The Indian pharmaceutical industry today is one of the largest and most advanced among the developing countries, and is in the front rank of India's science-based industries with the wide ranging capabilities in the complex field of drug manufacturing technology. The industry has evolved significantly in the past 50 years and is currently in a position to meet 90% of the country's requirement.

Pharmaceuticals is an industry which grows continuously, immune to economic recession and commodity cycles. The rapid growth in the pharma sector the world over, technologically and market wise, its increasing integration with global market, and the strengthening of national and international regulatory norms have put the pharma industry, especially the small and medium pharma companies, at a difficult juncture.

They have to make definite choices in relation to quality standards, prices, production, marketing and organization-many of these being outside their current frame of commercial reference so far. In this situation, the survival of small firms would depend on how well and quickly they adapt to the new business scenario and evolve appropriate strategies. Even relatively large firms are also not free from these compulsions. They are also anticipating problems, especially those related to R&D.

THREATS

The regulatory environment of the pharma industry is being overhauled rapidly to make it TRIPS and GMP compliant. In the highly protected, pre-liberalization era, price was the major competitive weapon in the hands of small scale pharma units. The production and marketing set up has been geared towards meeting requirements within the local boundaries or doing business with governments. Most of the small scale units market their products in generics or branded generics or through promoters arrangement.

Very few small companies have gone for their own brand names by their own field staff with ethical promotion. The overemphasis on price has resulted in a total neglect of quality in these segments. Due to the sheer smallness of the units they have not been able to plough back the profits to upgrade the quality or carry out basic research.

The emerging business environment demands strict maintenance of quality standards-not in terms of a simple analysis of the final product for compliance to their labeled claims, but in terms of total over their procedural parameters.

Issues relating to WHO-GMP compliance have been a relatively major area of concern for the industry as a whole. Here the primary affected group are the small firms. The large firms and majority of the medium firms have already graduated to the 'desired' level of quality.

The emerging regulatory trend is a movement towards a more stringent quality norms. Interestingly, apart from regulatory compliance, the industry feels that this is also gradually becoming a demand from the market. Many bulk purchases, some State Governments and importers from almost all the countries are demanding such stricter quality compliance. It is also believed that there will be a movement towards specialization; marketing (by big firms who have established brand names) and manufacturing ( by small and medium firms). Here among others the issue of quality may be a critical choice factor by the marketing firms.

Despite the anticipated needs the small and medium sized firms are finding it difficult, especially because of their unpreparedness to invest huge amounts. WHO-GMP requirement would demand an investment to the tune of Rs 2 million to Rs 10 million per unit in adjusting premises or installing sophisticated quality control measures. At present, the entrepreneurs are weighing the costs and benefits of undertaking such huge additional investment. Most old units have plant designs unsuitable for WHO-GMP specifications and have no alternative but to go for entirely new plants. Considering that the profit margins of small firms have gone down over the past few years, such additional investments may put them under tremendous pressure. Thus a significant support is envisaged in this front in the form of subsidized loan and other management support.

Moreover, at current level, the feeling is that there is no guarantee that as soon as a firm qualifies for WHO-GMP, business will be guaranteed. The firms are also not in a position to visualize a scenario where there will be relatively visible specialization in marketing and production in pharma products.

The international quality norms especially those related to exports, is also a major area of concern. This has four related dimensions (A) Importing nations and bulk purchases are gradually demanding higher quality standards e.g. WHO-GMP (b) Importing nations have different registration procedure and documenting norms for imports. (c) The quantity of imports is not always manageable by a single small firm. (d) The small firms individually cannot afford to offer a basket of different formulations and or dosage forms at internationally competitive prices. (e) Very low margins and cut throat competitive price in export formulation among the small firms (d) Different trade barriers in different countries for import procedures.

The pharma industry is in a state of tremendous flux. Companies are merging and restructuring. Corporate offices and executives are changing. Plants are changing ownership, equipment and capacities. Each new year brings a fresh round of industry changes making the information and research, which was relied on last year, outdated today.

The Indian pharma industry so far protected by the process patent act and growing rapidly through the reverse engineering skills, stands exposed with the opening up of international trade and product patent act. In the post 2005 scenario, research and development, technology and market are going to be the deciding factors for pharmaceutical industry.

The Government of India has already taken the first step towards incorporating the proposed changes by notifying the Patents (Amendment) Rules 1999.

This would enable granting of exclusive marketing rights (EMR) for items, which qualify under the eligibility criteria, set out in the proposed Act. The operationalization of the new patent regime will bring in fundamental changes in the composition of the industry. It has been estimated that for many Indian firms more than 20 per cent sales come from products that are less than two years old. The reintroduction of product patent would mean that companies will not be able to manufacture drugs patented after 1995. In other words, many Indian companies will face a serious decline in market opportunities in this area.

The booming generic market will be a major solace for pharma companies in this situation. But as explained earlier, the generic market game is going to be tough even for the most accomplished of Indian pharma majors because of the complexities involved in getting clearances and the enormous costs. Moreover, the product patents, more often than not include additional process patents, patents for improving processes or methods of arriving at intermediaries. In most cases these patents are filed after the product patent and some of them exist long after the product patent expires. If an Indian company wants to sell a particular molecule in the US, it will have to evolve a strategy to manufacture it and file the necessary applications that will not infringe any of the numerous patents of the innovator and will still be commercially viable. This can be difficult as the innovator usually patents the most obvious and economical ways of producing a chemical. Also, setting up a US FDA approved plant (for sale of generics in US market) costs at least five times as much as putting up similar capacity conforming to Indian standards.

THE NEED

The big firms have understood its implications and so does the government. There is already a serious thrust on 'R &D' issues of both front - R&D fund proposed by the government for pharma and birth of a new association of big firms with 'R&D' as the chief agenda etc. But the small firms are practically unmoved as yet.
And the small firms:
- Find it difficult to survive as they lack the financial might to deal with complex legal hurdles as also to set up facilities in conformity with the specifications of the developed world
- Do not have an idea regarding the need, importance and methodology of patent application
- Might become victimised due to sheer ignorance
- Face the dearth of patent experts with pharma background and with reasonable consultancy due to lack of availability and the rising need for the same
- Inertia among Indian experts to go for patenting due to lack of knowledge of process of patenting

SOLUTION FRAMEWORK

- Organise a training workshop that injects momentum into the small firms and also the private service providers (consultants) to learn and get prepared for this challenge
- Create an IDMA or Government Patent Cell on payment basis for the benefit of the members
But we also have opportunities like:
- Different/new healthcare line
- Trading vs manufacturing
- Market-customer segmentation-specialization- small network marketing
- Regional marketing /distribution
- Contract manufacturing
- Contract product/process development
- Contract clinical development
- Contract R & D facilities
- Contract marketing- network with other firms, collaborate
- Co-marketing/group marketing/cluster marketing
- Joint export marketing
- Focusing on the value chain
- Practicing target marketing

Pharma industry is knowledge-based industry. Progress requires keeping pace with vastly developing knowledge. Every progressive organization must learn to manage this knowledge properly and how to benefit constantly.

Competitiveness to deal with constantly changing market forces would be the key for success. Future lies in high quality and good customer services. There is no end to improvements and innovation.

- (The author is Deepak Padia is ex-chairman, Indian Drug Manufacturer's Association (Gujarat State Board) & Chairman and Managing Director, Osho Pharma Pvt.Ltd, Vatwa Ahmedabad.)