ANALYSIS OF PHARMACEUTICAL INDUSTRY

BY VLSS CONSULTANCIES

INTRODUCTION
• Pharmaceutical Industry in India is one of the largest and most advanced among the developing countries • The Indian pharmaceutical industry has come a long way from waiting for imports of bulk drugs from global players to breaking new grounds in medical research worldwide.

GROWTH OF THE INDUSTRY
• Worth of the industry – $ 6 billion • CAGR – 13% • Accounts for - 1% of the world's pharma industry in value terms and 8% in volume terms. • M&As: Over 25 with 15 cross border transaction worth $600-700 million. • Revenues generated - US$ 7.6 bn and have grown at an average rate of 10% over last five years

STRUCTURE OF INDUSTRY
Fragmented with 24000 players – 300 organized Leading 250 – 70% of the market Market leaders hold 7% Manufactures : Bulk drugs – APIs Formulations (75:25) • Adopts high technology & produces high value products • • • •

FRAMEWORK OF ANALYSIS: • (A)QUALITATIVE ANALYSIS SWOT ANALYSIS MICHAEL PORTER 5 FORCES MODEL • (B)QUANTITATIVE ANALYSIS RATIO ANALYSIS

Opportunities :1. Significant export potential. 1.Cost Competitiveness 2. Marketing alliances for MNC products in domestic 2 Developed Industry with Strong market and international market. Manufacturing Base 3.Contract manufacturing arrangements with MNCs 3.Well Established R&D infrastructure 4. Potential for developing India as a centre for 4. Access to pool of highly trained scientists, international clinical trials.

Strengths :-

Weaknesses:-

Threats :1.Product patent regime poses serious challenge to 1. Low investments in innovative R&D. 2. Lack of resources to compete with MNCs domestic industry unless it invests in research and development for New Drug Discovery & Research 3. Lack of strong linkages between industry 2. R&D efforts of Indian pharmaceutical companies hampered by lack of enabling regulatory requirement. and academia. 4. Low medical and healthcare expenditure 3.Drug Price Control Order puts unrealistic ceilings on product prices and profitability in the country 4. Export effort hampered by procedural hurdles in India as well as non-tariff barriers imposed abroad.

Power of Suppliers
Volume benefits occur Inputs standard, available locally Numerous suppliers-switching cost low Suppliers can go for forward integration Raw material cost constitute more than 50% of the total expenses

Barriers to Entry
Very low barriers to entry Government policies supportive For entry price regulation exists Economies of scale exist Proprietory technology and Product will exist after 2005
Industry Competition Highly competitive. Top five players have mere 18% market share Lower fixed cost and high working capital

Threats of Substitutes
No substitutes for the medicines Biotechnology is a threat to synthetic pharma products

Power of Buyers
End consumers do not have bargaining power Brand identity exists but is in the hands Of Influencer (Doctors) Price Sensitivity is less Highly fragmented market, so buyer Concentration v/s industry is low

RATIO ANALYSIS
• We have analyzed the top five companies in the Indian pharmaceutical industry for the purpose of doing the quantitative analysis. • Our rationale behind selecting the top five companies has been the –SALES AND PROFIT. • The companies being:  Cipla  Ranbaxy  Sun Pharma  Piramal Healthcare  Dr. Reddy’s Laboratories

YRC

Aggregat Cipla e 200803

Dr Reddy's Piramal 200803

Sun Ranbaxy Pharma. Labs. 200803 200712

200803

Key Ratios DE Ratio Long Term DE Ratio Current Ratio Turnover Ratios : Fixed Assets Inventory Debtors Interest Cover Ratio 1.78 5.02 4.53 5.82 2.05 3.9 3.38 47.45 2.27 6.11 3.53 40.76 1.74 8.34 7.5 5.61 3.62 8.88 3.96 208.94 2.04 4.64 4.72 9.29 0.98 0.69 1.58 0.1 0.1 2.66 0.09 0 2.37 0.43 0.28 1.54 0.18 0.18 3.04 1.37 0.92 0.98

Sales: Segment -wise

EXPORTS
• BULK DRUGS

• FORMULATION

DOMESTIC EXPORTS
(Source: DGCIS) YEAR 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 EXPORT (Rs. in Crores) 6256.06 7230.16 8757.47 9751.2 12826.1 15213.24 17857.8 22578.98 24942

India’s Bulk Drug Export

Source: (CRISINFAC) • Bulk Drugs Export- grew 28%CAGR (2001-02 and 2007-08) • Reached $4.2 billion

India’s Formulation Export

(SOURCE: CRISINFAC)

REGULATORY BODIES & PATENT – THE KEY FACET OF PHARMACEUTICAL INDUSTRY IN INDIA

• National Pharmaceutical Pricing Authority (NPPA): Established to fix/ revise the prices of controlled bulk drugs and formulations under the Drugs Prices Control Order, 1995. • Central Drugs Standard and Control Organization (CDSCO) : Controls the quality of drugs imported into the country, co-ordinates the activities of the State/UT drug control authorities, approves new drugs proposed to be imported or manufactured in the country. • Department of Chemicals & Petrochemicals (DCP) : Provides prompt services to the public in matters relating to chemical, pharmaceutical and petrochemical industries; take steps to speedy redressal of grievances received; formulates policies and initiate consultations with Industry associations and to amend them whenever required.

• Patent: a legal document granted by the government giving
an inventor the exclusive right to make, use and sell an invention for a specified period of time.

• The Indian Patents Act of 1972:  Granted the pharmaceutical sector the right to produce
any drugs the country needed.  Also did away with the shackles imposed by monopoly.

• The Patent Amendment Act 2005:
 law only protects completely new compounds that were invented after 1995.

US FDA
• Implemented for drug safety system. • India has the highest number of US FDA approved plants outside the US at 75 plus. • Of the overall Drug Master Filings to US FDA, Indian players has jumped from around 14% (2000) to 46% (2008). • India has recorded 1671 DMF filings, whereas China shows a tally of 520 only.

Increasing share of Indian companies in DMF filings (US FDA)

(SOURCE: CRISINFAC)

GOVERNMENT POLICY


  

POLICY MEASURES:
Lifesaving drugs, Clinical trials, Anti AIDS drugs – Exempted from excise duty Permitting FDI for manufacture of drugs on certain conditional basis Extension of deduction of R&D expenses from 150% to 200%

MERGERS AND ACQUISITIONS IN THE INDIAN PHARMACEUTICAL INDUSTRY

Announce date

Target

Acquirer

Reason

Deal Value

Target Country

Feb-06Betapharm

Dr.Reddy’s Labs Front end line in Germany Front end line in Germany

570Germany 11Germany 33.5Japan

May-04Espama Gmbh Wockhardt Nov-05Ranbaxy

Daichii Sankyo Low cost manufacturing and supply chain management

Nov-05Roche’s API Facility

Dr.Reddy’s Labs Increasing presence in Contract Mfg

58.97Mexico

Oct-05Avecia

Nicholas Piramal Increasing presence in Contract Mfg

17.1UK,Canada

CONCLUSION
• Pharma industry being a growth industry • Unaffected by the business cycle • As per the present growth rate, the Indian Pharma Industry is expected to be a US$ 20 billion industry by the year 2015 • India has  competitive strength in research services  availability of low cost skilled doctors and scientists  large patient population with diverse disease characteristics  adherence to international quality standards • VLSS agencies recommends investment in this industry to be a wise decision.

THANK YOU

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