No. 2007-05-A

OFFICE OF ECONOMICS WORKING PAPER

U.S. INTERNATIONAL TRADE COMMISSION

William Greene 

U.S. International Trade Commission 

May 2007 

The author is with the Office of Economics of the U.S. International Trade 

Commission. Office of Economics working papers are the result of the ongoing 

professional research of USITC Staff and are solely meant to represent the 

opinions and professional research of individual authors. These papers are not 

meant to represent in any way the views of the U.S. International Trade 

Commission or any of its individual Commissioners. Working papers are 

circulated to promote the active exchange of ideas between USITC Staff and 

recognized experts outside the USITC, and to promote professional 

development of Office staff by encouraging outside professional critique of 

staff research. 

Address correspondence to: 

Office of Economics 

U.S. International Trade Commission 

Washington, DC 20436 USA 

The Emergence of India’s Pharmaceutical Industry 

and Implications for the U.S. Generic Drug Market 
i

The Emergence of India’s Pharmaceutical Industry and

Implications for the U.S. Generic Drug Market

William Greene

U.S. International Trade Commission

ABSTRACT: This paper presents an overview of India’s pharmaceutical industry and its

evolution from almost non-existent to one of the world’s leading suppliers of generic drugs. The Indian

pharmaceutical industry was allowed to take off when India met its WTO TRIPs obligations and

amended its patent laws with the passage and implementation of the Patents (Amendments) Act 2005.

When India re-instituted “product” patents, it effectively ended 36 years of protection for Indian

companies and terminated legal reverse engineering or copying of patented foreign pharmaceuticals

drugs. To meet the short fall in revenues, many of India’s leading pharmaceutical companies turned to

foreign acquisitions and exports, especially to the United States. Indian companies benefit from a

greater acceptance of generic drugs among the U.S. public, tremendous pressure on healthcare

providers to reduce costs, and impending expiration of patents on drugs with annual sales of $50

billion. India’s major pharmaceutical companies are positioning themselves to offer generic versions of

these drugs and some have predicted that they will capture at least 30 percent of the U.S. generic

replacement market. However, Indian companies face severe price compression in the U.S. for their

generic drug market and stiff competition from domestic U.S. generic manufactures and suppliers from

other low-cost countries. 
Sources: Department of Chemicals & Petrochemicals, Government of India, MedicineNet.com, U.S. Food and Drug

1

Administration, KPMG, Pharmabiz.com.

ii

Abbreviations 

AIDs Acquired Immune Deficiency Syndrome

API Active pharmaceutical ingredient

ANDA Abbreviated New Drug Application

Assocham Associated Chambers of Commerce and Industry of India

CAGR Compound annual growth rate

CII Confederation of Indian Industry

CIS Commonwealth of Independent States

CNS Central nervous system

CRAMS Contract manufacturing and research services

DMFs Drug Master Files

DPCO Drug Price Control Order

FDI Foreign direct investment

GSK GlaxoSmithKlein 

HIV Human immunodeficiency virus

HTS Harmonized Tariff Schedule

IPR Intellectual property rights

M&A Mergers and acquisitions

MNC Multinational corporation

NCE New chemical entities (new patented drug)

NDA New drug applications

OTC Over-the-counter drugs (dispensed without prescription)

R&D Research and development

TB Tuberculosis

TRIPs Trade-Related Aspects of Intellectual Property Rights

US FDA United States Food and Drug Administration (FDA)

UNICEF United Nations Children’s Fund

WTO World Trade Organization

Definitions1

Abbreviated New Drug Applications (ANDAs): an application submitted to the U.S. Food & Drug Administration

by a generic drug manufacturer challenging a patent held by an innovator company. Once approved, an applicant

may manufacture and market the generic drug product of an existing formulation to the American public.

Active pharmaceutical ingredient (APIs): the primary, active ingredient(s) of a final pharmaceutical product,

produced in the first stage of pharmaceutical production and usually in bulk quantities.

Biologicals: medical preparation made from living organisms and their products, such as insulin, erythropoietin, and

vaccines.

Blockbusters: industry term referring to drugs with very large sales, generally in excess of $1 billion.

Branded generics: generic drugs for which a drug manufacturing company has attached its brand name and may

have invested in its marketing to differentiate it from other generic brands.
iii

Brand name drugs: innovator drugs patented by MNC pharmaceutical companies to prevent them from being

copied or reverse engineered by other companies. 

Bulk drugs: the active chemical substances in powder form, the main ingredient in pharmaceuticals - chemicals

having therapeutic value, used for the production of pharmaceutical formulations. Major bulk drugs include

antibiotics, sulpha drugs, vitamins, steroids, and analgesics.

Drugs: there are two types of drugs: bulk drugs (intermediates) and formulations.

Drug intermediates: these drugs are used as raw materials for the production of bulk drugs, which are either sold

directly or retained by companies for the production of formulations.

Drug Master files (DMFs): generic registration applications filed with the U.S. FDA in order to allow the active

pharmaceutical ingredients (APIs) to appear in marketed drugs.

Essential drugs: Drugs classified as essential by the Indian government consist of antibiotics, antibacterials, antiTB, penicillin and its salts, anti-parasitic, cardiovascular drugs, erythromycin and its preparations, vitamins and provitamins, vaccines (polio, human and veterinary), preparations containing insulin, caustic and other hormones, and

tetracycline and its preparations. Indian companies dominate this class of drugs with a domestic Indian market share

of 71 percent. These drugs are subject to government price controls.

Formulations: drugs ready for consumption by patients (generic drugs) sold as a brand or generic product as tablets,

capsules, injectables, or syrups. Formulations can be subdivided into two categories: generic drugs and branded

drugs.

Generic drugs: copies of off-patent brand-name drugs that come in the same dosage, safety, strength, and quality

and for the same intended use. These drugs are then sold under their chemical names as both over the counter and

prescription forms. Also, referred to as unbranded formulations.

Hatch-Waxman Act (Drug Price Competition and Patent Restoration Act): passed in 1984, it established the

ANDA process that permits the U.S. FDA to approve generic versions of approved innovator drugs without

supplying clinical trials or New Drug Application (NDA) performed by the innovator company. 

Innovator drugs: are drugs with patents on their chemical formulation or on their production process. They have

been tested and approved by the U.S. FDA after extensive clinical trials.

New Drug Applications (NDAs): the vehicle through which drug innovators formally propose that the U.S. FDA

approve a new drug for sale and marketing in the United States.

Pharmaceuticals: are used to prevent, diagnose, treat, or cure diseases in humans and animals. 

Plain vanilla generics: commodity generics that are “off-patent” in the regulated markets. They offer little or no

innovative value over the innovator’s product. 

Prescription drugs: medicines that encompass two classes, innovator drugs and generic drugs. 

Proprietary drugs: drugs that have a trade or brand name and are protected by a patent.

West/ Western: the United States, Canada, and Western Europe.
iv

Table of contents

Abstract ..................................................................... i

Abbreviations and definitions .................................................. ii

Overview ................................................................... 1 

India’s pharmaceutical industry: independence to mid-1980s ........................ 2

Regulatory Environment ....................................................... 2

The Patent Act, 1970 ..................................................... 2

Drug Price Control Order, 1970 ............................................. 3

Patent (Amendment) Act, 2005 ............................................. 3

Industry production ........................................................... 4

Leading Indian pharmaceutical manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Industry structure ........................................................ 8

Mergers, acquisitions, and other alliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Contract research and manufacturing, outsourcing, and other services . . . . . . . . . . . . . 11

Research and development (R&D) ......................................... 14

Strengths and weaknesses India’s pharmaceutical industry . . . . . . . . . . . . . . . . . . . . . . . 15

Indian market ............................................................... 16

Imports ............................................................... 17

Exports ............................................................... 18

The role of Indian generic drugs in the U.S. market ... ... ... ... ... ... ... ... ... ... ... 21

Role of imports in the U.S. market ......................................... 24

Impact of Indian generic drugs on the U.S. market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Conclusion ................................................................. 27

Appendix A: Selected company profiles

Ranbaxy Laboratories ................................................... 30

Dr. Reddy’s Laboratories ................................................. 32

Cipla ................................................................. 34

Nicholas Piramal India ................................................... 35
National Pharmaceutical Policy, 2006, Department of Chemicals and Petrochemicals, Government of India, Dec. 28, 2

2005.

“India gears up for unprecedented manufacturing growth,” in-Pharma Technologist.com, Aug. 8, 2006. 3

“Cuts Drug Prices, Else Face Action, Paswan Tells Industry,” The Associated Chambers of Commerce and Industry 4

of Industry, Nov. 29, 2006. 

1

Overview 

The Indian pharmaceutical industry is

one of the developing world’s largest and most

developed, ranking 4 in the world in terms of th

production volume and 13 in domestic

th

consumption value. India’s industry, valued at 2

$5.3 billion in 2005, represents less than one

percent of the global pharmaceutical industry

($550 billion).

3

Over the last 30 years, India’s

pharmaceutical industry has evolved from

almost nonexistent to a world leader in the

production of high quality generic drugs. India

has garnered a worldwide reputation for

producing high quality, low cost generic drugs.

The industry currently meets India’s demand for bulk drugs and nearly all its demand for formulations,

with the remainder supplied by foreign multinational corporations (MNCs).

India’s pharmaceutical industry is one of the fastest growing segments of the Indian economy

with an average annual growth rate of 14 percent during 2002-2005. Overall, the Indian market for

pharmaceuticals is projected to grow at an average annual rate of between 15 and 20 percent during 2005

- 2010. The surge in production has been driven by legislative reforms, the growth in contract

manufacturing and outsourcing, value added foreign acquisitions and joint ventures, India’s mastery of

reverse engineering of patented drug molecules, and India’s efforts to comply with its World Trade

Organization (WTO) Trade Related Intellectual Property Agreement (TRIPs) obligations.

When India joined the WTO in 1995, its pharmaceutical exports were valued at less than $600

million. By 2005, its exports had grown to $3.7 billion and accounted for more than 61 percent of

industry turnover. Currently, Indian pharmaceutical companies produce between 20 and 22 percent of the

world’s generic drugs (in value terms) and offer 60,000 finished medicines and nearly 400 bulk drugs

used in formulations.4

With changes in India’s patent laws in the early 1970s, Indian drug producers became experts in

‘reverse engineering’ and increased its supply of less expensive copies of the world’s best-selling patentprotected drugs. India’s pharmaceutical industry grew and prospered in a highly regulated environment

with government price controls on a significant number of formulations and bulk drugs. In January 2005,

India amended its patent laws governing pharmaceuticals, bringing them into conformance with the WTO

TRIPs agreement. Under the new patent law, Indian drug markers can no longer manufacture and market

reverse-engineered versions of drugs patented by foreign drug producers. To replace sales lost to TRIPs

compliance, many of India’s leading pharmaceutical producers have increased their exports of generic

drugs to the United States and Western Europe and entered into research and development agreements,

mergers and acquisitions, and other alliances with foreign pharmaceutical firms. 

India’s Pharmaceutical industry in 2005 

Share of global sales: Value 1%, Volume 8%

Global ranking: 4 in volume, 13 in value th th

Domestic market: $5.3 billion

Exports: $3.7 billion

Imports: $985 million

Bulk drug production: $2.1 billion

Employment: 5 million direct, 24 million 

 indirect.

Capital investment: $1.2 billion

Production costs: Among the lowest in the

 world, estimated to be 70%

 less than the West. 

Source: OPPI.
Devinder Sharma, “When death becomes cheap,” Deccan Herald, Apr. 16, 2005. 5

The Bengal Chemical and Pharmaceutical Works (1930) as India’s first public sector drug manufacturer; The 6

Hindustan Antibiotic Ltd. (1954) with the assistance of the United Nations and UNICEF; Indian Drugs and Pharmaceutical Ltd.

(1961) with assistance from the former Soviet Union; Bengal Immunity Ltd; Smith Stanistreet Pharmaceutical; and the Indian

Drugs and Pharmaceutical Corporation.

The Patent Act, 1970, Office of the Controller General of Patents, Designs, and Trademarks, Government of India. 7

2

India’s Pharmaceutical industry: independence to 2005

At the time of independence in 1947, India’s pharmaceutical market was dominated by Western

MNCs that controlled between 80 and 90 percent of the market primarily through importation.

Approximately 99 percent of all pharmaceutical products under patent in India at the time were held by

foreign companies and domestic Indian drug prices were among the highest in the world. The Indian

pharmaceutical market remained import-dependent through the 1960s until the government initiated

policies stressing self-reliance through local production. At that time, 8 of India’s top 10 pharmaceutical 5

firms, based on sales, were subsidiaries of MNCs. To facilitate an independent supply of pharmaceutical

products in the domestic market, the government of India founded 5 state-owned pharmaceutical

companies. Today, India is the world’s fifth largest producer of bulk drugs. 6

Government policy culminated in various actions including: the abolition of product patents on

food, chemicals, and drugs; the institution of process patents; the limitation of multinational equity share

in India pharmaceutical companies, and the imposition of price controls on certain formulations and bulk

drugs. Subsequently, most foreign pharmaceutical manufacturers abandoned the Indian market due to the

absence of legal mechanisms to protect their patented products. Accordingly, the share of the domestic

Indian market held by foreign drug manufacturers declined to less than 20 percent in 2005. As the MNCs

abandoned the Indian market, local firms rushed in to fill the void, and by 1990, India was self-sufficient

in the production of formulations and nearly self-sufficient in the production of bulk drugs. 

Regulatory environment 

To end the dominance of foreign drug companies, the Indian government enacted a series of

policies designed to foster self-sufficiency in the production of basic drugs. Because these measures

lowered barriers to entry, thousands of medium and small Indian pharmaceutical companies entered the

market challenging the MNCs for control. These actions laid the foundation for today’s highly

competitive domestic industry that is capable of offering some of the lowest drug prices in the world.

These policies ended India’s dependence on expensive foreign drugs, fostered the development of a

competitive pharmaceutical industry, and guaranteed the Indian public access to inexpensive drugs.

Nonetheless, the Indian pharmaceutical industry also became one of the country’s most heavily regulated.

The industry currently faces restrictions on imports, high tariff rates, ration requirements, and equity

ceilings for foreign participation.

The Patent Act, 1970: The Act’s stated objective was to foster the development of an

indigenous Indian pharmaceutical industry and to guarantee that the Indian public had access to low-cost

drugs. The Act replaced intellectual property rights laws left over from the British colonial era and 7

ended India’s recognition of Western-style “product” patent protection for pharmaceuticals, agricultural

products, and atomic energy. Product-specific patents were disregarded in favor of manufacturing

“process” patents that allowed Indian companies’ to reverse engineer or copy foreign patented drugs

without paying a licensing fee. This allowed the domestic industry build up considerable competencies

and offer a large number of cheaper “copycat” generic versions legally in India at a fraction of the cost of
“India’s new product patent law: challenges and opportunities for local drugmakers,” Pharma Market Letter, Dec. 6, 8

2004. The Indian Pharmaceutical Industry: Collaboration for Growth, KPMG, 2006.

Sanjay Kumar, “India to extend price controls on drugs,” BMJ Journal, Aug. 14, 2004. “The Cloning of Viagra,” 9

Asia Week.

“New policy adds 354 to the list of controlled drugs,” domain-b.com, July 1, 2006. 10

 “Government to enforce 5-per cent cut in prices of 75 drugs,” domain-b.com. March 27, 2007. 11

Novartis (Switzerland) recently challenged India’s patent laws before the Chennai High Court alleging that India’s 12

refusal to grant a patent on its leukemia anti-cancer drug, Gleevec, violated the WTO’s TRIPs agreement. In Jan. 2006, India’s

patent office rejected the patent application insisting that Gleevec was only a new form of an existing drug and was therefore not

patentable in India. Amy Yee, “Novartis in Indian patent dispute,” Financial Times, Dec. 22, 2006. “Novartis contests India’s

patent law,” Chemistry World, Feb. 15, 2007.

The Indian Patent Act, 1970 was amended by the Patents Amendment Ordinance, 2004 (the thirds amendment), 13

which was amended by the Patents Act, 2005. Important Changes Incorporated in the Patent (Amendment) Bill, 2005 As

Compared to the Patents (Amendment) Bill, 2003, Press Information Bureau, Government of India, March 23, 2005.

3

the drug in the West, as long as they employed a production process that differed from that used by the

patent owner. The Act protected process patents for 7 years instead of the usual 15 years needed to

develop and test new drugs.

Drug Price Control Order, 1970 (DPCO): The order was introduced when most of India’s

drugs were under strict price controls. Since its introduction, the number of bulk drugs under price

controls gradually declined from 347 in 1987 to 163 in 1994 to 74 in 1995. In 2005, the government 8

capped prices on 74 bulk drugs and 260 formulations that account for approximately 25 percent of

India’s retail pharmaceutical market (attachment). Trade margins for these drugs were capped at 8 9

percent for retailers and 16 percent for wholesalers. The National Pharmaceutical Pricing Authority,

founded in 1997, is responsible for monitoring prices using the DPCO to fix ceiling prices on drugs and

ensure that no Indian company in a monopoly position takes advantages of its monopolistic position by

profiteering. In June 2006, the National Pharmaceutical Policy 2006 (Part A) proposed to add price

controls on 354 specific drugs listed as essential medicines. The new policy will cap margins on generic 10

drugs at 15 percent for wholesalers and 35 percent for retailers. It will also enforce a 5 percent price cut

on more than 75 commonly-used medicines resulting from import duty reductions of 5 to 7.5 percent on

certain active pharmaceutical ingredients (APIs). The NPPA controls ceiling prices for controlled bulk

11

drugs in all intra-industry transactions as well as the retail ceiling prices for controlled formulations.

Patents (Amendment) Act 2005: To meet its TRIPs obligations, India amended its patent 12

law on March 22, 2005, abolishing its “process” patents law and reintroduced Western style “product”

patents for pharmaceuticals, food, and chemicals. This action effectively ended 36 years of protection 13

for Indian pharmaceutical companies and stipulated that Indian companies selling copycat drugs must

pay foreign patent holders a “reasonable” royalty for copies sold in the Indian market. The amendment

made reverse engineering or copying of patented drugs illegal after January 1, 1995. The Act allowed for

only two types of generic drugs in the Indian market: off-patent generic drugs and generic versions of

drugs patented before 1995. At present, nearly 97 percent of all drugs manufactured in India are off

patent and therefore will not be affected by this Act. It also introduced a provision establishing

compulsory licenses for exports to least developed countries with insufficient pharmaceutical

manufacturing capacities. 

The Amendment grants new patent holders a 20-year monopoly starting on the date the patent

was filed and, without a compulsory license, no generic copies can be sold during the duration of the

patent. The WTO also required India to establish a “mailbox” where patent applications could be filed

between January 1, 1995 and 2005. The Act encouraged significant numbers of foreign pharmaceutical
KG Narendranath, Patent mailbox opens, Pfizer is top applicant,” The Financial Express, March 20, 200__. 14

 D.K. Nauriyal, TRIPS-Compliant New Patents Act and Indian Pharmaceutical Sector: Directions in Strategy and 15

R&D, Indian Institute of Technology, Roorkee. “Pharmaceuticals: Getting the Dose Right,” Pharmacy Choice, Nov. 2, 2006.

 All drug production requires a government license. Staff interview with FICCI officials, Apr. 23, 2007. 16

4

companies to participate in the Indian market and, in 2005, foreign drug producers filed approximately

8,926 patent applications to cover their patented drugs sold as generics in the Indian market. Roche

(Switzerland) became the first foreign company to win a patent under India’s new product patent regime

and that patent, granted in March 2006 for a drug to treatment of hepatitis C (Pegasys), will be valid for

20 years from May 15, 1997. Pfizer (US) has submitted the largest number of patent applications (373)

followed by Johnson & Johnson (262) and Procter & Gamble (187). 14

Industry production

Thirty-five years of protection has enabled the Indian pharmaceutical industry to perfect its

scientific and manufacturing capabilities, allowing many of its leading companies to move up the valueadded chain. India’s pharmaceutical industry consists of large, medium, and small companies and is one

of the world’s most price competitive. It is also highly fragmented with more than 20,000 domestic

production units. Because of low barriers to entry and low capital requirements, the number of domestic

pharmaceutical firms engaged in the formal and informal sectors expanded dramatically from 2,257 in

1970 to more than 20,000 in 2005 (table 1). Because many of these companies focus of producing 15

similar generic drugs, with possibly hundreds of companies producing the same drug, the industry is

characterized by fierce competition and high volumes, razor-thin profit margins, overcapacity, and

declining prices. According to FICCI, there are only 6,000 firms participating in the formal sector that

have received drug manufacturing licenses from the Indian government. India’s pharmaceutical firms 16

can be differentiated by size, annual sales, function, export markets, and R&D capabilities (table 1).

Table 1: India’s pharmaceutical firms, by size, sales, function, exports, and R&D capabilities

Grouping Number of firms Description

Group 1 100 Largest firms, includes both wholly-owned Indian firms and subsidiaries of MNCs; have

annual revenues of at least $650,00; have brand recognition and are engaged in

developing R&D capabilities; responsible for recent wave of cross-border acquisitions

and alliances; export to regulated, semi-regulated, and unregulated markets.

Group 2 200 Mid-size firms with annual revenues between $210,410 and $650,000; they have limited

investment capabilities and primarily serve the domestic Indian market. They are generic

drug producers that subsist mainly on reverse engineering of patented and off-patent

drugs (primarily bulk drugs and APIs); also includes niche players specializing in

contract research (CRAMS) and contract clinical trials in segments of the market where

they have a competitive advantage; export to semi-regulated and unregulated markets.

Group 3 5,700 Smallest firms with annual revenues of less than $210,410;.primarily perform contract

manufacturing services for MNCs or domestic firms. Many have been adversely affected

and have been forced to close their doors due to revised Good Manufacturing Practices 

set by Schedule M of India’s Drug and Cosmetic Act, 1940 that came into effect from

July 1, 2005. Those affected cannot meet production standards of regulated market

regulators and their production will be limited to the domestic, semi-regulated, and

unregulated markets. 

Source: Padmashree Gehl Sampath, Indian Pharma Within Global Reach?, United Nations University, 2006-031.
Sasikant Misra, CRAMS (Contract Research and Manufacturing services), Confederation of Indian Industry (CII). 17

“Indian Healthcare: A growing market,” Economist Intelligence Unit, June 22, 2005. 18

“Pharma Cos must be globally competitive,” The Financial Express, May 28, 200x...

19

Generic APIs are expected grow by nearly 20 percent to $1.6 billion in 2010 and branded APIs are expected reach

20

$285 million while growing at an annual rate of approximately 25 percent. Patrician Van Arnum, “The Changing Fortunes for

APIs,” Pharmaceutical Technology, Jan. 2, 2007.

5

The vast majority of India’s pharmaceutical firms are small by global standards with annual

revenues of less than $5 million. The Confederation of India Industries (CII) estimates that approximately

80 percent of them are engaging in some type of contract manufacturing or outsourcing. The largest 250

17

companies control nearly 70 percent of the domestic market with the top 10 controlling approximately 40

percent. The domestic Indian pharmaceutical industry consists of both domestic companies and

subsidiaries of MNCs. In the 1970s, the vast majority of foreign pharmaceutical companies abandoned

the Indian market during the “process” patent era due to inadequate product protection, government price

controls, growing domestic competition, and declining prices and profitability. Consequently, the share

of India’s market controlled by multinationals dropped to less than 20 percent by 2005. In the absence 18

of government protection, India’s leading drug producers are moving toward new drug discovery rather

continuing to rely solely on copying patented foreign drugs. Industry experts project that by 2010, Indian

firms will produce 6 of the top 10 drugs scheduled to lose their patent protection in developing

countries.19

Indian pharmaceutical companies now supply nearly all the country’s demand for formulations 

and nearly 70 percent of its demand for bulk drugs. Indian firms produce nearly 60,000 generic brands in

60 therapeutic categories and between 350 and 400 bulk drugs. Approximately 80 percent of domestic

production consists of formulations, and more than 85 percent of those formulations are sold in the

domestic market, whereas at least 60 percent of bulk drug production is exported. Nearly 97 percent of

India’s drug market consists of second-and-third generation drugs no longer subject to patent protection

in the developed world. Some under-patent, lifesaving drugs continue to be imported, primarily from

developed countries, especially the United States, Germany, the United Kingdom, and France.

India has the world’s third-largest API manufacturing industry valued at nearly $2 billion in

2005. Currently, India’s drug industry produces more than 400 different APIs and is among the world’s

top 5 API producers accounting for approximately 6.5 percent of the world’s API production. Italy’s

Chemical Pharmaceutical Generic Association (CPA) projects that India’s share of the world API market

will grow to 10.5 percent by 2010 as patented blockbuster drugs lose their patent protection. The CPA

also expects that the domestic Indian market for APIs, both generic and branded, will rise from $755

million in 2005 to $1.9 billion in 2010. According to the Assocham, the leading APIs were anti20

infectives, and gastrointestinal, cardiovascular, and respiratory drugs (table 2). In terms of volume of

sales, the gastrointestinal and cardiac segments saw the highest rates of growth and accounted for the

largest number of new drug launches.
Economic Times, Stock Market Quotes and Company Research. 21

For more detail see Appendix A. 22

6

Table 2: Major therapeutic segments (2004)

Category Market share (percent)

Anti-infectives

Gastrointestinal

Cardiac

Respiratory

Vitamins-minerals-nutrients

Pain-analgesics

Dermatological

Gynecology

Anti diabetics

Others 

 14.7

 10.7

 11.1

 10.5

 9.2

 9.6

 5.4

 5.0

 4.6

 13.8

Source: Assocham.

Leading Indian pharmaceutical manufacturers: India’s leading pharmaceutical

companies are striving to compete not only in the domestic Indian market, but also in the global market

for both generic drugs and original products. Sales for India’s largest 200 pharmaceutical companies

grew from $7.9 billion in 2004 to $8.6 billion in 2005, or by 9 percent. By 2005, 9 of the top 10 Indian 21

drug makers were Indian-owned firms accounting for more than 44 percent of total industry sales. India’s

top five pharmaceutical companies, in terms of sales, are Ranbaxy Laboratories, Dr. Reddy’s

Laboratories, Aurobindo Pharmaceutical, GSK-India, and Cipla (table 3). These companies manufacture

a wide range of generic drugs (branded and non-branded), intermediates, and active pharmaceutical

ingredients (APIs) (table 4).

22

Table 3: India’s top 10 pharmaceutical company sales ($million)

Company Sales turnover Share of market

Ranbaxy Laboratories .... .... .... .... ....

Dr. Reddy’s Laboratories . . . . . . . . . . . . . . . . .

Cipla Ltd .... .... .... .... .... .... .... .

Nicholas Piramal India . . . . . . . . . . . . . . . . . . .

Aurobindo Pharmaceuticals . . . . . . . . . . . . . . .

GlaxoSmithKline .... .... .... .... .... ...

Lupin Laboratories .... .... .... .... .... . .

Sun Pharmaceuticals .... .... .... .... ....

Cadila Healthcare .... .... .... .... .... ...

Wockhardt .... .... .... .... .... .... ....

 Sub-total .... .... .... .... .... .... ...

 Total .... .... .... .... .... .... .... . .

2004-05

 776.8

 387.3

 534.3

 323.7

 258.0

 202.1

 329.3

 159.3

 248.4

 188.5

 3,407.7

 4,662.0

2005-06

 

 1,176.0

 534.5

 719.0

 344.7

 380.3

 342.9

 395.5

 375.2

 254.2

 217.5

 4,739.8

 6,205.0

2004-05

 23

 11

 16

 9

 8

 6

 10

 5

 7

 6

 73

2005-06

 19

 9

 12 

 6

 6 

 6

 6

 6

 4

 4

 76

Because of rounding figures may not total 100 percent. FY2005-06: $1=Rs 44.2735; FY2004-05: $1=Rs 44.9315. 

Source: Economic Times, Orbis, Stock Market Quotes, and Company Research.

In terms of total sales, Ranbaxy Laboratories is India’s largest pharmaceutical company and one

of the world’s top ten generic drug makers. In 2005, exports accounted for nearly 80 percent of

Ranbaxy’s sales and the United States is Ranbaxy’s largest market. Ranbaxy accounts for 23 percent of
Amanda Chater, “Indian companies gain traction in U.S. generics market,” Drugstore News, Sept. 25, 2006, pp. 34- 23

35. 

7

India’s pharmaceutical industry revenues. Ranbaxy is a vertically integrated company with a presence

23

across the pharmaceutical value chain, offering a range of unbranded and branded generics, active

pharmaceutical ingredients, and biotechnology products. Ranbaxy markets its products in more than 100

countries, a sales presence in 23 of the world’s top 25 pharmaceutical markets, and has manufacturing

facilities in 8 countries. Cipla, India’s second-largest pharmaceutical company, is best know for its antiAIDs drugs, and Dr. Reddy’s Laboratories, India’s third-largest pharmaceutical company, also rely

heavily on exports as its revenues.

Table 4: Principal products of India’s leading drug manufacturers

Company Principal products: bulk and generic drugs Percent of sales

Ranbaxy Labs Anti-infectives, cardiovascular, gastrointestinal, central nervous

(diazepam, midazolan), ophthalmic & ointments, urologicals, nutritionals,

sex hormones, analgesics, anti-asthma, cough & cold, vaccines.

Bulk: 22%,

Generic: 78%

Dr. Reddy’s Cardiovascular, gastrointestinal, anti-infectives, pain management Bulk: 40%

Generic: 60%

Cipla Antibiotics, anti-asthmatics, anti-AIDs and TB drugs, anabolic steroids,

analgesics-antipyretics, antacids, anti-arthritis, anti-inflammatory, anticancer, antidepressant agents, anti-diabetic, anit-epileptic, anti-fungal,

anti-malarial.

Bulk 7%, 

Generic: 93%

Wockhardt Anti-infectives, pain management, nutraceuticals Bulk drugs: 19%,

Generic: 81%

Pfizer India Nutritionals, cough syrup, anti-arthritis, anti-infectives, cardiovascular Generic: 100%

Sun Pharma Neuro-psychiatry, cardiovascular, gastrointestinal, diabetic, gynecological,

anti-allergic, antidepressants, cholesterol reducers, anti-asthma, Parkinson,

ADD, pain.

Bulk: 18%

Generic: 82%

GSK Anti-infective, anti-inflammatory, analgesic, gastro-enterological, antiallergic, dermatological.Generic: 100%

Lupin Tuberculosis medication, antibiotics, cardiovascular. Generic: 100%

Cadila Cardiovascular, gastrointestinal, anti-inflammatory/analgesic,

antibiotics/anti-infectives, vaccines/immunomodulators, anti-diabetics;

vitamins.

Generic: 100%

Nicholas Piramal Analgesics-anti-inflammatory, antibiotics, antifungal, antihistamines,

antiseptics, cardiovascular, central nervous system, diabetic, dermatologic,

endocrinologic, gastro-enterological, vitamins, pulmonary-respiratory,

trauma-emergency, gastrointestinal, NSAIDs.

Generic: 100%

Aurobindo

Pharmaceuticals

Antibiotics, anti-retrovirals, cardiovascular, central nervous system, gastroenterological, anti-allergy. Generic: 100%

Sources: Union Budget 2006-07.

MNC presence in India: Many of the world’s leading pharmaceutical companies have

subsidiaries or other operations in India. Multinational companies like GlaxoSmithKline (GSK) Baxter,

Aventis, Pfizer, Novartis, Wyeth, and Merck have been active in India’s pharmaceutical market mainly
“GSK Pharma Net Up 16.3% yoy,” India Infoline, Feb. 19, 2007. 24

Staff interview with FICCI officials, Apr. 24, 2007. 25

“Indian pharma mkt to grow at 13.6% from 2006-10: Assocham,” India Infoline.cim, Nov. 13, 2006. 26

“India’s drug sector tackles new patent regime,” in-Pharma Technologist.com, Feb. 14, 2005. 27

Gauri Kamath, “Is the pharma dream run over?” Business Week, June 16, 2004. 28

8

through subsidiaries. The re-introduction of product patents precipitated the return of a large number of

other MNCs, some of whom left during the process patent era. MNC pharmaceutical companies have

also been attracted by tax holidays, the deduction of capital R&D expenditures, and other financial

incentives offered by the Indian government. Industry sources indicate that the most significant

challenges facing MNCs are the uncertainly over pharmaceutical price controls and data exclusivity.24

There are approximately 34 foreign drug companies engaged in the Indian pharmaceutical market

and among them are 15 of the world’s 20 largest pharmaceutical companies. According to FICCI,

although MNCs have not launched new products they have invested in new production facilities and

R&D centers and many are engaged in contract manufacturing, clinical trials, and other forms of

outsourcing. In 2005-06, MNCs invested more than $172 million in India’s pharmaceutical industry and 25

FDI has grown by a compound annual growth rate (CAGR ) of 62 percent during 2002-06. However,

26

many industry experts believe that the return of the world’s leading pharmaceutical companies will

gradually erode India’s cost advantages. According to the Organization of Pharmaceutical Producers of

India, multinational drug companies currently command 24 percent of the domestic Indian market,

through their share could rise to 40 percent by 2010.27

GSK-India, a 51 percent subsidiary of GSK Plc (UK), is the largest foreign company in India’s

pharmaceutical market, its fourth largest pharmaceutical company, and leading prescription drug

supplier. GSK-India operates two Indian manufacturing plants and controls approximately 5.9 percent of

the domestic Indian market. GSK-India is among India’s leading suppliers of anti-infective, antiinflammatory, analgesic, gastro-enterological, anti-allergic, and dermatological drugs. GSK-India

announced plans to extend its product line by launching several antibiotic, cancer, and cardiovascular

products in India in the near term. Likewise, MNCs dominate India’s OTC (over the counter) drug

market, with Pfizer accounting for 5.1 percent of the market, Sanofi-Aventis for 5.0 percent, and Johnson

& Johnson for 4.8 percent. These companies offer analgesics, cough and cold preparations, indigestion

medicines, skin care products, and vitamins and minerals. Other foreign multinationals active in India’s

pharmaceutical market include: Bristol-Myers Squibb, Eli Lilly, Boehringer, Bayer, Chiton Corp, Abbott,

AstraZeneca, Janssen, and Roche. 

Recently, Teva Pharma (Israel), the world’s leading generic drug manufacturing company,

acquired a bulk drug manufacturing and intermediate facility in the State of Uttar Pradesh, announced

plans to add two more units, and more than triple the value of its exports from India by the end of 2007.

Teva also opened an R&D facility in India and announced plans to register between 10 and 15 bulk drugs

per year in the United States from its Indian facilities.28

Industry structure

Mergers, acquisitions, and other alliances: The last 3 years have seen a significant rise in

the number of consolidations, mergers & acquisitions, and other types of alliances and tie-ins in the

Indian pharmaceutical industry. Most of the acquisitions involve Indian companies searching for ways to

penetrate overseas markets and widen their global footprint, diversify and enhance their product

portfolios, offer their customers a ‘nearshore-offshore’ option, improve their custom manufacturing,

packing, and R&D capabilities, acquire existing brands, and gain access to the highly regulated markets
Ravi Krishnan, “It’s Europe for Ranbaxy,” The Financial Express, Apr. 1, 2006. 29

“Indian pharma firms expand global footprint in 2006,” The Economic Times, Dec. 25, 2006. 30

“India Pharma Inc - Competing Globally,” Pharma Summit 2006, Sept 14, 2006, KPMG. 

31

Europe’s three major generics markets are Germany, France, and the United Kingdom.

32

9

of Western Europe and the United States. Indian companies without significant R&D capabilities for

drug discovery are also purchasing Western drug discovery companies.

In 2005-06, 18 Indian companies spent approximately $1.6 billion to acquire generic drug

manufacturing firms in Europe, North America, and Mexico. These companies included Ranbaxy, Dr. 29

Reddy’s Labs, Nicholas Piramal, Sun Pharmaceutical, and Jubilant Organosys (table 5). Although 30

eleven of these transactions were for medium-and-small sized companies valued between $5 million and

$30 million, several have been significant acquisitions valued in excess of $500 million. To date, Dr.

Reddy’s purchase of Betapharm Arzneimittel of Germany for $572 million is the industry’s largest

overseas acquisition. Other significant deals include Ranbaxy’s purchase of Terapia (Romania) and RPG

Aventis (France) and Matrix’s acquisition of API of Belgium. With these acquisition; Dr. Reddy’s

became Germany’s fourth largest generic drug company and Ranbaxy became Romania’s third largest

generic drug company and one of Belgium’s top 10 generic providers. India’s pharmaceutical industry

31

should witness a significant decline in the number of smaller companies that either leave the market or

are acquired by larger Indian or foreign companies. Since 2000, a number of smaller Indian

pharmaceutical companies have been acquired by larger companies including Wockhardt’s acquisition of

Merind and Tata Pharma; Ranbaxy’s purchase of Crosland; Nicholas Piramal’s acquisition of Roche,

Boehringer, and Sumitra Pharma, and Glaxo-Wellcome’s merger with Ciba-Sandoz. Matrix, one of

India’s and the world’s leading producers of APIs, was acquired by Mylan (US) in January 2007 for $546

million. Mylan, one of the largest generic drug producers in the United States, acquired Matrix to expand

its manufacturing capabilities, gain a foothold in key markets, and gain access to Matrix’s technical and

scientific expertise.

Since 2005, Europe has become a counterweight to the U.S. market and its growing pricing

pressures. In exploring Western Europe for acquisitions, Indian pharmaceutical companies found a wider

range of companies available at more reasonable valuations. The new patent regime is also forcing the 32

Indian pharmaceutical market to consolidate, and only firms with a global presence and significant R&D

capabilities for drug discovery, drug delivery systems, and technology licensing will prosper into the

future.
10

Table 5: Selected international acquisitions and foreign tie-ins by the Indian pharmaceutical industry

Company International acquisition (s) Foreign alliances, JVS, and other tie-ins

Nicholas

Piramal

Pfizer-Morpeth (UK), Avecia Pharma (UK), Dobutrex

brand acquisition (US), Rhodia’s inhalation business

(UK) , Biosyntech (NPIL Pharma) (Canada), Torcan

Chemical (Canada), 51% of Boots ( S. Afruica), Bio

Syntech 

Ethypharm (France), Genzyme (US), Eli Lilly

(US), Biogen Idec (US), Chiese Farmaceutici

(Italy), Minrad (US), Pierre Fabre (France).

Gilead Sciences (US), Allergan (US),

Hoffmann-La Roche (Switzerland)

Ranbaxy Terapia (Romania), Allen -GSK (Spain & Italy),

Ethimed (Belgium), Betapharm (Germany), RPG

Aventis (France), 40% stake in Nihom Pharmaceuticals

(Japan), Brand-Veratide (Germany), Efarmes (Spain),

Be-Tabs (S. Africa), Akrikhin (Russia), Basic

(Germany), Ohm Labs (US)

GlaxoSmithKline (UK), Janssen-Ortho

(Canada), IPCA Labs (US), Zenotech (India),

Sonkel (S. Africa), Cephalon (US), Gilead

Sciences (US), Schwarz (Germany)

Dr.

Reddy’s

Betapharm Group (Germany), Trigenesis (US), BMS

Laboratories and Meridian Healthcare (UK), Roche’s

active ingredients business (Mexico), BMS Labs (UK)

Novo Nordisk, Bayer AG (Germany), Par (US),

Novartis (Switzerland), Merck (Germany), Clin

Tech, Pharmascience (Canada), ICICI (India),

Merck (Germany ), Schwartz ( )

Marksans Nova Pharmaceuticals (Australia) NA

Aurobindo Milpharm (UK), Pharmacin (Netherlands) Gilead Science (US), Citadel (India)

Sun

Pharma

Able Lab (US), Caraco (US), Valeant Pharmaceuticals

(US & Hungary), ICN (Hungary), Caraco (US), MJ

Pharma 

Dyax

Dishman I03S Ltd (Switzerland), Synprotec (UK), Carbogen

Amcis (Switzerland), Solutia’s Pharma (Switzerland)

Azzurro (Japan) 

Orchid Bexel Pharma (US) Stada, Alpharma, Par, Apotex

Biocon Nobex (US) Centre of Molecular Immunology (Cuba)

Wockhardt Wallis Labs (UK), CP Pharma (UK), Esparma

(Germany), Pinewood Laboratories (Ireland), Dumex

(India)

Pharma Dynamics (S. Africa)

Cadila Alpharma (France-formulations), Dabur Pharma

Redrock (UK)

Schering (Germany), Boehringer Ingelheim

(Germany), Viatris (Germany), Novopharm

(Canada), MCPC (Saudi Arabia), Cipharm

(Ivory Coast), Geneva (US), GSK (UK),

Ranbaxy (India), Mallinckrodt (US), Mayne

(Australia), Shinjuki (Japan), Zydus Atlanta

Jubilant

Organosys

Target Research Associates (US), PSI (Belgium),

Trinity Laboratories (US)

NA

Matrix

Labs

22% controlling stake in Docpharma (Belgium),

Explora Lab (Switerland), MCHEM (China), Fine

Chemicals (S. Africa), API (Beligum)

Aspen, Emchem, Doc Pharma, Explora Labs

Glenmark Kinger Lab (Brazil), Uno-Ciclo (Brazil), Srvycal

(Argentina), Medicamenta (Czech), Bouwer Bartlett

Forest Labs (US), Lehigh Valley Technologies

(US), Shasun (India), KV, Apotex (US)

Source: IBEF, Ernst & Young, The Economic Times, individual company web pages. 
FICCI.com.

33

“Domestic pharma to grow 13.6% in 2006-10: Assocham,” Pharmabiz.com, Nov. 31, 2006. 34

CRAMS: The Gateway to Indian Success, Focus Reports.net, Sept. 2006. 35

11

Contract research and manufacturing, outsourcing, and other services: The passage of

the Patents (Amendment) Act 2005 has significant implications for both Indian and multinational

companies competing in the Indian market. Leading Indian companies are moving away from a reliance

on the domestic market to the development new drugs, exports to regulated markets, and cooperative

agreements with MNCs. Facing lagging sales of patented drugs by MNCs in their home markets,

declining R&D revenues, and rising costs, many MNCs have turned to contract manufacturing and

research services (CRAMS), co-marketing alliances, outsourcing of research and clinical trials to reduce

costs, increase development capacity, and trim the ‘time to market’ for new drugs. These strategies

permit MNCs to focus on their core profit making activities (competencies), such as drug discoveries and

marketing, rather than on manufacturing. India has emerged as the principal destination for global

pharmaceutical companies across the pharmaceutical value chain.

Indian pharmaceutical companies have two basic options: compete with MNCs for vanilla

generics and new chemical entities (new drugs) or co-operate (table 6). Subcontracting in India has

gradually moved up the value-added chain from intermediates and APIs to new drug discovery, clinical

trials, marketing, and sales. According to India’s Federation of Indian Chambers of Commerce and

Industry (FICCI), many Indian companies, especially those without the resources for R&D, are

embracing custom manufacturing, contract research, and marketing alliances to remain profitable.33

Others are planning to manufacture and export vanilla generics to regulated markets before eventually

producing either more difficult to manufacture generics or new chemical entities (proprietary drugs).

Table 6: Strategic options for Indian companies

Option to compete Option to cooperate

* Market and sell plain vanilla and speciality generics.

* Develop low risk NDAs

* Develop follow-on biologics

* Challenge IPRs on regulated markets

* Invest in R&D for proprietary NCEs.

* Provide contract manufacturing for MNCs

* Supply APIs to MNCs

* Partner with MNCs for their sales channels

* Provide clinical outsourcing for MNCs

* R&D collaboration

Source: The Effect of Changing Intellectual Property on Pharmaceutical Industry Prospects in India China, DFID Health

Systems Resource Centre 2004.

Contract research and (custom) manufacturing services (CRAMS): CRAMS can be

divided into 3 basic segments: the production of intermediates, active pharmaceutical ingredients for new

chemical entities, and the manufacture of generic drugs. India has emerged as one of the world’s leading

CRAMS providers for MNC innovator companies and now accounts for between 6 and 7 percent of the

global market and many expect India will command at least 15 percent of the market by 2009-10.

Although CRAMS is still in its nascent stages in India, it represents a significant opportunity for

medium-sized Indian pharmaceutical companies.

In 2005, the Indian CRAMS market was estimated at $532 million with contract manufacturing

accounting for nearly 84 percent of the total. The remainder consisted mainly of contract research (not 34

including clinical trails). Both contract research and contract manufacturing grew by more than 40

percent in 2005 compared with 2004 and industry experts maintain that Indian companies have the

capacity to gain between 35 percent and 40 percent of the global CRAMS market. The Associated 35

Chambers of Commerce and Industry of India (Assocham) projects that the domestic Indian CRAMS
Sanjiv Kumar, “Drug cos on a high!,” Mumbai Mirror, Nov. 12, 2006. 36

Mithun Chandra G, “Sector Momentum Update - Pharma,” Birla Sun Life, June 16, 2005. 37

The Confederation of Indian Industry (CII) estimates that it costs between $100 million and $200 million to develop

38

a new drug in India as compared to $500 million to $900 million in the United States. Sasikant Misra, 

CRAMS (Contract Research and Manufacturing services), Confederation of Indian Industry.

Nicholas Piramal.com

39

Jeetha D’Silva, “Drug cos bet on contract manufacturing,” The Economic Times, July 25, 2006. 40

MG Arun, “Druggists swallow phoren pills to open new vistas,” The Financial Express, June 28, 2006. 41

Jeetha D’Silva, “Drug cos bet on contract manufacturing,” The Economic Times, July 25, 2006. 42

Pharmaceuticals, IBEF. 43

12

market will reach $900 million by 2010 and the demand for contract clinical trials will grow from $100

million in 2005 to $200 million in 2007 and to $1 billion by 2010.36

India’s competitive advantage lies in its lower production and research costs, its large pool of

low cost technical and scientifically trained personnel, and the large number of U.S. FDA certified

plants. Other important factors include the popularity of outsourcing non-critical business functions to 37

India by MNCs, the reintroduction of product patents for pharmaceuticals, the growing importance of

R&D related to drug discovery by Indian drug companies, and the growing demand for generic drugs in

developed markets. It is estimated that manufacturing costs in India are between 30 and 40 percent lower

than those in the United States and Western Europe and labor costs are one-seventh of that in the United

States. 

38

Nicholas Pirmal India Ltd. is India’s leading contract manufacturer with CRAMS contracts

valued at $250 million (table 7). At present CRAMS accounts for approximately 30 percent of Nicholas 39

Piramal’s total revenues in 2005 and plans to increase it to 50 percent by 2010. In 2006, Nicholas 40

Piramal signed a 5-year, $350 million agreement with Pfizer for 12 products. The agreement made

Nicholas Piramal Pfizer’s largest custom manufacturing partner. To augment its global contract 41

manufacturing capabilities, Nicholas Piramal purchased Pfizer’s contract manufacturing facility in the

United Kingdom (Morpeth) and Avecia Pharmaceutical. Its deal with Pfizer could potentially produce

much as $350 million for Nicholas Piramal by 2010. Likewise Jubilant Organosys booked contracts

worth $65 million for 2006 and 2007, and Shasun Chemicals and Drugs, India’s leading producer of

ibuprofen, bought the CRAMS business of Rhodia Pharma Solutions (France). Dishman Pharma and

42

Divi specialize in contract manufacturing of patented drugs and custom synthesis; Shasun and Matrix

specialize in generics; and Shasun, Jubilant Organosys, Torrent, and Morepen specialize in old generics.

MNCs like Aventis, Bayer, and Roche have announced plans to make India their regional hub for APIs,

bulk drugs, and clinical research.43
13

Table 7: Selected CRAMS, contract research, and outsourcing deals in India

Indian company CRAMS partner CRAMS product(s)

Lupin Labs DMS (US) .... .... .... ....

Fujisawa (Japan) . . . . . . . . . . . .

Apotex (Canada) . . . . . . . . . . .

API for cephalosporins

Cefixime

Cefuroxime, Axetil, Lisinopril

Nicholas Piramal AMO (US) . . . . . . . . . . . . . . . .

Allegran (US) .... .... .... . .

AstraZeneca (Sweden) . . . . . . .

Advanced Medical Optics (US)

Pfizer (US) .... .... .... ....

APIs and formulations

Bulk drugs and formulations

Intermediates and APIs

Eye products

API’s-formulations for veterinary products

Wockhardt Ivax (US) .... .... .... .... . Anti-ulcer

Dishman Pharma Solvay Pharma (Belgium) . . . .

GSK (UK) .... .... .... ....

AstraZeneca (Sweden ) . . . . . . .

Merck (Germany) . . . . . . . . . . .

APIs and formulations

Intermediates and API

Nexium

Losartan

IPCA Labs Merck (Germany) . . . . . . . . . . .

Tillomed (UK) .... .... .... .

Bulk drugs

Atenelol

Orchid Chemicals Apotex (Canada) . . . . . . . . . . .

Bexel (US) .... .... .... ....

Cephalosporin and other injectables

Drug discovery research in metabolic diseases

Sun Pharma Eli Lilly (US) . . . . . . . . . . . . . Cardiovascular products, anti-infective drugs and insulin

Kopran Synpac Pharma (US) . . . . . . . . Penicillin

Cadila Healthcare Altana Pharma (Germany) . . . .

Boehringer Ingelheim

(Germany) .... .... .... ....

Mayne (Australia) . . . . . . . . . .

Intermediates and APIs

Gastrointestinal and cardiovascular products

JV for producing patent drugs

Intermediates for oncology products

Biocon Bristol Myers Squibb . . . . . . .

Pfizer (US) .... .... .... ....

AstraZeneca (Sweden) . . . . . . .

Contract research for bulk drugs

Contract research for bulk drugs

Contract research for bulk drugs

Bharat Biotech Wyeth (US) . . . . . . . . . . . . . . . Vaccine and bio-therapeutics

Shasun Chemicals Eli Lilly (US) . . . . . . . . . . . . . .

GlaxoSmithKline (UK) . . . . . .

Reliant Pharma (US) . . . . . . . .

Alpharma (US) .... .... .... .

GSK (UK) .... .... .... ....

Boots (S Africa) . . . . . . . . . . . .

APIs

APIs

APIs

Generics & APIs

API’s for Ranitidine, nizatidine and cyclosorine

API for Ibuprofen

Jubilant Organosys Eli Lilly (US) . . . . . . . . . . . . . .

Novartis (US) .... .... .... . .

New chemical entities: CVS, CNS, diabetes, oncology.

Intermediate and API

Matrix GSK (UK) .... .... .... .... APIs

Divi Merck, Abbot, GSK . . . . . . . . . Custom chemical synthesis

Sources: Assocham, rediff, Economic Times, Business Standard, Financial Express, IBEF.
“Domestic pharma to grow 13.6% in 2006-10: Assocham,” Pharmabiz.com, Nov. 31, 2006. 44

Clinical trials represent between 50 to 60 percent of a new drug’s development costs. By using India and other low45

cost countries, Western drug innovators can potentially reduce their costs per patient by 40 percent to 60 percent. Michael Block,

Ajay Dhonkhar, Shanker Narayanan, “Pharma leaps offshore,” McKinsey Quarterly, July 2006.

“From Copycats to Innovators,” India Report, Focus Reports, Sept. 2006. 46

Ranbaxy Laboratories.

47

14

Contract outsourcing: Western pharmaceutical companies are now outsourcing a wide range of

activities including: the manufacture of APIs, chemical intermediates, and formulations; clinical research

and clinical testing; and packaging and labeling. The Indian market for contract outsourcing has been

driven by the need of leading MNC pharmaceutical companies to reduce production costs and increase

revenues. These companies have shifted portions of the production, research & development, clinical

trials, packaging and labeling, stability testing, and other types of drug development and discovery

activities to India. In 2004, India’s drug outsourcing sector was valued at $470 million and was expected

to grow by 30 percent per year to $800 million in 2005. Leading drug firms like Pfizer, AstraZeneca,

Novartis, and Eli Lilly have already begun shifting a portion of these activities to India.

According to India’s Chemical Pharmaceutical Generic Association, the domestic contract

research market is growing between 20 percent and 25 percent per year and was valued at $120 million in

2005 and is projected to grow to $200 million by the end of 2007. The Chemical Pharmaceutical Generic

Associations also predicted that this segment will reach $1 billion by 2010. The Association indicated 44

that India dwarfs its nearest rivals, Italy ($60-$70 million) and Spain ($25 million to $33 million), and

projected that contract research in India will grow at an annual rate of between 20 percent to 25 percent.

Clinical trials represent 65 percent of this market and new drug discovery makes up the remaining 35

percent. Companies active in India’s contract research market include: a limited number of

45

multinational corporations, subsidiaries of large international contract research firms (Quintiles,

Covance), joint ventures and tie-ins between Indian and foreign companies, and stand-alone and

offshoots of Indian companies. Several multinationals active in the Indian market have designated India

as a hub for their production of active pharmaceutical ingredients and finished formulations. Divi Labs,

Shasun Chemicals & Drugs, and Dishman Pharmaceuticals are among India’s leading contract research

firms.

Research and development (R&D): With the reintroduction of product patents, leading

Indian pharmaceutical majors are altering their business strategies by placing greater focus on R&D and

the discovery of new chemical entities. Traditionally, the vast majority of India’s pharmaceutical R&D

spending was concentrated on reverse engineering and the adaptation of patented foreign drugs to the

Indian market. Most of the industry’s funding went to research rather than to new drug discovery and

development. Low levels of industry productivity and the relatively small size of India’s pharmaceutical

companies limited funding for R&D as they dedicated only less than 2 percent of their annual turnover to

R&D compared with between 15 percent and 20 percent allocated by Western innovator companies.

After 2005, India’s leading drug companies recognized that they could not survive as global

players without significant R&D capabilities. Since 1995, total industry R&D spending has grown from

nearly $30 million to more than $495.3 million in 2005-06 (table 8). The vast majority of the industry’s 46

R&D spending is conducted by 15 companies whose R&D spending rose to $192.3 million in 2005 from

$131 million in FY2004, representing an increase of 47 percent. R&D expenditures are expected to

gradually rise to between 9 percent and 10 percent of total industry spending by the end of 2007.47

Likewise, the vast majority of the industry’s R&D expenditures on new drug discovery and

development is conducted by a limited number of companies, with Dr. Reddy’s and Ranbaxy at the

forefront. In 2005, Dr. Reddy’s committed 14 percent of its annual sales to R&D, whereas, Ranbaxy
Drugs & Pharmaceuticals, CII. 48

Ibid. 49

Ashok Ram Kumar, “Impact of TRIPs on Indian Pharma,” Pharmabiz, Dec. 2, 2004. 50

15

allocated approximately 7 percent. Ranbaxy announced that it will gradually increase its R&D spending

to between 9 and 10 percent of sales by the end of 2007. Others with significant R&D expenditures

include Nicholas Piramal, Aurobindo Pharma, and Glenmark Pharma. 

Table 8: India’s pharmaceutical R&D expenditures ($million)

FYear Value Percent change

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

 97.8

 130.5

 175.3

 280.0

 392.4

 495.2

 33

 34

 60

 40

 26

Source: Assocham.

Driven by the dynamics of the market, leading foreign pharmaceutical companies have entered

into R&D agreements with India’s leading drug companies. Facing spiraling costs and patent expiries for

blockbuster drugs at home, many are looking to India as a low-cost alternative, especially due to the large

number of U.S. FDA-approved plants located in India. MNCs have been attracted by India’s low costs

for new drug discovery and many of these firms have founded state-of-the-art research facilities in India.

Whereas new drug discovery costs between $100 million and $200 million in the West, the same process

in India only costs approximately $10 million. Likewise, clinical trials in India cost approximately $20

48

million while the cost abroad would ranges between $300 million and $350 million.49

Strengths and weaknesses of India’s pharmaceutical industry: India’s comparative

advantages lie in its cost competitiveness, its reverse engineering experience, its large pool of less

expensive English-speaking scientific and engineering workers, and its well-developed chemical industry

infrastructure (table 9). India’s pharmaceutical companies can also operate at much lower profit margins

that their Western counterparts. Today, India produces some of the cheapest drugs in the world,

especially because labor costs are 50 to 55 percent cheaper than in the West. Industry experts indicate 50

that infrastructure costs are 40 percent lower and fixed cost are estimated to be 12 percent to 20 percent

less that in the United States and Western Europe. Consequently, India can produce bulk drugs that cost

60 percent less that in the West and can open a production plant in India 40 percent cheaper than in

developed countries. Because of this, India has become a hub for pharmaceutical research and

development and clinical trials for many leading foreign pharmaceutical companies.
“Domestic pharma to grow 13.6% in 2006-10 ‘Assocham’,” Pharmabiz.com, Nov. 30, 2006. 51

“Indian pharma mkt to grow at 13.6% from 2006-10: Assocham,” India Infoline, com, Nov. 13, 2006. 52

16

Table 9: Strengths and weaknesses of India’s pharmaceutical industry

Strengths Weaknesses

* Cost advantages (development, manufacturing, R&D,

 clinical trials, and labor).

* Large pool of highly trained manpower.

* 2 largest number of U.S. FDA approved facilities (61).

nd

* TRIPS compliance.

* Lower operating margins. 

* Drug cost a fraction of the cost in the West.

* Growing biotechnology industry.

* Reverse engineering skills.

* Largest number of DMFs.

* Bio-diversity.

* FDI up to 100 percent.

* Strong IT skills for research data management.

* Political stability.

* Strong marketing and distribution network.

* Well established network of laboratories.

* Low level of investment in R&D.

* Highly fragmented industry.

* Government price controls.

* Low margins.

* High tariffs and taxes.

* Substandard drugs and counterfeiting.

* Most Indian companies are small by world standards.

* High logistics costs.

* Lack of experience in drug discovery.

* Industry concentrated at lower end of value chain.

* Corruption.

* Weak domestic market.

* Low levels of per capita medical expenditure.

* High logistics costs.

* Lack of experience in drug discovery.

Source: CII, Intec.net, Financial Express, Bain & Company.

Indian Market

The Indian pharmaceutical market is small, both by Western standards and in terms of per capita

consumption. Although India is the world’s leading producer of generic drugs, its annual per capita

consumption of pharmaceuticals is among the lowest in the world at approximately $4.50 per person, as

compared with $820 in the United States and $13 in China in 2006. The value of India’s pharmaceutical

industry nearly doubled from $3.2 billion in 2000 to more than $6.2 billion in 2005, or by an average of

12 percent annually (table 10). According to the Associated Chambers of Commerce and Industry of

India (Assocham), the Indian pharmaceutical market is expected to grow at an average annual rate of 13.6

percent during 2006-2010 to reach $9.5 billion in sales by 2010. This 51

growth is expected to be driven by: access to low cost, high volume generic drugs; mergers and

acquisitions: industry consolidation; and India’s growing importance as a pharmaceutical contract

manufacturing and services location. Approximately 80 percent of domestic industry production 52

consists of formulations, with the remainder consisting of bulk drugs.

Table 10: Indian pharmaceutical market ($million)

Year Total Percent change

2000

2001

2002

2003

2004

2005

2006

3,244

3,260

3,735

4,088

4,662

5,344

6,205

 0.5 

 15

 10

 14

 15

 16

Sources: U.S. Census Bureau; Economist Intelligence Unit; and World Trade Atlas.
Estimates range between 80 million and 100 million potential consumers that can afford expensive ‘lifestyle’ 53

medicines. 

Khomba Singh, “Pharma cos see future in chronic medicines,” The Economic Times, Apr. 9, 2007. 54

Ames Gross and Sunil Patel, Indian Pharmaceutical Industry: Market, Regulatory, Import and Investment Regime,

55

Pacific Bridge Medical, Inc., May 2002. 

17

In the post-product patents era, India’s domestic market is changing, reflecting rising disposable

incomes in urban areas and changes in India’s demographic profile. Leading drug companies are putting 

more emphasis on meeting a growing demand for high value low volume, Western-style “lifestyle”drugs

for wealthy urban customers who make up approximately 12 percent of the market. This highly

53

lucrative market segment includes drugs for “chronic” or “lifestyle” diseases have grown from 10 percent

to 20 percent of the market in the mid-1990s to between 25 and 35 percent of the market today. The 54

demand for these drugs is growing at a faster rate, at 18 percent, than domestic demand for the acute drug

segment (12 percent). India has often been called the world’s diabetes capital and the rates of aliments

like hypertension and high cholesterol are increasing annually. According to Sanjay Kaul, General

Manager of Mankind Pharma’s Product Division, the lifestyle drug segment will fuel the growth of

India’s pharmaceutical industry and includes anti-diabetes, anti-ulcer, anti-depressants, cardiovascular,

hypertension drugs, Alzheimers disease, osteoarthritis, and cancer.

Intense domestic competition, a growing reliance on exports by the largest producers, and India

as a growing market for contract manufacturing, contract research and development, and clinical trials,

were among the forces behind the industry’s growth. Prescription drugs dominate the Indian market,

accounting for 85 percent of India’s pharmaceutical production in 2005. The Indian pharmaceutical

industry accounts for the second largest number of Abbreviated New Drug Applications (ANDAs), is the

world’s leader in Drug Master Files (DMFs) applications with the U.S. Food and Drug Administration,

and has the largest number of FDA-approved manufacturing plants (75) outside of the United States.

Many of India’s leading Indian pharmaceutical companies have also been certified by regulatory

authorities in Australia, South Africa, and the EU.

Imports: India’s consumption of imported pharmaceuticals accounts for only a tiny portion of

the world’s production. Its imports consist almost entirely of life-saving drugs and new generations of

formulations that are under patent by innovator companies. These include anti-cancer, cardiovascular,

and anti-hypertension drugs imported primarily by major global pharmaceutical companies for sale in the

Indian market. Within these categories, leading imports consisted of penicillin (13 percent), antibiotics

for combating stomach infections (9 percent), and other medicines for retail sales in dosage form (19

percent). Life saving drugs can be imported into India duty free, whereas all other pharmaceutical

imports faced a base duty rate of 30 percent and an effective duty rate of 56.8 percent in 2002, compared

with “zero” duty in the United States. India’s imports of finished pharmaceutical drugs, intermediates, 55

and APIs nearly tripled in value from $516.1 million in 1999 to more than $1.3 billion in 2005 (tables 11

& 12).
18

Table 11: India’s pharmaceutical imports, 2005 ($million)

Year Value Percent change

1999

2000

2001

2002

2003

2004

2005

 516.1

 547.1

 593.5

 847.1

 954.3

 1,050.2

 1,346.3

 6

 8

 43

 13

 10

 28

 

Source: World Trade Atlas.

Table 12: India’s pharmaceutical imports by product group (2005)

Year HTS No. Imports by product group Value Percent of total

1999

2000

2001

2002

2003

2004

2005

 2941

 2942

 3004

 2937

 3002

 2936

 3003

Antibiotics

Antibiotics for stomach

Other medicines

Hormones

Blood, vaccines

Vitamins

Mixtures, not in dosage form

 421

 384

 249

 89

 71

 35

 27

 31

 29

 18

 7

 5

 3

 2

Source: World Trade Atlas.

India’s top 7 import source countries accounted for approximately 32 percent of the total during

2005, down from 37 percent in 2004 (table 13). India’s leading import suppliers included Switzerland (8

percent), Germany (6 percent), the United States (7 percent), and France (3 percent). Although India’s

pharmaceutical market is relatively small, at least 45 MNC pharmaceutical companies are serving the

market through subsidiaries, other tie-ins, and imports. India’s imports from Switzerland, the United

States, and Germany consisted primarily of other medicaments in dosage form for retail sales (HTS.

Subheading 3004). 

Table 13: India’s pharmaceutical imports from top 7 countries, by value ($ million)

Country 2002 2003 2004 2005 Jan - June 2005 Jan - June 2006

Switzerland

Germany

United States

France

Denmark

Belgium

United Kingdom

 Total

 92.6

 57.6

 62.6

 33.6

 31.4

 9.6

 24.9

312.3

 95.7

 52.6

 76.0

 30.2

 33.3

 15.7

 25.6

329.1

 82.8

 61.9

 77.2

 23.1

 24.3

 10.0

 40.6

319.9

109.2

 85.3

 97.2

 36.8

 42.7

 21.9

 34.9

428.0

 63.3

 58.1

 48.3

 22.5

 17.7

 13.6

 22.9

246.4

115

51.3

53.5

25.5

13.9

22.0

24.5

305.2

Source: World Trade Atlas.
“India Healthcare: Ranbaxy ready to take on the world,” Financial Times, Oct. 11, 2006. 56

19

Exports: After nearly 30 years of focusing inward, India’s pharmaceutical industry has emerged

as a global player satisfying a significant portion of the world’s generic drug needs. Attracted by high

drug prices in the West, India’s pharmaceutical exports grew from $1.9 million in 1999 to $5.2 billion in

2005 (table 14). In the last 5 years, India’s exports more than doubled and account for approximately 40

percent of total industry production and nearly 30 percent of its revenues. India also enjoyed a trade

surplus that increased from $3.1 billion in 2004 to $3.8 billion in 2005, or by 23 percent. India’s exports

should continue to show strong growth through 2010 as $60 billion worth of patented drugs lose their

patent protection in the United States and Western Europe. Assocham predicts that Indian companies 56

will capture at least 30 percent of the replacement market of generic drugs.

Table 14: India’s pharmaceutical exports ($million)

Year Value Percent change

1999

2000

2001

2002

2003

2004

2005

Jan.-June 2005

Jan.-June 2006

 1,913.0

 2,053.2

 2,311.2

 2,860.9

 3,514.8

 4,188.7

 5,150.1

 3,349.1

 4,074.1

 7

 13

 28

 23

 19

 23

 22

Source: World Trade Atlas.

According to Assocham, the importance of exports has grown dramatically over the last 5 years

due to declining profit margins and the extremely price-competitive nature of the domestic Indian

pharmaceutical market. Exports have grown to constitute a major revenue source for India’s major

pharmaceutical companies including Ranbaxy, Cipla, and Dr. Reddy’s. Collectively, regulated markets

accounted for more than 50 percent of their total annual revenues. In 2005-06, Ranbaxy derived nearly 80

percent of its sales revenues from exports, while exports and international acquisitions accounted for 66

percent of Dr. Reddy’sales and 50 percent of Cipla’s. The successful penetration of the U.S. and EU

markets has encouraged a growing number of Indian “copycat” companies to enter these markets.

India’s exports to the regulated Western markets are expected to remain strong in the mid-term,

event though Indian companies will be challenged by declining prices in the U.S. market, declining profit

margins, growing competition from other low-cost countries, parallel launches of authorized generics by

Western innovator companies, and the increasing power of large distributors in the U.S. and European

markets. About $60 billion in blockbuster drugs will open to generic competition between 2002 and 2010

and Indian companies are expected to vie for a significant percentage of that business.

India exports pharmaceuticals to more than 200 countries and on a country-wise basis, India’s

five largest export markets are the United States (28 percent), Russia (11 percent), Germany (10 percent),

the United Kingdom (8 percent), and China (7 percent) (table 15). All of India’s major pharmaceutical

companies are looking at the global market to accelerate their growth. They are looking at all markets

with potential including the regulated markets of the United States, Japan, and Europe; the semiregulated markets of BRIC countries; and less regulated markets of Africa, Middle East, and Southeast

Asia. India has also become a very important source of generic drugs for the developing world and is the

leading supplier of AIDs drugs to the world. Indian companies like Cipla and Ranbaxy have driven the
Donald G. McNeil, “India Alters Law on Drug Patents,” The New York Times, March 24, 2005. 57

Gregory Roumeliotis, “India geared up for unprecedented manufacturing growth,” in-Pharma Technologist.com,

58

Aug. 15, 2006.

20

down the annual cost of anti-retroviral treatment from $15,000 per patient in 1995 to $200 in 2005.57

Other leading exporters include Dr. Reddy’s, Wockhardt, Sun Pharma, and Lupin Labs.

The vast majority of India’s exports, by value, are destined for the developed economies of the

West, particularly the United States, Germany, the United Kingdom, and France. Exports to these

countries consist primarily of bulk drugs that account for nearly 60 percent of India’s pharmaceutical

exports. The remainder, mostly formulations, are exported to the countries of the former Soviet Union

(CIS) and developing countries (Southeast Asia, Africa, and Latin America). India continues to be a

leading supplier of less expensive antibiotics, cancer therapy, and AIDs drugs to the developing world. In

2005, more than 90 percent of India’s exports are of drugs that are no longer protected by patents. 

India’s largest single export market continues to be the United States, which is the world’s

largest generic drug market. Exports to the United States grew from $429 million in 2003 to $589 million

in 2005, or by 37 percent. The percentage of total exports represented by the United States declined

slightly from 12 percent in 2003 to 11 percent in 2005. This decline can be attributed to the introduction

of authorized generic drugs by domestic U.S. pharmaceutical giants, lagging profits and declining generic

drug prices, and growing competition from other low-cost countries, particularly Israel, China, Korea,

and those from East Europe. To offset revenue losses from total sales in the United States during 2005- 58

06, India’s leading exporters have been aggressively shifting their attention to Europe and Africa.

Europe, the world’s third largest pharmaceutical market, behind the United States and Japan, had generic

sales of approximately $100 billion primarily in the UK, Germany, and France. As previously stated,

Indian pharmaceutical companies have made a number of acquisitions in Europe to gain a foothold in its

markets. European generics markets considered to be under served include Spain, Italy, and France, and

are expected to be important and growing markets for Indian exporters in the next 5 years.

Table 15: India’s pharmaceutical exports to top 15 countries, by value ($million)

Country 2003 2004 2005

United States

Russia

Germany

United Kingdom

China

Brazil

Nigeria

Canada

Italy

South Africa

Netherlands

UAE

Turkey

Ireland

 Total

 421

 129

 165

 81

 73

 70

 71

 60

 45

 26

 52

 43

 28

 12

 1,276

 497

 157

 172

 104

 80

 173

 94

 84

 54

 41

 55

 52

 40

 52

 1,655

 575

 219

 211

 165

 139

 121

 110

 100

 81

 80

 80

 68

 67

 57

 2,073

Source: World Trade Atlas.

One of the preferred methods of penetrating the U.S. market has been by aggressively

challenging the patents on blockbuster drugs. If successful, the challenger can obtain 180-day Exclusive

Marketing Rights (EMR) to sell its generic version before other competitors are allowed into the market.
“Ranbaxy says it will keep attacking patents,” New York Times, Dec. 21, 2005. 59

ANDAs were introduced in the Hatch-Waxman Act and are used by foreign generic drug makers to challenge a U.S. 60

patent before its expiry. If successful, the applicant gets a 6-month (180 day) exclusive right to sell its generic version. At the end

that period, other generic drug companies can enter other versions of the molecule and generally the price of the generic version

falls sharply.

Statistics, Generic Pharmaceutical Association. 61

21

For example, Ranbaxy won an EMR against Merck for the production of a generic version of Prozac and

the U.S. FDA permitted Ranbaxy to offer an 80mg generic version of Prozac for 180 days before others

could offer competing generic products. Ranbaxy is also challenging patents on 6 other drugs in the

United States like Valtrex (GSK’s herpes drug), Nexium (AstraZeneca’s anti-ulcer drug), and Actos

(Tekeda’s insulin sensitizer). Another popular tactic is to file Abbreviated New Drug Applications

59

(ANDAs) with the U.S. FDA.60

On an individual product level, India’ leading exports include other medicaments packaged for

retail sales (HTS subheading 3004), antibiotics, penicillin, and vitamins (table 16). Other medicaments

exports more than tripled during 1999-2005, growing by $614 million to $2.2 billion in 2005. These

products have traditionally dominated India’s exports and their dominance has grown over the years,

from 74 percent of the total in 2003 to approximately 90 percent in 2005. Exports of other medicaments

were dominated by other generic and over-the-counter drugs (HTS 3004.90) that grew from $281 million

in 2002 to $1.4 billion in 2005 representing 62 percent of India’s exports during 2005. This Subheading

includes generic and over the counter drugs such as anti-ulcer and anti-fungal medication, analgesics,

drugs to treat irregular heartbeat (arrhythmia) and high blood pressure, anti-infectives, anti-seizure

medication, and antacids and other gastrointestinal drugs. 

Table 16: Indian pharmaceutical exports, by commodity ($million)

HTS 

Subheading

Commodity description 2002 2003 2004 2005 Jan-June

2005

Jan-June

2006

3004.90

3004.20

3004.10

3004.50

3003.90

3002.20

3003.20

3003.39

3004.39

3004.31

3004.40

3005.90

3001.10

3003.10

 Total

Other medicaments of HTS 3004

Antibiotics

Penicillin and streptomycin

Vitamins

Other medicaments of HTS 3003

Vaccines for human medicine

Antibiotics

Hormones, no antibiotics

Other hormones, no antibiotics

Insulin

Alkaloids, no hormones or antibiotics

Other wadding, gauze, bandages

Dried glands and organs

Penicillin

 281

 55

 38

 31

 71

 36

 13

 1

 10

 4

 6

 3

 4

 4

 557

 827

 165

 79

 62

 66

 66

 42

 50

 14

 3

 11

 10

 7

 11

 1,413

 1,011

 193

 104

 96

 152

 68

 89

 58

 16

 25

 14

 10

 8

 16

 1,860

 1,391

 271 

 152

 128

 109

 65

 52

 34

 26

 22

 20

 16

 13

 12

 2,311

 673

 139

 73

 50

 50

 61

 44

 16

 12 

 10

 10

 8

 11

 9

 1,166

 757

 179

 96

 69

 69

 69

 61

 25

 12

 9

 11

 10

 1

 8

 1,376

Source: World Trade Atlas.

The role of Indian generic drugs in the U.S. market

Overview: The United States is the world’s largest single market for pharmaceutical products

accounting for nearly 50 percent of the value of the total world market. According to the Generic

Pharmaceutical Association, U.S. retail drug sales for 2006 totaled $221 billion and generic

pharmaceutical sales totaled $54.1 billion. U.S. pharmaceutical sales grew by 73 percent from $128.1

61
France is next spending $457 per capita followed by Japan at $339. Economist Intelligence Unit. 62

 “Express Scripts Study Shows Substantial Savings Opportunity for Consumers, states, Health Care Purchasers with 63

Generics, says GPhA,” Generic Pharmaceutical Association, Press release, Aug. 16, 2005. 

2006 Chain Pharmacy Industry Profile, The National Association of Chain Drug Stores. 64

Pharmaceuticals in the United States, Industry Profile, Datamonitor, Dec. 2005. 65

Bernard Rhee and M. June Casalmir, “Pfizer/Pharmacia Merger – The Biggest Just Got Bigger, FindLaw, May 28, 66

2003. 

22

billion in 2000 (table 17). Together, the United States and Canada account for more than 50 percent of

global sales and U.S. and Canadian generic commodity-type drug sales was estimated at $65 billion in

2005. 

62

In 2005, generic drugs accounted for approximately 63 percent of total U.S.-dispensed

prescriptions and, on average, generic drugs cost between 30 percent and 80 percent less than their

branded counterparts. On average, the price of a generic commodity type prescriptions was $29.82 63

compared with the average price of brand-name prescription drug at $101.71. According to the Generic 64

Pharmaceutical Association, the U.S. market for generics grew by 23 percent in 2006 due to a greater

acceptance of generics, changes in U.S. FDA’s generic drug approval process, Medicare Part D, and

declining prices driven by fierce price competition. Generic drug sales are projected to grow by 10 to 12

percent over the next 5 years as more blockbuster drugs lose their patent protection. 

Table 17: Retail drug sales in the United States, ($million)

Year Value ($million) Percent change

2000

2001

2002

2003

2004

2005

2006

 128,074

 148,565

 163,039

 182,979

 194,480

 207,303

 221,059

 16

 10

 12

 6

 7

 9

Source: Economist Intelligence Unit.

U.S. pharmaceutical companies dominate the world’s drug markets. Of the world’s 10 leading

drug companies, five are based in the United States. The top nine U.S. drug manufacturers account for

nearly 70 percent of U.S. drug sales. The leading revenue earners were drugs for the central nervous

system, which generated $53.9 billion, or 21 percent of the total U.S. drug market in 2005. The second 65

leading category was drugs for the cardiovascular system, which accounted for 19 percent of total U.S.

drug sales, or $496 billion. Pfizer, the U.S. and world’s leading research-based pharmaceutical company,

controlled approximately 11 percent of the world market and 13 percent of the U.S. market in 2005.

66

Pfizer’s most important products include Lipitor (the world’s best selling drug) and Norvasc (the world’s

most prescribed anti-hypertension drug). Other leading pharmaceutical companies in the U.S. market are

GSK (UK), Johnson & Johnson, and Merck (table 18).
Statistics, Generic Pharmaceutical Association. 67

Amanda Chater, “Generic sales soar as patents expire,” Drugstorenews, Aug. 28, 2006. 68

Aaron Smith, “Generic drugs concoct their next move,” CNN Money, Feb. 9, 2007. 69

Ravikrishnan, “It’s Europe for Ranbaxy,” The Financial Express, Apr. 1, 2006. 70

23

Table 18: Global sales by leading pharmaceutical companies in the U.S. market ($billion)

Company (country) 2003 2004 2005

Pfizer (US)

Johnson & Johnson (US)

GSK (UK)

Merck (US)

Abbott Labs (US)

Bristol-Myers Squibb (US)

AstraZeneca (UK)*

 44.7 

 41.9 

 NA

 22.5 

 17.3 

 18.7 

 8.9

 52.5 

 47.3 

 NA

 22.9 

 19.7 

 19.4 

 10.1

 51.3 

 50.5 

 15.4 

 22.0 

 22.3 

 19.2 

 11.2

* Estimated

Source: 2005 and 2006 Annual Reports.

The U.S. industry producing unbranded commodity-type generic drugs includes 9 of the world’s

10 biggest generic drug companies. Generic drugs cost, on average, between 30 percent and 80 percent of

their brand-name counterparts and account for approximately 56 percent of all prescriptions written in

the United States, yet only 13.6 percent of every dollar spent of pharmaceuticals. Sales of generic drugs 67

grew by nearly 21 percent in 2005 compared with 2004, as generic versions of innovator blockbuster

drugs lost their patent protection. The initial six months following the expiry of a patent is the most 68

profitable period for generic drug manufacturers. During that period, the price of the drug only drops, on

average, by 40 percent since only one generic company has been granted exclusive manufacturing rights

under an ANDA by the U.S. FDA. With the loss of exclusivity after six months, the price drops, on 69

average, an additional 40 percent as more companies enter the market and begin manufacturing the drug.

Nearly $16 billion in patented drugs are scheduled to lose patent protection by the end of 2007.

Leading generic manufacturers in the United States, based on total sales in 2005, included Teva

Pharma-USA, Novartis (Sandoz), Mylan, and Watson (table 19). Leading generic suppliers, based on the

number of prescriptions dispensed, included Teva Pharma-USA, Mylan Labs, Novartis (Sandoz), Watson

Pharma, and Ivax (table 19). Collectively, these companies accounted for more than 62 percent to total

U.S. generic sales and more than 70 percent of all U.S. prescriptions dispensed in 2005. Other leading

generic drug suppliers include Barr Pharma, Perrigo, Fougera, Taro, and Ranbaxy. Ranbaxy reported that

its share of the U.S. generics market increased from 2 percent in 2004 to 2.3 percent in 2005 and that the

in markets where it competes, it increased its share of the U.S. market from 12.2 percent in 2004 to 13.9

percent in 2005. In the dermatology segment, Ranbaxy’s share of the market grew from 15.9 percent in

2004 to 21.7 percent in 2005.

Although U.S. generic sales increased in 2005, most of these companies experienced a drop in

revenues resulting from price erosion, the introduction of authorized generics by innovator companies,

and the entry of additional suppliers from low-cost countries into the market. Pricing pressures combined

with mergers & acquisitions and consolidations, have reduced the number of companies manufacturing

generic drugs in the United States over the last 5 years. For example, Teva Pharma-USA, a subsidiary of

Teva Pharmaceuticals (Israel) the world’s largest generic drug producer, became a major player in the

U.S. market with the acquisition of Ivax in 2006 for $7.4 million. Teva derives over 80 percent of its

70

sales from the United States and Western Europe. Likewise, Actavis Group (Iceland) became a

significant supplier of generic drugs in the U.S. market with the acquisition of Alpharma in 2006. As

companies leave the industry there will be fewer firms producing older generic drugs. 
Noemie Bisserbe, “Windfall for cos eyeing US oncology market,” The Financial Times, April 11, 2007. 71

Dabur offered a generic version of Bristol Myers Squibb’s Paraplatin that went off patent in October 2004. 72

24

Table 19: U.S. Generic drug sales, 2005

Companies Sales ($million) Percent share

Teva Pharma-USA

Novartis (Sandoz)

Mylan

Watson

Ivax

Par

Pfizer (Greenstone)

Actavis

Boehringer Ingelheim

Baxter Healthcare

 Top 10 producers

 Total

 2,992

 2,643

 2,003

 1,425

 1,186

 932

 722

 677

 674

 639

 13,894

 22,317

 13.4

 11.8

 9.0

 6.4

 5.3

 4.2

 3.2

 3.0

 3.0

 2.9

 62.3

Source: IMS Health, Feb. 2006.

Table 20: Number of U.S. generic prescriptions issued (2005) (million)

Company Number of prescriptions Percent share

Teva Pharma-USA

Mylan

Sandoz (Novartis)

Watson

Ivax

Mallinckrodt

Qualitest

Actavis

Par 

Barr Labs

Top 10 producers

 Total

 234

 213

 191

 158

 103

 84

 74

 73

 70

 54

 1,254

 1,781

 13.1

 12.0

 10.7

 8.9

 5.8

 4.7

 4.1

 4.1

 3.9

 3.0

 70.3

Source: IMS Health, Feb. 2006.

Generic companies are preparing to compete for a share of the more than $60 billion worth of 

anti-cancer drugs set to go off-patent in the United States by 2011. Unlike other markets segments, the

anti-cancer segment has not experienced significant price erosion and companies like Novartis (Sandoz),

Teva Pharma-USA , Pliva, and Mayne Pharma are already offering anti-cancer drugs in the U.S. market.

According to an industry source, while generic versions of most drugs are offered at prices 5 percent to

15 percent of the innovator’s price, anti-cancer drugs will be offered at 40 to 50 percent of the

innovator’s price because only selected companies have the technical and dedicated facilities needed to

produce these drugs. In September 2006, Dabur Pharma was the first to gain approval from the FDA to 71

offer a generic anti-cancer drug in the U.S. market. Among the anti-cancer drugs scheduled to lose their

72

patent protection are:
25

Drug Innovator company Therapeutic area Year off-patent

Zofan

Gemcitabine

Xeloda

Arimidex

Casodex

GSK

Eli Lilly

Roche

AstraZeneca

AstraZeneca

Nausea & vomiting due to chemo

Chemotherapy drug

Colon and breast cancer drug

Breast cancer drug

Prostate treatment drug

2007

2009

2010

2008

2008

Role of imports in the U.S. market: The United States is the largest single pharmaceutical

market in the world and the prime focus for most exporters. U.S. imports rose 61.5 percent during the

2002-2006 period, from $38.2 billion to $61.7 billion (table 21). In 2005, U.S. pharmaceutical imports

consisted primarily of generic formulations in dosage form, aromatic drugs, antibiotics, vitamins, and

hormones (table 22). Imports of generic drugs have increased in the last 5 years due to cost containment

efforts by healthcare providers, greater acceptance of generic drugs, streamlining of the U.S. FDA’s drug

approval process, the passage of the Hatch-Waxman Amendments to the Federal Food, Drug and

Cosmetic Act, and the implementation of Part D of the Medicare Prescription Drug Act. Generic drugs

also play an important role in holding down prescription drugs prices by offering the consumer an

identical therapeutic alternative at a significantly lower price. The leading sources for U.S. imports

include Ireland, the UK, France, Japan, and Canada, which collectively account for 51 percent of total

U.S. imports generic drugs in 2006 (table 23). Although India’s exports to the United States have more

than doubled, they accounted for only 1 percent of total U.S. imports in 2006. Imports of other

medicaments in dosage forms and aromatic heterocyclic compounds used as drugs dominated U.S.

exports in 2006 accounting for 78 percent of total imports.

Table 21: U.S. imports from the world ($million)

Year Value of U.S. imports Percent change

2002

2003

2004

2005

2006

 38,187.5

 46,814.6

 48,966.2

 52,570.4

 61,660.8

 18

 4

 7

 17

Source: World Trade Atlas.
Aaron Smith, “Generic drugs concoct their next move,” CNN Money, Feb. 9, 2007. 73

“In fiscal year 2006, OGD approved a record 510 ANDAs,” Pharmaceutical Technology, Dec. 2006. 74

26

Table 22: U.S. imports of pharmaceutical products from the world ($million)

HTS No. Description 2002 2003 2004 2005 2006

3004.00.00

2934.99.30

3002.00.00

2937.00.00

3006.00.00

2941.00.00

3003.00.00

2936.00.00

2935.00.00

3005.00.00

Medicaments in dosage form

Aromatic heterocyclic compounds used as drugs

Human & animal blood, antisera, vaccines

Hormones

Sterile surgical catgut, suture materials, tissue 

 adhesives, Laminaria, hemostatics, contraceptives,

 blood grouping agents

Antibiotics

Medicaments of mixtures, not in dosage form

Vitamins

Sulfonamide

Bandages

 Total

 Percent of total imports

17,808

 5,666

 2,024

 1,404

 478

 1,080

 685

 496

 849

 186

30,676

 80

 23,080

 6,489

 2,736

 1,789

 830

 1,471

 765

 550

 665

 249

 38,624

 83

25,947

 5,917

 3,190

 1,723

 982

 1,200

 685

 640

 488

 325

41,097

 84

28,689

 5,403

 3,761

 1,695

 1,176

 1,378

 1,215

 619

 658

 418

45,012

 86

34,721

 6,499

 4,677

 1,754

 1,341

 1,110

 939

 620

 505

 468

52,634

 85

Source: World Trade Atlas.

Table 23: U.S. pharmaceutical imports, by value ($million)

Country 2002 2003 2004 2005 2006

Ireland

United Kingdom

France

Japan

Canada

Switzerland

Singapore

Italy

Israel

Sweden

Mexico

Netherlands

Spain

Austria

India

Other

Total

 12,681

 4,170

 2,266

 2,370

 1,259

 1,618

 1,036

 905

 640

 1,281

 274

 576

 290

 145

 289

 8,388

 38,188

 14,750

 4,537

 3,080

 2,805

 1,888

 1,880

 1,505

 1,037

 825

 1,165

 313

 696

 495

 167

 465

 11,207

 46,815

 14,368

 5,518

 3,766

 2,707

 2,150

 1,911

 972

 1,263

 974

 1,725

 533

 569

 630

 212

 415

 11,253

 48,966

 14,768

 5,960

 4,385

 2,465

 2,420

 2,272

 1,232

 1,795

 1,590

 1,288

 413

 499

 1,122

 244

 480

 11,637

 52,570

 14,729

 7,010

 4,382

 1,952

 3,514

 2,789

 2,742

 1,699

 2,602

 2,313

 434

 612

 834

 304

 712

 15,33

 61,661

Source: World Trade Atlas.

Role of Indian generic drugs on the U.S. market: Indian pharmaceutical companies have

made tremendous strides in the U.S. market. Indian companies are exploiting their cost advantages, their

strength in reverse engineering, and the largest number of U.S. FDA approved plants outside the United

States. Indian companies can manufacture pharmaceuticals for less than half what it costs to manufacture

them in the United States, conduct clinical trials for approximately one-tenth the U.S. cost, and conduct

R&D for less than one-eighth the U.S. cost. India has more than 75 pharmaceutical plants approved by

73

the U.S. FDA and in 2006, and was very aggressive in filing ANDAs in 2004-06 to challenge patents on

innovator drugs. Among the drugs that lost U.S. patent protection during 2006 were Pravachol, Zoloft, 74
This includes most commonly prescribed drugs for some of the most common illnesses including cardiac disease, 75

asthma, diabetes, glaucoma, Parkinson’s and thyroid conditions. “Wal-Mart test-markets cheap drugs,” MSNBC, Sept. 22, 2006.

DP Dubey, Globalization and its impact on the Indian Pharmaceutical Industry.

76

27

Zocor, Plavix,and Flonase.

As 30 of the best selling U.S. patent-protected drugs go off patent by 2010, Indian companies are

positioning themselves to offer generic versions of these drugs. Also, nearly $40 billion worth of patentprotected drugs will become off patent by 2010. Assocham believes that Indian companies will capture at

least 30 percent of the replacement generic equivalents. In 2006, the U.S. FDA approved a Ranbaxy

ANDA application to offer generic versions of 12 formerly patent-protected drugs with annual U.S. sales

of $5.6 billion in 2006. Among these were generic versions of popular drug Zoloft, Valtrex, Zocor,

Cefzil, Ambien, Imodium, and Lasix. Likewise, Dr. Reddy’s received ANDA approval to offer generic

versions of other popular drugs like Zofran, Proscar, and Allegra that have sales of several billion dollars

during 2006-07.

Competition from Indian and other low-cost countries in the U.S. market will mean cheaper

prices for generic drugs and greater choice for U.S. consumers. Price competition continued to intensify

in the U.S. market thorough 2006 affecting both U.S. and Indian generics manufacturers. Indian

companies compete directly with Teva, Myland, and at least 13 other generic manufacturers in the U.S.

market. Prices and profits were also squeezed by Wal Mart’s announcement that it would offer nearly

300 generic prescription drugs at “sharply-reduced prices,” or at $4 for a month supply, approximately 70

percent savings for consumers.75

India comparative advantages have also enabled its API manufacturers to challenge U.S. API

manufacturers for market share and helped Indian companies move up the value-added chain.

Competition between Indian and U.S. manufacturers will also grow as Indian companies acquire U.S.

manufacturing units. Ranbaxy, for example, operates 4 dosage form plants and one subsidiary (OHM

Labs) in the United States with revenues of $426 million, or 36 percent of its total global sales, in 2005.

Others acquiring U.S. facilities include: Zydus Cadila (R&D facility in Atlanta); Dr. Reddy’s

(Trigenesis); Sun Pharma (Able Labs, Caraco, Valeant Pharma); and Jubilant Organosys (Trinity Labs,

Target Research Associates). Indian companies have also entered into a variety of partnerships such as

joint ventures, tie-ins, and alliances with U.S. drug companies.

Conclusion

India’s pharmaceutical industry has evolved from almost non-existent to a world’s leader in the

production of high-quality, low-cost non-branded or generic drugs, accounting for nearly 20 percent of

the world’s production. India currently produces almost all its own drug needs and domestic companies

control over 80 percent of the Indian market. It has made tremendous strides over the last two decades as

the Indian domestic market almost doubled in value during 2000 - 2006. Because of low barriers to entry

and low capital requirements, there are tens of thousands of companies producing pharmaceuticals in

India. The vast majority of them are small by Western standards with revenues of less than $5 million. 

With the re-introduction of product patents in 2005 and the fiercely price competitive nature of

the Indian pharmaceutical industry, many smaller, less competitive producers were forced to abandon the

industry as it begins slowly shifting away from vanilla generic drugs to becoming a regional hub for

R&D, drug discovery, contract manufacturing, and technology licensing. In this transition, many midlevel Indian producers will turn to contract manufacturing, outsourcing, contract research, contract

clinical trials, or other tie-ins with MNCs. Some Indian sources predict that MNCs will make up 60

percent of the Indian market by 2015.76

Since 2005, many MNCs began re-entering the Indian pharmaceutical market by setting up their
28

own manufacturing and R&D facilities. This will gradually neutralize the cost advantages enjoyed by

Indian pharmaceutical majors. These alliances and millions of dollars spent on establishing domestic and

foreign-based manufacturing facilities, acquiring foreign drug manufacturing firms, as well as marketing

and sales networks, will enable India’s leading pharmaceutical producers to re-direct large sums of their

cash flow to R&D and move up the value-added chain. These foreign acquisitions will enable Indian

companies to gain a foothold in Western regulated markets, diversify their portfolios, acquire recognized

brands, and gain R&D capabilities. 

The United States has some of the highest drug prices in the world and has attracted imports of

generic drugs from India and a number of low-cost countries. However, severe price compression and

growing competition from other low-cost countries is forcing Indian majors to offset their losses by

shifting their attention to Western Europe. Nonetheless, Indian companies have made tremendous strides

in the U.S. market and companies like Ranbaxy are major sources of generic drugs. Indian companies

also enjoy comparative advantages in cost, strength in reverse engineering skills, and number of U.S.

FDA approved plants located in India. Indian companies have spent millions of dollars filing ANDAs

with the U.S. FDA to gain exclusive production rights for many drugs losing their patent protection in the

United States. Continued price competition in the U.S. market will mean cheaper prices for generic drugs

and greater choice for U.S. consumers.
29

APPENDIX A

Selected company profiles
Amanda Chater, “Indian companies gain traction in U.S. generics market,” Drugstore News, Sept. 25, 77

2006, pp. 34-35. 

Ranbaxy Laboratories, Annual Report 2005. 

78

“India healthcare: Ranbaxy ready to take on the world,” Pharmacy Choice, Oct. 11, 2006. 79

30

Ranbaxy Laboratories 

Ranbaxy Laboratories is India’s largest

pharmaceutical company and one of the world’s

top ten generic drug makers. In 2004 and 2005,

Ranbaxy accounteding for 23 percent of India’s

pharmaceutical industry revenues. Ranbaxy is a 77

vertically integrated company with a presence in

across the pharmaceutical value chain offering a

range of unbranded generic and branded

generics, active pharmaceutical ingredients, and

biotechnology products. Ranbaxy markets its

products in more than 100 countries and has

manufacturing facilities in 8 countries and a sales

presence in 23 of the world’s top 25

pharmaceutical markets. 

Most of Ranbaxy’s sales consist of off patent generic drugs and drugs manufactured under

licence from foreign pharmaceutical companies. In 2005, exports accounted for more than 80 percent of

Ranbaxy’s sales and the United States was its largest export market accounting for $328 million, or 28

percent of the total. Sales in Western Europe amounted to $204 million and BRICS (Brazil, Russia, 78

India, China, South Africa) amounted to $364 million and accounted for 17 percent and 31 percent,

respectively, of the company’s total sales. Many of Ranbaxy’s crucial markets including China, the CIS,

Germany, and South Africa. India registered respectable growth during 2005, whereas the sales in the

United States declined by 25 percent. Ranbaxy reported that its U.S. sales declined because of a steep

erosion in generic drug prices due principally to increased competitive pressures from other Indian

companies and companies from other low-cost countries. Declining U.S. sales combined with increasing

R&D expenditures and litigation related expenses had a significant negative impact on the company’s

profitability in 2005

Ranbaxy entered the U.S. market in 1994 and now ranks among the top 10 suppliers of generic

drugs in the United States. It offers more than 96 different generic products and has increased its share of

the total U.S. generics market from 2.0 percent in 2004 to 2.3 percent in 2005. In those segments where

Ranbaxy competes, it increased its share from 12.2 percent in 2004 to 13.9 percent in 2005. In the

branded dermatology segment, Ranbaxy’s share of the market grew from 15.9 percent to 21.7 percent

during 2004-05. Ranbaxy supplements its exports with production from its facilities in Princeton, NJ

(Ranbaxy Laboratories Limited) and North Brunswick, NJ (Ohm Labs) and through a partnership with

Invagen Pharmaceuticals (Hauppauge, NY). 

The company is the second largest filer of AND (110 with 59 pending), second only to Teva of

Israel. It is also challenging patents on 7 patented blockbuster drugs whose patents will expire within the

next several years. In 2006, Ranbaxy won approval from the U.S. FDA to market a number of new 79

products including schizophrenia medication Risperiodone Cetirizine Hydrochloride syrup for seasonal

Ranbaxy: key indicators

• Founded in 1961 in Gurgaon.

• Total sales : $ 1.03 billion (2004), $ 1.2 billion (2005).

• Exports account for 58 percent of sales. Largest markets

 include: U.S., Brazil, Russia, China.

• 28% of sales are in the U.S. market.

• Sales generic drugs in over 100 foreign countries,

 manufacturing operations in 7 countries, and offices in

 44.

• R&D budget: $75 million (2004).

• Employment: 1,700

• Merger and acquisition activities valued at $X million.
The U.S. FDA permitted Ranbaxy to introduced the bioequivalents of heart medications Tambocor (3M Pharma),

80

Lasix (Aventis Pharma) and Zocor (Merk); anti-infectives Cefzil (Bristol Myers Squibb) and Cefzil (Briston Myers Squibb); and 

anti-diarrheal infective Imodium (McNeil PPC). Ranbaxy Laboratories, Ltd.

31

allergic rhinitis and the generic bioequivalents of a number of brand named drugs.80

To expand its global footprint and diversify its product portfolio, Ranbaxy raised $440 million in

March 2006 to finance acquisitions and other capital expenditure requirements. During 2005, it entered

into a number of alliances and other agreements with foreign innovator companies (table 5) and acquired 

11 foreign generic drug manufacturing companies (table A-1). These acquisitions also enabled the

Ranbaxy buy recognized brand names, obtain revenues to fund for its R&D and expansion plans, and to

move up the value-added chain. 

Table A-1: Ranbaxy’s foreign acquisitions

Company Country Distinction Value ($million)

Terapia

Ethimed

Mundogen (GSK) 

Allen SpA (GSK)

Eframes 

RPG Aventis

Basics

Senetch PLC

Akrikhin

Nihon Pharma (40% share)

Be Tabs

Romania

Belgium

Spain

Italy

Spain

France

Germany

US

Russia

Japan

S. Africa

Romania’s 5 largest generics producer th

Belgium’s 10 largest generics producer th

Unbranded generics of GSK

NA

NA

France’s 5 largest generics supplier th

Formerly owned by Bayer

Auto injector device

NA

NA

S. Africa’s 5 largest generic maker.

th

$324 million

NA

NA

NA

NA

$80 million

NA

NA

$110 million

NA

$70 million

Sources: Rainbows Annual Report, 2005. 

Rawness drug discovery program centers around infectious diseases (anti-bacterial & antifungal),

urology (benign prostatic hyperplasia & urinary incontinence), metabolic diseases (Type 2 diabetes,

hyperlipidemia), and inflammatory-respiratory therapeutic areas (asthma, chronic obstructive pulmonary

disease and Rheumatoid Arthritis). In 2005, the company allocated $75 million, or 7 percent of its

turnover.
“Dr. Reddy’s profit triples, good growth seen,” Reuters, Jan. 22, 2007. 81

32

Dr. Reddy’s Laboratories

Dr. Reddy’s is India’s third largest

pharmaceutical company. It is a vertically

integrated company offering a range of generic

and branded drugs and active pharmaceutical

ingredients. Most of Dr. Reddy’s sales are of

branded drugs reversed engineered versions of

drugs patented in the West. In 2005, branded

drugs accounted for 41 percent of total revenues

and APIs accounted for 34 percent. 

Dr. Reddy’s derives most of its revenues from exports and its international acquisitions that

account for approximately 66 percent of total revenues in 2005-06 and is expected to reach 80 percent by

the end of 2006-07. The company sells and markets its products in more than 100 countries with the

United States accounting for 60 percent of the total. In 2005-06, the North American market (United 81

States and Canada) accounted for 16 percent of Dr. Reddy’s revenues, Russia and CIS accounted for 15

percent, Europe accounted for 18 percent, and India accounted for 24 percent 

Dr Reddy’s experienced a 3 percent decline in total revenues and a decline in after tax profits of

91 percent in 2004-05 due to declining sales caused by severe pricing pressures on generic drugs in the

United States. Dr. Reddy’s sales in North America declined by 8 percent during this period. During 2005-

06, the company rebounded reporting that revenues increased by 24 percent to $502 million and after-tax

profits grew five fold. The turn around was attributed to stained growth of revenues from APIs,

formulations, generics sales in Europe as well as contributions from Dr. Reddy’s acquisitions in Mexico

and Germany. Dr. Reddy’s is increasingly viewing Western Europe, Japan, Russia and the CIS as a

viable counterbalance to the volatile U.S. market, especially since its in Europe increased by 51 percent

during 2005-06.

 At the product level during 2005-06, formulations accounted for 68 percent of the company’s

revenues during 2004-05 and 69 percent in 2005-06 (table A-2). Dr. Reddy’s reported that sales of APIs

and formulations grew by 19 percent, revenues from branded formulations grew by 27 percent, revenues

from generics grew by 13 percent, revenues from custom pharmaceutical services grew by four fold. In

the medium term, Dr. Reddy’s predicts that its growth will to be driven by the sale of generic drugs in

Western Europe and other more profitable markets. 

Table A-2: Dr. Reddy’s revenue by product, 2005

Product Value ($million) Percent of total

Formulations

APIs

Generics

CPS

Others

 227

 188

 94

 29

 20

 41

 34

 17

 5

 4

$1 = Rs 43.5. Source: Annual Report 2005-06.

Dr. Reddy’s expanded its presence in Europe and the United States with the acquisition of 6

foreign companies during 2005-06 (table A-3). The acquisition of Betapharm is the most significant

international acquisition by an Indian company to date. Betapharm has a portfolio of 145 marketed

Dr. Reddy’s Labs: Key indicators

• India’s 3 largest drug producer. 

rd

• Revenues: $502 million (July 2006).

• 66% of revenues earned in foreign markets.

• 41% of earning derived from formulations.

• Investing 6.5% of sales in R&D.

• Employees: 7,525.
Noemie Bisserbe, “India drug cos reel under US pricing pressure,” The Economic Times, June 17, 2006. 82

“Merck allows Dr Reddy’s to sell authorised generics of blockbuster drugs,” domain-b.com, Feb. 2, 83

2006.

33

products and its acquisition is expected to add nearly $200 million to the company’s bottom line.82

Table A-3: Dr. Reddy’s foreign acquisitions

Company Country Distinction Value

BMS Laboratories

Betapharm Group

Arzeniemittel

Trigenesis

Roche API business

Litaphar

UK

Germany

Germany

US

Mexico

Spain

Generics maker

Germany’s 4 largest th

generic maker

NA

Ingredients business

NA

$14 million

$584 million

NA

NA

$61.5 million

NA

Source: Dr. Reddy’s Annual Report 2005-06.

Dr. Reddy allocated approximately $50.4 million to R&D in 2005-06, representing a reduction of 

24 percent compared to 2004-05. Its R&D efforts are concentrated in the therapeutic areas of metabolic

disorders, cancer, inflammation, and bacterial infections, cardiovascular. To eliminate some of the risk

associated with new drug discovery, Dr. Reddy’s formed a $52.5 million integrated drug development

company called Perlecan Pharma with Citigroup Venture and ICICI Venture.

In 2005-06, it filed 12 ANDAs with 49 pending with the U.S. FDA. The company also filed 30

DMFs for APIs, of which 17 were U.S. DMFs, 8 were Canadian, and 5 were European. Dr. Reddy’s also

entered into an agreement with Merck to sell two of its blockbusters (Zocor and Proscar) in the U.S.

market as authorized that will soon go off-patent. In 2006, Dr. Reddy’s launched 6 new products in the 83

U.S. market and is waiting on the approval 64 new drug applications from the U.S. FDA.
Cipla, Sixty-Ninth Annual Report 2004-2005. 

84

“Banking on new products,” The Financial Express. 85

Corporate Profile, Cipla. Com 86

34

Cipla 

Cipla is currently India’s second largest pharmaceutical company in terms of sales and it

produces a range of low-cost pharmaceutical ingredients (APIs), prescription drugs, OTC products, and

formulations. Cipla’s domestic formulations cover antibiotics and anti-bacterials, anti-asthmatics,

alimentary-metabolism, cancer, pain management, central nervous systems, and cardiovascular

therapeutic segments. It offers 18 brands and 1,500 formulations and its total sales increased from $534.3

million in 2004 to $703.4 million in 2005, or by 32 percent. 

Exports constitute approximately 50 percent of its sales and it markets it products in more than

170 countries. The United States is Cipla’s largest single export market and accounted for 33 percent of

the company’s sales in 2005, followed by Africa (26 percent), Europe (20 percent), the Middle East (11

percent), and Australasia (10 percent). Cipla supplies bulk drugs for a number of generic manufacturers 84

including Watson (U.S.), IVAX (UK), Eon, and Morton Grove. It also supplies budesonide inhalers to 85

companies located in Germany.

During the July-December period of 2006, Cipla reported that its domestic sales increased by

17.3 percent and its exports grew by 26.2 percent. Formulations accounted for 73 percent of Cipla’s 86

exports in 2006 and APIs accounted for the remaining 27 percent. Cipla is best know for its anti-AIDs

medication that consists of a “all-in-one” pill (Triomune) that effectively cut the cost of annual AIDs

treatment from $12,000 to $300, or to less than $1 per day. The company has also a major suppliers of

anti-malarial drugs. Cipla allocates approximately 4 percent of its turnover to R&D activities. It filed

more than 50 DMFs and 55 ANDAs during 2004-05 and received approval for 11 products from U.S.

FDA.
Company Profiles, Nicholas Piramal 87

35

Nicholas Piramal 

Nicholas Piramal (NP) is India’s 4

th

largest pharmaceutical company. NP’s offers a

diverse product line covering antibiotics, neuropsychiatry, cardiovascular, diabetes,

gastrointestinal, vitamins, neurology, inhalation

anaesthesia, respiratory pain management, and

dermatology. NP reported revenues of $344.5

million during 2005-06.

The domestic Indian market accounts for approximately 87 percent of the company’s annual

sales with brands like Phensedyl, Ismo, Supradyn, Gardenal, Stemetil, Haemaccel and Rejoint that

account for 67 per cent of total revenues, while secondary brands including Paraxin, Flagyl and Omnatax

accounting for the remainder. Nicholas Piramal operates 7 API and finished dosage production facilities 87

in India and state-of-the art R&D facilities in Mumbai and Chennai. In 2005-06, exports, primarily APIs,

accounted for 12 percent of NP’s turnover in 2004-05 consisted primarily anesthesia and parenateral

products used in operating rooms and critical care units. NP exports for 2005-06 grew by more than 74

per cent to $34 million (Rs 220 crore) from $17 million (Rs 126 crore).

To expand its global footprint and diversify and enhance its product portfolio, Nicholas Piramal

has acquired a number of foreign and domestic companies (table A-4). In 2003, it merged with Global

Bulk Drugs and Fine Chemicals (India) to obtain access to the regulated markets of the United States,

Europe, and Japan. Nicholas Piramal acquired Pfizer’s custom manufacturing plant located in Morpeth

(UK) to supply more than 300 finished dosage forms to more than 100 markets, including the United

States, Western Europe, and Japan. In January 2007, Nicholas Piramal entered into a development

agreement with Eli Lilly (US) to conduct non-clinical studies and human clinical trials and gained

strategic entry into Pfizer’s global sourcing network to become Pfizer’s largest global contract

manufacturing partner. 

Nicholas Pirmmal acquired 51 percent equity stake held by Boots Company in the joint venture

Boots Piramal Healthcare. It also acquired the Indian subsidiaries of F. Hoffman-La Roche (Roche),

Boehringer-Mannheim, Rhone Poulenc, Hoechst Marrion Roussel research center, ICI India’s pharma

division, and Aventis’ research facilities. It also entered into joint ventures or marketing relationships

with Boots Healthcare, F. Hoffmann-La Roche (Switzerland), Gilead Sciences (U.S.), Cheissi (Italy)

Stryker Corporation, Allergan (U.S.), and IVAX (UK) for a wide range of products. 

Table A-4: Nicholas Piramal’s domestic and foreign acquisitions

Company Country Distinction Value

Pfizer Morpeth

Avecia Pharma 

Dobutrex

Rhondia 

Global Bulk Drugs & Fine Chemicals

UK

UK

US

UK

India

Custom drug manufacturing 

Custom drug manufacturing

Brand acquisition

Inhalation anesthetics

U.S. FDA approved production plant

NA

$16.7 million

NA

NA

NA

Nicholas Pirmal India Ltd. is one of the world’s top 10 pharmaceutical outsourcing firms and

India’s leading contract manufacturer with CRAMS manufacturing revenues of $250 million in 2005,

including $100 million for formulations. At present CRAMS accounts for approximately 30 percent of

Nicholas Piramal

• India’s 4 largest drug producer.

th

• Revenues: $344.5 million (2006).

• 13% of revenues from foreign markets.

• Investing 9% of sales in R&D.

• Employees: 2,000
Jeetha D’Silva, “Drug cos bet on contract manufacturing,” The Economic Times, July 25, 2006. 88

MG Arun, “Druggists swallow phoren pills to open new vistas,” The Financial Express, June 28, 2006. 89

36

Nicholas Piramal’s total revenues in 2005 and plans to increase it to 50 percent by 2010. In 2006, 88

Nicholas Piramal signed a 5-year, $350 million agreement with Pfizer for 12 products. The agreement

made Nicholas Piramal Pfizer’s largest custom manufacturing partner. To augment its global contract 89

manufacturing capabilities, Nicholas Piramal purchased Pfizer’s contract manufacturing facility in the

United Kingdom (Morpeth) and Avecia Pharmaceutical. Its deal with Pfizer could potentially produce

much as $350 million for Nicholas Piramal by 2010.