01/B

Indian Pharmaceutical IndustryPEST Analysis

Ankush Gupta MBA- Pharmtech 4th year 01/B

Indian Pharmaceutical industry

Indian domestic pharmaceutical industry has been growing at record levels in recent years but now has unprecedented opportunities to expand in a number of fields. The Indian pharmaceutical industry industry's position as a world leader in the production of high-quality generic medicines is set to reap significant new benefits as the patents on a number of blockbuster drugs are scheduled to expire over the next few years. In addition, more and more governments worldwide are seeking to curb their soaring prescription drug costs through greater use of generics. These opportunities are presenting it not only in developed markets such as the U.S. and European Union nations but also in emerging economies with vast populations such as Africa, Latin America, Brazil & Russia. In addition, India's long-established position as a preferred manufacturing location for multinational drug manufacturers is quickly spreading into other areas of outsourcing activities. Soaring costs of R&D and administration are persuading drug manufacturers to move more and more of their research and clinical trials activities to the subcontinent or to establish administrative centers there, capitalizing on India's high levels of scientific expertise as well as low wag. A large market will likely open up as the result of a projected boom in health insurance, an area in which the country is currently underdeveloped. New government initiatives seek to enable the majority of the population to access the life-saving drugs they need, while even greater opportunities may be presented by the rise of the new Indian consumer. Untapped rural sector is also highly attractive to the pharmaceutical MNCs, which recently have started to focus in India. There have been various collaboration between MNCs and domestic companies to work together, to utilize each other's strengths for their mutual benefit. For the

foreign firms, this includes not only the Indian companies' research and manufacturing capabilities and their much lower operational cost levels, but also comprehensive marketing and distribution networks operating throughout India's vast territories. However, there are number of uncertainties about new patent regime which was introduced on January 1, 2005. Previously, only process patents were granted, a situation that led to India's current role as a world leader in the production of high quality, affordable generics. The new product patent regime may spell the end for the domestic sector's smaller players, while for others it could represent unprecedented opportunities.

Pest analysis
A PEST analysis is concerned with the environmental influences on a business. The acronym stands for the Political, Economic, Social and Technological issues that could affect the strategic development of a business. Identifying PEST influences is a useful way of summarizing the external environment in which a business operates. Political Factors Currently India is lacking a central leadership and power is divided into several regional parties. There is no definite policy for development, it continues to change. There are ideological contradictions which led to India to be weak investment designation. Recently S&P has downgraded Indias status to BBB-, lowest in investment categeory. The Ministry has been threatening to impose even more stringent Price Control on the industry than before. This is throwing many investment plan into the doldrums. DPCO nullifies the market

forces from encouraging competitive pricing of goods dictated by the market. Now the pricing is determined by the Government based on the approved costs irrespective of the real costs. From January 2005 Indian patent amendment act.,This Act will impact the Pharmaceutical Industry the most. Thus far an Indian company could escape paying a patent fee to the inventor of a drug by manufacturing it using a different chemical route. Indian companies exploited this law and used the reverse-engineering route to invent a lot of alternate manufacturing methods. A lot of money was saved this way. This is the biggest change the environment is going to impose on the industry. The marketing effort would be now focused on logistics, communications, and economy of operation, extra-ingredient innovations and of course pricing In pharma industry there is a huge PSU segment which is chronically sick and highly inefficient. The Government puts the surpluses generated by efficient units into the price equalization account of inefficient units thereby unduly subsidizing them. On along term basis this has made practically everybody inefficient. Government has shifted from charging the Excise Duty on the cost of manufacturing to the MRP thereby making the finished products more costly. Just for a few extra bucks the current government has made many a life saving drugs unaffordable to the poor. Government provides extra drawbacks to some units located in specified area, providing them with subsidies that are unfair to the rest of the industry, bringing in a skewed development of the industry. As a results Pharma units have come up at place unsuitable for a best cost manufacturing activity.

Economic Factors India spends a very minimal portion of its GDP on healthcare (1%). T h i s has stunted the demand and therefore the growth of the industry. Per capita income of an average Indian is low thus spending o n the healthcare takes a low priority. An Indian would visit a doctor only when there is an emergency. The incidence of Taxes is very high. There is Excise Duty (State and Central Custom Duty, Service Tax, and Profession Tax, License Fees, Royalty, Pollution Clearance Tax, Hazardous substance (Storage & Handling) license, income tax, Stamp Duty and a host of other levies and charges to be paid. On an average it amounts to no less than 40-45% of the costs. The number of registered medical practitioners is low w h i c h h a v e negatively impacted pharma industry. There are only 50, 00,000 Medical shops. Again this affects adversely the distribution of medicines and also adds to the distribution costs. India is a high interest rate regime. Therefore the cost of funds is double that in America, this adds to the cost of goods. Adequate storage and transportation facilities for special drugs are lacking. A study had indicated that nearly 60% of the Retail Chemists do not have adequate refrigeration facilities and store drugs under sub-optimal conditions. This affects the quality of the drugs administered and of course adds to the costs. Therefore the transportation time is higher. This calls for higher inventory carrying costs and longer delivery time. All this adds to the invisible costs. Its only during the last couple of years that good quality highways have been constructed.

Socio-cultural Factors Poverty and associated malnutrition dramatically exacerbate the incidence of malaria and TB, preventable diseases that continue to play havoc in India decades after they were eradicated in other countries. 42 % of children in India are undernourished. Poor sanitation and polluted water sources prematurely end the life of about 1 million children under the age of five every year. In India people prefer using household treatments handed down for generations for common ailments. The use of magic/ tantrics/ /hakims is prevalent in India. Increasing pollution is adding to the heathcare problem Igno ran ce of in oculation and vaccination h as p rev ented th e erad ication of d iseases like polio, chickenpox, mumps and measles. People dont go in for vaccination due superstitious beliefs and any sort of ailment is considered as a curse from God for sins committed. Smoking, drinking and poor oral hygiene is adding to the healthcare problem Early child bearing affects the heath standards of women and children.

Technological Factors Advanced automated machines have increased the output and reduced the cost. Advanced research infrastructure to provide research and clinical trial activities. Newer medication, molecules and active ingredients are being discovered. The Government of India has more than 10,000 substances for patenting.

 Advances in Bio technology, stem cell research have given a step forward. Human insulin, hepatitis B vaccine, AIDS drugs and many such molecules have given the industry a pioneering status Newer drug innovations. The huge unemployment in India prevents from going fully automatic as the Government as well as the Labor Unions voice complains against such establishments

There are some other factors are here which also seems important when considering impact of external factors on industry. These areEnvironmental factors: Environmental factors include the weather and climate change across India from one place to another. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a significant issue for manufacturing firms to consider. With growing awareness and strict regulation to protect the environment is having an impact on manufacturing facilities ( stringent control over pollution control and waste management issues) and the general move towards more environmentally friendly products. Legal factors: These are related to the legal environment in which firms operate. The introduction of age discrimination and disability discrimination legislation, an increase in the minimum wage and greater requirements for firms to recycle are examples of relatively

recent laws that affect an organisation's actions. Legal changes can affect a firm's costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service). Recently product patent regime comes into existence before process patent was there. this causes a significant change in overall structure of Indian pharmaceutical industry. MNCs are focusing on Indian market and involved in aggressive marketing. MNCs are also trying to capture the market through inorganic growthby M&A activities. It will push Indian pharma industry into back era of 1970 when MNCs were dominating in Indian market. It will spell the end of local small domestic players