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VSRD-IJBMR, Vol. 1 (7), 2011, 408-415

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The Indian Pharmaceutical

Industry : The Empirical Study
1
Rupesh Rastogi*, 2Teg Alam and 3Said Malki

ABSTRACT
This paper aims at accessing the growth of Indian pharmaceutical industry, after the process of economic
liberation in India and more particularly after the change in patent laws in India. In the process patent regime era
Indian pharmaceutical companies were able to supply the cheapest generic drugs in the world but the advantage
of process patent laws is not available to the industry after 1’st January 2005. The pharmaceutical industry has
to evolve to confront the current situation and if possible new avenues for growth have to be explored. The
objective of present study is to predict the prospects of Indian pharmaceutical industry.

Keywords: Pharmaceutical Industry, Bulk Drugs, Contract Research, Patent.

1. INTRODUCTION
After gaining Independence in 1947 Indian leaders sincerely thought about the enactment of a National patents
system which can fulfill the special requirements of the country. The objectives were that there should be faster
industrialization of the country and law should be designed to serve the public interest in a balanced manner.
Two committees headed by Justice Bakshi Tek Chand and Justice Rajagopal Iyenger dealt with the patent law
issues relevant for India in their reports. Based upon the recommendations in these reports a comprehensive
Patents Bill was framed and debated extensively in parliamentary committees and both Houses of Parliament.
Finally the National Patents Act was enacted in 1970. This law served the objectives which Indian leaders had in
view.

In 1970, the Government introduced the new Patents Act, which excluded pharmaceuticals and agrochemical
products from eligibility for patents. This exclusion was introduced to break away India’s reliance on imports
for bulk drugs and formulations and provide for development of a self-reliant indigenous pharmaceutical
industry. Under the process patent system no active pharmaceutical ingredient can be patented but the different
____________________________
1
Senior Lecturer, Department of Business Administration, Azad Institute of Engineering & Technology, Lucknow, Uttar
Pradesh, INDIA. 2,3Assistant Professor, Management Department, College of Business Administration, Al Kharj University,
Al Kharj, KSA. *Correspondence : [email protected]
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processes to make that molecule can be patented.

The need for economic liberalisation in India was recognized after facing severe balance of payment crisis in
1991. It was observed that many countries of East Asia have achieved high growth and poverty reduction
through policies focusing on encouraging private sector and export orientation. This led to shift in economic
policy of India. The neo liberal policies included opening for international trade and investment, deregulation,
initiation of privatization, tax reforms, and inflation-controlling measures. The objective of the government was
to transform economic system from socialist to capitalist.

Prior to liberalisation of 1991 India was intentionally isolated from the world market. Efforts were made to open
up Indian market for foreign investment and to rationalize the Indian Laws which deter foreign investors. India
is a signatory of General Agreement on Tariff and Trade (GATT). One of the goals of Urguay round of (GATT)
1986 to 1994 was to draft a code to deal with copy right violation and other forms Intellectual Property Rights.
To comply with the GATT obligations on December 26th 2004, the President of India issued the Patents
(Amendment) Ordinance, which requires patents to be granted on new medicines as from January 1st 2005, and
on medicines for which companies filed a patent application after 1995. Finally Indian patent act of 1970 was
amended on March 22, 2005 marking the end of a protected era signaling a new phase in the integration of India
into the global pharmaceutical market. In the process patent era it was possible for the Indian pharmaceutical
companies to reverse engineer the patented molecule and sell them in to domestic and certain foreign markets.

The change in Patent Law had far-reaching affect on the Indian pharmaceutical industry and some pessimist
viewed that the change in patent law could be a ‘9/11’ for Indian industry. This paper endeavors to establish a
correct picture of the Indian pharmaceutical industry post changes in Patent Laws.

The present paper has covered following areas of Indian Pharmaceutical Industry- Formulation export, Bulk
Drug export and Contract Research:

1.1. Formulation Export

A pharmaceutical formulation is the process in which different chemicals including the active drugs are
combined to produce a final medicinal product. The Indian pharmaceutical industry is the world's second-largest
by volume and is likely to lead the manufacturing sector of India. In 2002, over 20,000 registered drug
manufacturers in India sold $9 billion worth of formulations and bulk drugs. 85% of these formulations were
sold in India while over 60% of the bulk drugs were exported, mostly to the United States and Russia.

1.2. Bulk Drug Export

These are basically pharmaceutical raw materials and include Active pharmaceutical ingredients, Drug
additives, Drug Intermediaries, Gelatin capsules etc. Post-reforms the industry has diversified from bulk drugs
and face growing competition. Dr. Reddy's, perhaps, was one of the earliest to realise the implications and
slowly but steadily affected a shift in balance sheet, which tilted towards formulations. Even as attention was
riveted on Dr. Reddy's and Aurobindo, other second line pharmaceutical companies like Divi's Laboratories,
Matrix, Suven Pharma and Neuland Laboratories (all Hyderabad based companies), which were unheard of till

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the economy opened up, chalked out their own strategies for survival and the eventual post WTO scenario. Still
diversification has not hampered the growth bulk drug Industry as is evident form the analysis of data.

1.3. Contract Research

Contract research in India has manifold areas starting from the discovery of Active pharmaceutical Ingredient to
clinical trials. As it is for most outsourced business, cost advantage is the most touted benefit for contract
research in the drug industry, similar to that in China, Singapore and Eastern Europe. It is estimated that; the
cost of trials for a standard drug in India is half of that in the US, which may be a hefty $150 million. According
to a Confederation of Indian Industry study, clinical trials in India in 2002 generated $70 million in revenues.

Many pharmaceutical research organizations have come to the Indian. Some are global contract research
organizations (CROs), setting up their data management units in India. Others are IT/ITES companies
diversifying to life science data management business. There are also pharmaceutical companies setting up
biometrics and data management operations solely on their own or through partnership among themselves or
with the CROs. McKinsey & Co.

2. REVIEW OF LITERATURE
Several research papers and articles have been written and are available in print media and electronic media: on
various issues relating to change in patent law and its impact on pharmaceutical sector. Authors have studied
few relevant ones and have also included excerpt from those in the present paper.

Kaviraj Singh in his paper Basic of Patent Law India has discussed the evolution of Indian Patent Laws,
Patentable, not patentable Inventions under the Patents Act 1970 and the Patent Application Process under the
Act. Priyank Gupta in his paper Brief about Indian Patent system has given a brief history of Indian Patent
Laws. Dr Gopakumar G Nair in his paper Indian Patent Law and Pharmaceutical Industry has concluded that the
Indian Patent Act 1970 was instrumental in providing the impetus for laying foundations of a strong
manufacturing base of both formulations and bulk actives (as well as intermediates) in India and it helped
National pharmaceutical industry to grow at a double digit pace. Author has also discussed post TRIPS
development in Indian Patent Laws and it’s Impact of Indian pharmaceutical Industry. Praveen Dalal in his
paper Indian Patent Law - Some Reflections has discussed Intellectual Property Rights, TRIPS coverage of IPR.
He has further discussed salient features of Indian Patents Act 1970. Manthan D. Janodia, Sureshwar Pandey,
J. Venkara Rao, D. Sreedhar, Virendra S. Ligade, N. Udupa in their paper Patents Regime in India: Issues,
challenges and opportunities in pharmaceutical Sector have given a brief history of Indian Patent Laws. Authors
have concluded that; Indian pharmaceutical industry has benefited tremendously from the liberal patent law of
1970. It ranks very high in the third world, in terms of technology, quality and range of medicines
manufactured. From simple pills to complex medicines requiring complex steps to manufacture, medicines for
almost all type of ailments are manufactured in India. India today is considered to be global powerhouse of
generic drugs. It enabled India to supply cheapest generic drugs. Authors have also discussed TRIPS declaration
to meet public health in least developed countries and countries with insufficient manufacturing capacity like
Mail Box Provision, Bolar Provision, and Parallel importation. Authors have further discussed challenges for

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Indian pharmaceutical Industry after January 1, 2005.

The issue of patent protection and its impact on innovation rate and welfare is discussed by Grossman and
Helpman (1991), Helpman (1993), Segerstrom et al. (1990) and Lai. Bessen and Maskin (2000) show that if
innovation is sequential and complementary (as in certain industries like software, semiconductors and
computers) stronger patent protection would limit imitation and thereby inhibit technological change. Bhaduri
(2006) has tried to examine the justification of some of the arguments advanced to implement TRIPS in India.
She argues that extending monopoly rights up to 20 years can lead to a situation, where complacency effect of a
monopolist, arising out of a secure market, could lead to a decline in R&D expenditure because it will have no
incentive to search for more efficient processes of the same product during the patent life. The consumers may,
therefore, have to pay higher prices for inefficient processes of the novel drugs under the TRIPS which is in
sharp contrast with the stated objectives of the WTO, which propagates to raise global cost efficiency and
thereby consumer welfare. Chaudhuri (2007) explores that R&D expenditure has dramatically increased for a
segment of the Indian pharmaceutical industry after TRIPS came into effect. It is not only that the amount of
R&D expenditure has increased, but there has been a drastic shift in the structure of R&D activities of the Indian
companies. Earlier they were primarily engaged with the development of new processes for manufacturing
drugs, now they are also involved in R&D for new chemical entities (NCE). It is concluded by the author that;
although, the Research and Development activities have diversified, the Indian pharmaceutical industry has yet
to prove their competence in innovating new products.

3. RESEARCH METHODOLOGY
The data for this research paper has been taken form secondary sources, Articles, Research papers, Study
conducted by organization of pharmaceutical Producers of India. The data gathered on important aspects have
been studied and mathematically analysed to predict future prospects of Indian pharmaceutical Industry. This
study is focused on three functional segments of the pharmaceutical industry. These are Bulk Drug, Formulation
export and Contract research. Analysis of data has been done by the Least Squares Method.

The method of least squares is a standard approach to the approximate solution of over determined systems, i.e.,
sets of equations in which there are more equations than unknowns. "Least squares" means that the overall
solution minimizes the sum of the squares of the errors made in solving every single equation. The best fit in the
least-squares sense minimizes the sum of squared residuals, a residual being the difference between an observed
value and the fitted value provided by a model. When the problem has substantial uncertainties in
the independent variable , then simple regression and least squares methods have problems; in such cases, the
methodology required for fitting errors-in-variables models may be considered instead of that for least squares.

4. DATA ANALYSIS
We have used mathematical technique, least square Method to find out the growth of various segments of Indian
pharmaceutical industry after the change in the Patent Laws. The result of study is shown in the graphs given
below.

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4.1. Formulation Export

Growth of Indian Formulation Export in Bilion $ Vs

Trend
8
Actual data and Trend Analysis of Indian

6
Formulation in Billion $

Y
4
Est. Y

0
2002 2004 2006 2008 2010 2012 2014 2016
Year

Result indicates that the Indian formulations are growing at a steady rate and are not impacted by the change in
patent laws and would be of $ 7 billion in 2016.

4.2. Bulk Drug Export

Growt of Indian Pharmaceutical Bulk drug

Export in Billion $ Vs Trend

6
Actual and Trend

4
Y
3 Est. Y

0
2000 2005 2010 2015 2020
Year

The result of the study indicates that in the year 2015 the Indian pharmaceutical bulk drug industry would be of
6.5 billion $.

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4.3. Contract Research

The analysis of the available data shows that there is tremendous growth and potential in the field of
pharmaceutical contract research in India.

Growth of Indian Pharmaceutical Contract

Research Actual Vs Trend

0.8
0.7
Actual Data and Trend

0.6
0.5
Y
0.4
Est. Y
0.3
0.2
0.1
0
2000 2005 2010 2015 2020
Year

The result indicate that pharmaceutical contract research has started between year 2000 and 2005 and has shown
very fast growth and it is estimated that it would generate profits in excess of 0.7 billion $ in the year 2015.

5. CONCLUSION
India had shaped its own Intellectual Property path 41 years back to meet the needs of its poor population and to
encourage the growth of domestic Pharmaceutical Industry. Recently India has changed Intellectual Property
Laws to meet the requirement of International IP regime. Indian pharmaceutical Industry is in state of transition
and the effects of stronger patent laws are on all functional areas of the Industry.

The synchronization of patent laws in the world and expiry of patent period of successful drugs has opened a
window of opportunity for Indian pharmaceutical manufacturers known for their skills at producing generic
version of off patent drugs at low cost drugs.

Some Indian pharmaceutical companies have adhered to their comparative advantages in process innovations;
thus, seizing the generic drug route. However, for these firms the domestic market presents a constraint on
account of relatively low per capita income, limited access to medicine and negligible insurance coverage.

Other pathways for survival and growth are also being explored some pharmaceutical companies have achieved
success in developing new molecules and are interested in seeking domestic and overseas protection. This

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competency has sparked off strategic alliances between domestic and foreign firms that go beyond one-off
technology transfers of a previous era and enter areas of shared research, overseas production and global
marketing (Sandhya and Visalakshi, 2000). Indian pharmaceutical companies are also doing well in the
segments of Bulk drug and Formulation export.

It can be concluded that change in patent laws in India has not adversely affected the Indian pharmaceutical
Industry and the industry has successfully adopted itself. In the years to come industry will do especially good in
the area of contract research.

6. REFERENCES
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