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Healthcare Industry Report Pharmaceuticals

1. Overview of Pharmaceuticals Industry Report

In the midst of a global pandemic, the pharmaceutical sector has been at the forefront and pivotal in the fight against the lethal COVID-19 virus, with extraordinary collaboration and invention resulting in the discovery of life-saving vaccinations in record time. The pharmaceutical business is at the vanguard of pioneering new therapies and technology that are altering patient care, from groundbreaking discoveries in gene therapy to advancements in personalized medicine. The entire industry has witnessed robust growth in India due to scientific advancements, increase in consumer healthcare spending and investment, technological developments, surge in global healthcare demands, increase in R&D expense for drug discoveries, and many others. The introduction of newer treatments, growth of biosimilars, rising demand for specialty and precision medicines, and improved access and affordability to healthcare have been the key factors driving the growth in the industry. Post COVID-19 pandemic, the industry has adopted a dynamic approach and is advancing towards digitization.
The pharmaceutical companies innovate, develop, manufacture, and promote drugs and medicines that are to be administered to patients. These drugs and medicines cure them, vaccinate them, or alleviate their symptoms. The sector is one of the most stringently regulated sectors with the government enforcing rigorous quality standards to ensure safety of public health. It is governed by various laws, rules, guidelines, etc. These laws relate to the licensing, patenting, testing, safety, and marketing of drugs.

Key stakeholders in the Pharmaceutical Industry:

• Pharmaceutical Companies Industry Report

• • • API Development and Manufacturing Companies: These companies conduct research and development to create new API molecules, as well as optimize existing ones.
    • Generic Pharmaceutical Companies: These companies are responsible for producing and marketing generic versions of brand-name medications once their patents have expired. They use the same active ingredients as the original drug, but they may use different inactive ingredients, and their products may have different shapes, colors, and packaging. They conduct extensive testing and clinical trials to ensure that their products are bioequivalent to the original drug and have the same safety and efficacy profiles.
    • Specialty Pharmaceutical Companies: These companies focus on developing and producing medications that are designed to treat complex, chronic, or rare diseases. These medications may require specialized formulations, delivery systems, or manufacturing processes that differ from those used for traditional medications.
    • Contract Manufacturing Companies: These companies are third-party companies that manufacture pharmaceutical products on behalf of other companies. They provide wide range of services to their clients, including research and development, formulation, manufacturing, packaging, and distribution.
    • Distributors: These companies are the intermediaries between pharmaceutical manufacturers and healthcare providers, such as hospitals, pharmacies, and clinics. They buy large quantities of pharmaceutical products directly from the manufacturers and distribute the products to various healthcare providers across regions or countries.
• Patients: Patients are the end consumers of pharmaceutical offerings. They desire safe, effective, and affordable drugs that will improve their symptoms.
• Healthcare Providers: Healthcare providers include doctors, nurses, and pharmacists. They prescribe and administer drugs to patients. In addition to these services, they also provide requisite feedback on the safety and efficacy of drugs.
• Regulators: The Central Drugs Standard Control Organisation (CDSCO) falls under Directorate General of Health Services, Ministry of Health & Family Welfare, Government of India. It acts as the National Regulatory Authority (NRA) of India. It regulates all the medical drugs operating in the market.
• Payers: Payers, such as insurance companies and government healthcare programs negotiate drug prices with pharmaceutical companies, and they decide which drugs to cover and how much they will pay for them.

2. Market Overview 

1. Global Market

a. Global Market Size (in USD Billions) 

Regions	2021	2017-2021 CAGR	2026	2022-2026 CAGR
Developed Markets	1,049	4.9%	1,230-1,260	2-5%
Pharmerging Markets*	353	7.8%	460-490	5-8%
Other Markets	19	0.1%	21-25	3-6%
Global Pharmaceutical Market	1,421	5.1%	1,730-1,760	3-6%

 Source: Sun Pharma FY22 Annual Report

b. Global Pharmaceutical Market – Share by Product Type 

Region	Original Brands (%)		Non-original Brands (%)		Unbranded Generics (%)		OTC, Vaccines & Others (%)		Total (USD Bn)
Year	2021	2026	2021	2026	2021	2026	2021	2026	2021	2026
Developed Markets	74	75-76	11	11-12	10	7-9	5	4-5	1,049	1,230-1,260
Pharmerging Markets*	30	33-35	35	32-34	13	13	22	19-22	353	460-490
Other Markets	35	33-36	48	43-52	6	5-8	11	5-20	19	21-25

Global Markets

63

63-64

17

17-18

11

9-10

9

8-9

1,421

1,730-1,760

 Source: Sun Pharma FY22 Annual Report

*Pharmerging markets refer to countries that are rapidly developing their pharmaceutical industries and becoming new players in the global market. These markets are characterized by a combination of rapid population growth, increasing economic development, and improving access to healthcare services. 

c. Global Pharmaceutical Market – Market Share by Region

Region	FY17	FY18	FY19	FY20	FY21	FY22	FY27F	CAGR	CAGR
								FY17-22	FY22-27F
USA	44.73%	45.26%	45.95%	45.29%	45.77%	45.63%	44-45%	5.82%	3.5-4%
EU5	15.13%	15.28%	15.15%	15.25%	15.01%	15.18%	14-15%	5.47%	4-5%
India	1.29%	1.44%	1.55%	1.61%	1.63%	1.75%	2-3%	12.05%	10-11%
RoW	38.84%	38.03%	37.35%	37.84%	37.59%	37.43%	38-39%	4.63%	5-6%

 Source: IQVIA Mankind Pharma Report

d. Market segmentation by region (in USD Billions)

Source: IQVIA Mankind Pharma Report

USA formed 45.63% of the global pharmaceuticals market in FY22. It is expected to remain the key contributor to growth in the major developed markets and is expected to grow at a CAGR of 3-4% over FY 2022-2027

• EU5 formed 15.18% of the global pharmaceuticals market in FY22. Within EU5, UK is expected to be the fastest growing economy at a CAGR of 5-6% over FY 2022-2027, followed by Germany, Italy, and Spain at 4-5% CAGR over the same period.
• China currently forms 9.50% of the global pharmaceuticals market. It is amongst the largest of the 15 pharmerging markets and is expected to grow at a CAGR of 3-4% over FY 2022-2027.
• Two pharmerging markets, vis-à-vis Brazil and India, together form 3.66% of the global pharmaceuticals market. Both, Brazil and Indian markets are forecasted to grow at 10-11% CAGR over FY 2022- 2027, which is one of the fastest growth rates among the pharmerging markets.

2. Indian Market

a. Market Size

According to an article published by Economic Times, India’s domestic pharmaceutical market was estimated at USD 41 Bn in 2021 and is likely to grow to USD 65 Bn by 2024 and USD 130 Bn by 2030.

b. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all the medicines in the UK. The domestic pharmaceutical industry comprises of a network of 3,000 drug companies and ~10,500 manufacturing units. Ranked as the 12th largest exporter of medical goods in the world, Indian drugs are exported to more than 190 countries in the world, with US being the key market. Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. Indian drug & pharmaceutical exports stood at USD 24.60 Bn in FY22 and USD 24.44 Bn in FY21. (Source: IBEF)

c. Pharma Sector’s Growth at Current Prices         

Financial Year	Turnover (in USD Billions)	Growth Rate (in %)
2017-18	28.30	3.03
2018-19	32.32	14.18
2019-20	35.37	12.17
2020-21	41.01	13.12
2021-22	43.02	4.89

 Source: Department of Pharmaceuticals Annual Report 2022-23

d. Import-Export of Pharmaceuticals

Source: Department of Pharmaceuticals Annual Report 2022-23

3. Growth Drivers 

The global and domestic pharmaceutical market has witnessed tremendous growth over the past decade and this momentum has only accelerated after the COVID-19 pandemic. Going forward, identifying, and leveraging growth drivers is essential for industry players to sustain long-term growth and competitiveness. Following are some of the key growth drivers that we envision impacting the pharmaceutical industry:

1. Rising Income Levels: Economic growth and the consequential increase in per capita income continues to remain a key driver of growth in the industry. Emerging markets across the world are poised to witness exponential growth due to increase in income levels and living standards. In the past few years, the relative spending in the emerging countries have increased significantly. This will translate into increased expenditure on healthcare at large.
2. Demographics and Ageing Population: Demand for pharmaceutical products will expand across developed markets and developing countries due to ageing population. Advancements in healthcare has led to longer life expectancy rates. As a result, every country is witnessing a sizeable increase in the population of the elderly. This rise in elderly population has led to increased requirements for medicines and pharmaceutical products.
3. Lifestyle Diseases: While healthier lifestyle choices have started to gain significance in some developed economies, sub-standard food habits shall continue to result in higher incidences of chronic diseases globally, especially developing economies. The chronic segment within the Indian Pharmaceutical Market (IPM) has grown at a relatively faster rate of 12.29% CAGR compared to the overall IPM (10.93%) over FY 2018-22. This is expected to drive growth for drugs and medicines for cardiovascular, anti-diabetic and other similar diseases. (Source: IVQIA Mankind Pharma Report)
4. OTC Growth: Over the counter medications will continue to propel surge in sales. This is directly linked to the aging population requiring more OTC medications and changing consumer behaviours opting for self-medication for common diseases instead of visiting a doctor.
5. Healthcare & Technology Convergence: Technology is increasingly becoming a part of healthcare. Apps that help users take charge of their health have plunged into the market. Digital innovations are increasing consumer awareness and revolutionizing the pharmaceutical market. Technology is expected to accelerate the drug discovery process by incorporating AI and improve the efficiency in the manufacturing process by incorporating 3D Printing. This will help companies save costs as well as incentivize production.
6. Off Patent Drugs: The demand for generic medicines or off patent drugs will increase owing to their low costs. This trend was further consolidated by the COVID-19 pandemic. Many countries across the globe have started using more generic drugs in the long run to cut down the cost of healthcare. Therefore, increased demand coupled with low costs will encourage production for off patent drugs.
7. Government Schemes: The government of India has announced production linked incentives (PLI) to incentivize the domestic manufacturing capacity and solve supply chain problems. These PLI schemes are aimed to promote domestic production of 50 important APIs. Domestic manufacturing of key APIs will reduce India’s import dependence. This will eliminate the supply chain problems, shift the bargaining power vis-à-vis China and further optimize costs. This shall enhance the production capabilities and further boost India’s export sales.
8. Growth in Genomics: Genomic medicine is an upcoming specialty in medicine that makes use of genomic data about individuals as part of their treatment. India is in a unique position to steer ahead in the genomics field. One advantage India has is the diversity in the population. It is not just a single population, but a population made of several races. The calibrated rise of this discipline will accelerate demand for novel treatments.
9. Product Development: Scientific progress in genomics, biomarkers, and diagnostics, coupled with the advancement in digital interventions, are likely to play an important role in new product development. New product introductions over the next five years will include latest generation products in gene and cell therapy, RNA-based therapies, apart from other segments. Innovation in products will result in reduced hospital stays and expenditure and increased demand for products.
10. Research & Development: Innovation continues to be a key growth driver for the global pharmaceutical market, especially in the developed countries. New medicines are being continuously innovated, approved and marketed, thereby aiding industry growth. A combination of scientific and digital initiatives are expected to drive pharmaceutical innovation in the future. A significant amount of research and development (R&D) is being devoted to developing new products and targeted therapies using cutting-edge technologies.
11. Rise of Preventive Healthcare: Numerous factors like unhealthy eating habits, fast-paced lifestyles and prevalence of chronic diseases have brought a paradigm shift from illness to wellness among the public at large. Pharmacists play a vital role in providing safe patient care. They recommend medicines to patients and adjust prescription dosages. Therefore, increased awareness and a tilt towards health-conscious attitude will create a surge in demand for preventive healthcare products.
12. Oncology & Immunology: The development of newer segments will create newer revenue streams for the industry. Oncology and Immunology will continue to witness higher volume growth and significant investments in new product development. However, patent expiry norms for some of the products, including biologics, will partly offset overall value growth in these two segments.
13. Higher Government Healthcare Spending: Government of India spending on healthcare witnessed a steady growth for 14 years since 2004-05. During this period, out-of-pocket healthcare expenditure saw a decline whereas government health expenditure has risen during the intervening period. Government spending and investment in the healthcare segment will incentivize enterprises to invest in R&D and expand production due to benefits availed from quality infrastructure.
14. Growth in Ayurvedic Medicine: Increasing demand for authentic ayurvedic medicine range, consumer awareness, and growing attention on wellness are driving growth of the ayurvedic pharmaceutical industry.
15. Rising Insurance Coverage: As per IRDAI, over 500 million people (which is approximately 38% of the Indian population) were covered under some form of health insurance policy as of 2020. Post the COVID-19 pandemic, there has been increased acceptance of health insurance among people, leading to further increase in penetration. Rise in insurance coverage will create a shift away from low-cost generics and diversify the demand and manufacturing portfolio.
16. Growth in Outsourcing: Contract manufacturers have gone from being obscure sources to indispensable allies. They are now ubiquitous across the pharmaceutical industry. The rise of outsourcing can be attributed to a number of advantages including reduction in manpower availability, infrastructure and administration costs, rapid turnaround time and enhanced flexibility. Outsourcing has moved beyond manufacturing and has expanded to cover marketing as well. Outsourcing beyond manufacturing will allow pharmaceutical companies to invest heavily in product development and attain benefits of cost reduction. Improved drug quality and low costs will result in increased demand for drugs.

4. Challenges in the Pharmaceutical Industry

 Despite the positive accelerated growth expected in the coming years in the pharmaceutical industry, there are various restraining factors and challenges which need to be addressed in order for the industry to grow faster and sustainably. Some of the major challenges inhibiting the growth of the industry are as follows:

1. IP Regulations: In the pharmaceutical industry, IP laws protect the innovations in areas such as medicine formulation, drug discovery, manufacturing process, drug molecules and others done by a company. Over the years, it has become tough for Indian generic manufacturers to produce and sell copies of patented drugs. This has led to surge in prices of some essential medicines, making it inaccessible for a vast set of population in India as well as other emerging countries. Moreover, the policy of compulsory licensing followed by the Indian government allows it to grant permission to some other companies without the authority/approval of the patent holder. This policy has created tensions with some multinational companies (MNC’s), as evidenced in the past in the court case of Natco Pharma vs Bayer.
2. Price controls: The Indian government occasionally puts a cap on the prices of some drugs and controls it which makes it difficult for pharmaceutical companies to generate profits and invest in Research and Development. Low R&D leads to sub-optimal output, thereby inhibiting the growth of some pharmaceutical companies.
3. Compliance issues and good manufacturing practices: USA is a large consumer market for pharmaceutical products and India is one of the major exporters to the USA. It is compulsory for companies to take United States Food and Drug Administration (USFDA) approval before they plan on marketing and selling the pharmaceutical drugs. Some of the Indian companies lack strong quality control and good manufacturing practices which lead to rejection of their application to the USFDA. It is important to be compliant with the various laws, regulations, policies and conditions before applying for USFDA approval.
4. Lack of capabilities in the innovation space: India has strong manpower and talent pool. However, the country lacks in innovation due to low government spending in Research and Development. Addressing this gap will unlock a lot of potential for pharmaceutical companies to invent new drugs.
5. Dependency on API imports: India imports close to 80% of the API’s from China. Dependency for API’s from a single country is a major roadblock to the growth of the industry in case of supply chain disruptions, political unrest, and appreciation in the prices. It is important for the country to reduce its dependency on imports, especially from a single country. Domestic API production and improvement in internal facilities and infrastructure will help in mitigating dependency on imports from many countries. (Source: Drug Patent Watch)
6. Quality issues: India has undergone one of the highest numbers of FDA inspections since 2009 due to quality issues. Ensuring the quality of pharmaceutical products is important for maintaining consumer confidence and regulatory compliance. Inadequate testing and poor manufacturing practices lead to erosion of quality. This challenge needs to be addressed on a priority basis in order for the industry to grow leaps and bounds.
7. Infrastructure and logistics: India’s pharmaceutical industry is heavily dependent on adequate infrastructure and logistics for the easy movement of raw materials and equipments. Poor infrastructure might lead to supply chain disruptions and delays. The distribution of drugs will also become difficult in case of poor logistics support.
8. Counterfeit drugs: During the COVID-19 pandemic, incidents of substandard and falsified (SF) medical products increased by almost 47% from 2020 to 2021. This is a major problem as it not only poses risk to public health but also damages the credibility of the industry. It is important for the government to put in place stringent regulations to stop the supply of counterfeit drugs.
9. Talent retention: India has a large pool of scientists and researchers. However, lot of them are being lured away by higher salaries and better career opportunities in other countries. This is leading to shortage of skilled talent in the country, thereby making it difficult for pharmaceutical companies to attract and retain top talent.
10. Geopolitical tensions: India’s pharmaceutical industry is heavily dependent on exports. Geopolitical tensions or trade disputes might have a significant impact on the industry’s bottom line. It is important to maintain good political relations with all the countries.

 5. Key Trends

1.  Growth of Biosimilars: Biosimilars refer to biological products that are roughly similar to an approved reference biological product. A reference biological product is a biological product that has been notified by a regulatory authority as a safe and effective treatment for a particular disease or illness. Biosimilars possess the same efficacy, safety, and quality as the reference product. Moreover, they are used to treat the same symptoms as the reference product. However, biosimilars are different from the reference product. The point of difference lies in their production methods as they are produced using a different cell line or manufacturing process. % The biosimilar Indian market is expected to grow over 30% in 2047. Therefore, it has enormous potential to develop and commercialize biosimilars. Biosimilars, being copies of reference biological products, require much less research and development. Therefore, the growth of biosimilar is expected to provide benefits of cost-effectiveness. (Source: Business Today)       
2. Mega Bulk Drug Parks: The Government is actively making efforts to reduce the country’s dependence on imports and to boost domestic manufacturing. To make the country self-sufficient in APIs and drug intermediates, the Department of Pharmaceuticals is implementing various schemes. One of the most important schemes introduced recently is the Scheme for Bulk Drug Parks. The Bulk Drug Parks will provide shared infrastructure facilities at one place and create a thriving ecosystem for the Bulk Drug manufacturing in the country and reduce the manufacturing cost by a significant margin. This scheme will aid the industry to meet the environmental compliances at a reduced cost through innovative procedures of a common waste management system. Participants will be able to exploit the benefits arising due to optimization of resources and economies of scale. This initiative represents industry-wide steps being taken to reduce the cost of manufacturing and continue India’s lead as a low-cost manufacturer globally.
3. Integration with Technology: Pharmaceutical companies are increasingly aiming to improve operations and production processes in the manufacturing process. Companies have started combining robotics, immersive technologies, IoT and more. While mixed reality solutions improve staff training and management, robots automate labor-intensive tasks and reduce the cycle time. Blockchain technology will allow to take measures about the use of counterfeit drugs and poor-quality drugs that pose danger to public health.
4. Quantum Computing in R&D: Quantum computers have the capability to drastically reduce the time and expenditure of drug discovery. By analyzing swathes of data, they can swiftly identify possible drug candidates and accurately simulate the effects of potential drugs on biological systems. This will open doors for greater pharmaceutical advancements and treatments for multiple diseases. Quantum computing shall significantly enhance the pharmaceutical industry’s drug discovery process. This methodology represents one of the many initiatives being taken to speed up the research and development process.
5. High-throughput Screening: It is a popular technique incorporated in the early stages of drug discovery. It is used to rapidly test large numbers of compounds for potential biological activity against a specific target. The ability to rapidly evaluate biological agents across large datasets without compromising on accuracy or efficiency will save both time and finances in the long term. Incorporation of HTS technology will result in improved efficacy and reduced side effects. This technique is one of the many novel methods being adopted to reduce the duration for product innovation process.
6. 3D Printing: One of the trends emerging from the industry is the hunt for new innovations in drug designing. 3D printing is an advanced technology that produces personalized medicines on demand. It is particularly useful for patients who require precise treatments. However, regulatory approval for 3D-printed drugs is still in its nascent stage, and further research is required to ensure safety and efficacy of these drugs. The potential benefits of 3D printing pharmaceuticals are significant and could revolutionize the industry in the forthcoming years.
7. Precision Medicines: Precision medicine is a medical model that proposes treatment of patients based on their genetic make-up. Diagnostic tests are required to find the patient’s genetic contents. Precision medicines reduce the expenditure of hospital stay, and by reducing the overall financial, physical, and psychological costs of the try and test approach of medicine, it proves to be cost-effective for patients. In India, Precision Medicine is in its nascent stage. It is currently being practiced most notably in specialties like oncology, cardiology, psychiatry, and diabetology.
8. E-prescriptions: E-prescription is a digital prescription generated by healthcare practitioners. These electronic prescriptions are created digitally and transmitted to a pharmacy, and stored in the patient’s device in the form of an EHR (Electronic Health Record) technology. They are substituting paper prescriptions. These prescriptions are legible in terms of understanding the treatment and dosage, thus making them error-free. They help not only to save time but also eliminate forgery of prescriptions. The rise of e-prescriptions indicates the gradual penetration of digitization in the pharmaceutical sector.
9. Strategic Alliances and M&As: M&A’s in the healthcare segment are on an exponential rise. The Indian Pharmaceutical Industry reported 16 deals in 2022 — the largest perhaps in a decade, worth nearly a billion dollars in value. Deal activity has seen significant headwinds with Indian companies becoming aggressive on overseas acquisitions. Several leading Indian pharmaceutical players like Biocon, Mankind, Lupin, Zydus Lifesciences, Torrent, Marksans Pharma, and Gland Pharma acquired brands to consolidate their position in 2022.These collaborations and partnerships represent a burgeoning trend in the industry to leverage advantages of varied strengths of industry players. (Source: Financial Express, Times of India)

6. Cost & Revenue Drivers

 1. Revenue Drivers:

•  a. Sale of Drugs: The major revenue stream for pharmaceutical companies is the sale of drugs in the mass market. Generic drugs, different bulk drugs, specialty drugs, drug formulations, etc. play an important role in generating revenue for pharma companies.
• b. Royalties and Licensing Fees: Royalties and licensing fees are another significant source of revenue for pharma companies. Companies generate revenue by licensing the use of their patents to other enterprises. The licensee pays licensing fees to the pharmaceutical company. This fee may be paid either as a lumpsum or as a percentage of sales generated using the patented technology. Royalties are payments made to the patent holder when the licensee sells products manufactured using the patented technology.
• c. Consumer Healthcare: Consumer healthcare includes over the counter medications, vitamins, supplements, and personal care products that are usually purchased without a prescription. These products can be developed and brought to market quickly at a lower cost. They are also generally cheaper than prescription medications. Therefore, rapid manufacturing and high affordability can translate into larger sales volumes and increased revenues.
• d. Strategic Alliances: Pharmaceutical companies make a small chunk of their revenues through different strategic alliances under which products of third parties are co-promoted by them.
• e. Patents: An important earning source for pharmaceutical companies is the patent that provides incentives for companies to indulge in research and development of innovative drugs. The patent refers to a chemical formula that rival pharmaceutical companies may not copy. The patent system allows patent holders to gain profit from patents by the means of restricting any other competitor to market and selling a similar kind of drug.
• f. Contract Manufacturing: Contract manufacturers in the pharmaceutical industries earn revenues by manufacturing drugs. The fees cover the cost of raw materials, labor, fixed costs, and profit margin. In some cases, the contract manufacturer charge tooling fees. Tooling fees entail the cost of designing and producing the molds, jigs, and fixtures needed to produce the product.
• g. Clinical Research Services: Pharma companies usually have dedicated teams that cater contract trials and research services to other companies or organizations. These services comprise of clinical trial management, site selection, data management, and statistical analysis. Pharma companies provide consulting services to other companies or organizations. These services cover regulatory consulting, clinical trial design, protocol development, and statistical consulting.

 2. Costs:

•  a. Research & Development Costs: Pharmaceutical companies spend heavily on R&D activities. R&D costs can be bifurcated into direct and indirect costs. Direct costs cover expenditures on lab equipment, salaries for researchers, clinical trial expenses and fees for regulatory agencies. Indirect expenditures are incurred for administrative overhead, facilities costs and legal charges.
• b. Sales & Distribution Costs: Sales and distribution entail expenses incurred in the process of selling and distributing pharmaceutical products to customers, such as wholesalers, retailers, hospitals, and pharmacies. Various expenses under this head cover expenses such as salaries and commissions of sales personnel, advertising and promotional expenses, freight and transportation costs, and warehousing expenses. Advertising and promotional expenses generally include print and television ads, conference participation fees, and free samples distributed to doctors. In addition to these, companies also incur costs related to packaging and labeling of the products.
• c. Manufacturing Cost: Manufacturing represents a major segment of the costs of pharmaceutical companies. It includes expenses involved in the manufacturing process of drugs such as the cost of raw material, quality control and quality assurance.
• d. Capital Cost: Capital expenditure refers to the amount spent by a company on the acquisition, upgrade, or maintenance of fixed assets. In the pharmaceutical industry, capital expenditure is an important component of costs as companies invest heavily in research and development and manufacturing facilities to develop and produce new drugs. Pharmaceutical companies also incur other capital expenditures, such as investments in information technology, acquisitions, and joint ventures.
• e. Intellectual Property Costs: Intellectual property (IP) costs represent a major component of costs in the research and development (R&D) phase. IP refers to the legal rights granted to an inventor for their original work, such as patents, trademarks, and copyrights. In the pharma industry, these rights are essential to protect the investment of time, money, and resources required to develop a new drug.
• f. Clinical Development Costs: The cost of conducting clinical trials depends on the size and complexity of the trial, the number of sites involved, and the duration of the trial. Apart from the cost of the trials, companies must also bear the cost of recruiting and compensating study participants, as well as the cost of regulatory compliance and oversight.
• g. Legal and Regulatory Costs: Legal costs arise from different sources such as patent litigation, contract disputes, and employment lawsuits. Regulatory costs cover expenses to obtain and maintain regulatory approvals for drugs. Major items under this head include the costs of conducting clinical trials, preparing regulatory filings, and responding to inquiries from regulatory authorities. These costs are substantial for new drugs that require extensive clinical testing and regulatory review. Litigation costs include expenses related to legal fees, expert witnesses, and settlements or judgments.

7. Regulatory Framework

 1. Regulatory Bodies:

 1. Central Drugs Standard Control Organization (CDSCO)

•  CDSCO functions as the National Drug Authority of the Government of India. It acts as India’s Central Drug Regulator.
• Under the Drugs and Cosmetics Act, CDSCO is responsible for approval of Drugs, Conduct of Clinical Trials, banning of drugs and cosmetics, laying down the standards for Drugs, testing of new drugs, grant of test license, license approving of Blood Banks, LVPs, Vaccines and r-DNA products, control over the quality of imported Drugs in the country and coordination of the activities of State Drug Control Organizations by providing expert advice with a view of bring about the uniformity in the enforcement of the Drugs and Cosmetics Act.
• It exercises regulatory control over the quality of drugs, cosmetics and notified medical devices in the country.
• The Drugs Controller General of India acts as the director of the department at the Government of CDSCO who in-charge of approving drug licenses.

2. National Pharmaceutical Pricing Authority (NPPA)

•  NPPA is an institution of the Government of India. The purpose for its establishment was to ascertain/revise the prices of controlled bulk drugs and formulations and to implement prices and availability of the medicines under the Drugs (Prices Control) Order, 1995. Apart from these functions, it also oversees the prices of decontrolled drugs in order to maintain the same at reasonable levels.
• NPPA records and maintains data regarding the production, exports and imports, market share and profitability of companies, etc. for bulk drugs and formulations.

 2. Legal Framework:

1. Drug and Cosmetics Act, 1940:

•  This Act lays down the guidelines regarding the distribution, manufacture, import and sale of cosmetics and drugs.
• The act establishes clear definitions as to what constitutes a “drug” and a “cosmetic”.
• The act lays down the quality standard specifications for imports.
• It prohibits manufacture, sale or distribution of drugs or medicines the consumption of which is likely to involve any risk to lives. It also prohibits manufacture, sale or distribution of drugs or medicines with no therapeutic value or drugs or cosmetics of a non-standard quality or misbranded, adulterated or spurious type. It lays down specific criteria under which the manufacture, sale or distribution of drugs shall be prohibited.
• The act also provides for a distinct regulatory mechanism for the manufacture or sale of ayurvedic, siddha and unani drugs.

2. Drug Price Control Order, 1995:

•  The drug price control order (DPCO) is an order issued by the government under the essential commodities act which allows it to fix the prices of some essential bulk drugs as well as their formulations. DCPO also prescribes the margins for retailers.
• Essential drugs where there is significant competition and there is no monopoly pricing are kept out of control.8.Competitive Landscape

Particulars	Dr. Reddy’s Laboratories	Sun Pharma	Cipla	Aurobindo Pharma	Lupin
Total Income (in INR Mn)	2,20,296	3,95,760	2,20,442	2,37,758	1,65,471
Gross Profit Margin	65.50%	73.20%	61.00%	56.80%	60%
EBITDA Margin	19.30%	28.60%	21.93%	19.80%	14.20%
PAT Margin	9.91%	8.56%	11.55%	11.13%	-1.60%
API Portfolio	170+	~370	200+	200+	N.A. in public domain
API Sales as a % of Total Sales	~14.3%	5%	3%	15%	6%
API Manufacturing Units	8	14	3 (R&D Centres)	11	6
Patents	1,071 filed	1,400	1246 – DMF	2,000+ filed & 500 in place	~1008
Number of manufacturing facilities	22	43	47	26	15
Formulation/Drug focus	API, Biosimilars, Generics, Branded Generics, OTC	Branded Generics, Generics, APIs, OTC, Specialty Drugs	Trade Generics, Branded Generics, APIs	APIs, Antiretroviral (ARV) drugs	Generics, Biosimilar, APIs, OTC drugs, Specialty
R&D Expense as a % of revenue	8.2%	5.8%	5.16%	6.7%	8.55%
Market Share (Based on Formulation Sales as on 12 months ended September 2022)	2.9%	8.6%	4.8%	N.A. in public domain	3.6%
Geography Presence	66	100+	80+	150+	100+

9. Funding Landscape – Total Deals

The funding landscape in the pharmaceutical space has seen a steady rise over the years. It observed significant growth in the number of PE / VC investments during the two pandemic heavy years.

Major Deals (2018 & 2019)

Particulars	Rubikon Research	Integrace Health	Akums	Caplin Point	Tirupati Medicare
Type	Pharmaceutical Formulation	Pharmaceutical Formulation	Pharmaceutical Formulation	Pharmaceutical Formulation	Pharmaceutical Formulation
Deal Size (in INR Crores)	~850	~460	~320	~222	~180
Investor	General Atlantic	True North	Quadria Capital	F-Prime Capital Partners	Affirma Capital
Transaction Type	Funding	Funding	Funding	Funding	Funding
Company Stage	Late Stage	Growth Stage	Late Stage	Early Stage	Late Stage

Major Deals (2020 & 2021)

Particulars	Piramal Pharma	Viyash Lifesciences	Biocon Biologics	Acme Generics	Stelis Biopharma
Type	Pharmaceutical Formulation	Active Pharmaceutical Ingredients	Pharmaceutical Formulation	Pharmaceutical Formulation	Pharmaceutical Formulation
Deal Size (in INR Crores)	~3,633	~1,412	~1,125	~1,124	~850
Investor	Carlyle Group	Carlyle Group	Goldman Sachs Private Equity	Pacific Alliance Group	TPG Capital India
Transaction Type	Funding	Funding	Funding	Funding	Funding
Company Stage	Late Stage	Late Stage	Late Stage	Late Stage	Late Stage

Major Deals (2022 – Present)

Particulars	Biocon (2 Deals – Feb & April)	BDR Pharmaceuticals	Malladi	EMIL	Enaltec
Type	Active Pharmaceutical Ingredients	Pharmaceutical Formulation	Active Pharmaceutical Ingredients	Pharmaceutical Formulation	Active Pharmaceutical Ingredients
Deal Size (in INR Crores)	~1,570	~497	~250	~150	~55
Investor	Kotak Special Situations Fund & Edelweiss Private Equity	Multiples Private Equity	InvAscent	Somerset Indus Capital Partners	La Renon Healthcare Private Equity
Transaction Type	Funding	Funding	Funding	Funding	Funding
Company Stage	Late Stage	Late Stage	Late Stage	Late Stage	Early Stage

10. India’s Comparison vis-à-vis Other Countries

1. Pharmaceuticals spend as a % of GDP

Countries	2017	2018	2019	2020	2021 (E)	2022 (E)
India	0.48%	0.54%	0.58%	0.69%	0.66%	0.72%
USA	2.27%	2.23%	2.28%	2.46%	2.42%	2.56%
UK	0.89%	0.86%	0.92%	1.06%	1.05%	1.13%
Brazil	0.71%	0.82%	0.91%	1.32%	1.39%	1.61%
China	0.72%	0.67%	0.70%	0.75%	0.73%	0.74%
Singapore	0.24%	0.24%	0.26%	0.31%	0.27%	0.29%
Malaysia	0.41%	0.41%	0.45%	0.54%	0.46%	0.52%
Indonesia	0.31%	0.34%	0.34%	0.38%	0.33%	0.33%
Russian Federation	0.60%	0.63%	0.67%	0.89%	0.92%	1.24%
South Africa	0.72%	0.76%	0.86%	1.07%	1.01%	1.04%

Analysis: India’s pharmaceutical spend as a percentage of GDP is one of the lowest amongst all the major countries, ahead only of Indonesia, Singapore and Malaysia. However, the pharmaceutical spend has steadily risen over the past decade. This showcases the Government of India’s commitment to retain India’s position as the “Pharmacy of the World”.

2. Largest Countries by Pharmaceutical Exports (Value) (in USD Billions)

Countries	2017	2018	2019	2020	2021
Germany	84.86	97.56	91.65	99.60	119.34
Switzerland	71.71	76.87	84.89	90.21	102.82
Belgium	44.74	50.41	55.63	64.20	98.70
France	32.37	34.78	36.45	38.91	40.96
Italy	26.95	29.41	35.45	37.82	38.32
United States	46.94	50.56	55.78	56.03	80.05
India	14.28	15.76	17.86	20.03	21.01
Ireland	40.05	54.56	55.44	70.92	74.08
Netherlands	35.84	45.63	49.69	51.4	53.28
United Kingdom	33.30	31.10	28.50	26.00	27.70

Source: World Trade Organization

In terms of value, India is one of the top ten countries in Global Pharmaceutical Export rankings. Germany occupies the top rank followed by neighbouring countries, Switzerland and Belgium. India’s share in the Global Export market has increased over the years. Europe consolidates a major share in the global exports with 7 countries in the list.

3.Global Use of Medicines (Defined Daily Doses) (in Billions)

Source: IVQIA Global Use of Medicines 2023 Report

Defined Daily Dose is a statistical measure of drug consumption, laid down by the World Health Organization Collaborating Centre for Drug Statistics Methodology. This statistic indicates the assumed average maintenance dose per day for a drug when it is used for main indication in adults.

1.Number of Pharmaceutical and Manufacturing Companies:

Countries	Number
Germany	5,066
Switzerland	1,253
Belgium	1,363
France	681
Italy	1,873
United States	15,648
India	60,657
Ireland	339
Netherlands	357
China	44,103
Thailand	2,480
Japan	1,640
United Kingdom	1,872

Source: Dun & Bradstreet

India, with a 60,000+ companies is leading the list. This translates into high volume manufacturing. On this front, China and the United States are positioned next to India.

11. Outlook

The Indian Pharmaceutical Industry will continue to face issues relating to infrastructure and logistics, IP regulations, talent shortage, innovations and others. However, the COVID-19 pandemic has accelerated growth in this industry and with technological breakthroughs and several other opportunities, the pharmaceutical industry is poised to grow going forward. As the world progresses, the industry will play an increasingly important role in promoting wellness and enhancing the quality of life for people and communities.

The pharma industry is poised for full-scale digital and technology adoption. Disruptive technologies such as robotics, artificial intelligence, blockchain, 3D printing, and precision medicine will influence the manufacturing and distribution processes of pharmaceuticals in a significant fashion. With digital adoption, companies shall be better positioned to achieve cost savings, improved quality and increased resilience.

The industry’s focus is gradually shifting from treating diseases to preventive care, personalized medicine, and improving overall well-being. This paradigm shift perfectly aligns with the evolving needs of patients and the broader healthcare ecosystem. Empowered patients shall come to acquire more agency over their health with the hierarchical doctor-patient relationship changing to a partnership.