In this article, we will analyse the reasons behind the pharmaceutical industry’s surging growth in the past two decades.
Overview
India has become a major player in the global pharmaceutical industry, with a focus on generic medicine and healthcare. Some well-known companies in the sector, such as Biocon, Sun Pharma, Dr Reddy’s Labs, and Zydus Cadila, have gained recognition not only locally but also in the international market. The success of these companies is reflected in their performance in the stock market.
| The Indian pharmaceutical industry is thriving and is expected to reach $100 billion by 2025, a significant increase from $24.4 billion in 2020-21. This growth can be attributed to various factors, including the production of generic drugs. |
Generic Drugs and the Indian Pharmaceutical Industry
India boasts the largest number of United States Food and Drug Administration (FDA) approved pharmaceutical manufacturing sites outside the United States. This achievement is linked to the Business Process Outsourcing boom in the 2000s, prompting many pharmaceutical companies to manufacture generic drugs in India to reduce costs.
| Generic drugs, which are produced after the expiration of patents, can be manufactured by any pharmaceutical company under its brand name. India has emerged as the world’s leading exporter of generic drugs. |
Factors Affecting the Growth Of the Pharmaceutical Industry
Historical Roots and Ayurveda:
India’s rich history, dating back thousands of years, includes a deep-rooted tradition in medical science, particularly Ayurveda. The ancient texts in India reflect a comprehensive understanding of health and medicine, creating a cultural foundation for success in the pharmaceutical industry.
Patents Act of 1970:
The introduction of the Patents Act in 1970 marked a significant milestone for the pharmaceutical industry. This legislation facilitated the easier patenting of original medical formulations, encouraging increased investment in research and development (R&D). The move aimed to promote innovation and foster growth in the sector.
Globalization in the 1990s:
The globalization of the Indian economy in the 1990s played a pivotal role in the expansion of the pharmaceutical industry. India emerged as a global hub for various industries, and the pharmaceutical sector was quick to leverage this opportunity. The cost-effectiveness of ingredients and labour became key factors, attracting international pharmaceutical companies to set up manufacturing units in India.
BPO Boom and Outsourcing Manufacturing:
The Business Process Outsourcing (BPO) boom in India wasn’t limited to customer service; it also extended to manufacturing. The pharmaceutical industry became one of the first to establish manufacturing units in India, focusing on the production of generic drugs. This strategic move allowed companies to capitalize on India’s abundant manufacturing facilities and manpower, significantly reducing production costs and expanding profit margins.
Amendments to Patents Act in 2005:
The subsequent amendments to the Patents Act in 2005 accelerated the patenting process for pharmaceutical products, particularly for innovative medicines. This further incentivized R&D investments, encouraging domestic companies to explore and apply for clinical trials of original formulations.
Focus on Innovator Medicines and APIs:
The pharmaceutical landscape witnessed a surge in the development of innovative medicines, and there was a growing market for Active Pharmaceutical Ingredients (APIs). Innovator medicines refer to original formulations for which companies undergo the costly and extensive process of clinical trials. Simultaneously, the production of APIs, crucial raw materials for medical products, gained prominence. Companies like Biocon emerged as global players, catering to the API market with cost-effective manufacturing units.
Factors Contributing to the Success of Indian Pharmaceutical Companies:
- Cheaper Ingredients:
– A significant advantage for Indian pharmaceutical companies lies in the availability of ingredients at lower costs. Many of the raw materials used in pharmaceutical drugs are more affordable in India than in Western countries. This cost advantage in production contributes to higher profitability, making Indian pharmaceutical products economically competitive.
- Abundant Human Resources:
– India boasts a vast pool of human resources, and labor is abundant. In economic terms, the availability of a large workforce often leads to lower wage expectations. This abundance of human resources makes setting up manufacturing plants in India cost-effective, as labor costs are relatively lower compared to many other regions.
- Generic Drugs:
– Indian pharmaceutical companies excel in the production and export of generic drugs. Generic drugs are medications whose patent periods have expired, allowing other pharmaceutical companies to manufacture and market them under different brand names. These generic drugs offer the same therapeutic effects as their branded counterparts but at significantly lower costs. India’s status as the world’s largest exporter of generic drugs underscores the success of its pharmaceutical industry.
- Regulatory Compliance and FDA Approval:
– Indian pharmaceutical manufacturing units adhere to stringent quality standards and regulatory requirements. Many Indian facilities have received approval from the United States Food and Drug Administration (FDA). This recognition enhances the credibility of Indian pharmaceutical products in the global market, instilling confidence among international buyers.
- Research and Development (R&D) Investments:
– Some Indian pharmaceutical companies have been actively investing in research and development, focusing on innovator medicines and the discovery of new formulations. This emphasis on R&D reflects a commitment to advancing pharmaceutical science and developing novel solutions, further contributing to the industry’s success.
- Global Collaborations and Partnerships:
– Collaborations and partnerships with international pharmaceutical companies have become a common practice for Indian firms. Such global alliances facilitate knowledge exchange, access to advanced technologies, and the expansion of market reach. These collaborations contribute to the growth and competitiveness of Indian pharmaceutical companies on the global stage.
- Skilled Workforce and Technical Expertise:
– India possesses a skilled workforce with technical expertise in various aspects of pharmaceutical manufacturing. This expertise ranges from formulation development to quality control. The availability of skilled professionals contributes to the efficiency and competitiveness of Indian pharmaceutical companies.
- Focus on Quality Assurance:
– Indian pharmaceutical companies increasingly prioritize quality assurance in their manufacturing processes. Stringent quality control measures ensure that the produced medicines meet global standards. This focus on quality enhances the reputation of Indian pharmaceutical products in the international market.
- Export to Western World:
– The availability of cost-effective drugs and a highly qualified workforce has led to the outsourcing of pharmaceutical manufacturing to India by Western companies. Indian pharmaceutical companies, especially small and medium-sized enterprises, have formed partnerships with Western counterparts. The existing manufacturing capabilities in India make it an attractive destination for such collaborations. The United States stands out as the largest market for Indian pharmaceutical companies.
- Government Initiatives:
– The Indian government has implemented various initiatives to support and promote the growth of the pharmaceutical industry. These initiatives include favorable policies that allow pharmaceutical companies to attract over 70% of Foreign Direct Investment (FDI). This support encourages industry players to seek investment, infuse capital, and adopt advanced technologies.
Additionally, India’s flexible patent system, shaped by laws such as the Patent Act of 1970, contributes to the efficient conduct of business in the pharmaceutical sector.
- Globalization Impact:
– The opening up of India’s socialist economy to global trade marked the onset of globalization. Big pharmaceutical enterprises from the United States and Europe seized the opportunity to enter the Indian market. These companies established cost-effective production setups offshore, not only to reduce operational costs but also to explore and expand their operations in emerging markets.
This globalization wave has created numerous opportunities for small-scale pharmaceutical industries in India to scale up and diversify their products and services.
- Opportunities for Growth:
– The influx of global pharmaceutical companies into the Indian market created a conducive environment for growth and expansion. Indian companies, leveraging their manufacturing capabilities, could collaborate with international counterparts and contribute to the global pharmaceutical supply chain.
This trend has allowed Indian pharmaceutical companies to showcase their capabilities, gain exposure to international markets, and foster innovation through global collaborations.
The Bottom Line
In conclusion, the success of the Indian pharmaceutical industry stems from various factors. Moreover, the enduring presence of cost-effective labor and robust production infrastructure positions India as a favorable destination for pharmaceutical manufacturing.
With these factors in play, the industry is poised for sustained growth and development, potentially creating employment opportunities for millions in the near future. For further information or inquiries, feel free to contact Vakilsearch.
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