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Fundamental Analysis- Dr Reddy's Lab

Fundamental Analysis- Dr Reddy's Lab

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Published by: dr_abhishekverma on Feb 02, 2010
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07/12/2013

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SRSD ASSIGNMENTFUNDAMENTALAND TECHNICAL ANALYSIS
 
 
FUNDAMENTAL ANALYSISI ANALYSIS OF THE GLOBAL SCENARIO
Globally, pharmaceutical industry grew at a compounded annual growth rate of 9.1 per cent in the last 23 years to $491 billion. Mergers and acquisitions reshapedmultinationals. With a slew of brand name drugs losing patent protection in the next fewyears and the pressure building for pharmaceuticals to cut price, these giants findthemselves under immense strain to find new drugs and reduce price. Bringing a newdrug into the market costs a company an average of about $800 to $900 million. Someestimates show that patient recruitment and medical personnel account for nearly 70 per cent of the clinical costs that are required to bring a drug to market. The less expensivemeans to raise research productivity is outsourcing research to low cost havens such asIndia and China. The global pharmaceutical outsourcing market stands at $10 billion.Some of the major trends that are expected in the future include mergers and acquisitionsin the industry; new product launches by MNCs and Indian companies; in-licensing of  patented products by Indian companies to launch them in the Indian market and increasein the number of contract research organisations. 
Barriers to Entry in the Global Industry
Like many industries, any new entrant into the pharmaceutical sector will be faced withvarious hurdles that have been previously erected by already established businesses and by national and international standards and regulations. These include:
Economies of scale - manufacturing, R&D, marketing, sales
Distribution product differentiation - established products, brands andrelationships
Capital requirements and financial resources
Access to distribution channels: preferred arrangements
Regulatory policy: patents, regulatory standards
Switching costs - employee retraining, new equipment, technical assistance The barriers to entry are extremely high in the pharmaceutical industry. Many of the topfirms have significant manufacturing capabilities that are hard to replicate. Also, theyhave extensive patents that guarantee the protection of their products while they defendtheir brands with large marketing budgets. Since any emerging pharmaceutical companycan expect a sharp retaliation from the established competitors in the pharmaceuticalindustry, the overall threat of entry into the global marketplace is relatively low incomparison to other international industries.The largest factors that influence the success of many pharmaceutical companies arecapital requirements and financial resources, regulatory policies, and research anddevelopment. All three of these factors can influence one another and a lapse in one areacan be disastrous for the future of the company.
 
Factors affecting the pharmaceutical industry:
1.
Government Regulations
-drug prices, FDA regulations, sales & marketing practices-2.
Loss of Patent Protection
- patent expiration, biogenerics, legal attack of patentvalidity, patent law reform, health crises. Patent expiration is no longer the only threatto patent protection.3.
Industry Player Environment
-outsourcing, M&A, spin-outs, future industrystructure. A churning of pharma industry players will continue as both large and smallcompanies fight for survival.4.
New Product Development
- R&D, poor quality drug candidates, slow production of novel drug discovery technology5. Socio-economic Trends -- greater end-user involvement, threat of bioterrorism, epidemiology, DTC advertising & customer confidence, employment, stock market performance, worldwide market
Social and Demographic factors:
As the population ages and the diseases increase, new medical needs emerge and thedemand for effective medicines rises accordingly. In Russia, around 15% of the population and 40% in China are above the age of 60.
II ECONOMIC ANALYSIS
India is one of the top emerging markets in the world. Many reasons account for this.
It has a huge talent pool of managerial and technical manpower and this providesit with a competitive edge in the global market.
The democracy promotes a transparent environment that includes a free press anda proper legal and accounting system.
It has a competitive and dynamic private sector that accounts for more than 75%of India's GDP.
Government has become more liberal and has reduced its control on foreign tradeand investment and is heading its way towards privatizing the domestic sector.
This has shown a marked increase in FDI and FII inflows (but we are lagging behind if we compare with China)
Since 1990, the economy of India has witnessed a decent growth rate of 6% andhas been successful in overcoming poverty by about 10%.
The weakness of India is the continuing public-sector budget deficit, which isnearly 10% of GDP, lack of proper infrastructure to support the growthmomentum, inflation (which is now easing).

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