Advantages And Disadvantages Of Pharmaceutical Industry In India

The case consists of two major pharmaceutical companies that joint to collaborate their research and pharmaceutical technologies to start a joint venture in India. Both have valuable resources that have benefited both companies during the joint venture. Now both are questioning if there is still any value in maintaining the joint venture in India and will be deciding what will be the best route to take. Ranbaxy Laboratories wants to be bought out, but Eli Lilly is worried of the financial implications of such move.

Economic: Globalization of the pharmaceutical industry is an exciting opportunity to have research and development done at cheaper prices in other countries. However, this could be a double edged sword for companies because it is easy for other countries, such as India, to produce generic versions of the drug in bulk.

Eli Lilly’s decision to create a joint venture was not surprising (figure 1). The India government limited foreign direct investment to 51%, importing was subject to manufacturing at high costs outside the country and then paying high importation tariffs, and licensing was not prudent due to an absolute lack of product patents laws that were needed to protect Eli Lilly’s intellectual property.

U.S. based companies hold rights to most of the world’s rights on new medicines and holds thousands of new products currently being developed. As of 2012, the industry helps support almost 3.4 million jobs in the U.S. economy. It is also one of the most heavily R&D based industries in the world. In the United States, the environment for pharmaceuticals is much friendlier than other countries around the world in terms of pricing ability and regulations. Both the Pharmaceutical and Biotechnology industries have experienced significant growth in the past year with year-over-year increases of 13.02% and 34.69% respectively. It is an even more striking when looking at the past five years considering both have beat out the S&P 500 with pharmaceuticals increasing an additional 31.44% and the biotechnology sector besting an astonishing 269.3% more return than the

There are several rewards to consider with expansion of Biocon. Currently in India, there is a growing market for contract research organization and the growth of Biocon falls right within this opportunity. The growth is expected to last for more than few years with a rate that looks promising. Clinigene is expected to reap revenues much higher than the current Biocon and Syngene combined (Kalegaonkar A., Nov 4, 2008). It will take clinical studies to a higher level with better options in terms of drug manufacturing. With other countries ready to outsource the service of clinical studies, Clinigene’s future looks bright.

Eli Lilly was approached by a leading pharmaceutical firm in India to consider building a joint venture together. Ranbaxy Laboratories began as a family business in the 1960’s, but with strong entrepreneurial skills the company grew to become one of the largest manufacturers for bulk drugs and generic drugs. The two companies considered pursuing a joint venture that would support on another’s products by supplying one other with ingredients to complete company products without having to trade with other companies internationally. The JV would potentially lead both companies, together to become a dominant force in the Indian market.

We analyzed the Indian Pharmaceutical industry on these five forces and the findings of industry competitiveness and profitability are written under the relevant competitive forces.

The pharmaceutical industry has shown remarkable structural stability as majority of its key players have been in existence for almost a century now. However, it has not been an exception to unpredictable times of the 21st century as it is grappling with quite a number of challenges. The most urgent issues include termination of manufacturers’ rights, importation risks, pricing problems and the infiltration of counterfeit drugs, the cost of R&D and political and administrative constraints notwithstanding. Most of these challenges have existed over a long period and the rate at which they are escalating presents a big threat to the industry.

India makes an interesting case study in this regard, where the local drug manufacturers like Biocon and Ranbaxy have had joint ventures with the pharmaceutical companies in the US and EU respectively. There is a mutual benefit for companies in both developed and developing countries (Europe Economics, 2001) i.e. developed countries could manufacture the required drugs in a ‘cheaper’ environment while developing countries could benefit from the technology, knowledge and experience transfer from the other side.

Nowadays, according to the act of Agreement on Trade-Related Aspects of Intellectual Property Rights ( TRIPS ) Article 27 are enable pharmaceutical companies to own a patent for medicine for up to 20 years. The reason of the patent protection and extensions are justified is only prolonged period of protection can be obtained to compensate those company due to all the new medicines need a long time to obtained from the public health regulatory bodies (WTO,2012).

Therefore, protection of patents is one of the key conditions necessary for further development of the pharmaceutical industry. At the same time, non-efficient legislation that does not provide the necessary level of patent protection is one of the factors that hamper expansion of “Big Pharmaceutical” companies to the developing countries8.

Pharmaceutical industry is one of the biggest industry in the world as it involves drugs and medications - something that is very stable in terms of demand. This can be proven by the amount of sales as of 2012. Figure 1.1 shows the breakdown of the market of the pharmaceutical industry worldwide. However, aside from the production and synthesis of drugs and medications, the industry is also involved in the research and further development of drugs and medications. Because of the effect of the products of the industry to its market, the industry is subjected to a lot of laws and regulations. These laws and regulations must be met before their products are sold in the market.

The concept of product patent for pharmaceutical products is likely to make life saving medicine beyond the reach of the poor and deprived section of the society around the world.

Pharmaceuticals have gradually evolved from an import-based industry to a self-manufacturing one exporting to 70 countries with a market size of over $750 million. Foreign investments either in the form of joint ventures with Bangladeshi companies or other partnerships whereby research and development is run in laboratories in India with complementing manufacturing plants in Bangladesh should be welcomed. These companies could utilize the competitively priced labor in Bangladesh and use cost advantages to capture the export market.

This report provides an analytical strategic review of the global pharmaceutical industry; its origin, evolution,