Presentation Outline

p Premise of the Case

p Definitions and Glossary

p Company Background

p Questions for Discussion

PREMISE OF THE CASE

p ¯ olution of the Pharma Sector

p Pharmaceutical Industry in India
p Consumer ¯
pectations
p Costs and Margins.
p Distribution Channels
p Policy Outlook
Evolution of the Pharma Sector
Evolution contd.
Evolution contd.
p 
s ± Doctors dispensed medicines. No concept
of medical retailers or prescriptions.

p  s ± Prescription segment ~ .

p  s ± Prescription segment ~ .

p  s ± 25 Doctors as opposed to  from

the  s.

p Growth in the number of chemists boomed due to

near-complete dominance of prescription mode of
buying.
Pharmaceutical Industry in India
p Indian Pharma Industry is estimated to be
worth US$.5 billion.
p Growing at about  to percent annually.
p Highly fragmented with more than 2
registered units.
p The leading 25 pharmaceutical companies
control  of the market.
p Technologically strong and totally self-reliant.
p Low costs of production low R&D costs
inno ati e scientific manpower strength of
national laboratories and an increasing
balance of trade.
Consumer Expectations
p Safety.
p Authorized and Licensed products.
p Regulatory Compliance.
p Accountability of Corporations and HMOs.
p Dosage & Specifications.
p Risks.
p Fair Price.
p Demand ± Supply Match.
p Accessibility.
p Credit Terms.
p Retailer Knowledge.
p Go ernment Inter ention as per requirements
(Keynesian Approach).
Costs & Margins

p Largely decided by the National

Pharmaceutical Pricing Authority
(NPPA).
p NPPA is an organization of the
go ernment of India established to fi
or
re ise prices.
p The go ernment has co ered 
scheduled drugs.
"istribution Channel in India
Cipla Case (example)
p In many states to make that product a ailable in the
pharmacy the company has to pay commissions to
the chemist (pharmacy) association.
p On recei ing the commission the association will
issue a no-objection certificate which is mandatory
for any company to make their product a ailable in
the market.
p Cipla a manufacturer of asthma drugs tried to
bypass the supply chain by pro iding home ser ice
for its products.
p Cipla faced strong resistance from the traders lobby
which stopped stocking Cipla's product.
p Ultimately Cipla had to withdraw the scheme.
Policy Outlook
p  ith the introduction of Î
 medicine prices ha e been
standardized and price discrimination in which different states
pay different prices for the same products has reduced.

p Pharmaceutical companies ha e realized the need for

integrated solutions in 6
to keep in entories at optimum
le els to impro e distribution to pro ide for liquidation of stock
and to streamline interconnecti ity between manufacturing
facilities and warehouses.

p There is w
  


 
  w
 in India.
Once a medicine is released into the market it becomes a
daunting task for a pharmaceutical company to recall because
of the highly fragmented nature of the distribution network.
CONTEXTUAL "EFINITIONS &
GLOSSARY
p DPCO:
The Drugs Price Control Order is an order issued by the Go ernment of
India to regulate the prices of drugs. The Order inter alia pro ides the
list of price controlled drugs procedures for fi
ation of prices of drugs
method of implementation of prices fi
ed by Go ernment and penalties
for contra ention of pro isions among other things.

p Distributor:
A company that specializes in distributing other companies¶ products ±
i.e. has contractual relationships with one or more endors (producers
of the original products) under which the distributor has certain rights
responsibilities and restrictions related to marketing and selling the
endors¶ products to the ultimate end-users.
p Institutional Buyer:
A corporation business trust or partnership or wholly owned subsidiary
of such an entity which has been operating for at least 2 months.
The definition of "institutional buyer" e
cludes natural persons and
includes other entities of sufficient e
pertise and financial strength to
bear the risks of purchasing unregistered securities.

p Liberalization:
In general liberalization refers to a rela
ation of pre ious go ernment
restrictions usually in areas of social or economic policy.
Most often the term is used to refer to economic liberalization
especially trade liberalization or capital market liberalization.
p MR ± Medical Representati e:
Medical Representati es or reps as they often called are a key link between
pharmaceutical companies and medical and healthcare professionals. They work
strategically to increase the awareness and use of a company's pharmaceutical and
medical products in settings such as general practices primary care trusts and
hospitals.

p Retailer:
A business which sells goods to the consumer as opposed to a wholesaler or supplier
which normally sell their goods to another business. Retailers include large
businesses such as  al-Mart and also smaller non-chain locations run
independently such as a family-run bookstore.

p  holesaler:
Person or firm that buys large quantity of goods from
arious producers or endors warehouses them and resells to retailers.
COMPANY BACKGROUN"
p 
 ± Kalyan Pharma Limited (KPL) at Vat a
Gujarat with capital of Rs. 5 lakh.
p Manufacturing glass pesticides and chemicals
pharmaceuticals eterinary products and
polypropylene fiber.
p   ± Pharmaceuticals under Megacare.
p 
± Paid up capital = Rs.  lakh.
p 
  ± Product line included antibiotics cough
syrups and nutritional cardio- ascular anti-
asthmatic anti-TB anti-ulcer itamins anti-
arthritic and anti-cold preparations.
p   ± Market Share of ~ 2. -
..
Performance (Financial)
Marketing Strategy
p Continuous inno ation in product mi

promotion and distribution.
p Mo ed from galenicals to formulations to
appro
imately  bulk pharma products in
 .
p DPCOs influenced pricing strategies.
p 25 of product mi
is now deregulated.
p Pricing has been in the middle of the
industry spectrum.
p  MRs as of  .
p Open Door Policy.
"istribution Strategy
p 
  ± Sole Selling Agency.

p  
   ± Regional Marketing

Companies.

p    - Introduction of  holesalers.

p  
± Introduction of KRDs.

p  
  w
± Distributors.

Current "istribution Channel
(1991)
ñUESTIONS FOR "ISCUSSION
 hat are the objectives of the changed distribution
network, post ² 1991? Have they been achieved by the
new system?

OBJ¯CTIV¯S
p Bring down administrati e cost by
reducing the number of Branches.
p Distributors in e ery state for better
ser ice to  holesalers.
p Reduce A/Cs recei able.
p Impro e sales and profitability.
p Reduced wholesaler margins opened for
negotiation.
 R¯SULTS
p In entory le els reduced.
p Customer ser ice is enhanced due to
faster order processing.
p A/Cs recei able turno er ± from  days
to  days.
p Distribution related staff ±  to 2.
Reviewing the various changes in the distribution
network since the company·s inception.
 KR" + IT
KRDs performed the functions of sales
promotion distribution and administration.
Majority of time spent in distribution and
collections.
p By remo ing this layer and automating the
flow with the help of IT and IT¯S costs
towards Admin+Salaries can be reduced.
p Lesser HR need be employed thus
reducing human element of error.
p Processing and In entory Control can be
better managed.