Chapter-VI

FINDINGS & SUGGESTIONS

This chapter addresses mainly the Findings of the study and the
Suggestions for the problems what we found. It is considered that these Findings
and Suggestions will help the companies significantly in monitoring the physical
and financial performance.
The Indian pharmaceutical industry, which is now meeting over 95% of the
country's pharmaceutical needs, was almost non-existent before 1970. With the
compound annual growth of 19.8% the industry has grown from Rs.4 billion in
1970 to Rs.290 billion in 2003. The pharmaceutical sector has shown tremendous
growth over the years. About 250 Indian pharmaceutical companies hold 70% of
the market share with top players controlling about 7% of the market share.

On 1st January 2005, the Government of India issued patent ordinance

according to which the Indian pharma companies can no longer produce patented
drugs. So now the companies have started exploring new business opportunities,
including contract research (drug discovery and clinical trials), co-marketing
alliances and contract manufacturing.

A few years ago, investment in R&D was as low as 0.001% of the total R&D
worldwide, but now companies are focusing on drug discovery and R&D. They
are spending over 5% of their turnover on R&D e.g. Wockhardt (8%), Cipla (4%),
Cadila (4.45%).The value of Indian Over-The-Counter Medicines (OTCs) market
is over US$ 940 million and is growing at the rate of 20% per year. There are
about 61 US FDA approved plants in India, which will help Indian companies
grab the opportunity of contract manufacturing.
 Several large companies in the Indian pharmaceutical industry have healthy
balance sheets, with moderate levels of debt, and high gross margins & ROCE (in
more recent times however there has been some pressure on the gearing and
ROCE of several pharmaceutical companies following large investments for
organic/inorganic growth). These characteristics help these companies cope with
the uncertainties related to investments in product development and entry into
regulated markets. A strong balance sheet also gives a company favorable access
to both the equity and debt markets, which in turn allows flexibility in funding
growth plans and managing liquidity. Besides strong balance sheets higher rated
entities in the industry exhibit stable cash flows through revenue streams that are
diversified among markets and product categories, stable product pipelines, and
strong distribution networks. With the investment requirements being large, lack
of economies of scale can also significantly impair a company’s risk profile,
especially in the emerging product patent regime.
Beginning in the early 1970s, the U.S. government encouraged
manufacturers to make duplicates of big drugs and sell them cheaply in the
country. In the mid-1990s, Indian companies searching for overseas revenue
streams began pushing into the U.S., where chronically high prices for prescription
drugs created a ready market for generics. Dr. Reddy's, for example, was one of
the hundred companies in the United States that over the years knocked off
everything from the antibiotics to the specialized drugs. DRL now generates one-
third of its sales in the U.S. To speed up approvals for generic firms filing for
approvals in the U.S. markets, the FDA formulated some statutory approval
mechanisms like 505(b)(2) new drug application, which drug makers can use if a
generic drug they are trying to sell is not a virtual duplicate of an original patented
drug. It is the most preferred route for seeking approval because it allows the
chemistry of the copycat drug to differ slightly while keeping the main ingredients
the same and it also doesn't mandate a proof of safety and effectiveness.
When Indian drug makers like Dr. Reddy's, Ranbaxy and Cipla etc. decide to
crack the global markets they do not simply wait for the patent to expire, as many
generic drug makers do. Instead, they turn to lawyers and ask them to exploit a
loophole in an existing patent, and consequently, file legal challenges on a range
of drugs that seemingly have years of exclusive sales left.

With their new strategy, Indian generic drug makers do not even challenge a
patent directly, rather they argue that their product doesn't infringe on patent
protection because it is made of different ingredients, even though it has the same
effect as a branded drug.

Indian pharmaceutical companies are also leaving other countries behind in

the race to grab a share of the huge U.S. market. Worldwide, 37 percent of the
Drug Master Files submitted last year came from India, the largest share of any
country. In the first six months of the current calendar year, Indian companies
filed 58 Drug Master Files (DMFs) - nearly double the number of DMF filings in
the corresponding period last year and more than the combined filings from the
next five countries. This is in sharp contrast to the situation a few years back. In
2000, Indian companies had 40 DMF filings, second to 44 by Italian companies.

One reason Indian companies are doing so well in America is that they have
learned to exploit U.S. patent laws that two decades ago were amended to allow
for the sale of copycat pharmaceutical products. After the US, it is now destination
Europe for Indian pharma companies. While domestic majors such as Ranbaxy, Dr
Reddy's and Wockhardt have already set shops in Europe, Zydus Cadila has just
made its entry by acquiring Alpharma France. Wockhardt also lapped up the UK-
based CP Pharmaceuticals, which has helped it to get into the top 10 generic
companies in that country.
 The Indian pharmaceutical industry is at the crossroads: on the one hand,
opportunities are emerging in the developed markets, while on the other; the
domestic market is becoming increasingly challenging following the introduction
of the product patent regime. In developed markets, the focus on reducing
healthcare costs has been increasing, with the result that there is pressure on the
authorities to allow early introduction of low-cost generic drugs. This in turn
points to large opportunities for Indian drug manufacturers with approved facilities
and sound knowledge of patent/regulatory issues.
Besides, the impending expiry of significant drug patents in the near term
also offers opportunities for lower-cost Indian generic manufacturers in terms of
greater market access. However, even as there are opportunities, the challenges are
many: drawing up appropriate distribution strategies, selecting the right products,
and anticipating competition, among others.

NEED FOR STUDY:

Till now public attention in this country has been focused so much on the
profitability and liquidity of corporate finances. Further more, no studies were
made on Pharmaceutical industry in connection with examining the relationships
between liquidity, profitability and financing. However, the Indian Pharmaceutical
Industry has been contributing to the social well being of the country by playing a
multi-faceted role of discovering, developing, and manufacturing and also
distributing quality medicines. As a result, the average life expectancy, a leading
health and economic indicator, improved in India form 41.32 years in the 1960s to
62.9 years in 1998-99 and the mortality rates declined from 146 per thousand
births in 1960-61 to 69 per thousand births in 1998-99 (Swain etc, al., 2002, p.5).
The signing of GATT (now WTO) has included a series of changes in the industry
and continues to guide the growth and development of the industry. Thus, to know
about the Indian pharmaceutical industry, we have taken Pharmaceuticals
companies as base and they have been selected in the present study.
OBJECTIVES OF THE STUDY:
In the study an attempt is made to examine the changes in structure of
finance in Pharmaceutical Industry in India during 1976 to 2006. The principle
objectives of the study are:

i. Analyzing the growth and working of the Pharmaceutical Industry in India

with a special reference to the comparison of Large and medium selected
companies in terms of production, productivity, investment, profitability
employment generation, contribution to exchequer etc;

ii. Examining the trends in the profits of the Pharmaceutical industry in India
and identifying the reasons for the low profits of the industry;

iii. Analyzing the financial performance of the Pharmaceutical Companies due

to the structural changes in Finance.

iv. Analyzing the sources of finance in Pharmaceutical Industry and studying

how far the low profitability and high pay-out ratios are responsible for the
fall of internal sources;

v. Studying the capital structure of the Pharmaceutical industry and its impact
on the profitability and liquidity and finally

vi. Suggesting suitable measures for the efficient and effective functioning of
Pharmaceuticals in general and selected companies in particular with
special reference to problems of Profitability, Liquidity and Finance.

ANALYSIS AND PRESENTATION OF DATA:

Methodology: The way of using the methods to present the data in research is
Scope of the Study:
The present study covers the structural changes in finance of
Pharmaceutical industry. Many important financial variables like profitability,
financial controls are covered in the study, in order to find out the broad problem
areas and overall trends in finance function of the companies. Further, the other
non-financial problems, even though, having impact on the profitability and
finances of the concern were not included in the study. As such, the study does not
cover the issues related to industrial strikes, absenteeism industrial relations, labor
productivity, political interference etc.,

Selection of Samples:
The criterion adopted for the selection of companies in the studies is the
size of their paid-up capital, as it is the only characteristic for which information is
available at the population level. The objective is to have maximum coverage,
industry-wise, in terms of paid-up capital and to include as many representative
units as possible from various industries consistent with the twin parameters of
time and resources. The list of selected companies is revised constantly with a
view to improving the paid-up capital coverage and the representative character of
the selected companies. The number of selected companies along with their paid-
up capital in Pharmaceutical companies Ltd was presented in Table 2.1.

Sources of Data:
The study is based on the Secondary data collected from the following
sources: Data for the period 1976 to 2006 has been obtained from the published
Annual reports and Accounts of Pharmaceuticals companies formed the main
source of data for the study. Apart from this, information is also tapped from
journals, magazines and news papers like Monthly RBI Bulletin, capital market,
Express pharma pulse, Business Line, Financial express etc. The Websites related
to Pharma and Large Public Limited companies.
 TABLE -2.1
NUMBER AND PAID-UP CAPITAL OF SELECTED COMPANIES OF
PHARMACEUTICAL INDUSTRY IN INDIA DURING 1976-2006

NO.OF PAID-UP
YEARS COMPANIES CAPITAL (RS IN
SELECTED LAKHS)

1976-1977 52 2805

1977-1978 52 2813

1978-1979 51 3370

1979-1980 52 3708

1980-1981 52 4405

1981-1982 55 5100

1982-1983 55 7241

1982-1983 64 7637

1983-1984 64 7978

1984-1985 66 8421

1985-1986 66 8407

1986-1987 66 9201

1987-1988 66 10421

1988-1989 76 11073

1989-1990 76 11626

1990-1991 71 13419

1991-1992 71 13858

1992-1993 76 16043

1993-1994 76 18964

1994-1995 61 21991

1995-1996 61 27352
 1996-1997 67 28073

1997-1998 67 32266

1998-1999 67 43895

1999-2000 79 39866

2000-2001 103 31528

2001-2002 103 30611

2002-2003 103 29676

2003-2004 114 62028

2004-2005 147 90691

2005-2006 147 101317

Source: RBI, Financial Statistics of Joint stock companies in India

Statistical Tools:
While analyzing the data, simple quinquennial averages have been used and
computed. Statistical tools like multiple regression analysis, R-Test and T-test are
used in the study. Abbreviations are used for certain terms, which are repeated
number of times.

Period of the Study:

The overall performance of the Pharmaceutical Companies in India has
been studied for 30 years starting from 1976-1977 to 2005-2006. Thirty periods is
taken so that the study would be meaningful in focusing the attention on the
structural changes of finance in the pharmaceutical industry.

Limitations of the Study:

Since the study has been based upon the secondary data, all the limitations
inherent to the secondary data will also be applicable to this study. The following
are the limitations study:
a) Efforts were made to secure as much information as possible from various
sources. Since the companies follow different approaches in computing the
data and defining the concepts, there may be certain discrepancies in the
interpretation of data

b) While calculating the liquidity, profitability and solvency ratios of the

organization theoretical approach is adopted. Hence there may be some
discrepancies between ratios of research scholar and the data furnished in the
reports.

c) Lastly the study extends over a long period 30 years from 1976-2006 during
which inflation has obviously taken a heavy toll of the ‘real value of the
rupee’.

FINDINGS OF THE STUDY:

Some findings were found out in the study period. They are:
Profitability:
The efficiency of the business concern is measured by the amount of profits
earned. The larger the profits, the more efficient and profitable the business is
deemed to be. The efficiency of a business concern is measured by the amount of
profits earned. The larger the profits, the more efficient and profitable the business
becomes. Profitability has been considered to a great extent one of the main
criteria to judge the extent to which the management has been successful in
efficiently utilizing the funds at its disposal, or in other words, how far the
management has been successful in maximizing its profits or minimizing its
losses.
The analysis on the key profitability ratios of the Pharmaceutical industry
reveals that the profitability of the industry was high during almost all years of the
study period (1976-2006) when compared with Public limited companies in terms
of gross profit as percentage of sales, gross profit as percentage of total income,
Rate of Return and Return on Stock holder’s equity. The comparison of
Pharmaceutical industry with that of average of Public limited companies reveals
that the profitability ratios of the pharmaceutical industry was high when
compared to public limited companies during the study period (1976-2006).
The analysis on the cost structure of the Pharmaceutical industry reveals
that the gross profit of the industry declined due to the increase of manufacturing
expenses which reveals around 56.7% in Pharmaceutical industry as against to
Public Limited Companies (63.2%). It can be observed from the table that the
manufacturing expenses are increasing from 53.5% during the years 1976-1981 to
57.6%-60% in the years of 1981-1996; further it fall down to 55.8% in the years
1996-2001;further it reduced to 53.5% in the last years of 2001-2006.
The analysis of components of Gross profit viz interest, tax provision and
PAT reveals that the PAT of the pharmaceutical industry was low increase of
gross profits and increase of interest rates up to 1990’s from 1970’s resulted in
lower profits after tax in the same periods. On the whole, period of the study leads
to low PAT (46.8%) due to the increase in the borrowings and cost of borrowings
increasing the burden of the company’s taxation. However, the profits after tax
inclined due to the increase in the commitments of the companies sector towards
interest and tax during 2000’s. Where as Public limited companies almost
maintains low margin even though there was substantial increase in the interest
burden it was mainly due to the maintenance of low gross margin and fall in
corporate taxes.

Profitability plays a very crucial role in the determination of future

investment in any industry. But the analysis on the growth of capital formation of
the pharmaceutical industry reveals that the capital formation of the industry
increased though the profitability is low. This was mainly due to the liberal
assistance schemes of the Government of India and other financial institutions to
modernize the industry and save it from the present crisis.

Finances of the Industry:

The important sources of finance for Pharmaceutical industry in India are
Share capital, equity and preference, debentures, public deposits, loans from
commercial banks and term lending institutions, trade dues and other current
liabilities, depreciation provision and retained earnings.
The analysis on the sources of funds of the Pharmaceutical industry reveals
that the industry depended excessively on external sources during the 30 years
study period (1976-2006). The contribution of external funds to the total funds of
the Pharmaceutical industry during this period on average was 66.7% and that of
the internal sources accounted for the remaining 33.3%. The external sources
exceeded the internal sources for 20 out of 30 years of the study. As against the
contribution of internal sources was 28.9 percent in case of the public sector in
India and 71.7 percent in case of many developed and developing countries.
The pharmaceutical industry in India should have accumulated huge
amounts of reserves and surplus and stabilized now. But unfortunately, the
dependence of the industry on the external sources has been increasing not
because of the growth of industry but because of the fall of internal funds. The
industry is almost deccumulating its reserves year by year. All the major
components of internal sources viz, provisions, reserves declined while the
industry almost capitalized its reserves constantly during the period.
The major components of external sources of pharmaceutical industry are
borrowings trade dues and fresh issue shares. The industry’s reliance on
borrowings was on average 45.9 percent. The share of Trade dues is continuously
reducing the dependence as a source of finance during the decade. On the
contrary, the pharmaceuticals dependence on the capital market declined during
the study period.
 The comparison of the sources of funds of the pharmaceutical industry with
the public limited companies reveals that the pharmaceutical industry is depending
less on external sources of funds. Though the public sector is undergoing fund
constraints the financial crisis that is in existence in pharmaceutical industry is
prevailing in any other industry in the public limited companies.

Internal sources played an important role in financing the capital formation

of many industries in developed and developing countries. But unfortunately the
contribution of internal sources for financing the gross capital formation,
particularly the gross fixed assets declined during the last 30 years of the study.
The analysis of the components of internal funds reveals that the reserves
and surplus occupied an important prime place followed by provisions and paid-up
capital. The internal sources of the industry declined mainly due to the fall in the
provisions, particularly the provision of depreciation, followed by capital.
Further analysis on the reasons for inadequate retained earnings reveals that
the industry is mainly unable to retain more of its profits due to low profits and
maintenance of dividend at higher rates irrespective of profitability. The corporate
taxes did not have any impact on the profitability of the industry as claimed by
many. The industry paid fewer dividends while comparing to the averages of
public limited companies.
The analysis on the role of depreciation provision reveals that the
depreciation provision declined substantially particularly after 1980’s. This was
mainly because of the increasing cost of fixed assets due to persistent inflation in
the country. The industry was unable to replace of its assets due to inadequate
depreciation and consequently the investment in fixed assets also fell sharply.The
Pharmaceutical industry on average raised new capital from the capital market to
the extent of 2.2 percent during the 30 years of the study. The low or nil return is
mainly responsible for keeping the investors aloof from the industry.
 Of the borrowings, the borrowings from the banks declined during 1981-
1986’speriod and later after the period 1986-1991 the borrowings raise due to the
nationalization of banks and diversion of more funds of the banks to the industry
as a consequence of the implementation of the recommendations of the Dahejia,
Tandon and Chore Committees.
The borrowings from the term lending institutions on the other hand were
reducing after 1980’s. The development banks in India particularly IDBI have
increased their contribution substantially to the pharmaceutical industry. The
provision of funds under the soft loan scheme of IDBI for modernization of the
industry helped the industry in securing more funds from the special financial
institutions. The other schemes including modernization loans, special loans also
helped the industry in securing more funds from special financial institutions.
The other sources for the financing of the industry were declining after
1980’s due to non-payment of interest and principal to the debenture and public
deposit holders by many companies in the industry.
The contribution of the trade credit and other current liabilities were not
more and dependence on the credit was good as long as its increase in loans and
advances. But excess of dependence on the trade credit the industry leads to the
problems. Though the Pharmaceutical industry is depending less on the trade
credit with comparing of the public sector and consequently the liquidity of the
pharmaceutical industry was impaired due to the dependence upon trade credit.

Capital Structure and Its Impact on Profitability & Liquidity:

The decision of evolving a proper ratio for debt-equity is not merely
academic as the consequences flowing from it are vital and have a direct bearing
on the profitability of the industries. A high equity proportion or a high loan
proportion is not desirable, since both the extremities result in some inherent
disadvantages to the enterprises. Hence there is a need to strike balance between
debt and equity. The academic people as well as the institutions in the western
countries paid good attention in the area of capital structure in the financial
management of the under takings. Little work was done in India in this particular
area.
In India, the controller of capital issues while giving permission for raising
the capital generally insists on debt equity ratio of 2:1. However, in cases of
capital intensive industries, projects in priority sector, projects established in
backward areas etc. high debt-equity ratio of 4;1 and some times 6:1 may be
permitted.
As against this norm the pharmaceuticals in practice used more of equity.
However, the debt equity ratio of pharmaceutical industry has been fluctuating the
ratio during the 30 years of the study. It rose from 0.24:1 during 1976-1981 to
0.38:1 during 1981-1986, 0.43:1 during 1986-1991 & 1991-1996, decreased to
0.27:1 during 1996-2001 and further inclined to 0.34:1 during 2005-2006. The
total borrowings as percentage of equity is increased substantially over the last 30
years except in the decade 1996-2001. The pharmaceutical industry depended less
on debt when compared to Public limited companies.
The analysis on the components of equity reveals that reserves and surplus
plays an important role followed by provisions and equity share capital, preference
share capital. Over the years the equity declined continuously due to fall in
reserves and surplus and preference share capital. The analysis of the components
of debt capital reveals that Borrowings from other sources followed by debentures
, public deposits have been taken an important role.
The present capital structure of pharmaceutical industry is no doubt below
2:1 which is generally acceptable to the financial experts and the Controller of
Capital Issues in India. What ever may be the debt-equity ratio the main problem
to be taken into consideration is whether a particular company or an industry can
manage it with more financial risk. As long as the company or industry maintains
profitability and service the debt capital, there is no problem. The problem arises
only when the company or industry, fails to maintain the required rate of return.
 The analysis on the impact of capital structure and the profitability reveals
that the interest as percentage of gross profit and total income of Pharmaceutical
industry fluctuated due to the fluctuations in the amount of debt and cost of debt
and in gross profits. The interest as percentage of Pharmaceutical industry is with
in the limits though it shows inclining stage while comparing to Public limited
companies. Thus, the Pharmaceutical industry was escaped from the debt trap due
to the raise in the owner’s funds and substantial fluctuations in the debt followed
by the profitability of the industry. The financial risk of the Pharmaceutical
industry has been decreasing and there is every need to maintain high profits of
reduces the debt of the pharma industry, so that the optimum capital structure may
be obtained.
Liquidity Position:
The maintenance of adequate liquidity is vital to the success of any
company. Measured in terms of either technical liquidity or operational liquidity
the position of the Pharmaceutical industry was not much eroded over the period
of the study. The analysis of the current ratio, quick ratio and absolute liquidity
ratio of Pharmaceuticals reveals that these ratios were below the accepted norms.
Infact there was a decline in some of these ratios during some years.
The pharmaceutical industry’s interval ratio was 66.1 days as against to
public limited companies (68.1) days that means the public industry is having
sufficient liquid assets to finance operations even if it doesn’t receive any cash
than pharmaceutical industry. On the whole the NWC ratio is greater in
Pharmaceutical industry while against to public limited companies.

SUGGESTIONS:
There is no comprehensive study which recommended measures for the
financial management of the industry. It is in this context the following
suggestions are offered:
1. Need for Increasing Profitability:
 It was confirmed that the main cause of low capital formation in
Pharmaceuticals because of low profitability. To increase the capital formation in
the companies they require adequate profitability. The following suggestions are
given to the companies to increase the profitability.
a) Reducing Total Costs:
The government may reduce various taxes and duties. But it is not a
panacea. It does not guarantee that profit will rise or that investment will continue
to rise. Its benefits could be lost if rising business costs lead either to inflation or
to further pressure on profits or both. Conversely, the benefits of tax reduction can
be greatly enhanced if business costs can be reduced. The responsibilities for
controlling the rise in business costs are to be shared by management, employees
and government. However, management has the primary responsibility for
controlling costs by seeking more efficient ways of making and marketing
products.
The pharmaceutical industry is characterized by low fixed asset intensity
and high working capital intensity (ICRA 2002). The Material cost, Marketing and
selling cost and Manpower Cost constitute the three major cost elements for the
Indian pharmaceutical industry, accounting for close to 70% of the operating
income. In the past 6-7 years, material costs, which account for almost 50% of the
operating cost have declined owing to the decrease in prices of bulk drugs and
intermediates, increase in exports which enabled procurement of raw materials in
large quantities and hence at low prices and finally due to increase in production
efficiencies. On the other hand, the marketing and selling expenses, comprising of
promotional expenses, trade discounts, advertising and distributing costs; and
freight and forwarding costs have increased in the past few years owing to the
increase in emphasis on sales of formulations. This increased focus on marketing
partly lead to the increase in the manpower costs of pharmaceutical companies
during the last decade. The other factor for the increase in the manpower costs, at
least in case of a few companies might be due to an increase in R&D efforts,
which requires quality research personnel.
From the analysis of the study is that the Pharmaceuticals were having
effect on profitability due to the total cost where as the percentage of total cost is
85% during the study period which effects on the gross profit.
b) Increase of Retained Earnings:
A system of finance that has evolved in the Pharmaceutical industry over
the last three decades has begun to run into some constraints. With the present
institutional and regulatory frame work it is likely that the industry will face the
difficulty in obtaining increased funds from various sources for meeting fixed and
working capital requirements.
In view of this, the industry should immediately take steps for increasing
the retained earnings. No doubt the present rate of profitability is the biggest
hindrance for the industry in the way of increasing the retained earnings. However,
efforts may be made by the industry to increase the retained earnings to stand on
its own legs. In order to encourage companies to save more and plough back the
profits, certain incentives and disincentives are necessary.
i)Tax on Distribution of Dividends: Even though, the pharmaceutical industry
on the whole is not paying high dividend some companies are distributing
bumper dividends every year. Hence, the government may think of imposing tax
on the distribution of dividends above 15%. However, in order to compensate for
the loss, the restrictions imposed on bonus shares may be withdrawn. But the
restrictions on both dividends and bonus shares are not good as they lead to fall
in private investments.
ii) Other Methods: From the company’s point of view efforts in other directions
may also be made to bring additional funds from inside the business. For example
if debt collection is pursued strictly and in a planned way, some liquidity can be
brought to business. Among tangible assets also it may be found on examination
that there may be some excess land or buildings etc., over and above the
company’s requirements which may be disposed off. The obsolete or worn-out
machines should be turned into cash at the earliest possible opportunity.
Additional funds can be tried by introducing austerity measures in the normal
functioning of business. Money not spent is money saved and frequently an
overhaul of this nature brings with it excellent results.
c) Price Control:

One of the biggest issues facing the pharma industry relates to the price
control regime. The objective of price control was to ensure adequate availability
of quality medicines at affordable prices. While this is a laudable objective, the
price control system restricts domestic companies from generating investible
surpluses. The product patent regime will make it obligatory for Indian companies
to invest in R&D if they want to survive. Similarly, the WTO led global trading
system will result in import tariffs coming down. For Indian companies to
compete with cheap imports, they will have to invest in cost-effective and high
quality technology and processes. Therefore, the onset of both the product patent
regime as well as tariff reduction will make the requirement for investible
surpluses more important than ever before. In this context, a liberalized price
control regime becomes even more important.

Impact of Price Control:

The Drug Price Control Order (DPCO) controls consumer prices of several
drugs in India. Lower dependence on DPCO-controlled drugs is generally viewed
positively by ICRA. However, the scope of DPCO has been decreasing over the
last few years (currently 74 bulk drugs, accounting for 25-27% of the total
domestic market, are within the ambit of DPCO). However, there could be
significant changes in the functioning of DPCO in the product patent era. Price
monitoring and control in the Indian pharmaceutical industry would continue to
evolve as the dynamics of the industry change in the coming years. ICRA would
monitor these developments on an ongoing basis to assess their impact on the
industry participants.

2. Need For The Increasing Of The Internal Sources:

As the industry is depending less on internal sources has led to the
problems of inadequate liquidity the industry was failed to meet the obligation of
interest and repayment of principal. Infact there were instances where the share
holders of companies in this industry did not receive many dividends while
comparing to the public limited companies and the rate of return was also low
which reduces the interest in share holders to invest in the companies of the
industry. In these circumstances, what is required is the increasing of internal
sources through the following ways.
a) Increasing of Share capital: The Pharmaceutical industry have accumulated
huge amounts of reserves and surplus and stabilized by now. But, unfortunately,
the dependence of the pharmaceutical industry on the external sources has been
increasing not because of the growth of Pharma industry but because of internal
funds. The industry is almost decumulating paid-up capital year by year. All the
major components of internal sources viz. provisions, share capital declined while
the industry almost capitalized its reserves constantly during the period. So the
industry was suggested to issue the shares and increased the internal sources
towards total sources of funds.
b) Increasing of Provisions:
Infact, Provisions which are inclusive of depreciation, taxation and other
current and non-current provisions like dividends and contingencies occupied
prime place among the internal sources in financing the operation of the private
enterprises. In discussions on company finance, may attention is paid to the
acquisition of new capital and explosion policies but the maintenance of original
investment in a company is also equal importance and it has however not received
much consideration. The replacement of worn out assets is normally financed from
the funds set aside for depreciation out of profits made during the active life of
assets. From the financial point of view, depreciation has been the largest single
source of internal funds.
The analysis on the role of depreciation provision reveals that the
depreciation provision declined substantially particularly after 1970’s. This was
mainly because of the increasing cost of fixed assets due to persistent inflation in
the country. The pharma industry was unable to replace its assets due to
inadequate depreciation and consequently the investment in fixed assets also fell
sharply. The declining of provision of depreciation shows effect on the internal
sources. So the industry was suggested to reduce the cost of fixed assets which
leads to rise of internal sources.
3. Need To Reduce The Dependence upon External Sources:
In the sources of Financing of working capital there are External and
Internal Sources. Mostly external sources play an important role in financing
pattern than Internal Sources. In the study the External sources were playing an
important role than internal sources in Indian Pharmaceutical industry. The
industry were having more external sources of finance and finding the industry in
difficult situation in financing pattern of working capital. So the suggestion for the
industry is to reduce the dependence of external sources.
a) Issue of Shares: Issue of Shares is the important source for raising the
permanent or long-term capital. A company can issue various types of shares as
equity shares and deferred shares. According to the Companies Act, 1956 how
ever, a public company cannot issue deferred shares. Preference shares on the
preferential rights in respect of dividend at a fixed rate and in regard to the
repayment of capital at the time of winding up the company. Equity shares do not
have any fixed commitment charges and the dividend on these shares is to be paid
subject to the availability of sufficient profits. As far as possible to make the
finance easier for the industry are suggested to reduce the maximum amount of
permanent capital by issue of bonus shares and increase the value of the firm.
b) Public Deposits:
Another good source of finance available to the industry is the acceptance
of deposits from public. Public deposits are the fixed deposits accepted by a
business enterprise directly from the public. This source of raising short-term and
medium-term finance was very popular in the absence of banking facilities. Public
deposits as a source of finance have a large number of advantages such as very
simple and convenient source of finance, taxation benefits, trading on equity, no
need of securities and an inexpensive source of finance. They provide a good
source of short and medium term credit. As the Pharmaceutical industry were
maximum depending upon these sources of finance.
c) Bank Borrowings:
Other important external sources of finance are bank borrowings. As the
bank borrowings on average formed more than half of the total sources of funds
during the period of the study in the Indian pharmaceutical industry. So the
industry was suggested to reduce the dependence on these sources of finance.

3. Need For Maintaining Balanced Capital Structure:

Excessive dependence on external sources leads to imbalanced capital structure.
The present debt-equity ratio is no doubt below the norm of 2:1. But with the
present profitability the industry was unable to maintain the situations. The
financial risk of the industry has been fluctuating. In this context the industry
should strive to arrive at a balanced capital structure from two counts: Firstly,
there is an urgent necessity for increasing the profitable of the industry somehow.
Secondly, the industry should try to secure fresh investment in the form of equity
and preference or convertible debentures. It is here that the government may help
the industry by giving more fiscal incentives to the investors.

4. Improving Liquidity Position:

 The inadequate liquidity position of the industry is paying the way to so
many troubles and disadvantages. The industry, therefore should strive hard to
increase the liquidity position. This may be possible by immediately selling the
excess lands that the industries own in the cities. However, in the long run the
liquidity position of the industry can be improved only when the industry is made
to stand on its own legs.

5. Investment Opportunities Should Rise In Indian Pharmaceutical Services:

Not too many folks consider India when thinking of pharmaceutical

services. That is changing. The pharmaceutical service sector had been somewhat
late to the outsourcing party compared to the IT sector. But it is expanding quite
well. According to research firm Frost & Sullivan, the pharmaceutical outsourcing
business in India will grow to around $7 billion by 2013. Currently, India conducts
about 1.5 percent of the global clinical trials. This could rise to five percent by end
of 2008 and 15 percent by 2011. Outsourced pharmaceutical manufacturing
activity in India is expected to cross $1bn by 2010

The pharmaceutical services include those related to pre-clinical services,

manufacturing, radiology reviews and clinical trials.

6. Strategies Should Play In Coverage Of Manufacturing Costs:

There are two general strategies for product manufacture at reduced prices
for developing countries. One is to work with the major pharmaceutical firms,
either by requiring them to provide products at near-production cost to patients in
developing countries or by purchasing products from them at developed-world
market cost and distributing them in the developing world at a subsidized price. It
is probably not in the drug industry’s economic interest to price differentially, but
the industry could be persuaded to do so on the basis of its own sense of public
service, especially if combined with specific legislation or with the threat of
compulsory licensing.(The industry already supplies donations.) Most likely, the
international donors—probably primarily the taxpayer in the developed world—
will pay a price that covers the production cost and a portion of the R&D costs of
the product. For vaccines, international entities already obtain products for the
developing world at enormous discounts with prices on the order of $0.50 per
immunized child.

The alternative approach is to produce the products under compulsory

license either in a private-sector generic industry, whose fixed costs are distributed
over a fairly large market, or in a public-sector generic industry, whose fixed costs
are covered by the public. This approach offers competition as a way to lower
prices, rather than necessarily requiring dependence on an administrative
determination of an appropriate price. Moreover, it might offer new opportunities
for production within the developing world, something that would be extremely
popular politically with economic leaders of developing countries. Having the
threat of the second approach could make the first approach more possible or
decrease the cost to donors. It is also possible that India—or a global entity—
might choose to subsidize the fixed costs (or at least permit these costs to be
covered by higher prices to Indian consumers) so that an Indian industry can
export to poorer developing countries at a reasonable price. There is already a
debate in Canada over ways to encourage the Canadian industry to produce
generic drugs for export, and a bill has been introduced to facilitate this process.

7. Efficient Management Of Working Capital:

i) Managing current assets Structure properly: The finance literature describes
the current assets as those assets can be converted into cash with an accounting
year or within the operating cycle which ever is greater. Some times these assets
may not be converted into cash strictly within this stipulated period, but are still
included in the category of current assets. As the pharmaceutical industry was
given importance to inventory and receivables where as other components were
given least importance. So the industry was suggested to maintain the proper
structure of current assets.
ii) Changing Structure of Current Liabilities: Current liabilities are those that
are payable within the next accounting year or operating cycle. Normally all those
liabilities that are required to be paid within a period of one year are regarded as
current liabilities. As the Indian pharmaceutical industry depended more on Trade
dues and other current liabilities which effects on the liquidity of the industry. So
the industry was suggested to depend on other components of other current
liabilities also.
iii) Increasing Working Capital Turn over: This ratio measures or helps in
knowing the efficiency in the management of working capital. As there is much
gap in the Indian pharmaceutical industry which to be met by bank borrowings
and long-term sources of funds. So the industry was suggested to be increased
working capital gap to reduce the borrowings during the study period.
8. Excess Of Liquidity To Be Invested:
The present liquidity position of the industry is low and the inadequate
liquidity position of the industry is paving the way to so many troubles and
disadvantages. The industry, therefore, should strive hard to increase the liquidity
position.
9. Others:
The suggestions offered so far are mainly related to the financial aspects of
the companies. Besides there are various non-financial issues that effect the
financial performance of the companies. Let us now discuss some approaches to
find a solution for mitigating their impact on the financial objective of the
companies.
a) To Over Come The Delays In Launch Of New Drugs: Weak patent regime
discourages innovating firms to launch new drugs in India, and therefore causes
loss of welfare to Indian patients be denying access to newer and better treatment
of their diseases. While this argument may hold some water for countries with low
or no reverse engineering capabilities, it certainly a far fetched one in the context
of India. In fact, the delays in launch of new drugs have considerably declined
over the past decades, much due to strong reverse engineering R&D capabilities of
Indian firms. It becomes evident from some examples of blockbuster drugs a drug
qualifies for Blockbuster status when its annual global sale is more than one
billion dollars. Blockbuster drugs are assumed to derive much of their popularity
in the market due to some “major therapeutic gains” (indeed, surprisingly
although, major therapeutic gains are rare qualities among newly discovered
drugs! According to US Food and Drug Administration only about 10 per cent of
new drugs are considered to bring about critical improvement in medical
treatment. All other new drugs only brought about marginal gains over existing
drugs, although with higher prices).

b) To Over come The Impact of Globalization on the Indian Pharmaceutical

Industry: At the time of independence, the total drug production in our country
was around Rs. 10 crores. At that time the MNCs taking the help of the colonial
Patent and Designs Act, 1911 exploited the drug market of our country. They were
engaged mainly in the import of drugs from their country of origin. Between 1947-
1957, 99% of the 1704 drugs and pharmaceutical patents in India were held by
foreign MNCs. During that time the MNCs who were controlling 80% of the
market did not come forward with financial investment and technological help to
establish drug production centers in India. Drug prices in India were amongst the
highest in the world. In 1954, the first public sector drug company Hindustan
Antibiotic Ltd. (HAL) was established with the help of WHO and UNICEF. The
Indian Drugs and Pharmaceutical Limited (IDPL) were established in 1961 with
help from the Soviet Union. The establishment of these two public sector units and
the coming into force of the Drug Policy of 1978 had been mainly responsible for
the availability of drugs and medicines at relatively lower prices in India. The
country became almost self-sufficient in the production of drugs.
 Developed countries are backing their own big companies to capture
markets in other countries even at the cost of the interest of the people there. The
United States has successfully battled for the inclusion of strict intellectual
property rules in international trade agreements such as NAFTA and GATT. Often
the U.S. position has literally been drafted by Pharma. These trade agreements
disregard public health considerations and have forced dramatic changes in the
intellectual property rules the world over. Still Pharma is not satisfied. And when
Pharma is not happy the office of U.S. Trade Representative (USTR) is not happy,
says the editorial comment of Multinational Monitor.

The above comments clearly indicate the intention of the USA and other
rich nations. Unfortunately, the Government of India is dancing to their tune.
Against this, it is necessary to develop and launch broad-based movements
everywhere with the active support of people hailing from all walks of life to force
the government to change their stand.

c) Pharmaceutical Firms should turn to Rural Areas:

The Indian pharma market in rural areas - below class VI towns - has
witnessed a 39% growth to Rs 5,779 crore in the year ended November 2006,
against 18% for the overall domestic pharma market, according to ORG-IMS, a
research based consulting firm. This is in stark contrast with previous year's
growth. Pharma rural markets had witnessed a 21% growth in the year ended
November 2005, and a modest 9% growth in 2004. "Increasing competition and
market saturation in metros is leading pharma companies to enter newer markets,"
said ORG-IMS managing director Shailesh Gadre. Besides, since India's
commitment to the WTO's intellectual property regime in January 2005, the
window of drugs available with a patent prior to 1995 is becoming smaller. As a
result, pharma companies are no longer able to launch new drugs in plenty every
year, constraining them to look at new growth strategies in the domestic market.
 While new product launches used to contribute to a large share of
revenues, they now contribute to only around 1% of the market. Expansion of
health infrastructure in rural areas has allowed this change. "Increased government
spending in roads, telecommunication and health infrastructure has enabled
pharma companies to foray into relatively distant pockets of the market.The states
of Assam, West Bengal, Madhya Pradesh and Andhra Pradesh have notably
recorded growth in the range of 26-46% in the year ended November 2006. "Many
States such as Orissa, Uttar Pradesh or Bihar are however still very far behind,
points out Shah. Poor infrastructure remains a major issue in these regions, making
it difficult for the industry to foray into these markets.

Pharma sales in Orissa, Bihar and Uttar Pradesh for instance, witnessed a
relatively moderate growth at 14%, respectively. "There is still significant scope
for growth in India's rural markets. Penetration of the pharma industry in rural
India remains considerably lower than that of FMCG companies for instance.
According to ORG-IMS estimates, the domestic pharma market should
grow at a CAGR of 13-14% in the next five years. "Abnormalities such as the
outbreak of diseases due to flooding, and mosquito-related diseases, have
contributed to 2-3% of growth in 2006. Rural areas should continue to fuel the
domestic pharma market's growth, as more players finalise their rural plans.

In rural areas, contagious, infectious and water borne diseases such

as diarrhoea, amoebiasis, typhoid, infectious hepatitis, worm infestations, measles,
malaria, tuberculosis, whooping cough, respiratory infections, pneumonia and
reproductive tract infections continue to dominate the morbidity pattern. However,
non-communicable diseases such as cancer, blindness, mental illness,
hypertension, diabetes, HIV/AIDS, accidents and injuries are also on the rise.

According to a recent study conducted by the George Institute for

International Health in 45 villages in east and west Godavari districts of Andhra
Pradesh, diseases of the cardiovascular system, such as heart attacks and stroke
caused 32% of deaths in this region.

Death from injury (self-inflicted injury, falls, etc) was the second
most common cause (13%). Infectious diseases, such as tuberculosis, intestinal
infections and HIV/AIDs caused about 12% of deaths, just ahead of cancer that
caused 7% of deaths. So the industry was suggested to turn over to the rural areas.

d) Pharma Majors should Line up Plans for Retail Business: Pharma firms like
Ranbaxy, Zydus Cadila and Himalaya and chains such as Apollo Pharmacies,
Medicine Shoppe and Guardian Lifecare are expanding their footprint across the
country, while big firms like Reliance are planning to enter the pharma sector with
a network of 4,000 pharmacies over the next four years.
The Ranbaxy promoter group is making a foray in pharma retail
through a new company, Fortis Health World, which plans to setup 400 stores at
an investment of Rs 800 crore over the next five years. The other pharma major,
Zydus Cadila has invested in Dial for Health which plans to grow to 210 stores,
while herbal healthcare company - Himalaya Drugs - plans to set up 521 stores
over the next three years. It is also talking to Reliance Retail to set up stores at
their proposed malls and hypermarkets.
Over the next few years chains will also set shop within malls and
departmental stores. Some retail chains such as Subiksha are offering discounts on
medicines.Guardian plans to have 3500 stores over the next 8 years. Chains such
as CRS Guardian offer alliances with hospitals and pick-up services for
pathological tests to draw customers. So the Indian Pharmaceutical industry was
suggested to chain up pipes for retail business of small companies.

e) Diversification: The foremost problem faced by the companies was lack of

diversification. In our opinion diversification is necessary growth of companies
and those companies that performing well should be given more opportunities for
further extensions in different sectors. This acts as good stimulant to the
executives who take many pains in running the companies since they can be
rewarded with further high position. As so many companies were expanding
business not only in manufacturing of the medicines and they were entering into
the biotechnology field. But some companies of the pharmaceuticals were not
concentrating in the field of biotechnology and remaining as exporters and
manufacturers of the medicines.

f) Product Mix: Indian companies need to attain the right product-mix for
sustained future growth. Core competencies will play an important role in
determining the future of many Indian pharmaceutical companies in the post
product-patent regime after 2005. Indian companies, in an effort to consolidate
their position, will have to increasingly look at merger and acquisition options of
either companies or products. This would help them to offset loss of new product
options, improve their R&D efforts and improve distribution to penetrate markets.

g) Research and Development: Research and development has always taken the
back seat amongst Indian pharmaceutical companies. In order to stay competitive
in the future, Indian companies will have to refocus and invest heavily in R&D.

The Indian pharmaceutical industry also needs to take advantage of the

recent advances in biotechnology and information technology. The future of the
industry will be determined by how well it markets its products to several regions
and distributes risks, its forward and backward integration capabilities, its R&D,
its consolidation through mergers and acquisitions, co-marketing and licensing
agreements.
h) Over comes the Competition: In some industries, competition is no longer
domestic, but global and increased competition from abroad makes the global
market place seem an increasingly smaller place. Many firms have now realized
that they need to provide increased quality and speed of the delivery of products
and services as well as decreased costs if they are to maintain a competitive
advantage. So the companies were suggested to over comes the competition in the
markets at domestic and global levels.
i) R&D Costs Should Increase: Discovery Research and New Drug Delivery
Systems programmes can be conducted at very competitive rates. India also has a
well-established network of research labs and a strong pool of skilled scientific
personnel. The success of a few companies in this area has also demonstrated to
the rest of the industry that investments in R&D can yield handsome returns.

On the negative side, however, R&D activities in India are adversely

impacted by lack of financial resources, inadequate regulatory framework which
relates to a host of issues such as lab-testing of animals; outdated and inadequate
patent office; long delays in getting required approvals for conducting trials, to
name a few problems.

Besides liberalization of the price control regime, the R.A.Mashelkar

committee set up by the government has proposed a series of recommendations to
deal with these and other issues for boosting R&D activities in the country. The
report deals with a wide range of issues, such as fiscal incentives and an
appropriate R&D regulatory framework and its recommendations should be
expeditiously implemented to give an impetus to R&D activities. The
recommendation regarding exemption from price control of companies, which
meet the five standards specified by the committee, deserves special attention.

j) Time to Meet Market: Research and Development in the Life Sciences

industry includes all processes of medicine discovery, scientific development, and
preclinical and clinical evaluation. In order to identify product pipeline gaps,
identify the products with the best market opportunities, and efficiently run R&D
projects, timely information across the global enterprise is key. SAP's solutions
enable customers to optimize investments, by assessing budget, costs and risks as
well as forecasting and planning resource capacity. Customers can realize
increased efficiency and accelerated development times by capturing critical
information across development (e.g. analytical testing, product & packaging
specifications), optimizing the Scale-up process and reducing the clinical trial
supply cycle time and regulatory submission compilation time. Productivity can be
enhanced by efficient collaboration within the company and with business
partners.
k) Industry Should Seek for Product Quality :As regulatory agencies continue
their close global vigilance on the manufacturing practices in the Life Sciences
industry to improve drug quality and safety, companies are also under increasing
cost pressures that forces them to manufacture their products more efficiently. A
key differentiator is the ability to enforce compliance throughout the
manufacturing process. Achieving this goal requires the ability to improve product
quality by decreasing the manufacturing variability therefore reducing the risk of
non-compliance. An increase in production efficiency can be realized by
integrating key information across the organization including capturing quality
and equipment information into one system of record that can be easily
maintained. This single view of the manufacturing data and processes will lead to
a consistent and compliant batch record.
l) Product Safety should maintain by industry: Regulatory agencies in the Life
Sciences industry are vigilant in assuring the safety of medical products at all
stages in the product lifecycle - manufacturing, distribution and consumption or
usage. Those companies that excel at proactively managing product safety
continuously improve their product quality. The solutions help customers maintain
one global system with consistent information regarding all complaints; gain
visibility on the progress of investigations and increase speed of communication
and issue resolution. Reporting and trend analysis on a global level allows
companies to anticipate potential product safety issues by utilizing early warning
signals to support corrective actions. The goal of drug tracking and tracing is to
prevent unsafe product from entering the supply chain by establishing a secure
electronic pedigree so that every unit of medication is authenticated.
m) To Over come the Mass Ending of Jobs situation in India by the Industry:
With the reduction of the customs duties on foreign imports many drugs
manufactured in India have become unviable compared to the foreign goods in the
Indian market. As a result, the owner of these factories are closing down their
units and throwing the workers out of employment. Messrs. Boehringer Mannheim
and Parks Davis who were the lone producers of Chloramphenicol in India
stopped their production as its prices in the international market were cheaper than
the cost of production in India. M/s. Sarabhai Chemicals closed their Vitamin 'C'
plant for a similar reason. Like Chloramphenicol and vitamin 'C' many other drugs
like paracetamol, metronidazole, ampicillin, amoxycillin etc. are available at a
cheaper price in our country from abroad because of the lowering of the customs
duties so that Indian factories have closed and workers are on the streets. For the
above drugs our country has became dependent on foreign supply.

Some of the companies have opened new smaller factories in new places
and appointed workers with lower wages and more workload. More casual
workers are being appointed. In the last two years in the Mumbai Thane region of
Maharashtra around 30,000 workers have lost their jobs in the pharmaceutical
industry.Apart from the factory workers the distribution workers are gradually
being replaced by Cost & Freight agency system. In this system, the original
company does not have any responsibility for the workers. They are employed by
agents with more workload and lower wages. In the last decade around 15
thousand distribution workers have lost their jobs in the pharmaceutical industry.
Moreover, through the agency system the Government is deprived of sales tax.

In marketing also the field workers or the sales promotion employees are
facing tremendous attacks in the name of franchise, co-marketing, appointment of
communicators etc. many permanent sales promotion employees are losing their
jobs. Many others are appointed in the name of so-called executives to remove
them from the fold of the union. More casual and contractual workers are being
recruited.

n) Drug Companies to Stop Freebies to Doctors:Pharmaceutical companies

should decided to apply a code on themselves, restricting travel, gifts, shopping
and entertainment expenses offered to doctors for promotion of medicines.The
code, drawn up by Organization of Pharmaceutical Producers of India which
represents companies that control nearly two-thirds of the medicine market. The
organization said the curbs are in line with international standards and support
self-regulation through compliance. The code also seeks to restrain companies
from making tall claims while promoting medicines. It says that promotion of
medicines should encourage the appropriate use by presenting them objectively
and without exaggerating their properties.

o) Pharma Industry Needs SEZs: Special Economic Zones (SEZs) are of

particular interest to India's pharmaceutical industry, both in absolute terms and in
relation to the competition, particularly from China whose meteoric rise as an
economic superpower in Asia can be attributed at least in part to its foresight in
setting up SEZs some 30 years ago. Coming bundled, as they do, with an attractive
tax environment, world-class infrastructure, decentralised administration, and a
liberal labour environment, China's SEZs have, overall been a resounding success.
The first SEZ, a sprawling 100,000 acre complex in Shenzen, has alone managed
to attract over $30 billion in direct investment and the 49 state level zones across
China account for more than 70% of all FDI enterprises in the country. Beijing is
fast becoming China's leading biotech centre, boasting several biotech parks
designed to meet US FDA standards.

Already a major competitor to India in the export of APIs (active

pharmaceutical ingredients), China is set to run India close in other pharma
segments as well. It's making rapid strides in biotechnology, for instance, thanks to
a combination of beneficial policy changes, increased programme funding, low
labour costs and reorganisation of the science and technology system. Chinese
biogeneric manufacturers already market 361 recombinant biogenerics and 25
biotech drugs. China currently produces eight of the world's top 10 genetically
engineered drugs or vaccines. The revenue 'from biopharmaceutical production in
China reached levels of $4.2 billion in 2005, up from $860 million in 2000, and
it's growing at 20% to 30% per year.

India is the world's fourth largest pharmaceuticals producer with an 8%

share of global production by volume and 1.5% share by value. The industry
produces bulk drugs belonging to all major therapeutic groups requiring
complicated manufacturing process and has also developed excellent Good
Manufacturing Practices (GMP) compliant facilities for the production of different
dosage forms. India is home to the largest number of pharmaceuticals plants (61)
approved by the USFDA outside the US, and the country accounts for the largest
number of annual drug filings with the USFDA. Export growth over the last five
years has been over 20%, with the US being the largest market. In biotechnology,
India has already been identified as one of the emerging leaders in the Asia-Pacific
region. Several Indian companies have already started producing biotechnology-
based drugs for diseases such as cancer and diabetes.

Given our acknowledged strengths in the pharma industry, it's imperative

that we step up the momentum, particularly in manufacture and exports. In this
context the importance of SEZs cannot be over emphasised, from the point of view
of concentrating scares management and infrastructure resources on an effective
programme rather than spreading them over too thinly. The benefits of SEZs can
be optimised through active linkage programmes, adequate social and
environmental safeguards, and private sector involvement in their development.
Other requisites for a successful SEZ such as excellent connectivity, efficient
communication and power facilities and finally good social infrastructure need to
be ensured.In sum, the Indian pharma biotech industry stands to be well served by
SEZs. They will boost manufacturing exports, attract much needed FDI, increase
foreign exchange earnings and create more jobs. Overall, the SEZs are sound in
principle and, if well executed, could fetch considerable dividends over the long
run.

p) To beware of Production of Duplicate Drugs: The industry should be aware

of duplicate production of drugs. As the impact of patents act and globalization to
bear the expenses it was becoming difficult for the small units in the
Pharmaceutical industry. To over come the huge expenditure and to earn the
profits some companies in the pharmaceutical industry started producing the
duplicate drugs on the name of branded items. So the industry was suggested to
overcome the problem of duplicate drug production.
q) Systematic planning: The industry administration has to work with vision. It
must be closely associated with planning for the future of the industry planning in
the industry means the process where by the industry establishing objectives,
planning premises, the identification and evaluation of alternatives and making a
choice among alternatives. The companies in some departments were having
defects and following in unsystematic planning. The entire work of each
department must be systematic planning. The entire work of each department must
be systematically planned and schedu7le of work should be prepared sufficiently
in advance.
r) Social Responsibility: Social Responsibility is the important thing for the
business. Profit Making & Social Responsibility is an oxymoron and can be
strongly debated. Profit making is the essential reason for an enterprise to prolong
and grow. Social responsibility is the fundamental duty of the state that must focus
upon the upbringing of its stake holders with social justice. This includes proactive
participation by the governance in elevating quality in work life of its citizens.
Thus attempting the balance of wealth and social justice/empowerment, shall
invite a synergy between the Public-Private partnership in enhancing the
competitive existence & growth of national economy. So the industry was
suggested to take part in the social work.