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INDUSTRY ANALYSIS

A Study on: Pharmaceutical Industry

A Study on Pharmaceutical Industry 2

A Study on: Pharmaceutical Industry


Under the Guidance of: Prof. Dr. Dennis Rajakumar

Prepared By: Group 7 Finance A Apurva Gupta Garima Kumari Neel Jain Prashant Choraria Preya D. Shah

Submission Date: 26-03-2013

MASTER OF BUSINESS ADMINISTRATION (MBA): July 2012-14

A Study on Pharmaceutical Industry

DECLARATION
This is to declare that the report titled A study on Pharmaceutical Industry has been made for the partial fulfilment of the course-Industry Analysis (Batch July 2012-14). We the students of Group 7, Finance A would like to state that the report is our diligent work. The due references have been quoted in the References/Bibliography section of the report.

Group Members

Registration No.

Signature

APURVA GUPTA GARIMA KUMARI NEEL JAIN PRASHANT CHORARIA PREYA D. SHAH

12010121051 12010121414 12010121394 12010121250 12010121259

A Study on Pharmaceutical Industry

CERTIFICATE
I hereby certify that this report is the original work of the students of Group 7, Finance A, MBA July 2012-14, Alliance University- School of Business.

The students have successfully completed their Industry Analysis Report on PHARMACEUTICAL INDUSTRY under my supervision and guidance as partial fulfilment of their requirements as per the Master of Business Administration Course- Alliance University.

Prof. Dr. Dennis Rajakumar Project Guide (faculty) Alliance University- School of business Date: __________ Place: Bangalore

A Study on Pharmaceutical Industry

ACKNOWLEDGEMENT
We would like to express our sincere gratitude to all the people whose support has been tremendous in completing this project. We would like to thank ALLIANCE UNIVERSITY- School of Business for giving us the opportunity to undertake this project. We would also like to acknowledge the constant help and encouragement of our project guide Prof. Dr. Dennis Rajakumar who has helped by giving his valuable suggestions, expert guidance and support throughout. We would also like to thank all those who have directly or indirectly helped us in preparation of this project.

A Study on Pharmaceutical Industry

TABLE OF CONTENTS
Chapter No 1 2 2.1 3 3.1 3.2 3.3 3.4 4 4.1 4.2 4.3 4.4 4.5 4.6 5 5.1 6 7 7.1 7.2 8 9 10 10.1 Table 4.3.1 Table 4.5.1 Table 4.5.2 Table 4.4.1 Table 4.4.2 Table 4.6.1 Figure 5.1 Figure 5.2 10.2 10.3 Annexure Yearly expenditure on R & D Exports of Drugs and Pharmaceuticals from India Imports of Drugs and Pharmaceuticals in India List of Acquisitions by Indian Companies in 2011-12 List of JV/Alliances among Indian Players in 2011-12 FDI INFLOW IN THE DRUGS AND PHARMACEUTICAL INDUSTRY (US $Mn) Profitability (Bulk Drugs and Formln M/S) Profitability (Bulk Drugs and Formln Lrg) Limitations Bibliography 63 63 64 64 65 65 66 66 67 68 Emerging role of IT in Pharma Industry Emerging technologies in Pharma Industry Conclusions and Recommendations Detailed calculations 52 54 57 59 Future outlook Industry Performance Profitability 46 49 Industry Conduct Pricing Strategy Advertising Strategy R & D Strategy Expansion Strategy Import/Export Impact of FDI 33 36 38 40 41 42 Industry Structure HHI and 4 firm Concentration Ratio PESTL Framework PORTER's Five Forces Analysis SWOT 21 22 27 29 Particulars Executive Summary Introduction Key Domestic Players Page No 8 13 18

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CHAPTER 1

A Study on Pharmaceutical Industry 8

EXECUTIVE SUMMARY
The report focuses on the Indian Pharmaceutical industry and the various factors which influence it. The report highlights the future outlook and the global scenario of this industry. It assesses the growth potential of the domestic industry taking into account the current performance and conduct of domestic players, changes in the regulatory environment and global scenario. Research has been conducted by collection of secondary data from different sources. (Refer Section: References/Bibliography) Objectives of the report: To understand and analyze the Indian Pharma industry. To attain knowledge about the global Pharmaceutical scenario. To understand about the market favourability and conditions in order to analyze the industry attractiveness. To carry out the macro environmental analysis of the Pharma industry. To look briefly into the financials, Mergers and Acquisitions and various profitability measures of the industry. To analyze the future of the Pharmaceutical industry both as Indian and global scenario. In the report Chapter-3 Industry structure deals with the structural features of the industry. The Pharmaceutical industry has evolved with time. Today this industry tops amongst Indias science based industries. The industrys growth is due to the changing socio-economic conditions that have framed industryfocused policies. These policies have catalyzed the growth of the

A Study on Pharmaceutical Industry Pharmaceutical industry. HerfindahlHirschman Index, or HHI and four firm concentration ratios have been calculated and analyzed to understand the market concentration of the industry Some of the key features of the industry are: A highly organized sector estimated to be worth $ 4.5 billion (as of FY 2012), growing at about 8-9 % annually. It is highly fragmented with severe price competition and government price control. Indian Pharmaceutical industry meets 70 % countrys demand for bulk drugs, drug intermediates and formulations. Globally India ranks third in terms of manufacturing Pharma products by volume. In past few years the demand for Pharmaceutical drugs has increased due toRise in population, especially the urban. Improved health infrastructure Rising awareness. However the rural health infrastructure still remains poor. Chapter-4 discusses the conduct of the Pharmaceutical industry. It analyses the R&D, advertising, pricing intensity and expansion strategy which are the key differentiators of this industry. Export-import graph highlights the growth of the industry in the recent years. FDI inflows are analyzed to understand the impact of foreign policies on the Pharma industry. The following conclusions were drawn from the analysis of the conduct of Pharma industry: 9

A Study on Pharmaceutical Industry The rising retail sector has a great influence on the conduct of this industry. The domestic players need to vary in terms of pricing to sustain competition R&D intensity needs to be further increased by the way of technological advancement Indian Pharma industry is emerging as a major contributor to Indian exports A weak rupee is affecting the imports. Chapter-5 Industry Performance examines the financial health of the industry in terms of key financial ratios. Sales based profitability ratios have been calculated at the present value to attain credibility. Understanding profitability helps to analyze the current position of the industry. The ratios highlight: Stringent prices is affecting the profitability of the Pharma companies Rising costs of fuel and power would be affecting the profitability 10

After understanding and analyzing the Pharma industry in all aspects we have concluded the following reasons which will lead to the further growth of this industry in the near future. Doubling of disposable incomes Increase in number of middle class households Expansion of health infrastructure

A Study on Pharmaceutical Industry Rising awareness of health insurance More adoption of product patents Greater market penetration by smaller companies Analyzing of different factors gives an encouraging outlook to the industry. Towards this end the suggestions are: Strengthening the existing regulatory system especially for enabling more detailed and universal classification of drugs and chemicals between branded generic and generic. Strengthening the information system where simple drugs are known to consumers Strengthening the public procurement process of drugs by public health system. 11

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CHAPTER 2

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INTRODUCTION
The Indian Pharmaceutical industry is currently valued at US$20 billion and has been growing at a CAGR of 15.37% in past three years. It is the third largest market globally in terms of volume and 13th largest by value today. The domestic Pharma market is expected to grow at a CAGR of 15-20% annually to become a US$49 billion market by 2020.The growth of the sector has been fuelled by exporting life-saving drugs to developing countries and supplying quality drugs to the developed nations at affordable prices, which resulted in a 29.8% growth in FY12 in Indian drug exports in comparison to the prior year. Indian Pharma companies are increasingly filing Abbreviated New Drug Approvals (ANDAs) applications for the approval by the US Food & Drug Administration (FDA).Since the US is the largest market for generics, increasing number of approvals by the US FDA gives an opportunity to penetrate deeper into the global market. Today, the Indian Pharma industry is the largest exporter of generics in the world. It caters to an ever-rising demand for generics from developed nations like the US, UK and Japan, as the governments of these countries is switching over to generic drugs from branded drugs in order to curb the rising. Technologically strong and totally self-reliant, the Pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade. Indian Pharmaceutical industry today is ranked world class, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds,

A Study on Pharmaceutical Industry almost every type of medicine is now made indigenously. The industry today can boast of producing the entire range of Pharmaceutical formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and used for production of Pharmaceutical formulations. HISTORY: At the time of independence in 1947, Indias Pharmaceutical market was dominated by Western MNCs that controlled between 80 and 90 percent of the market primarily through importation. Approximately 99 percent of all Pharmaceutical products under patent in India at the time were held by foreign companies and domestic Indian drug prices were among the highest in the world. The Indian Pharmaceutical market remained import-dependent through the 1960s until the government initiated policies stressing self-reliance through local production. To facilitate an independent supply of Pharmaceutical products in the domestic market, the government of India founded state-owned Pharmaceutical companies. Today, India is the worlds one of the leading producer of bulk drugs. Government policies: The abolition of product patents on food, chemicals, and drugs; the institution of process patents; The limitation of multinational equity share in India Pharmaceutical companies, and the imposition of price controls on certain formulations and bulk drugs. Subsequently, most foreign Pharmaceutical manufacturers abandoned the Indian market due to the absence of legal mechanisms to protect their patented products. 14

A Study on Pharmaceutical Industry Accordingly, the share of the domestic Indian market held by foreign drug manufacturers declined to less than 20 percent in 2005. As the MNCs abandoned the Indian market, local firms rushed in to fill the void, and by 1990, India was self-sufficient in the production of formulations and nearly self-sufficient in the production of bulk drugs. With changes in Indias patent laws in the early 1970s, Indian drug producers became experts in reverse engineering and increased its supply of less expensive copies of the worlds best-selling patent protected drugs. Indias Pharmaceutical industry grew and prospered in a highly regulated environment with government price controls on a significant number of formulations and bulk drugs. The Patent Act, 1970: The Acts stated objective was to foster the development of an indigenous Indian Pharmaceutical industry and to guarantee that the Indian public had access to low-cost drugs. This allowed the domestic industry build up considerable competencies and offered a large number of cheaper generic versions legally in India at a lower cost. Drug Price Control Order, 1970 (DPCO): The order was introduced when most of Indias drugs were under strict price controls. Since its introduction, the number of bulk drugs under price controls gradually declined. The National Pharmaceutical Pricing Authority, founded in 1997, is responsible for monitoring prices using the DPCO to fix ceiling prices on drugs and ensure that no Indian company in a monopoly position takes advantages of its monopolistic position by profiteering. Thirty-five years of protection has enabled the Indian Pharmaceutical industry to perfect its scientific and manufacturing capabilities, allowing many of its leading companies to move up the value added chain. Indias Pharmaceutical industry consists of large, medium, and small companies and is one of the 15

A Study on Pharmaceutical Industry worlds most prices competitive. Companies focusing on producing similar generic drugs, with possibly hundreds of companies producing the same drug, have characterized the industry by fierce competition and high volumes, razorthin profit margins, overcapacity, and declining prices. 16

R&DLargest R&D expenditures attracted from Pharmaceutical sector. R&D intensity for the Pharmaceuticals sector was much higher than that for other sectors. There have been substantial increases in growth rates of patents filed in India during the last decade, the share of patents filed for work in India through indigenous research is less than 2 0 per cent of the total. A White Paper on R&D prepared by consultancy firm Deloitte in July 2 01 1 estimates that more than 3 00 MNCs have set up R&D centers in India. India based Pharmaceutical companies are not only catering to the domestic market and fulfilling the countrys demands, they are also exporting to around 220 countries. They are exporting high quality, low cost drugs to countries such as the US, Kenya, Malaysia, Nigeria, Russia, Singapore, South Africa, Ukraine, Vietnam, and more. Currently, the US is the biggest customer and accounts for 22 percent of the sectors exports, while Africa Accounts for 1 6 percent and the Common wealth of Independent States (CIS) places around eight percent of orders, as per Research and Market report. For most of the Pharma companies, domestic business contributes in the range of 2 0-50% of the overall revenue.

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Trends: All companies, including MNCs, have increased their field force in the last one year. Indian companies are entering into strategic tie-ups with MNCs to strengthen their product portfolio. Companies are expanding their presence in rural markets. Acquisitions by MNCs to gain quick foothold in the fastest growing Indian Pharma market

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2.1 Key Domestic Players:


CIPLA: engages in the manufacture and sale of pharmaceutical products in India and

internationally. provides agrochemicals comprising pesticides; and technology services consisting of consulting, project appraisal, engineering, plant supply, commissioning, training, operational

management, support, know-how transfer, and quality control services.

RANBAXY: is a subsidiary of Daiichi Sankyo Company, Ltd. and engages in the manufacture, marketing, and sale of pharmaceuticals products. It offers generic pharmaceuticals, branded generics, active pharmaceutical ingredients and intermediates, formulations, drug discovery, and consumer health care products.

Dr.

REDDYs:

operates

as

an

integrated

pharmaceutical company. It operates in three segments: Pharmaceutical services and Active Ingredients (PSAI), Global Generics, and

Proprietary Products. It offers a portfolio of branded generics in the therapeutic areas of gastro-

A Study on Pharmaceutical Industry intestinal, cardiovascular, central nervous system, pain management, oncology, anti-infective, hormones, urology, respiratory, gynaecology, paediatrics, and dermatology. 19

AUROBINDO PHARMA: engages in the development, manufacture, and marketing of active pharmaceutical ingredients and finished dosage formulations in India and internationally.
It

offers a range of

formulations in the therapeutic areas of CVS, central nervous system, antibacterial, anti-retroviral, antibiotics, gastroenterological, anti-diabetics, antiallergic, anti-fungal, anti-emetics, and anti-viral.

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CHAPTER 3

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3.1 HHI and 4 firms Concentration Ratio:

The CR4 is simply the sum of the market shares of the four largest firms in the market in question. HHI is generally considered a superior measure of market concentration. The HHI is the sum of the squares of the market shares of all firms in the market. The value of the HHI decreases as the number of firms in a market rises. Similarly the value of the HHI will be greater the larger the degree of inequality in firm size. The findings are as follows: The companies considered for calculation were 80 on the basis of the sales value. (Refer section: detailed calculations) Observation: The HHI has come out to be 446.68 which reveal that the industry is highly competitive. There is no monopoly existing in this market. Also, the 4 firm concentration ratio shows a value of 32.74 which again indicates the market structure as highly competitive.

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3.2 Political Economic Social Technological Legal (PESTL) Analysis:


The external or macro-economic variables play a major part in shaping the industry performance. They tend to have a long term impact and hence require a thorough research and analyses. Identifying PEST influences is a useful way of summarizing the external environment in which a business operates. Political: The Indian political scenario is dynamic. Hence it has a crucial impact on the Pharma industry. Political elements undertake a analysis and evaluation of regulatory issues in the Indian Pharmaceuticals industry. To have a keen indication of regulatory set-up is vital due to the rapid and ongoing changes. Major bodies regulation drugs and Pharmaceuticals: Indian Regulations & Guidelines: CDSCO (Central Drugs Standard Control Organization (CDSCO), Ministry of Health & family welfare), Government of India provides general information about drug regulatory requirements in India. NPPA Drugs (Price Control) Order 1995 and other orders enforced by

National Pharmaceutical Pricing Authority (NPPA), Government of India. D & C Act, 1940 The Drugs & Cosmetics Act, 1940 regulates the import, manufacture, distribution and sale of drugs in India. Schedule M Schedule M of the D&C Act specifies the general and

specific requirements for factory premises and materials, plant and

A Study on Pharmaceutical Industry equipment and minimum recommended areas for basic installation for certain categories of drugs. Schedule T Schedule T of the D&C Act prescribes GMP specifications for manufacture of Ayurvedic, Siddha and Unani medicines. Schedule Y The clinical trials legislative requirements are guided by specifications of Schedule Y of The D&C Act The following are the key political aspects which affect the performance of the industry: Political uncertainty- Indian politics is a synonym for change. 23

With the recent FDI policy of government the Pharma industry has opened doors for foreign players to enter the market and create a competitive environment. But with a change in government the policies might go for a toss. Stringent price control rules- there are some highly important

Pharma drugs which are priced under severe government regulations. PSU segments- There are various PSUs which are sick and

inefficient. Their performance has been degrading. The government plans to transfer funds from healthy units to sick units to revive them. Hence some government Pharma industries which are unable to stand the private competition have a hope of revival with this government policy. Economical: Small portion to GDP- the Indian Pharma industry contributes to

approximately 1% of the GDP. Considering the contribution as low the economic policies need to be more industry focused.

A Study on Pharmaceutical Industry Low Per capita income- the per capita income of an Indian is Rs. 24

5729 per month which is very low. Hence the spending on Pharma products slips down the priority list. The incidence of taxes is high for Indian Pharmaceutical companiesThe burden of taxes is very high. Taxes such as excise duty, custom duty, service tax, professional tax, license fees, royalty, pollution clearances tax, hazardous substance license, income tax etc. make up about 40-45% of the cost. Adequate storage and transportation facilities are lacking. This makes the Pharma product s more susceptible damage and spoilage. India has a high interest rate regime. The Pharmaceutical industry is subjugated to strict price system so as to maintain ease of use if superior affordable drugs are available. Ceiling prices may be fixed for any conceptualization and it is requisite for all, including small scale industries and products marketed under a common name to follow the prices fixed. The setting up and scheming of the prices of mass drugs and formulations under the Essential Commodities Act is prepared by the National Pharmaceutical Pricing Authority (NPPA).

Socio-cultural: India still faces the problem of poverty and malnutrition. This

makes the poor and the rural population more susceptible to diseases. Poor sanitation and polluted water sources are common in Indian

cities and villages.

A Study on Pharmaceutical Industry Indian people prefer household treatments for common ailments. 25

This reduces the Pharma products consumption intensity to an extent. Smoking, drinking, poor oral hygiene and early child bearing are

some of the socio-cultural factors which influence the Indian Pharma industry. More than 70% of India's population lives in rural areas, where

education levels are fairly low and public health communications is weak; besides, more than 700 million Indians do not have ample hygiene.

Technological: Advanced automated machines have been developed and made its

presence in the Pharma industry. Many manufacturing concerns have started using upgraded technology. Computerization has increased the efficiency. This has led to a

better management of firms in the industry. Newer medication, molecules and active ingredients are being

discovered. This can be substantiated from the fact that more than 10,000 substances have been filed for patenting.

Legal: The protection of intellectual property rights in India, which was one of the biggest concerns of global Pharmaceutical companies seeking to enter India in the past, has changed rapidly to adapt to a post-TRIPS and WTO scenario. Currently, there are well-established statutory, administrative, and judicial frameworks to safeguard intellectual property rights in India. India has

A Study on Pharmaceutical Industry complied with its obligations under TRIPS by passing necessary legislations and making amendments to the existing legislations. Patent protection In India, law governing act is the Patents Act, 1970 ("Patents Act, ("Rules"). Every patent granted under the Act shall be dated as of the date on which the complete specification was filed. Until recently, the term of the patent was fourteen years from the date of the patent, unless shown to be invalid. The Second Amendment prescribed a uniform term of 20 years for all categories of patents in compliance with Article 33 of TRIPS. There is no provision for an extension of the patent term. Any person resident in India is not allowed to apply for grant of patent for any invention unless either of the following two conditions is satisfied: Obtaining written permission of the Controller of Patents. The 26

Controller is required to obtain consent of the Central Government before granting such permission for invention relevant for defence purpose / atomic energy. The application is to be disposed of within 3 months. OR Patent application for the same invention has been first filed in

India at least six weeks before the application outside India and there is no direction passed under Section 35 for prohibiting /restricting publication/ communication of information relating to invention.

The PEST framework analyses the viability of the industry. Hence we conclude that the Macro-Economic variables are favourable for the firms to operate and perform in the Indian Pharma industry.

A Study on Pharmaceutical Industry

3.3 Porters Five forces Analysis


Power Of suppliers LOW

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Threats of new entrants HIGH

Industry CompetitionHIGH

Threat of subsitutesMODERATE

Power of Buyers LOW

Power of Suppliers: The bargaining power of suppliers is very low as the Pharma companies can switch between the suppliers at minimal cost. Moreover the competition amongst the suppliers is extremely high hence it reduces their bargaining power. The only problem which could be faced is that the suppliers go for forward integration and add competition to the industry. Threat of Substitutes: As such the industry is not currently facing much threat from the availability of its substitutes. But, natural treatments like ayurvedic and homeopathy etc could pose a threat to the industry. Moreover with the advances made in the field of bio-technology, the synthetic Pharmaceutical industry is under threat. Bargaining power of buyers: The bargaining power of the buyers is low for the simple reason that they need to consume the medicine prescribed by the doctor. The consumers are quite scattered. Moreover the consumers do not have

A Study on Pharmaceutical Industry any say regarding the prices which is controlled by the NPPA (National Pharmaceutical Pricing Authority).Though there is brand identity, the doctors are major influencers. Threat of new entrants: The threat of new entrants is high as there are very low barriers to enter the industry. The Government policies are supportive though the industries face price regulation by the government. From a long term point of view, the creation of a good brand name would take time. The patent regime would create some barriers to enter and the quality regulations would put some hindrance to new firms but would definitely not de motivate them. Competitive Rivalry: The industry is highly competitive as the firms have economies of scale and more over the fixed costs are quite low though there is high requirement of working capital. The top five firms have just a mere share of 18% which indicates the level of competition. Since the barriers to entry are minimal, competition keeps getting added. Moreover, certain suppliers have gone for forward integration and added to the competition. The strategy to gain a competitive advantage would be to go for cost effectiveness as product differentiation is not effective; though a good brand name acts as a tool for product differentiation. Since a new patent regime has been brought in place, a lot of companies are increasing their expenditure on R&D. 28

A Study on Pharmaceutical Industry

3.4 Strength Weakness Opportunity Threat (SWOT) Framework


It is a strategic planning tool which involves specifying the objectives of any industry & then identifying the external & internal factors that are favourable & unfavourable in achieving that objective. The SWOT analysis of the industry reveals the position of the Indian Pharma industry in respect to its internal and external environment. Strengths: 1. India with a population of 122 Crore is mostly untapped market. The penetration of modern medicines is less than 30 per cent in India. Per capita expenditure on health care in India is US$ 93 while the same for countries like Brazil is US$ 453 and Malaysia US$189. This means people spend less on health care which directly shows they spend more on drugs. 2. The growth of middle class in the country has resulted in fast changing lifestyles in urban and to some extent in rural areas also. This opens a huge market for lifestyle drugs, which has a very low contribution in the Indian markets. 3. Indian manufacturers are one of the lowest cost producers in the world. They produce drugs at very low costs when compared to rest of the world. They spend about 40- 50% less on the costs as compared to other countries. 4. Indian Pharmaceutical industry posses excellent chemistry & process reengineering skills. This provides the competitive advantage for Indian Companies. As a result of strengths in chemicals, it helps Indian Companies to develop processes, which are cost effective.

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A Study on Pharmaceutical Industry 5. There is Strong Marketing & Distribution network in domestic as well as international market. 6. There is an easy access to pool of highly trained & skilled scientists, both in India as well as abroad. 7. Well established network of Laboratories and R & D infrastructure which provides a strong network for new drug discovery & development. Weaknesses: 1. regulation. The Indian Pharmaceutical companies are affected by the price The NPPA (National Pharma Pricing Authority), which is the 30

authority to decide the pricing parameters, sets prices of different drugs, lower than expected which results in lower profitability for the companies. 2. Indian Pharmaceutical market is one of the least penetrated in the world. As a result, Indias major Pharmaceutical companies rely on exports for growth. India accounts for almost 16% of the world population while the total size of industry is just 1% of the global Pharma industry. 3. Indian Pharmaceutical sector has been adversely affected by lack of product patent, which prevents Global Pharma companies to introduce new

drugs in the country and discourages innovation and drug discovery. 4. Sometimes production of spurious & low quality drugs damages the image of industry at home & abroad. 5. Indian Pharmaceutical Companies have inadequate resources to compete with MNCs for new drug discovery Research. Opportunities:

A Study on Pharmaceutical Industry 1. Opening up of health insurance sector and the expected growth in per capita income are key drivers from a long-term perspective. This will lead to expansion of Pharmaceutical industry in near future. 2. Being the lowest cost producer in the world, Indian 31

Pharmaceutical Industry has significant Export potential to the developing as well as developed countries. 3. India can be a niche player in global Pharmaceutical R & D by developing world class Infrastructure. 4. Increasing incomes & buying power of people especially in rural areas has opened the great opportunity for Indian Pharma

Companies. Around 70% of total population of India lives in rural areas. 5. There is growing awareness among people for health & their spending on health has also increased in recent years. Threats: 1. Threats from other countries like China and Israel exist as they also produce Pharmaceutical products at lower cost. But when compared to quality, India is better relative to China. 2. The short-term threat for the Pharma industry is uncertainty regarding the implementation of VAT. Though this is most likely to have a negative impact in the short-term, the implications over the long-term will be positive for the industry. 3. Exports efforts are hampered by procedural formalities in India as well as Non-Tariff Barriers imposed abroad. 4. DPCO puts lots of restrictions on product prices & profitability &

thus Pharma Companies are not able to generate surplus revenues.

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CHAPTER 4

A Study on Pharmaceutical Industry

4.1 PRICING STRATEGY


The Government of India issues The drug price control order (DPCO) under the essential commodities act which empowers it to fix the prices of some essential bulk drugs and their formulations. The national Pharmaceuticals pricing authority (NPPA) implements the provisions of the DPCO. The authority is also responsible for monitoring and enforcing these prices. It announces two types of prices: ceiling prices (for each of the bulk drugs and their commonly market standard pack-size formulations) and non-ceiling prices (company-specific). These prices are usually exclusive of excise duty and local taxes. The DPCO 95 also prescribes the margins for retailers. Therefore, the producer, wholesaler or distributor sells a formulation to a retailer at a discount to the retail price that is equivalent to the margin specified. The NPPA assists the Government in policy making and issues concerning providing affordable medicines to the consumer. Regarding the non-scheduled formulations the NPPA monitors and analyses month-wise price movements of the drugs based on the reports of IMS Health. NPPA monitors the prices of nonscheduled formulations through various methods like: (a) Scrutiny of price lists submitted by manufacturers (b) Analysis of monthly Stockiest Secondary Audit Reports published by IMS Health, and (c) Complaints / references received from official and non-official sources. Wherever price increase beyond 10% is noticed, manufacturers of such formulations are asked to clarify the reasons for such price increases. The manufacturers are impressed upon to bring down the prices voluntarily and to

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A Study on Pharmaceutical Industry maintain the price level. Prices of 95 non-scheduled formulation packs have been reduced through the intervention of NPPA till 15th January 2012. BackgroundPrice control over drugs was first introduced in India in 1962-63. Thereafter, a series of price controls have been implemented on several occasions in 1966, 1970 (under the Essential Commodities Act), 1978, 1979 and 1987. All these policies were broadly based on the principle of effecting control over prices of key bulk drugs and their formulations through various different principles, in which the span of control of prices as well as the nature of control varied. The present Drug Policy of 1994 was implemented through the Drug Price (Control) Order (DPCO) in 1995 which brought a major change in the way in which the key drugs were identified for price control. The policy was based on the selection process on the market share of different companies in the context of total sales of various drugs. Thus, drugs with annual sales at a particular level where the market share of leading players was beyond a particular level were brought under the price control. 34

Current scenario The Department of Pharmaceuticals has recently released the draft note on the National Pharmaceutical Pricing Policy (2011), which if accepted would replace the present Drug Policy introduced back in 1994. In its proposed form, the policy framework aims at widening the ambit of medicines under price control as it proposes to include all of the 348 essential

A Study on Pharmaceutical Industry drugs listed in the National List of Essential Medicines (NLEM) as compared to the 74 bulk drugs, which forms part of the present policy regime. It is estimated, that the new policy in its proposed form would bring approximately 60% of the Rs, 48,200 Crore domestic formulation industry under the pricing control compared to ~20% earlier. The market-based pricing mechanism proposed by the policy also marks an important shift over the current framework wherein prices are decided through a cost-based approach. The policy also aims at only regulating the prices of formulations as compared to formulations and bulk drugs in the present regime. With the proposed policy expected to cover nearly 60% of the domestic formulations industry, the impact of price control is likely to expand considerably across therapy segments and result in price reduction across the board. The overall impact on the industry would be limited as intense competition ensures that the prices remain below/at par with ceiling prices for most of the highly competitive therapeutic segments. Companies with higher dependence on the domestic formulations, especially on premium priced products are however likely to have higher impact. Overall, the policy hints at adopting a more practical and transparent mechanism for arriving at prices, which would be positive for the industry over the long-term. 35

A Study on Pharmaceutical Industry

4.2 ADVERTISING STRATEGY


Reports indicate that Pharmaceutical industry has moved itself back on marketing to physicians & consumers, but there are some initiatives which are still taken by them. Advertising for Pharmaceutical market was in peak in 2004, with industry promotion to physicians declining to 25 percent by 2010 which was only 9 percent of the sales. Similar declines were seen in direct to consumer advertising which now remains concentrated among a smaller number of products. There have been some important changes in the Pharmaceutical marketplace during the past decade, including changes in the types of therapies that are being brought to the market. Since demand for drugs is being influenced by Pharmaceutical promotion & it also affects physicians prescribing its

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important to know how drugs are being marketed & promoted. According to Competition Law and Indian Pharmaceutical Industry In 1998, the World Health Organization (WHO), came out with a landmark Ethical criteria for medicinal drug promotion. It is an outline document which defines drug promotion as all the information and persuasive activities by manufacturers and distributors in order to induce the prescription, supply, purchase and/or use of medicinal drugs. Drug promotion in India includes the activities of medical representatives, drug advertisements to physicians, provision of gifts and samples, drug package inserts, direct-to-consumer advertisements, periodicals, telemarketing, holding of conferences, symposiums and scientific meetings, sponsoring of medical education and conduct of promotional trials. The blurring boundaries of what constitutes fair practices are of intense debate in issues involving drugs promotion.

A Study on Pharmaceutical Industry Studies have identified the variety of ways and means in which the drug industry influences doctors and the doctors in turn due to their fiduciary position are susceptible to perverse incentives. In the year 2008, the Pharmaceutical industry in India spent a total of Rs 4941.15 Crore, in which Advertising expenses were 823.57 and drug marketing 2470.44 Crore Indian rupees. The Drugs Enquiry Committee, 1930 under the chairmanship of Sir R N. Chopra was the first authoritative attempt by the Government which scrutinized the pamphlets of drugs which made spurious claims. In India the drug manufacturers promote their products through: Representative visits Free samples Gifts Conference travel (including pleasure trips) Continued Medical Education Funding Research Materials/journals and other promotional literature 37

A Study on Pharmaceutical Industry

4.3 R & D STRATEGY


It is often argued that innovation capabilities in the Indian Pharmaceutical industry are rising at an exponential rate. Increasing R&D expenditures, technology absorption and benefiting from the spill over have provided some key players in the industry an opportunity to familiarize in the state of with the state of art technology. The percentage spending on R&D has been increasing. However, the R&D intensity when compared to other major global players is very low. Pre 1990s public sector was the major source of R&D investments. In the case of innovation, the contribution of the CDRI, Lucknow and Hindustan Antibiotics has been among the most notable. Table below provides a detailed overview of key achievements in inventing new products and processes: Table:Major achievements of the Indian Drug Industry in developing new drugs

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A Study on Pharmaceutical Industry It is necessary for the Indian Pharmaceutical Industry to become globally competitive through world class manufacturing capabilities with quality and cost efficiency of production capacity and radical up gradation of research and development capabilities for new drugs and associated activities like clinical trials and contract manufacturing. Some leading Indian companies like Sun, Zydus Cadilla, DRL, Lupin, etc are increasingly focused on R&D to tap the upcoming opportunities from expiration of patents of several blockbuster products. The global average R&D expenditure in 2010 was $68 billion which was around 8% of global Pharmaceutical sales in 2010 i.e. $856 billion1. Hence, although in terms of percentage the R&D expenditure of big Pharma companies in India is also comparable to global average, however the total expenditure on R&D by Indian firms is much less as compared to the global expenditure. (Refer to Table 4.3.1 in Annexure) Current status of Pharma R&D in India is best reflected by the growth of domestic Pharma industry in last decade in terms of availability of trained manpower, publications and patents, value and volume API finished formulation market. 39

Source: DCGI

A Study on Pharmaceutical Industry

4.4 EXPANSION STRATEGY

40

Acquisitions played a vital role for Indian companies in establishing their presence in international markets. These helped them in catering to the international market and build a worldwide rapport. Investments in generic space have been aimed at gaining presence in newer markets, access to technologies or even acquiring marketing and distribution front-end. Also, preference towards forming JVs/alliances with focus on specific markets or therapy segments is gaining importance. (Refer Table 4.4.1 and 4.4.2 in Annexure)

There are high instances of cross-border acquisitions, and unlike in case of mergers they are acquisitions by foreign companies. Large number of acquisitions occurred among the foreign owned firms. It is noted that foreign firms are increasingly willing to raise their stakes in the Indian subsidiary. The reasons being a favourable investment policy of the government and a conducive patent law regime for marketing new technology products (Refer: Mint, 2009).

A Study on Pharmaceutical Industry

4.5 IMPORT/EXPORT

41

The Indian Pharmaceutical industry is also a major exporter. The growth since 1990s has been export led. The Indian Pharmaceutical industrys growth has been fuelled by exports. Its products are exported to a large number of countries with a sizeable share in the advanced regulated markets of the US and Western Europe. India currently exports drug intermediates, active Pharmaceutical ingredients, finished dosage formulations, bio-Pharmaceuticals and clinical services to various parts of the world. The top five export destinations of Indian Pharmaceutical products are USA, Germany, Russia, UK and China. Indian exports of drugs and Pharmaceuticals grew at a CAGR of 16.5% to $ 451.4 bn over FY02-FY12 (up to Dec 2011). (Refer 4.5.1 in Annexure)

Import of drugs and Pharmaceuticals into India recorded a CAGR of 17.6% during FY02-FY12 (up to Dec 2011). During FY12 (up to Dec 2011), Pharmaceutical products worth $102.2 bn were imported into India. India is almost self sufficient in formulations; its imports mostly comprise bulk drugs and some intermediaries. These imports are freely permitted, except those that are restricted in the foreign trade policy. Import restrictions are mostly on drugs that contain narcotics and psychotropic components. (Refer 4.5.2 in Annexure)

A Study on Pharmaceutical Industry

4.6 IMPACT OF FDI

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The Indian Pharma sector-estimated at almost R1 Lakh Crore- allowed 100% FDI for both Brownfield and Greenfield projects. In December 2012 on the issue of FDI policy, the Government decided that all foreign investments in existing domestic Pharma firms should be allowed only after clearance by the Foreign Investment Promotion Board (FIPB) till such time the Competition Commission of India (CCI) is empowered to vet such deals. By and large, the decision is just right However, the issue is not merely about competition but control and access to affordable medicines. India has a booming Pharma industry, which is the leading generic drug supplier for much of the developing world. The discourse on FDI is, or ought to be, to maintain and enlarge this commanding position. If you ignore reinvested earnings of existing foreign investors, normally FDI comes in the form of equity capital or working capital. The result could be some form of control or leverage over the domestic company. Indias Pharma companies are not in a dire state that they require equity or working capital from abroad. But the threat of takeover and resultant control even with a 10 per cent shareholding in Indias Pharma companies is real. At least three of Indias leading companies have been taken over i n the recent past Ranbaxy, Nicholas Piramal and Shanta Biotech (the technology for the latters best selling Hepatitis vaccine came from a Hyderabad -based government lab), creating windfall wealth for its owners.

A Study on Pharmaceutical Industry Self-reliance in bulk drugs and R&D are more important than FDI in this industry. The other argument given for bringing in FDI is that the process will bring in technology. It may. But we do not need technology in formulations, which is the core of Indias Pharma exports. At best such technology is incremental. The government of India is moving ahead with FDI plans in Pharma sector, but it has also certain concerns that drug prices may increase due to the mergers and acquisitions of domestic firms by multinational companies. The common public and even the government view that takeover of Indian companies by MNCs will lead to increase in the prices of generic drugs. Of the major approvals in the Pharma sector, the largest chunk of Rs.800 Crore as FDI inflow is accounted for by Mumbai-based Pfizer, which proposes to induct foreign equity in an operating-cum-investing company. Likewise, Arch Pharma labs of Mumbai have proposed to bring in Rs.372.36 Crore through induction of foreign investment in an existing company. (Refer 4.6.1 in Annexure) FDI comes also in other non-equity guises. Some of these such as licensing, franchising, subcontracting, alliances can effect, cripple and tie the hands of the domestic company which, in accepting these arrangements, sacrifices longer-term freedom for short-term gains. FDI proposals have now been cleared but the approvals, however, are subject to three specific conditions: First, it has been specified that the quantitative level of NLEM (National List of Essential Medicines) drugs production annually at the time of induction of foreign investment will be maintained at that level for the next five years. 43

A Study on Pharmaceutical Industry Secondly, the research and development (R&D) expenses annually incurred by the investee company at the highest level in the three preceding years to induction of foreign investment will be maintained in value terms annually over the next five years. 44

Thirdly, the administrative ministries concerned and the FIPB secretariat will be provided complete information pertaining to transfer of technology, if any, along with induction of foreign investment into the investee company.

The implementation of 100% in FDI is no doubt going to increase the fund flow in India. It would lead to a substantiate increase in the foreign fund flow. But simultaneously it would also affect the domestic companies due to the mergers and takeovers by the giant foreign players. We analyzed that this FDI policy along with some policies of government can together help Pharma industry grow and succeed.

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CHAPTER 5

A Study on Pharmaceutical Industry 46

PROFITABILITY OF THE INDUSTRY


The R & D expenditure of top five companies is 5% to 10% of revenues. This ratio is still very less as compared to global average of 15% to 20% of sales. Indian Companies have adopted various strategies for their R & D efforts. Some of the companies have entered into collaboration &

partnership agreements with innovator companies while others have outlicensed their molecules for milestone payments.

The total turnover of the Indian Pharma sector is estimated to be close to US$ 21 bn of which around US$ 9 bn comes from exports while the rest comes from domestic sales.

Profitability (Bulk Drugs and Formln M/S)


25.00 20.00 15.00 10.00 5.00 0.00 Latest 2012 2011 2010 2009 2008 2007 Gross Profit Margin (%) Pretax Margin (%) Operating Profit Margin (%) Net Profit Margin (%)

(Refer 5.1 in Annexure) Pharmaceutical Industry on the whole shows fluctuating trend in

profitability position as Gross, Operating & Pre-tax profit margin are in

A Study on Pharmaceutical Industry fluctuating condition. Net profit margin also shows a fluctuating trend but Net Profit margin is very less as compared to gross profit. From this it can be interpreted that, Pharmaceutical industries have more profits but their net profits are reduced because of more interest & tax payments. 47

Profitability (Bulk Drugs and Formln Lrg)


60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Latest 2012 2011 2010 2009 2008 2007 Gross Profit Margin (%) Pretax Profit Margin (%) Operating Profit Margin (%) Net Profit Margin (%)

(Refer 5.2 in Annexure) As a result, Pharmaceutical Companies should focus more on reducing their interest component by taking less debts which in turn will help them in increasing profitability. India ranks as top in exporting generic medicines worth US$ 11 billion & currently Indian Pharmaceutical Industry is one of the worlds largest & most developed. The Indian Generic Drug Market is likely to grow at a CAGR of 17% between 2010-11 & 2012-13.

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CHAPTER 6

A Study on Pharmaceutical Industry 49

FUTURE OUTLOOK
Overall growth outlook for the Indian drugs and Pharmaceutical industry appears positive. Pharma manufacturers are likely to benefit from rise in demand for generic products. Some of the factors that would drive growth in the domestic Pharma industry are: Low cost operations Research-based processes Improvements in API and Availability of skilled manpower. The domestic formulations and bulk drugs markets are currently facing price pressure as benefits of cheaper drugs have been shifted to end-users and trade channels. Hence, consolidation, partnership and alliances are expected to gather momentum in the near future. Off patenting of branded drugs would increase demand for generic drugs. This provides immense opportunities to the Indian Pharmaceutical companies especially given their prior experience in generic drug development. Some other factors such as high penetration in the global markets and increase of share in Abbreviated New Drug Application (ANDA) filings are likely to power growth of the formulations market. Major growth drivers for the Indian bulk drug industry include rise in demand for contract manufacturing, increase of share in Drug Master Files (DMF) filings and process innovation. Furthermore, initiatives of the Government will act as a backbone for growth. Some such initiatives include:

A Study on Pharmaceutical Industry Allowing 100% FDI under the automatic route in drugs and Pharmaceuticals including those involving use of recombinant technology Increasing weighted tax deduction on expenditure in in-house R&D activities to 200% in the Budget 2010 and Setting up a US$ 639.56 mn venture capital fund to support drug discovery and strengthen Pharmaceutical infrastructure. 50

Thus, Indian Pharmaceutical is ready to experience the fast growth trends.

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CHAPTER 7

A Study on Pharmaceutical Industry

7.1 Emerging role of IT in Indian Pharmaceutical industry


The Indian Pharmaceutical sector has made phenomenal progress in the last few years, making its presence felt in the world market. Widespread technological advances and changes in IT industry have paved the way for the growth of this sector. The Pharmaceutical companies in India are identifying various strategies such as adoption of Information Technology (IT) tools to increase productivity, efficiency and achieve regulatory compliance. The Indian Pharmaceutical industry which had little technological competence to manufacture modern drugs locally in the 1950s, has emerged today as the most dynamic manufacturing segment of the Indian economy. It has achieved technological capabilities to manufacture quality drugs indigenously and cost effectively, and emerged as a major competitor in the world market. Information Technology (IT) solutions are increasingly being implemented across the Pharma sector. IT now plays a strategic role in organizations rather than just as a support system. Software solutions aid the smooth functioning of Pharma units and improve efficiency, accuracy and decision making. Now, IT solutions are incorporated into businesses to simplify the work of managers and increase company returns. In the area of Pharmacy, there are volumes of data with respect to drug formulations, chemical compounds for drugs, details of clinical trials, etc. which can be stored using IT4. Pharmaceutical companies are using IT across various functional areas like R&D, QC, QA, Clinical Development, Manufacturing and Supply Chain, Sales, Marketing and Corporate Management. Not only the industries, but also hospital, clinical and community Pharmacies are

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A Study on Pharmaceutical Industry acknowledging the importance of IT solutions. Information Technology is used to assist the delivery of Pharmaceutical care, medication regimen adherence, and patient safety, measurement of therapeutic outcomes and patients' self-care management. Today, a number of software solutions are commonly used in the Pharmaceutical industry. Some of the popular ones are: Enterprise Resource Planning (ERP) Laboratory Information Management System (LIMS) Sales Force Automation (SFA) Customer Relationship Management (CRM) 53

A Study on Pharmaceutical Industry

7.2 Emerging Technologies in Pharmaceutical industry


Context-Based Services: Wide-scale use of smart phones and other 3G and 4G devices have helped pharmaceutical companies find new ways to engage patients and provide them with useful services that can improve quality of life. New generation of wireless sensors opens up a whole world of potential for life sciences companiesfor gathering targeted information for research, efficacy and compliance. Using "Big Data" for New Value: Pharmaceutical industry now learns how to utilize Big Data the composite term for the explosion of data and technologies emerging to support it. In healthcare, now electronic medical record (EMR) data is coming together with genomic and genetic data; financial data; and patientreported data to deliver insight into which therapies provide the highest overall value to patients and healthcare systems at the lowest cost. Industrialized Data Services: Data services will enable R&D organizations to organize data from multiple outlets, including contract research organizations (CROs), academic institution, research lab partners and public health institutes. This allows for creative new solutions and a greater understanding on the efficacy and safety of drugs and devices. Pharma Gets Social: social media has been a highly sensitive area for life sciences companies, which are often bound by strict marketing and FDA regulations. But some companies are beginning to experiment with the new medium. For example, drug maker Sanofi has emerged as a social media leader by building a Facebook community for diabetes sufferers who connect online to share their experiences with the disease.

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A Study on Pharmaceutical Industry Focusing on the Cloud to Cut Cost and Improve Business Functions: The cloud market is now adapting to meet the needs of all areas within life sciences and has proven to be helpful to overcome IP issues, security issues and has allowed many companies to cut down on operational costs. Drug maker Roche recently announced it was moving to Googles cloud-based applications, including Gmail and Google Docs, to support its more than 90,000 employees globally. Platform as a Service, or PaaS, is a complete, pre-integrated platform that facilitates the deployment of applications without the cost and complexity of buying and managing underlying hardware, software or hosting capabilities. 55

Growing Security Concerns: organizations must move from simply monitoring and collecting data to understanding it and visualizing new behaviours and anomalies.

A Study on Pharmaceutical Industry 56

CHAPTER 8

A Study on Pharmaceutical Industry

CONCLUSIONS AND RECOMMENDATIONS

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The Pharmaceutical industry in the country grew at a CAGR of 14%during 11th Five Year plan. However, the fact that PSUs will have to keep on servicing the low margin socially relevant products and will have significance presence in the institutional market, the CAGR for PSUs needs some tempering. The selfsustaining growth assumes that the profits will be invested in growing the business. At the projected CAGR levels, the business generates enough resources to fund its growth. The crosslinkages between strategy, operational efficiency and financial leverage generate returns to the shareholders. A change in strategy from low cost to differentiation by changing the product mi x in favour of higher margin products, improving operational efficiency by generating more sales with the same asset base and a judicious mix of debt and equity can take the firms on an accelerated growth track. BUDGET 2013: The sharp increase in the rate of surcharge from 5% to 10% would have a negative impact on companies in the Pharma sector. The increase in tax withholding rates while making payments to non-resident companies in the nature of royalty or fees for technical services from 10% to 25% will increase the tax burden further. Additional deduction of 15% for investment in plant & machinery (exceeding Rs 100 crore) is a welcome move for manufacturing sector in general; number of Pharmaceutical companies benefitting from this would be limited.

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CHAPTER 9

A Study on Pharmaceutical Industry

DETAILED CALCULATION OF HHI AND 4 FIRM CONCENTRATION RATIO


Industry - Pharmaceuticals - Indian - Bulk Drugs & Formln M/S and Bulk Drug & Formln Lrg Company name Cipla Dr Reddy's Labs Ranbaxy Labs. Aurobindo Pharma Sun Pharma.Inds. Mylan Lab. Cadila Health. Intas Pharma. Wockhardt Ipca Labs. Torrent Pharma. Alkem Lab Surya Pharma. Glenmark Pharma. Mankind Pharma Macleods Pharma Alembic Pharma Ind-Swift Labs. Piramal Enterp. Aditya Medisales Glenmark Generi. Unichem Labs. Cadila Pharma. Emcure Pharma Claris Lifescien FDC J B Chem & Pharm Hetero Drugs Unimark Remedies Strides Arcolab Maneesh Pharma Sales 6,977.50 6,686.30 6,112.44 4,281.45 4,015.56 3,952.38 3,150.80 2,622.22 2,560.40 2,329.37 2,076.04 1,953.39 1,622.95 1,619.98 1,406.88 1,392.35 1,375.28 1,320.68 1,153.48 1,137.32 1,068.83 803.19 766.85 765.96 713.37 699.24 686.42 684.07 620.7 613.29 584.74 Market Share 0.094953 0.090990 0.083181 0.058264 0.054646 0.053786 0.042878 0.035684 0.034843 0.031699 0.028252 0.026583 0.022086 0.022045 0.019146 0.018948 0.018715 0.017972 0.015697 0.015477 0.014545 0.010930 0.010436 0.010424 0.009708 0.009516 0.009341 0.009309 0.008447 0.008346 0.007957 Square of Market Share 0.009016112 0.008279257 0.006919088 0.0033947 0.002986152 0.002892924 0.00183849 0.00127338 0.001214046 0.001004839 0.000798162 0.000706639 0.000487787 0.000486003 0.00036655 0.000359018 0.000350269 0.000323009 0.000246399 0.000239544 0.000211562 0.000119469 0.000108903 0.000108651 9.4243E-05 9.05466E-05 8.72568E-05 8.66604E-05 7.13482E-05 6.96549E-05 6.33206E-05 %Market Share 9.50 9.10 8.32 5.83 5.46 5.38 4.29 3.57 3.48 3.17 2.83 2.66 2.21 2.20 1.91 1.89 1.87 1.80 1.57 1.55 1.45 1.09 1.04 1.04 0.97 0.95 0.93 0.93 0.84 0.83 0.80

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A Study on Pharmaceutical Industry


Indoco Remedies Paras Pharma Aanjaneya Life. Natco Pharma Calyx Chem. TTK Healthcare Morepen Labs. Blue Cross Lab. Biological E Ind.Immunologica Shantha Biotech. Kopran RPG LifeScience. Jagsonpal Pharma Tablets India Raptakos, Brett Mangalam Drugs Medley Pharma Lyka Labs Bal Pharma Bharat Serums Themis Medicare East India Phar. Geno Pharma. Alembic Hindustan Max GB Cosme Farma Lab Laborate Pharma JK Drugs & Pharm Anglo-French Dr. Gufic BioScience Ortin Labs. Sven Genetech Dey's Medical Lyka BDR Intl. Ozone Pharma Nestor Pharma Merind Hind.Antibiotic Penam Lab Mesco Pharma Ceejay Tobacco Indian Drugs Brooks Lab. Alps Pharma. 568.77 492.17 479.96 432 417.17 353.74 269.5 268.87 236.25 221.76 206.41 198.9 192.82 176.52 155.59 154.78 153.18 149.38 139.81 139.69 139.59 138.02 127.6 124 116.87 114.54 113.17 88.46 88.25 85.01 83.57 78.91 78.15 73.26 69.57 65.77 64.18 63.73 63.25 63.14 61 60.68 56.7 56.08 55.86 0.007740 0.006698 0.006532 0.005879 0.005677 0.004814 0.003667 0.003659 0.003215 0.003018 0.002809 0.002707 0.002624 0.002402 0.002117 0.002106 0.002085 0.002033 0.001903 0.001901 0.001900 0.001878 0.001736 0.001687 0.001590 0.001559 0.001540 0.001204 0.001201 0.001157 0.001137 0.001074 0.001064 0.000997 0.000947 0.000895 0.000873 0.000867 0.000861 0.000859 0.000830 0.000826 0.000772 0.000763 0.000760 5.99091E-05 4.4859E-05 4.26609E-05 3.45611E-05 3.22289E-05 2.31733E-05 1.34505E-05 1.33876E-05 1.03363E-05 9.10722E-06 7.89007E-06 7.32638E-06 6.88531E-06 5.77042E-06 4.48315E-06 4.43659E-06 4.34534E-06 4.13242E-06 3.6199E-06 3.61368E-06 3.60851E-06 3.5278E-06 3.01523E-06 2.8475E-06 2.52945E-06 2.4296E-06 2.37182E-06 1.44915E-06 1.44228E-06 1.33832E-06 1.29336E-06 1.15314E-06 1.13104E-06 9.93925E-07 8.96321E-07 8.01079E-07 7.62815E-07 7.52155E-07 7.40868E-07 7.38293E-07 6.89095E-07 6.81884E-07 5.95368E-07 5.82419E-07 5.77858E-07 0.77 0.67 0.65 0.59 0.57 0.48 0.37 0.37 0.32 0.30 0.28 0.27 0.26 0.24 0.21 0.21 0.21 0.20 0.19 0.19 0.19 0.19 0.17 0.17 0.16 0.16 0.15 0.12 0.12 0.12 0.11 0.11 0.11 0.10 0.09 0.09 0.09 0.09 0.09 0.09 0.08 0.08 0.08 0.08 0.08

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A Study on Pharmaceutical Industry


Cepham Organics Scott Edil ICPA Health Malladi Drugs Total 53.03 47.72 46.48 46.27 73,483.56 0.000722 0.000649 0.000633 0.000630 1.000000 HHI: Sum of Squares of Market Share *10000 4 Firm Concentration Ratio: sum of % market shares of top 4 firms 5.2079E-07 4.21716E-07 4.00085E-07 3.96478E-07 0.044668849 0.07 0.06 0.06 0.06 100.00

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446.6884876

32.74

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CHAPTER 10

A Study on Pharmaceutical Industry

10.1 ANNEXURE
R & D expenditure information: (Source: Planningcommission.com) Table 4.3.1 Yearly expenditure on R & D

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Exports of Drugs and Pharmaceuticals from India: Table 4.5.1

A Study on Pharmaceutical Industry


Imports of Drugs and Pharmaceuticals in India: Table 4.5.2

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List of Acquisitions by Indian Companies in 2011-12 Table 4.4.1

A Study on Pharmaceutical Industry


List of JV/Alliances among Indian Players in 2011-12 Table 4.4.2

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Table 4.6.1 FDI INFLOW IN THE DRUGS AND PHARMACEUTICAL INDUSTRY (US $Mn)

A Study on Pharmaceutical Industry 66


Profitability Ratios: Figure 5.1
Profitability (Bulk Drugs and Formln M/S) Latest Gross Profit Margin (%) Operating Profit Margin (%) Pretax Margin (%) Net Profit Margin (%) 2012 2011 2010 2009 2008 2007

14.91%

12.52%

18.13%

18.15%

12.99%

10.65%

12.37%

18.86% 12.22% 10.12%

16.40% 10.43% 8.93%

21.52% 15.41% 12.89%

22.41% 15.25% 12.50%

17.31% 10.22% 8.37%

14.28% 7.87% 5.44%

15.02% 10.10% 7.55%

Figure 5.2
Profitability (Bulk Drugs and Formln Lrg) Latest Gross Profit Margin (%) Operating Profit Margin (%) Pretax Profit Margin (%) Net Profit Margin (%) 12.80% 2012 24.08% 2011 52.95% 2010 24.42% 2009 21.24% 2008 2007

10.47% 21.91%

17.61% 9.24% 6.52%

26.92% 20.52% 17.22%

55.94% 49.27% 37.80%

26.70% 20.65% 16.53%

23.61% 17.90% 14.61%

14.25% 25.44% 7.02% 18.60% 7.48% 15.58%

A Study on Pharmaceutical Industry

10.2 LIMITATIONS
CR 4 provides only limited information about actual market structure. The HHI ratios considered can be just indicative of the market structure. The data considered for profitability is just indicative and cannot be considered as complete and consistent. The data for the whole import and export is not available. Thus, a complete picture of the industry could not be portrayed. The Pharma industry is very huge. Thus consideration to each and every aspect could not be given.

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A Study on Pharmaceutical Industry

10.3 BIBLIOGRAPHY
www.capitaline.com www.planningcommission.nic.in http://wtocentre.iift.ac.in http://www.icra.in www.Pharmaceuticals.gov.in www.indiastats.com http://www.cci.gov.in/
www.industryweek.com/

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