HIGHLY REGULATED

The industry faces PRICE, QUALITY & PATENT

regulation.
RESEARCH ORIENTED
Highly research driven, regularly invents NDDS
along with new molecules & innovative production
process.
LOW PRICE ELASTICITY
Consumers less sensitive to price movements for
most drugs
LIMITED CUSTOMER CHOICE
CONSUMERS are not decision makers, DOCTORS &
medical representatives play major role.
HIGHLY DEPENDENT ON THE DEVELOPMENT OF
HEALTH INFRASTUCTURE
Hospitals, health facilities, medical practitioners
plays a key role in driving consumption.



The Indian pharmaceutical industry is estimated to
have over 10,000 manufacturing units, as given by
the Organisation of Pharmaceutical Producers of
India.






PRICE EROSION IN INDIAN GENERICS due to:
Price control imposed by government
Rise in number of domestic players
NATIONAL-LIST-OF-ESSENTIAL-MEDICINES-(NLEM) lists
354 DRUGS under cost based price control by
NATIONAL PHARMACEUTICAL POLICY 2006.
ORGANISED SECTOR UNORGANISED SECTOR
5% of the industry 95% of the industry
65% of industry turnover 35% of industry turnover
19% turnover from MNC.
81% turnover from Indian
Companies.
The field of discovery and developments of new
chemical entity (NCEs), had more misses than hits.


Very few discoveries reach the final stages of
approvals, and in most of the cases the claim for
patent gets stuck in legal battles.



INDIAN COMPANIES spend 4% of SALES on R&D,
where the GLOBAL practice is of 12-16%.


Leading INDIAN Pharma companies have been
actively extending the frontiers of scientific
knowledge & going global through mergers &
acquisitions.


The European generics market have emerged as a
major attraction for acquisitions by Indian
companies as margin erosion in Europe is much less
compared to the US when a drug or formulation
becomes generic.

Consolidation is inevitable and is expected to bring
in economies of scale and provide access to newer
geographies to regional players.
INDIAN PHARMA INDUSTRY DO NO
HAVE THIS PROBLEM !!
A paradigm shift occurred in the Indian
pharmaceutical industry with India becoming a
signatory to the WTO order,
ushering in the Product Patent Regime.
Earlier, with the enactment of The Patent Act,
1970, only process patent was applicable.
In India, 97 per cent of drugs are off patent and are
manufactured by a vast number of companies.
The key therapeutic segments include

Anti-infective s
Cardio vascular and
Central nervous system drugs.

Anti-infective comprise the largest therapeutic
segment in India, accounting for about 26 per cent
of the market.
The INDUSTRY complies with the Good
Manufacturing Practices set by World Health
Organisation. These standards improve the quality
and also act as potential entry barriers for new
firms to enter
MARKET SHARE of MNC & INDIAN Companies
EXPORTS constitutes 40% of TOTAL PRODUCTION.
Out of which
FORMULATIONS constitutes nearly 55%
BULK Drugs rest 45%

Almost half of the Export Revenue generated
comes from Dr REDDYS
RANBAXY
CIPLA
Indian Pharma companies are going for compliance with
INTERNATIONAL REGULATORY AGENCIES like USFDA & MCC
for their manufacturing facilities. INDIA has largest no of
USFDA approved plants outside US
International
Biotech
Companies
Top Indian
Biotech
Companies
International
Biotech
Companies in
India
Genentech Inc. Biocon Monsanto
Amgen Inc. Shantha Biotechnics Pfizer
Gilead Sciences Inc. Bharat Biotech Astra Zeneca
Genzyme Corporation Wockhardt Unilever
Serono S.A
Dr. Reddy's
Laboratories
Dupont
Biogen Idec Inc.
Serum Institute of
India
Bayer
MedImmune Inc. Zydus Cadila Eli Lilly
Chiron Corporation Aventis Pharma Hoechst Roussel Vet
Amylin
Pharmaceuticals Inc.
Reliance Life Sciences Millipore
Invitrogen Corporation - Novozymes
STRENGHTS

The primary STRENGTHS OF THE INDIAN
PHARMA INDUSTRY are:

INDIAN pharma industry is COST
COMPETITIVE.
Its a well developed INDUSTRY with
strong manufacturing base.
Access to pool of highly trained scientist
from INDIA & ABROAD.
Strong marketing & distribution network.
Rich BIO DIVERSITY
Competent I chemistry & process
development.
WEAKNESS
The primary WEAKNESS OF THE INDIAN
PHARMA INDUSTRY are:

Low investments in innovative R&D and
lack of resources to compete with MNCs for
new drug discovery research.
Lack of strong linkages between
INDUSTRY and ACADEMICIANS.
Low medical expenditure on healthcare
in INDIA.
Production of spurious & low quality
drugs tarnishes the image of INDUSTRY at
home & ABROAD.
Shortage of life saving medicines
containing psychotropic substances .
OPPERTUNITIES

The OPPERTUNITIES OF THE INDIAN PHARMA
INDUSTRY are:




Significant EXPORT POTTENTIAL.
Licensing deals with MNCs for new
chemical entity (NCE) & new drug delivery
systems (NDDS).
Marketing alliances to sell MNC products
in domestic markets.
OPPERTUNITIES

The OPPERTUNITIES OF THE INDIAN PHARMA
INDUSTRY are:



Contract manufacturing arrangements
with MNC s.
Potential in developing INDIA as the
centre for INTERNATIONAL CLINICAL TRIALS.
NICHE player in global pharma R&D
Supply of GENERIC drugs to developed
markets.
THREATS

The Threats OF THE INDIAN PHARMA
INDUSTRY are:


Product patent regime poses serious
challenge to DOMESTIC industry unless
investment happens in R&D.
R&D efforts are hampered by lack of
enabling regulatory equipment, Ex
restrictions on animal testing.
THREATS

The Threats OF THE INDIAN PHARMA
INDUSTRY are:


Drug Price Control Order put unrealistic
ceilings on product prices, profitability &
prevents generating investible surplus.
Lowering of TARRIF protection.
NEW MRP based excise duty in AP &
MAHARASHTRA threatens existence of many
small scale units
THREAT FROM CHINA
Competitor in the exports of Active Pharmaceutical
Ingredients , with an export growth of 20% per year.

COMPETITIVE ADVANTAGE OF CHINA

Lower Electricity costs (Rs 1.5 to 2.5 per
KWH) than (Rs 4.5 to 6 per KWH) of INDIA.

Labour charges are 40% lower, with
favorable labour policies.

Implemented clear intellectual property
laws and data exclusivity rules, a step
ahead to attract Foreign players.

THREAT FROM CHINA
Competitor in the exports of Active Pharmaceutical
Ingredients , with an export growth of 20% per year.

COMPETITIVE ADVANTAGE OF CHINA

Established profit oriented R&D
organizations independent of Govt. funding.

Chinese Govt. allows 100% income tax
holiday for first 2 profit making years & 50%
for next 3 years.

Companies are allowed duty free import
of Capital requirement.
CHEMICAL EXPERIENCE
STEPS REQUIRED
The steps required for boosting
competitiveness are


Extension of R&D expenses deduction by
150%

The Govt should increase the earmarked
Rs 150 Crore for R&D to about Rs 2000
Crore.

Rationalization of Drug price control
order (DPCO).

STEPS REQUIRED
The steps required for boosting
competitiveness are


Industry-academic relationship can be
further explored.

Income tax exemptions should be given
on Clinical trials & Contract research done
outside the company & abroad.

Spurious drug problem should be tackled
India should exploit its age old know how
on traditional & herbal medicines.

Govt. should provide TAX holidays for
some specific periods, so that Indian
companies can exploit the opportunity
arising from patented Drugs & take up
marketing of GENERICS to US.
Four strategies
Big Indian pharma or big global pharma needs to reorient
themselves to newer strategic models.
There have been four shifts. As a result, big pharma
companies will have to develop their own models.

The first is a shift from an opportunistic strategy to
one of focus. Market forces are driving Pharma
companies to concentrate their efforts and to
abandon the practice of investing in a broad array
of compounds on the premise that nearly every
opportunity is worth exploring.






Second, companies will shift from a fully integrated
pharma company model to one that uses
partnerships to manage risk and return. Today,
each company handles its own discovery,
development, manufacturing, marketing and sales.
But trying to do everything internally carried a high
risk with increasingly significant investments.

Third, companies will shift from science-driven
provision of specific drugs to providing customer
solutions. Historically, the pharma industry has sold
therapeutics that addresses diseases but don't
necessarily cure them or meet patients' full needs in
managing their conditions.






Finally, companies will shift from a functional to an
integrated business organisation model.
Traditionally, Big Pharma has had separate functional
units for each stage of the drug development and
marketing process. But the industry should study
companies such as Dell and General Electric to assess
the advantages of organisation models based on
discrete business units. These companies grow
profitably by pushing responsibility for profits down to
smaller business units.
Porter's five forces analysis is a framework for the industry analysis
and business strategy development developed by Michael E Porter
of Harvard Business School in 1979. It uses concepts developed
in Industrial Organization (IO) economics to derive five forces which
determine the competitive intensity and therefore attractiveness of
a market. Attractiveness in this context refers to the overall
industry profitability. An "unattractive" industry is one where the
combination of forces acts to drive down overall profitability. A very
unattractive industry would be one approaching "pure competition".
Porter referred to these forces as the micro environment, to
contrast it with the more general term macro environment. They
consist of those forces close to a company that affect its ability to
serve its customers and make a profit. A change in any of the forces
normally requires a company to re-assess the marketplace. The
overall industry attractiveness does not imply that every firm in the
industry will return the same profitability. Firms are able to apply
their core competences, business model or network to achieve a
profit above the industry average. A clear example of this is the
airline industry. As an industry, profitability is low and yet individual
companies, by applying unique business models have been able to
make a return in excess of the industry average.
Strategy consultants occasionally use Porter's five forces framework
when making a qualitative evaluation of a firm's strategic position.
However, for most consultants, the framework is only a starting
point or 'check-list' they might use.
Porter's five forces include three forces from 'horizontal'
competition: threat of substitute products, the threat of established
rivals, and the threat of new entrants; and two forces from 'vertical'
competition: the bargaining power of suppliers, bargaining power of
customers.
According to Porter, the five forces model should be used at the
industry level; it is not designed to be used at the industry group or
industry sector level. An industry is defined at a lower, more basic
level: a market in which similar or closely related products and/or
services are sold to buyers. Firms that compete in a single industry
should develop, at a minimum, one five forces analysis for its
industry. Porter makes clear that for diversified companies, the first
fundamental issue in corporate strategy is the selection of industries
(lines of business) in which the company should compete; and each
line of business should develop its own, industry-specific, five forces
analysis. The average Global 1,000 company competes in
approximately 52 industries (lines of business).
THE THREAT OF SUBSTITUTE PRODUCTS



The existence of close substitute products increases
the propensity of customers to switch to alternatives
in response to price increases (high elasticity of
demand).

buyer propensity to substitute
relative price performance of substitutes
buyer switching costs
perceived level of product differentiation

THE THREAT OF THE ENTRY OF NEW
COMPETITORS

Profitable markets that yield high returns will draw firms. This
results in many new entrants, which will effectively decrease
profitability. Unless the entry of new firms can be blocked by
incumbents, the profit rate will fall towards a competitive level
(perfect competition).

the existence of barriers to entry (patents, rights, etc.)
economies of product differences
brand equity
switching costs or sunk costs
capital requirements
access to distribution
absolute cost advantages
learning curve advantages
expected retaliation by incumbents
government policies
THE INTENSITY OF COMPETITIVE
RIVALRY


For most industries, this is the major determinant of the
competitiveness of the industry. Sometimes rivals compete
aggressively and sometimes rivals compete in non-price dimensions
such as innovation, marketing, etc.
number of competitors
rate of industry growth
intermittent industry overcapacity
exit barriers
diversity of competitors
informational complexity and asymmetry
fixed cost allocation per value added
level of advertising expense
Economies of scale
Sustainable competitive advantage through improvisation

THE BARGAINING POWER OF
CUSTOMERS


buyer concentration to firm concentration ratio
degree of dependency upon existing channels of distribution
bargaining leverage, particularly in industries with high fixed costs
buyer volume
buyer switching costs relative to firm switching costs
buyer information availability
ability to backward integrate
availability of existing substitute products
buyer price sensitivity
differential advantage (uniqueness) of industry products
RFM Analysis

THE BARGAINING POWER OF SUPPLIERS


Also described as market of inputs. Suppliers of raw materials,
components, labor, and services (such as expertise) to the firm can
be a source of power over the firm. Suppliers may refuse to work
with the firm, or e.g. charge excessively high prices for unique
resources.

supplier switching costs relative to firm switching costs
degree of differentiation of inputs
presence of substitute inputs
supplier concentration to firm concentration ratio
employee solidarity (e.g. labor unions)
threat of forward integration by suppliers relative to the threat of
backward integration by firms
cost of inputs relative to selling price of the product.

That buyers, competitors, and suppliers are unrelated and do not
interact and collude.
That the source of value is structural advantage (creating barriers
to entry).
That uncertainty is low, allowing participants in a market to plan
for and respond to competitive behavior.
An important extension to Porter was found in the work of
Brandenburger and Nalebuff in the mid-1990s. Using game theory,
they added the concept of complementors (also called "the 6th
force"), helping to explain the reasoning behind strategic alliances.
The idea that complementors are the sixth force has often been
credited to Andrew Grove, former CEO of Intel Corporation.
According to most references, the sixth force is government or the
public. Martyn Richard Jones, whilst consulting at Groupe Bull,
developed an augmented 5 forces model in Scotland in 1993, it is
based on Porter's model, and includes Government (national and
regional) as well as Pressure Groups as the notional 6th force. This
model was the result of work carried out as part of Group Bull's
Knowledge Asset Management Organisation initiative.
It is also perhaps not feasible to evaluate the attractiveness of an
industry independent of the resources a firm brings to that industry.
It is thus argued that this theory be coupled with the Resource-
Based View (RBV) in order for the firm to develop a much more
sound strategy.
CRITICISM of 5 Forces
y
Expenditure on R&D is 2835
lakhs.By the increase R &D
investment company try to
penetrate of patent products.

Company handle its suppliers
under section 16 of MSMED acts

Company has increased focus on
launching
new brands. Four new brands
were launched in 2008 viz.,
Champix, Cyclokapron, Acupil
and Trulimax. A new indication
of
Lyrica in Fibromyalgia was also
launched.

Increase new territorial
expansions,new
therapeutic areas and
building strong sales
operations system
Total capital of campany
is 89956 lakhs.Its market
share is 2.2% . Its recent
growth is 12%
Total expenditure 11.28
crore.588 patents filed for NDDS
technology, drug discovery
projects and innovative process
of API &formulations for various
markets and 163 have been
granted so far.`


``````````````
The Company has initiated the
process of obtaining information
from suppliers who have
registered themselves
under the Micro Small Medium
Enterprise Development Act,
2006 (MSMED Act, 2006).
The Company introducing new
molecules brands and also line
extensions of existing brands.
During the year, 52 (as compared
to 49 in the previous year) new
products were launched in the
market.
Growth of market like
organized buyer group,
pharmacy chain,
corporate hospitals.
Increase coverage of new
doctors &specialist.
Net worth of company is
585.25 crores.Its recent
growth is 7%.
Profitable markets that yield high returns
draws Firms. This results in many new
entrants, and effectively decrease
profitability.

Unless the entry of new firms can be
blocked by incumbents, the profit rate
will fall towards a competitive level
(perfect competition).



Existence of barriers to entry (patents,
rights)
Economies of product differences
Brand equity
Switching costs
Capital requirements
Access to distribution
Absolute cost advantages
Learning curve advantages
Expected retaliation by incumbents
Government policies
The existence of close substitute
products increases the propensity of
customers to switch to alternatives in
response to price increases (high
elasticity of demand).


Buyer propensity to substitute

Relative price performance of substitutes

Buyer switching costs

Perceived level of product differentiation
For most industries, this is the major
determinant of the competitiveness of the
industry.

Sometimes rivals compete aggressively and
sometimes rivals compete in non-price
dimensions such as innovation, marketing,
etc.


Number of competitors
Rate of industry growth
Intermittent industry overcapacity
Exit barriers
Diversity of competitors
Informational complexity and asymmetry
Fixed cost allocation per value added
Level of advertising expense
Economies of scale
Sustainable competitive advantage through
improvisation








Buyer concentration to firm concentration ratio
Degree of dependency upon existing channels of
distribution
Bargaining leverage, particularly in industries with
high fixed costs



Also described as the market of outputs. The ability of
customers to put the firm under pressure and it also
affects the customer's sensitivity to price changes.




Buyer volume
Buyer switching costs relative to firm switching costs
Buyer information availability
Ability to backward integrate
Availability of existing substitute products
Buyer price sensitivity
Differential advantage (uniqueness) of industry
products


Also described as market of inputs. Suppliers of raw
materials, components, labor, and services (such as
expertise) to the firm can be a source of power over
the firm.


Suppliers may refuse to work with the firm, or e.g.
charge excessively high prices for unique resources.



Supplier switching costs relative to firm switching
costs
Degree of differentiation of inputs
Presence of substitute inputs
Supplier concentration to firm concentration ratio
Employee solidarity (e.g. labor unions)
Threat of forward integration by suppliers relative
to the threat of backward integration by firms
Cost of inputs relative to selling price of the product

During the year, the
Company invested
Rs. 6,293 million on
manufacturing, R&D
facilities and other
capital expenditure
Company not faced
temporary problems with
thirdparty suppliers to both
its German subsidiary,
betapharm and its CPS
(Custom Pharmaceutical
Services)operations in
Mexico
Company try to
increase more
penetration in market
tie up with hospital
and pharmacy chains.
200708, Company has
increased its revenues
at 27 %
Company launches new
products like
simvastatin,
finasteride, Merck,
Ondansetron,
Fexofenadine
Company invest 42
billion US Dollar in R&D
Supplier Relationship
Management initiatives
in key categories
helped your Company
avail of better service
and improvement in
on-time supplies.
The company is the
market leader in most of
the therapeutic categories
.It also offers a range of
vaccines, for the
prevention of hepatitis A,
B, influenzae, chickenpox,
diphtheria, pertussis,
tetanus and others.
Company try to
increase new territory
and contact with
specialist doctors.
Company has turnover
of Rs. 1500 crore and a
share of 6.2 per cent*
* [Source: IMS Indian
Purchase Audit (IIPA),
August 2008]