PHARMA INDUSTRY

IFAP Batch - 6
CONTENTS:

Industry Overview
Porters Five force model
SWOT analysis of Industry
PEST factors of Industry
Key success factors
Company profile
BCG matrix
Competitors analysis
Financial ratios
 OVERVIEW OF THE INDIAN
PHARMACEUTICAL INDUSTRY

• Highly fragmented with about 24,000 players (around 330 in the organized sector).

• The top ten companies make up for more than a third of the market.

• Acute therapies dominate and account for close to 70% of the market

• Chronic therapies - target lifestyle diseases and/or recurring in nature - such as diabetes, are growing faster than acute
therapy.

• During FY09–13, domestic pharma market expanded at a CAGR of 10.8% to USD16.4 billion in FY13

• Metros and Class I towns account for a majority share (~60%) of the Indian pharma market; rural areas have witnessed
the highest growth in contribution

• Exports rose at 18.9% CAGR to USD15.6 billion; Americas had majority share in India's exports, with US accounting
for ~34%
STRUCTURE OF THE PHARMA SECTOR

PHARMA

Active Pharmaceutical
Formulations
Ingredients / Bulk Drugs

Branded Generic Chronic Acute

•Cardiovascular •Anti- infective

•Neurological •Respiratory
•Anti- diabetes •Pain
•Gastro intestinal •Gynecology
 REVENUES

DOMESTIC INTERNATIONAL
MARKET MARKET

BULK DRUGS FORMULATIONS GENERICS MDDS NCE

TRADITIONAL NON-
LIFESTYLE PATENTED PIPE LINE
SEGMENT PATENTED
DRUGS
DRUGS

HIGH LOW
GROWTH GROWTH FILE ANDA FILE ANDA
RATES RATES

PARA 3 PARA 4 PARA 1 PARA 2

Domestic sales
 KEY TRENDS
INCREASED INVESTMENTS BY MNCs
• The Indian pharma market Is one of the fastest-
growing markets in the world. This has led to
increased investments by MNCs to gain a larger
market share.
• MNCs have grown in the Indian market mainly due to
implementation of India-focused strategies.
• MNCs compete with domestic players through launch
of patented drugs at relatively low price points than
those in other global markets.
MARKETDOWNTURN IN NEW PRODUCT
LAUNCHES
In recent times, the number of new product launches and
their contribution have reduced.
Contribution from new product launches was 4.1% in
2013 Vis-à-vis 6.3% in 2010.
Maximum number of new product launches were in anti-
infectives(468), analgesics(435), and gastro
therapies(389).
GENERIC DRUG MARKETDOWNTURN
The global generic drug market is poised to grow amid
expiration of drug patents. The share of generic drug market
is projected to grow from 25.3% in 2011 to 35.2% by 2016.
As per forecasts, in the US, rights for USD 80 billion worth
of patented drugs would expire during 2012–15.
.
Indian companies are believed to increase their activities in
the pharma sector to benefit from the expiration of patents
and growth of the global generic drug market.
FOCUS ON RURAL INDIA
Almost 70% of India’s population resides in the rural areas and
this population accounts for 40% of the total pharma
consumption.
To benefit from the untapped rural demand, MNCs and domestic
players are increasingly focusing their activities in rural India.
Pharma companies are adopting differential pricing and marketing
strategies to derive opportunity from the potential rural
demand.They are also implementing new distribution strategies to
address the issue of inaccessibility faced by the rural population.
 KEY GROWTH ENGINES
Changing disease profile and favorable demographics
• Change in patient demographics and increased
lifestyle-related ailments are likely to boost demand
for quality and affordable drugs.
• India is estimated to have a patient pool of 20% by
2020 due to ~1.3% population growth per year and
increased disease burden.
Rapid urbanization
• According to McKinsey and BNP Paribas’s
estimates, India’s urbanization is projected to
accelerate at a rate and scale comparable only to
China, reaching 40% by 2030.
• Rapid urbanization would lead to growth in India's
medical infrastructure, there by enabling companies
to reach inaccessible and untapped markets.
Increasing health insurance coverage
• Increased penetration of health insurance in India is
likely to solve the affordability issue in the Indian
pharma sector, thereby boosting demand.
• As of 2013, only 30% of population in India had
health insurance coverage; the remaining 70% paid
for health care expenses from their own savings.
KEY GROWTH INHIBITORS
Drug price control
•The Indian government increased the number of
drugs under price control from 74 to 348 in 2013,
thereby adversely impacting retail price of drugs.
Growing concern regarding clinical trials
• Clinical trials play a vital role in drug
development. India accounts for less than 2% of
global clinical trials.
• Growth in the number of clinical trials in India
has been low primarily due to regulatory
uncertainty with regard to the conduct of clinical
trials.
Fragmented supply chain
• The Indian pharma market is highly fragmented
in manufacturing as well as distribution.
• Fragmented supply chain leads to ineffective
inventory management systems, resulting in high
inventory holding costs, thereby increasing
operating costs.
• On the distribution front, dominance of small
chemists leads to lack of economies of scale and
consumers having to pay high prices.
 GROWTH OPPORTUNITIES FOR INDIAN PHARMA SECTOR
•Generics is opening up a stupendous opportunity
globally.
•The global generic spending is estimated to increase to
USD 400– 430 billion by 2016 from USD242 billion in • Pharma companies are shifting focus on rural
2011, mainly due to patent expiries and government markets purely to ramp up volumes.
efforts to control healthcare costs across the world. • Although urban markets are more lucrative and
•India is expected to become one of the top three generic would continue to be the focus for the sector,
Rural India untapped potential of Indian rural markets is now
drug makers in the world by 2020.
seen as the next volume driver.

Generics Exports
Opportunities
Attractive

•The CRAMS industry is estimated to generate • Indian pharma companies have capitalised
USD850 million annually. on export in regulated and semi regulated
Contract market
•A large number of specialty hospitals with state- research and
of-the-art facilities, large English speaking manufacturi • Currently India is the third-largest exporter
US
population and rich talent pool, diverse population ng of APIs.
and gene pool, and increasing number of chronic (CRAMS) •Indian pharma exports are expected to
diseases are expected to boost the CRAMS grow and developed markets like the US
industry. and Europe would act as the growth drivers

Generic opportunities in the US would continue to drive revenue growth for the Indian
pharma companies. This would be an outcome of:
• sizeable generic opportunity (drugs with brand value of USD80 billion are expected
to face generic competition)over 2012–15.
• strong product pipeline of pending ANDAs, with high increasing proportion of
complex generics.
 A CRAMS player who is also a substantial API player can enjoy very good profitability 
Divi’s Labs – their secret of such high margins is probably this API+CRAMS combination.

The key factors that help win Outsourcing Contracts-

• Time and quality
•  Availability of manufacturing capacity:
• Reputation and track record
• Array of services offered
• Reliability and flexibility
• Scalability
• Cost

Main Drivers for Indian Pharma

• With Many drugs going off-patent in 2013-2015 timeframes, API Players with listed US DMFs stand to gain

• International Generics Pharma business is pursued successfully by many Indian companies.

• Opportunities in Contract research and manufacturing services, exports, generics, rural India, and the US market represent lucrative growth
opportunities for Indian pharma sector

• In February this year Dr. Reddy's announced a similar deal with Merck & Co. for two products Proscar (Finasteride) and Zocor
(Simvastatin).

• Biggest challenge- Will India be able to sustain its cost advantage

 PORTERS FIVE FORCE MODEL

• Five forces model is a framework developed by Michael E. Porter in 1979.

• The framework focuses on industry analysis for strategy formulation: the firm’s strategy must match the shape of the
industry in order to extract the higher returns possible.
 THREAT OF NEW ENTRY

• Ethical companies(LOW)
 Economies of scale - manufacturing, R&D, marketing, sales, distribution.
 Lengthy approval process
 Product differentiation - established products, brands and relationships 
 Access to distribution channels: preferred arrangements 
regulatory policy: patents, regulatory standards 
 Switching costs - employee retraining, new equipment, technical assistance

• Generic companies(MEDIUM)
 Financial requirements (to buy license) 
 Access to distribution channels: preferred arrangements 
POWER OF SUPPLIERS

(LOW)
 Raw materials and intermediates
 Manufacturing and production plants
 Finished product
 Third party suppliers anywhere along the supply
chain

BARGAINING POWER OF CUSTOMERS

• Ethical companies
 Large customers > significant leverage (high volume purchases)
 Individual buyers > little bargaining power (no choice)
• Generic companies
 Following ethical companies
 Brand name > less power
Important influences
 Force summary Consider who is responsible for the sales
Technological shift > higher information access
Force Summary
Important force in the pharmaceutical industry
Depending on circumstances > very high to medium
THREAT OF SUBSTITUTE PRODUCTS

• Ethical vs. Generics

 Expensive/unique medication > no substitutes
 'Softer' medication alternatives
 Medium/low force depending on circumstances

COMPETITIVE RIVALRY WITHIN THE INDUSTRY

• Ethical companies(Very high rivalry)

 Wave of mergers and acquisitions > overlapping
 Not much room for error 
 Biotechs and Generics > smaller market share for Ethicals
• Generic companies - also high rivalry
 Brand name disadvantage , In comparison to Ethicals –low entry barriers-- constant pressure
& drive to innovation
 Competing with shadow economy in the global market
SUMMARY OF FIVE FORCE MODEL

Low/Medium

High

Low Low/Medium

No/Low
MAIN REGULATIONS FOR
PHARMA COMPANIES IN INDIA

 Prevention of Corruption Act, 1988

 The Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations 2002 and (MCI Code) issued under the

Medical Council of India Act, 1956

 The Draft Uniform Code for Pharmaceutical Marketing Practices (Draft UCPMP)

 OPPI Code of Pharmaceutical Practices, 2012

REGULATORY CHALLENGES

Uniform code on sales and

Clinical trials
marketing

The FDI policy Compulsory licensing

National Pharmaceutical Pricing

Manufacturing quality
Policy (NPPP)
WHAT CUSTOMERS WANT?

• Quality:

Good quality products(no substandard products) along with good packaging to protect the product. Eg: Crocin 500
mg tablet should actually contain the given mg and not lesser.
Should give what has been promised. Eg: Less of fillers in tablets.

• Affordability:

Drugs for major illnesses should be available at affordable costs. Even patented products should be available at
lesser price.

• Innovation:

New drug delivery system(NDDS)

Eg:Pain killer patches instead of tablets/injections.
HOW TO BEAT COMPETITION?

Focused expertise and use of resources

Correct estimation

Life cycle Management

Business Development Talent

 GLENMARK- COMPANY OVERVIEW
Novel Research & Specialty business Generics Business
Development

Focus Focus on New Drug Development •Specialty/ Proprietary Business •Pure Generics Business
•Focus on branded products •Focus on marketing of APIs and
market generic formulations

Business •Discover First-in-Class or Best- •Brand Building •Low cost manufacturing

imperatives In-Class molecules for unmet
medical needs
•Continuously build a pipeline of
exciting molecules
•Medical & Clinical studies
•IP Protection
•Prescription Generation
•Therapy focus
•Create ‘pull’ for brands
•Marketing fronts in key branded
markets
•In-licensing products for markets
•Maintaining supply of low-cost
API
•Efficient spread of distribution
•Create right ‘push’ for generic
products
•Product selection/ timing and
speed of development

•IP Challenge
GLENMARK VALUE PROPOSITION

Glenmark Pharma moving

Glenmark Generics moving down the value chain
Glenmark up the value chain with
in to Pure Generics & API space
Discovery research

Big pharma moving down the value chain by

entering the Branded Generics & Pure Generics

Pure Branded Proprietry

API
generics generics branded
manufacturing
business business business

PHAR MAC E UTI CAL VALU E C HAI N

Key Requisites Key Requisites Innovation

Low cost; low margins Brand Building "Pull" for
Forging IP challenges products Marketing front
"Push" for products Efficient end
distribution
 BCG MATRIX FOR GLENMARK PHARMA

HIGH Derma products In process R&D

Market growth

LOW Generics Anti -diabetics

HIGH LOW

Market share
DEAL MAKING
   INCOME STATEMENT
Glenmark Cipla Sunpharma

Total revenues 60,167.0 103,658.0 163,451.0

Profit after tax 5,456.0 13,884.0 31,415.0

Gross profit margin 18.2 21.1 43.5

Net profit margin 9.1 13.7 19.5

BALANCE SHEET
Glenmark Cipla Sunpharma

Net assets 38,709.0 77,518.0 106,843.0

Net Working Capital 18,135.0 30,878.0 126,969.0

Net worth 29,833.0 100,504.0 185,250.0

Long term debt 24,287.0 3,179.0 487.0

  Glenmark Cipla Sun Pharma

Avg Mkt Cap 145,889.0 326,829.0 1,186,775.0

Current Market Price 688.80 611.50 807.10   Glenmark Cipla Sun Pharma

Sales per share 221.4 125.8 77.6 Return on assets 8.5 11.4 10.8

Earnings per share 20.1 17.3 15.2 Return on equity 18.3 13.8 17.0

Cash flow per share 28.1 21.9 17.1 Return on capital 16.4 19.3 20.9

Dividends per share 2.0 2.0 1.5 Current ratio 1.6 2.2 3.1

Book value per share 110.0 125.2 89.4 Inventory Days 57.0 105.0 71.0

Price / Sales ratio 2.4 3.2 7.4 Debtors Days 131.0 59.0 50.0

Avg P/E ratio 26.7 23.5 37.8 Interest coverage 4.7 13.9 155.2

P/CF ratio 19.1 18.6 33.4

Price / Book Value ratio 4.9 3.3 6.4

Dividend payout 9.9 11.6 9.9

SWOT ANALYSIS:

Strengths

-high profitability and revenue

-experienced business units
-domestic market

Weaknesses

-competitive market
-investments in research and development

Opportunities

-global markets
-growing demand

Threats

-increasing costs
-unexpected problems
-increase in labor costs