ABSTRACT

Indian Pharmaceutical Industry.

Indian Pharmaceutical Industry is highly fragmented, with more than 20,000 registered
companies, with top 25 companies controlling 70% approx. of the Indian market. The major
hubs of Indian Pharmaceutical companies are well established in Maharashtra, Gujarat, Andhra
Pradesh, Himachal Pradesh (Baddi). 45% of the total number of manufacturing companies is in
Maharashtra and Gujarat. 70% of India’s demand is met by Indian Pharmaceutical Industry in
the form of Bulk Drugs, Intermediates, Formulations, chemicals, tablets, capsules, orals,
injections, powders, vaccines etc.

Indian Pharma industry was mainly operated as well as controlled by dominant foreign
companies – Multi National Companies (MNCs), having subsidiaries in India due to availability
of cheap labour and low cost. MNCs were controlling almost 70% of Indian Market. The 1970
Indian Patent Act, motivated industry for large scale of production of bulk drugs. This led to
the transformation of the Industry. The imports of the drugs got reduced, since; indigenous
drugs started replacing the same. This further led to an increase in consumption and
unprecedented growth in formulations activities. This growth was spearheaded by the Indian
companies. Slowly but surely, MNCs started losing their domination and a market share.

The environment was much favorable to Indian industries, which attracted many new
entrepreneurs. Dr.Reddys was set up in 1984, Sun pharma in 1983, Shasun in 1976, Aurobindo
in 1986, Divis Laboratories in 1990, Orchid Chemicals in 1992, Hetero Drugs in 1993. Most of
the Pharma companies operating in India, even MNCs, employ Indians almost exclusively from
the lowest ranks to the high level management. Like any other industry, homegrown Pharma
industry, is a mix of public and private enterprise.

Since 1990 until today!

The most rapid growth took place from 1990 in Pharmaceutical Industry in India. The production
of bulk-drugs and formulations increased sharply. Indian companies started dominating Indian
market and their share increased from 32% in 1970 to 77% in 2003, which is more or less stable
since then.
The growth can also be seen in Exports Market. By 1989, exports increased and India became
net exporter. Today, India occupies important position in Global Market. India started
developing cost-effective processes starting from basic stages and establishing world class
manufacturing facilities.

It is worthwhile to note that only patent act has not helped Indian Pharma industry. The
entrepreneurial spirit of the indigenous private sector, in true sense, developed the whole
industry and put an Indian Pharma Industry on a Global Map. Indigenous private sector was also
supported by public investments in Research and Development and manufacturing. Government
of India supported the Pharma Sector whole-heartedly. There is a close collaboration between
Government and Industry. Government of India supported the Indian Pharma industry, mainly,
by setting up CSIR (Council of scientific & industrial research) and two public sectors HAL
(Hindustan Antibiotics Ltd.) and IDPL (Indian Drugs and Pharmaceutical Ltd).

As a matter of fact, today, Government of India is thinking to have a separate ministry only for
Food/Drugs and Pharmaceuticals, to resolve the issues of Pharma Industry and further motivate
and assist for speedier development and develop further competency to take first position in the
Global Market.

Today, Indian Pharma Industry is the third largest player in the world, next to USA & Europe
and has been ranked third largest in terms of volume. Indian Pharmaceutical Industry is now
among the top five pharmaceutical emerging markets of the world.

Exports from India for pharmaceutical products are increasing at a compound annual growth rate
(CAGR) of 15-18%, according to Price Waterhouse Coopers (PWC) report of 2010. India is also
largest exporter globally of “Generic Formulations” in terms of volume. 60% of US market
demand of Generics is met by Indian Pharma Industry.

There will be new drug launches, new drug filings, clinical trials , increasing sales of generic
drugs, growth in chronic therapies, market penetration in rural markets and moreover increase in
higher-income group population, all these will have impact on increase in potential in domestic
market also. Domestic market is expected to grow from Rs.80,000 crs. per annum to
Rs.120,000 crs. per annum.
There is also a growth of biotechnology companies such as Biocon, Shantha Biotechnics etc.
Many large companies have also entered in biotechnology viz. Glenmark, Sun pharma,
Wockhardt, Ipca laboratories, Cadilla Pharma etc.

Indian Pharma came into limelight more due to the development of their own processes which
are far better than the innovators. They are more superiors and cost-effective. Few examples can
be quoted, like, IBUPRUFEN, CEFACLOR, VITAMIN C, VITAMIN B1, VITAMIN B6,
VITAMIN B12, SULPHAMETHOXAZOLE, TRIMETHOPRIM etc.

TOP 15 INDIAN PHARMACEUTICAL LISTED COMPANIES BASED ON 2014

REVENUES

(Table No. A.T1- Source: Business Standard Annual 1000, Feb. 2015)

Sr.No Name of the REVENUE Net % of net All India

company Rs. Crs. For Profit profit to Rank based
year 2014 Rs.Crs. revenue on the 2014
Revenue.
1 Sun Pharma 16709.1 3141.5 18.80 48
2 Dr. Reddys Lab 13848.4 1963.2 14.18 56
3 Lupin 11603.5 1836.4 15.83 70
4 Ranbaxy Labs 10991.5 -868.2 (Loss) 78
5 Cipla 10430 1388.4 13.31 82
6 Aurobindo Pharma 8225 1172.9 14.26 104
7 Cadila healthcare 7344.2 803.6 10.94 113
8 Glenmark pharma 6044.4 542.3 8.97 134
9 Jubilant life sci. 5921.4 109.0 1.84 138
10 Wockhardt 4845.9 840.7 17.35 160
11 Torrent Pharma 4276.4 663.9 15.52 177
12 Strides arcolab 3703.4 1413.4 38.98 205
13 Ipca lab 3365.4 478.5 14.22 215
14 Biocon 2932.7 413.8 14.11 247
It is
15 Glaxo smith kline 2819.1 481.7 17.08 254
wor
th noting that out of top 15 listed Pharmaceutical companies, based on 2014 revenues, only one
company i.e. “Glaxo Smith Kline” is MNC, all others are Indian.

Advantage India

Indian Pharmaceutical Industry has been the front runner in the wide range of specialties which
involves complex active ingredients (API) manufacture, bulk drugs, development, technology,
world class facilities, competent and highly educated and skilled manpower and moreover highly
organized sector, registering a growth of 15-18% annually.

Many drugs are processed very cost effectively. It provides wide range of bulk drugs right from
antibiotics to Anti-Aids, Anti-tuberculosis, vitamins, different types of vaccines etc.

India has a solid legal framework and strong financial markets. It has world-class educational
institutes and well carved Information technology.

India is committed to a free market economy and globalization.

Indian population is experiencing a shift in disease profiles. Traditionally, the acute disease
segment held a significant share of Indian Pharma Market. Now, market is experiencing growth
in Diabetes, Cardiology, Cancer and diseases related to Geriatrics like, Parkinson, Alzheimer,
Dementia etc.

Today, Indian Pharmaceutical Industry is facing many challenges like, DPCO (drugs price
control order), where the prices are controlled by the Government Of India, Investments
required to be done in R & D (Research & Development) and infrastructure, wage inflation,
tough competition in Domestic as well as in Global market, stricter rules and regulations from
regulatory point of view, counterfeiting drugs etc.
At the same time ample opportunities are also lying ahead, like growth in Exports, to be a key
player in Global Pharma Market as well as in the Global R & D, opportunity to tie up Marketing
with MNCs to sell their products in Domestic market, immense scope for clinical trials as India
is seen as an affordable and alternative center for holding clinical trials.

Of course, the focus of well-organized company, for value creation will be on all business
segments, including specialty, Generics (Branded, Complex and Pure), Active Pharma
Ingredients (API), and Abbreviated New Drug Applications (ANDA), R & D, Exploring New
Markets etc.

Statement of Problem :

In the world of Globalization, today Indian Pharma Industry stands at number 3, in the world
competition. Patent Laws, Stricter Regulatory Laws, Generic Market, Government interventions,
Investments required to be done for sustainability, Lean Management, meeting demands of
stakeholders, earning reasonable profits, and finally sustaining and remaining competitive in the
Global Space is a challenging task ! Thus, Indian Pharma Industry needs to focus on “COST
REDUCTION” as a strategy with definite target, developing a culture to that effect, improving
continuously in each & every activity, process & segment, motivating employees, and sustain the
cost reduction program itself for years to come!

Approach:

In order to study the different approaches, various tools and techniques being used by Indian
Pharma companies to achieve “cost reduction”, the geographical location of MUMBAI city,
the capital of MAHARASHTRA state was chosen since, most of the top Pharma companies are
having their registered offices and/or commercial/materials offices located in the city.

The research conducted is of descriptive and analytical in nature. Questionnaires were sent to the
respondents and later on personal and formal as well as informal discussions were held. Many a
time, informal chats have given insights to the problem areas, which are captured and recorded in
further part of the discussions of the thesis.

Conclusion:
The study shall assist practicing professionals in Pharma Industry, especially from the field of
Materials Management/ Supply chain management, to focus more on non-valuable, inconsistent,
& irrational activities, improve continuously, thereby, reducing the costs across the Materials
Management. The great success in achieving cost reduction can be done by motivating and
empowering employees, at the same time even studying hidden factors at management level &
employees’ level affecting an achievement of cost reduction. The study shall also bring
awareness of cost reduction not only in direct materials but also in indirect materials, which
remains neglected area, to a large extent. The inferences drawn would throw more light on 360
degree area related to cost reduction. This will help professionals to capture all aspects and
improve further.

Limitations:

The study was restricted to Mumbai region only and for selective top companies in Pharma
Industry. More companies from different states might have thrown more light in the concerned
area. The restricted area of research has limited to that effect. However, this would not hinder the
general observations made for the Pharma Industry in India. There is a lot of scope to study the
practices being observed by small scale, medium scale and the challenges faced by them in
achieving cost reduction, since; their materials management is not organized by the
professionals and most of the things are owner driven.

Moreover, being sensitive area, questions were drawn limiting the factor of candidness &
confidentiality. Thus the successes and failure part on account of tools used & finally on
account of management’s approach in totality towards ‘cost reduction’, have limited the scope.