. The growth is mainly due to the relocation of production for such preparations, whose patent protection is about to expire. Building a pharmaceutical factory in India is around 40% cheaper than in Europe or the USA, and the production costs of pharmaceuticals are significantly lower. These cost advantages also mean strong incentives for Western companies to relocate.
For western pharmaceutical companies, the Indian market has become attractive again after the improvement in patent protection and capital protection. According to the Indo-German Chamber of Commerce, 20 German pharmaceutical companies have already committed themselves to India.
Increasing investment abroad
The expansion of Indian pharmaceutical companies abroad is likely to continue in the coming years. One example of the global orientation of Indian pharmaceutical companies is Ranbaxy. The company now exports to 125 countries, has branches in almost 50 countries and has production facilities in more than ten countries. The US has now become the company's most important market. Most recently it achieved almost 30% of its sales there and almost 20% in Europe. Overall, the company makes around 80% of its sales abroad.
In recent years, for example, Ranbaxy has acquired companies in Romania, Belgium, Italy and France and aims to become the fifth largest generic drug manufacturer worldwide by 2012. Wockhardt was active in Germany and Great Britain and Candila in France. At the beginning of 2006, Dr. Reddy's bought the German generics company Betapharm for just under € 500 million.
The German market is so attractive for Indian companies because the generic prices are relatively high in international comparison. Compared to Great Britain, a generic in Germany costs almost 50% more. So it is not surprising that the Indians do not want to leave the lucrative German market to large German generics manufacturers such as Ratiopharm, Hexal and Stada alone.
Forecast for the Indian pharmaceutical industry through 2015
Overall, DB Research expects pharmaceutical sales in India to grow by 8% annually to almost € 20 billion between 2006 and 2015. The growth rate is higher than that for Germany (+ 5% p.a.) and for the world as a whole (+ 6%). Nevertheless, India's share of sales in the global pharmaceutical market only increases marginally to a good 2%.
The growth of the pharmaceutical industry in India and thus the share in the world pharmaceutical industry could be even higher if the infrastructure problems can be eliminated quickly. Because the Chinese pharmaceutical industry and the branch in Singapore are likely to show much higher growth in the future, India is even losing market share in Asia.
Overall, the proportion of pharmaceuticals in total chemicals in India was around 17% in 2015 (2006: 18%), compared to 28% in Germany (24%); for the world as a whole, the rate is likely to be only slightly below the German level (25%).
Although the pharmaceutical industry in India is growing rapidly, the needs of the population cannot be met from in-house production in all segments. At € 1.5 billion, the country's total pharmaceutical imports are currently on the same scale as Norway's entire pharmaceutical market. Imports are likely to continue to increase in the future.
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