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Q2. Discuss the Macro environment of a pharmaceutial company?

Ans: India has become an attractive destination for R&D, with opportunities emerging in this new market post- WTO (World Trade Organization) accession. Indias industrial development has accelerated and its pharmaceutical industry has becomeone of the most successful. Driving factors attracting international investmentinclude:

1WTO accession

2 low labor costs

3 tax incentives from the Chinese government

4 R&D collaboration opportunities.

The Chinese pharmaceutical market is split almost equally between chemical and biotechnology products

at 70%, and TCM (traditional Chinese medicine) products at 30%. The Chinese government has changed the face of the industry dramatically by:

implementing WTO guidelines and protection for intellectual property rights

shifting authority from the Ministry of Foreign Trade to the State Food and Drug Administration (SFDA). The SFDA has imposed higher drug registration requirements for imported as well as locally manufactured products and promoted generalcompliance with the Chinese Good Manufacturing Practice (GMP) standards for domestically produced products. A number of domestic players could not withstand this pressure from the governmentmany of them closed their businesses whilst otherslooked to upgrade their technologies through tie-ups with foreign

companies. The total value of the market in India was US$12.8 billion in 2005. Antibiotics have slowly decreased in

sales; however, they still represent one-third of the whole market. This is a large market share compared

with the other therapeutic classes. The three top therapeutic classes (antibiotics, circulatory and

alimentary tract) represent around 60% of the whole market.

Indias TCM industry possesses great potential. The key issue is how to

inspire this, which requires government attention and enterprise efforts. On onehand, the government must provide support with its policies; on the other hand,the government should strengthen its recommendations on Chinese medicine planting.India possesses 12,807 kinds of medicinal materials from natural sources out ofwhich, 11,146 are of plant origin, 1,581 are from animals, and 80 are fromminerals, including more than 5,000 clinically validated folk medicines.Comparedwith the big global players, domestic vaccine producers havesmall-scale production, are backward in production technology and have high operation costs. In India, clinical trials can be conducted at a much lower costthan in the West. India has a pool of highly educated doctors who are keen to participate in clinical trials. Although India is beginning to accept foreign

clinical data, almost all new drugs entering the country must conduct domestic testing in some

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form. At present, Class I, II and III drugs must undergo phase I, II and III trials, although some Class III products are exempt from phase I trials.

The major forces attracting foreign investors to India are:

quality of the clinical data

reasonable costs

ability to select patients rapidly.

Despite the huge growth potential, commercial health insurance stillplays a minor role in the local market,

covering only a meager 10% of local residents

total medical expenditures. Health insurance divides into

two types in India:

Rural Health Protection System.

Urban Health Protection System

Government Insurance Schemecovers government employees

Labor Insurance Schemecovers enterprise employees.

In India, only 15% of the population has health insurance. Most of the rural population is not covered.

The Chinese R&D investment approach has been shifting from technological alliances towards international mergers and acquisitions. Overseas companies in India

have established 700 R&D centers. Pharmaceutical regulation in India is based around the Drug Administration Law. The government first implemented thislaw in 1984, with the last major amendments taking place in 2001. In this emerging market, intellectual property protection is a big challenge. When Indiabecame a member of the WTO in 2001, it promised to uphold the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Accord, which mandates that drugsreceive at least 20 years of patent protection.

Political and legal reluctance to uphold the patent rights of foreign investors is not the only issue. Intellectual theft comes in many forms, includingsmall scale reverse engineering and copying, systematic reverse R&D and reverseengineering, and counterfeiting. The major distribution channel in retail marketis the hospitals, with 80% of pharmacy products going to patients through hospitals. Biotechnology globally has experienced rapid growth in recent years andpromises enormous potential for future growth. In India, the biotechnology companies have developed more quickly than the pharmaceutical companies have.