PART 1: ECONOMIC ANALYSIS OF INDIA

Opportunity Analysis in Pharmaceutical industry

Page 1

OVERVIEW OF THE INDIAN ECONOMY India, an emerging economy, has witnessed unprecedented levels of economic expansion, along with countries like China, Russia, Mexico and Brazil. India, being a cost effective and labor intensive economy, has benefited immensely from outsourcing of work from developed countries, and a strong manufacturing and export oriented industrial framework. With the economic pace picking up, global commodity prices have staged a comeback from their lows and global trade has also seen healthy growth over the last two years. Global economy is seems to be expanding after a recent shock. Indian Economy, however just felt the blow of the global economic recession and the real economic growth have seen a sharp fall followed by the lower exports, capital outflow and corporate restructuring. It is expected that the global economies continue to stay strong in the short-term as the effect of stimulus is still strong and the tax cuts are working. Due to strong position of liquidity in the market, large corporations now have access to capital in corporate credit markets. Indias Economic Outlook Projection 2009 GDP Growth CPI 9.40% 6.40% 2010 7.30% 9.30% 2011 7.60% 5.50% 2010 8.30% 4.90%

Year 2011 has started on the gloomy note, however the trend reversed from the first quarter of the year, financial markets posted strong gains fueled by huge amount of capital inflows which was set-aside during the economic downturn in search of a higher yield. Number of companies jumped into the equity markets to raise funds to de-leverage themselves, corporate risk have declined. Before the beginning of the economic recession, several companies betted on the better economic future and blindly raised funds thru various options (largely in a way of debt). Real Estate was the hardest hit industry during the recession. Many companies even offloaded their huge amount of stake, in order to meet the deadline to pay-off the short-term debt. Not only the realty companies which have faced that situation, actually many Small & Medium Enterprises (SMEs) have opted that option to expand themselves aggressively and routed out of
Opportunity Analysis in Pharmaceutical industry Page 2

the business. As the new year begins, the new wave of optimism has surrounded the economies to expand further from the recent shock, with the expectations of fresh stimulus package, shrink in unemployment rate, expectations of the high inflation, higher interest rates in the emerging economies. Over the next few months, inflation would be a worrisome for the economies. According to the estimates, inflation would likely to reach up to 10%, resulted, the expectations of the monetary policy tightening from the Reserve Bank of India in the second quarter review of monetary policy. Asian economies Chinese economy in particular, along with India are in the strongest place for a sustained recovery. There are increasing signs of a recovery in a private domestic demand. INFLATION IN INDIA Since the global economies are emerging from the lows, in a short run, inflation is expected to rise due to bounce back in demand for commodities. Although, the underlying inflation are still on the downside. Higher unemployment rate in the west will lead to low wage growth and pricing power would be limited for a long time as demand will be very vulnerable to price rises. But, India would buck the trend in inflation due to ample amount of liquidity in the system and rising demand. In financial year 2009-08, average inflation in India was around 4.66 percent. This rate was lower than average inflation of financial year 2008-07. In 2009-08, fiscal high prices of food items were primary cause behind high rates of inflation. That high rate of inflation had to be controlled by banning a number of necessary commodities as well as various financial steps. High prices of oil were responsible for proportionately high rate of inflation in 2010-09 INDIA ECONOMY 2010 OVERVIEW In order to keep the economic growth during the time of worst recession, Federal authorities in India has announced the stimulus packages to prop-up the economic growth. To finance the stimulus packages, Indian Government has raised over $100 billion over the last four quarters in a way to finance the stimulus package. Countrys Public debt, according to the latest data has zoomed to over 50% of the total GDP and Indias Central bank, Reserve Bank of India has started printing new currency notes.

Opportunity Analysis in Pharmaceutical industry

Page 3

Central Government Debt In Rs. Crores (10 Million) Public Debt (Sum of 1 and 2) 1. External Debt 2. Internal Debt Q3 2010 Q3 2011 % of GDP

2,099,286.23 2,505,450.74 50.71% 237,351.77 294,941.67

1,861,934.46 2,210,509.07

Going forward, India will see sharp rise in supply side inflation, after the effect of large government borrowings, printing of new currency notes, rise in food prices due to huge gap in demand-supply. Interest rates will also expected to rise awkward, as the central bank will take precautionary measure to contain inflation rate and expanding money supply. For the equity markets, investors are still in a quest for a higher return and turned down their investments in Government Bonds/Securities. There is a lot of money which are still available to readily invest into the equity markets. Indian financial markets expected to be range-bound as the fear of higher valuation would be the concern for a short while. Moreover, volatility is expected to come down as the market timings have been extended by an hour in parallel to the other Asian equity markets. This will help the Indian markets to hit newer highs which, we have waited for more than two years. There is no extra concern on the front of equity markets, as the Equity, nowadays, considered as the best asset class to invest in, the main reason would be the overstated potential of precious metals like Gold and Silver, which has seen a sharp rally last year, in a time of gloomy economic picture.

STABILITY IN THE GLOBAL ECONOMY MEANS EXPANSION OF THE INDIAN ECONOMY All of us have seen an unprecedented government intervention during the economic recession by way of announcing huge amount of stimulus package for the economy to prop-up domestic demand. With many recovery tools were used during the crisis, government deficits are in deep
Opportunity Analysis in Pharmaceutical industry Page 4

red and central bank rates are almost zero in certain countries and the prospect of zero rates over a longer period and deflationary concerns will probably gain the upper hand and send bond yields lower. Hence, there is a low scope of further announcement. As far as the Indian economy is concerned, is suffering from huge debt to GDP ratio, moreover India is the largest net importer of commodities like Oil, Food, metal in relation to the GDP. Sharp decline in oil prices, could cut the subsidy burden and those savings would be use for the fiscal stimulus. Increased and better expenditure with greater focus on improved outcomes in social and physical infrastructure, and safety nets will speed up the recovery consistent with the long-term growth. IMF projections that the Indian economy will expand by 9.4 per cent in 2010 should not surprise anyone as the Fund uses different methodology of calculating growth, says a key official with the multi-lateral lending agency. While most other projections are based on gross domestic product at factor cost, IMF estimates economic growth on the basis of GDP at market price. Whereas GDP based on market price takes into account taxes while calculating value of goods and services in the economy, the factor cost does not. Raising of Indian growth projections to 9.4 per cent in 2010 by IMF, from its earlier estimate of 8.8 per cent, surprised many people because the economy is yet to fully recover from the impact of financial crisis and return to high growth path. Besides, as the Indian economy (based on the conventional factor cost) grew by 8.6 per cent in the first quarter of 2010, the IMF prediction meant that it would have to expand much beyond 9.4 per cent through the rest of the year. The Finance Ministry expects the economy to grow by 8.5 per cent this fiscal, which did not compare that well with the IMF projections of 9.4 per cent for this calendar year. At the outset, IMF estimates seemed surprising also because the Fund is believed to be too conservative and has been generally pegging India's economic growth at less than the official predictions. In fact, Finance Minister Pranab Mukherjee seemed to be too pleased with even IMF's earlier projections 8.8 per cent growth this calendar year. "This year, my ministry has predicted a growth rate of 8.5 percent. I notice that the IMF has challenged our prediction. For once, however, I am not going to contest the IMF assessment. The IMF believes that the Indian economy will grow at 8.8 percent," Mukherjee had said at the USOpportunity Analysis in Pharmaceutical industry Page 5

India CEO Forum in Washington. Based on the conventional method, Indian economy grew by 6.7 per cent during 2010-09, while estimated on the basis of market prices, it expanded by just 5.1 per cent. The advance estimates of 2011-10 pegged economic growth at 7.2 per cent based on factor cost, but 6.8 per cent based on market prices. However, actual data revealed that Indian economy grew by 7.4 per cent last fiscal based on factor cost, and 7.7 per cent on market prices. FISCAL POLICY The budget for the 2010-2011 fiscal year projects improvements for the deficit after the fiscal stimulus of last year and the large one-off expenditures of the year before. As a share of GDP, the deficit is expected to reach 7.8% of GDP (including off-budget food, fuel and fertilizer price subsidies of 1.7% of GDP) from 9.6% last year and 11.8% in 2010/2011. The improvement will come from a combination of weaker expenditure growth from reduced subsidies, and greater revenues from the acceleration of economic growth, the reversal of indirect tax cuts that were part of the fiscal stimulus package, the expansion of the tax base and the revival of the privatization program, as well as the onetime sale of G3 licenses, which generated over USD 15 billion. Solvency indicators will improve again, but are expected to remain above comfortable levels, with public debt to GDP reaching 68% by 2014-15. MONETARY POLICY The Reserve Bank of India (RBI, the central bank) continues its tightening cycle as inflation pressures are building, by raising reserve requirements and its two main interest rates by 50 basis points since the beginning of the year. While better monsoon rains will reduce food prices, the upward trend in M2 growth suggests that additional inflation pressure is in the pipeline for the second half of this year. As such, we expect further tightening going forward, with the wholesale Price Index (WPI), the RBIs target indicator for inflation, increasing to 10.2% y/y in May, while the various consumer price indices are all showing increases around 15% in April. EXTERNAL SECTOR Strong domestic demand and higher energy prices are again putting pressure on thetrade deficit, which totaled USD 27.1bn in Q1-10. While exports are rebounding, up 36% y/y in April, in parts due to weak base effects, imports are rising are rising at a much faster pace, up 43% y/y. However, the trade deficit is supported by strong transfers from abroad, renewed foreign
Opportunity Analysis in Pharmaceutical industry Page 6

investment inflows, as well as the return of external demand for Indias software services, to a record amount in Q4. Nonetheless, foreign exchange reserves continue to slowly decline since October 2011, falling to USD 261bn at the end of February, which still represent over 8 months of current account debit cover. OUTLOOK Despite the uncertain outlook for developed economies, further monetary tightening in the pipeline and the beginning of pullout of fiscal stimulus, real GDP growth in India will accelerate this year and next, reaching 7.5% this year and 7.9% in 2011. Investment and industrial activity, which is more oriented towards the domestic market, will sustain growth, while consumer sentiment will be dampened by high inflation. The election victory of the Congress Party bodes well for continued economic reforms, with the move towards gradual liberalization and deregulation expected to continue under the current government. While sustained annual doubledigits growth remains a few years away, a return to the 8-9% growth rates seen before the crisis is very likely. ECONOMY INDICATOR 04-08 GDP (% Growth, real) Inflation (% year ended) Fiscal Balance (% of GDP) Export (% growth) Imports (growth) Current Account (% of GDP) Reserve (month of imports) External Debts (% of GDP) Debt Service Ratio Current (per USD, year-ended) Source: EIU, EDC Economics SECTORAL ANALYSIS OF INDIAN ECONOMY The sectoral analysis of Indian economy is a summary of the factors and industry sectors that were reformed or added in the economic growth report of India covering different Indian industries. The sectoral analysis of Indian economy focuses on the key points of the latest reforms of Indian economy as made in the latest Government of India economic policy statement. The sectoral analysis of Indian economy quantifies key parameters of Indian
Opportunity Analysis in Pharmaceutical industry Page 7

2011 5.7 10.9 -7.7 -17.9 -22.1 -0.8 9.8 17.4 9.8 46.7

2010 7.5 10.7 -6.4 16.1 20.0 -1.0 9.4 15.7 8.0 44.0

Average 8.5 5.8 -3.9 27.0 33.7 -1.1 9.1 17.5 11.09 44.2

economy. Further, the analysis of different sectors of Indian economy facilitates the government to use it as the reference guide for the enactment of the future Indian economy policy.

The key developments as per the sectoral analysis of Indian economy, 2009-2010 are as follows

Gross domestic capital formation in 2007-06 grew by 23.7% FDI amounted to US$12.5 billion and outpaced portfolio investment of US$6.8 billion Central Public Sector Enterprises to invest Rs.165,053 crore in 2009-08 New 162 production sharing contracts awarded to Petroleum and Natural Gas sector SMEs has witnessed increase in outstanding credit Foreign trade and merchandise exports expected to cross US$125 billion by the end of the current fiscal

Provision for tourist infrastructure increased to Rs.423 crore Bank's differential rate of interest scheme providing finance at the rate of 4% to weaker sections

Regional rural banks to open at least one branch in 80 uncovered districts in 2009-08 PAN made sole identification number for all participants of capital market Seven ultra mega power projects are under process Provision for national highway development program to be increased to Rs.9,945 crore Farm credit target of Rs.225,000 crore for 2009-08 has been set with an addition of 50 lakh new farmers to the banking system

35 projects have been completed in 2008-07 and additional irrigation potential of 900,000 hectares to be created and training of farmers arranged

A pilot programme for delivering subsidy directly to farmers have been arranged Loan facilitation through Agricultural Insurance and NABARD has also been facilitated Corpus of Rural Infrastructure Development Fund to be raised Defense expenditure allocation to increased to Rs.96,000 crore

Opportunity Analysis in Pharmaceutical industry

Page 8

IT allocation for e-governance to increased from Rs.395 crore to Rs.719 crore Exclusive health insurance scheme for senior citizens

According to reports, productivity growth rate of Indian economy is estimated to be around 8% and above until 2020 and at this rate India will become the second largest economy in the world after China. Further, analysis of different Indian sectors suggests that India is one of the top economic reformers worldwide. It simplified business registration, cross-border trade, and payment of taxes, eased access to credit and strengthen investor's interest. Foreign Exchange Reserves
About USD 45 billion were added to the countrys foreign exchange reserves in 2008-07. In the first quarter of this fiscal, forex reserves went up by about 6.5%. An increase in the foreign currency assets by USD 5 billion took the number to USD 206.1 billion. Gold , SDR and reserve position in the IMF remained unaltered. In June 2009, Foreign exchange reserves touched USD 213 billion mark. This accretion in reserves is said to be due to the effect of appreciation in the non US currencies held in reserves.

Exchange rate Indian Rupee against the USD remained stable between Rs 40.00/41.00. Indian Rupee traded mostly below Rs 41.00 in June 2009. Throughout the month Rupee gained against the USD but remained volatile and crossed Rs 41.00 exceptionally in only one trading session. The rupee ranged between Rs 40.47/41.01 averaging at Rs 40.8 in June 2009, showing weakness towards the last trading sessions of the month. The central bank continues to maintain its limited intervention in the forex market until the inflationary pressures are minimized. In June 2009 INR against the Euro demonstrated less volatility than it did against the USD. It peaked at Rs 55.09
Opportunity Analysis in Pharmaceutical industry Page 9

and remained above Rs 55.00 level in the penultimate trading sessions before attaining a level below Rs 55.00. However it averaged at Rs 54.7 in June 2009.

India as an Economic Superpower During the last decade, a perception is growing in the world that the China and India are becoming the major economic superpower in the world. Consequently Business Firms, as specially the Multinational Corporation, are move towards India and China so as to take advantages of prevent and fast growing market in this two countries. Accompanied with phenomenon is rise of business tycoons in India. According to Forbes List 2010, India Added to
Opportunity Analysis in Pharmaceutical industry Page 10

its list t16 new billionaires taking its to total 53. The combine worth of these 53 billionaires was of the order of $335 billions equal to one third of the total Indian GDP. Simultaneously, there is the growth of the Indian Middle class which is, according to a study by the National council of the applies economy Research, around the 28.4 million households by 2011-10. The income range of the middle class has been defined as Rs. 2 millions to Rs. 10 millions per annum India to become Third Biggest Economy by 2050 India registered the fastest growth among the major democracies among over the past 10 years. Suring the 1990s, it growth has been over 7% in four year. Besides, the India is presently the fourth largest economy in term of Purchasing Power Parity By the years 2050, India is projected to be the Third largest economy in the world, behind china and United state of America, in that order, according to a reported by Goldman Sachs, a globan investment banking and security firm, China, India, Russia and Brazil could outrank the combine economy might group of six- the US, Japan, Germany, France, Italy and the United Kingdom by middle of the century, says the report quoted by the Wall Street Journal. Dominic Wilson, a senior Goldman economist, one of the author of the report, anticipating that the financial power is going to shift from the US and it likely to be number 2 by 2050, and sandwich between china and India. In making this forecast, the Goldman does not focus on the fourth developing nations current economy growth rates ,even though these certainly have not be to tardy. Instead using the demographic projections and a model of the capital accumulation and productivity trends, it calculates likely gain in terms of terms of gross domestic product, per capital income and currently movement. Over the next 50 years, the model assume that GDP will rise up at an average annual rates of 3.8% in Brazil, nearly 6% in India, 4.7% in China, and 3.2% in Russia, versus the US projected rates of 1.7%. it also assume that the value of the this above fourth currency will also rise, in long run, these economy are going to generate a substantial part of the worlds economy demand growth. Although the US would cease to be most dominant single force in global economy, it would get reap trade benefits from the new power investment hefty gains in spending on goods

Opportunity Analysis in Pharmaceutical industry

Page 11

and services. The forecast assume that China, India, Russia and Brazil maintain policies abd development institution that supporting the growth.

PART 2: INDUSTRY ANALYSIS OF THE PHARMACEUTICAL

Opportunity Analysis in Pharmaceutical industry

Page 12

OVER VIEW OF THE GLOBAL PHARMACEUTICAL INDUSTRY

Major Player in World Pharmaceutical Industry The pharmaceutical industry is characterized by a high level of concentration with fifteen multinational companies dominating the Industry Table 1.1 contains information about these major pharmaceutical companies that are sorted in the order of their 2006 revenues from the sales of pharmaceutical products. Numbers provided in this table include sales of all subsidiaries and affiliated companies that are consolidated in annual reports of the corresponding companies. In order to facilitate a comparison of different companies revenues of all of them are shown in US dollars; financial data of the companies with headquarters outside of the U.S. was converted to US dollars. Revenue of Company Pfizer GlaxoSmithKline
Johnson & Johnson

HQ location NY, U.S. UK NJ, U.S. NJ, U.S. UK Switzerland France Switzerland NY, U.S. NJ, U.S. IL, U.S. IN, U.S. Japan NJ, U.S. Germany

pharmaceutical segment, mln USD 46,133 31,434 22,190 21,494 21,426 18,497 17,861 17,460 15,482 13,964 13,600 13,059 8,648 6,417 5,458

Total sales, mln USD 52,516 37,324 47,348 22,939 21,426 28,247 18,711 25,168 19,380 17,358 19,680 13,858 10,046 8,272 37,013

Share of pharmaceutical segment, % 87.85% 84.22% 46.87% 93.70% 100.00% 65.48% 95.46% 69.37% 79.89% 80.45% 69.11% 94.23% 86.09% 77.57% 14.75%

Merck AstraZeneca Novartis Sanofi-Aventis Roche

Bristol-Myers Squibb

Wyeth Abbott Eli Lilly Takeda Schering-Plough Bayer

GENERAL INTRODUCTION OF THE INDIAN PHARMACEUTICAL INDUSTRY

Opportunity Analysis in Pharmaceutical industry

Page 13

The Indian Pharmaceuticals sector has come a long way, being almost non-existing during 1970, to a prominent provider of health care products, meeting almost 95% of countrys pharmaceutical needs. London research company Global Insight estimates that Indias share of the global generics market will have risen from 4% to 33% by 2009. Most of the players in the market are small-to-medium enterprises; 250 of the largest companies control 70% of the Indian market. Indias US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per year. It is one of the largest and most advanced among the developing countries. The Indian Pharmaceutical Industry today is in the front rank of Indias science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharmaceutical Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously. Globally, the Indian industry ranks 4th in terms of volume and 13th in terms of value & India are also one of the top 5 active pharmaceutical ingredient (API) producers. It ranks 17th with respect to exports value of bulk actives & dosage. Indian pharmaceutical has been relying on reverse engineering to copy international drugs. However, it has started realizing the importance of R&D & developmental skills to tap the US/EU markets which has led to rise in export figures of the companies. The opportunities for the Indian players lie in both manufacturing & R&D services. The industry has been discussed in three phases in much research report; however, the post 2007 era will be covered in this project. The year 2007 saw a series of development for the Indian pharmaceutical players like implementation of VAT, shift from excise based levy to MRP based levy & recognition of product patents. While the process patent regime helped in the development of Indian pharmaceutical the generic drugs sector, the product patent regime has restored the confidence of the MNCs in the Indian market. In the generic field $45 billionn drugs are expected to loose their patents protection, opening up huge opportunity for the Indian pharmaceutical companies in the generic field. Over the past decade, pharmaceutical companies have entered a difficult period where shareholders, the market and regulators have created significant pressures for change within the industry. The core issues for most of drug companies are declining productivity of in-house R &
Opportunity Analysis in Pharmaceutical industry Page 14

D, patent expiration of number of block buster drugs, increasing legal and regulatory concern, and pricing issue. As a result larger pharmaceutical companies are shifting to new business model with greater outsourcing of discovery services, clinical research and manufacturing. Current global financial conditions and the threat of a broad recession accelerated the timetable for implementing transformational changes in global organizations, as the industry confronts lower corporate stock prices and an increasingly cost-averse customer. Leaders of the largest global pharmaceutical companies recognize the need for transformational change in their organizations, but will need to move swiftly to ensure sustained growth.

Transformations in the business model of larger pharmaceutical industry spell more opportunities for Indian pharmaceutical companies. Pharmaceutical production costs are almost 50 percent lower in India than in western nations, while overall R&D costs are about one-eighth and clinical trial expenses around one-tenth of western levels. The Indian stock market may be dreading a possible recession but Indian pharmaceutical companies seem unfazed by slowdown fears. Riding on better sales in the domestic and export markets, Indian pharmaceutical industry is expected to continue with its good performance. Today Indian pharmaceutical Industry can look forward to the years to come, with great expectations. There are opportunities in expanding the range of generic products as more molecule come off patent, outsourcing, and above all, in focusing into drug discovery as more profits come from traditional plays. At the same time, the Indian Pharmaceutical Industry would have to contend with several challenges particularly the effects of new product patent, drug price control, regulatory reforms, infrastructure development, quality management and conformance to global standards.

Leading Players In Pharmaceutical Industry 1. Ranbaxy

Opportunity Analysis in Pharmaceutical industry

Page 15

2. Wockhardt 3. Glaxo 4. Novartis

GROWTH TONIC
Company No of products 924 565 177 750 Domestic turnover (Rs cr) 2,155.29 1,968.24 1,743.15 1,644.26 Market share (%) 5.38 4.91 4.35 4.11 Growth* (%) 18 13.7 18 22.8

Cipla

5. Cipla 6. Cadila Healthcare 7. Aurobindo Pharma 8. Dr Reddys Laboratories 9. Aventis Pharma 10. Nicholas Piramal 11. Sun Pharma 12. Glenmark Pharma

Ranbaxy GSK Piramal Health Zydus Cadila Sun Pharma

735 516

1,484.84 1,449.83

3.71 3.62

21.2 22.9

Source: ORG-IMS data *Change in 2011 market share over 2010

The Indian pharmaceutical industry has a unique amalgamation of three critical factors which make it so attractive for investment thereby adding impetus to growth.
1. The process patent regime 2. Price controls

Opportunity Analysis in Pharmaceutical industry

Page 16

3. Exemptions to Small Scale Industries (SSIs).

The Indian Pharmaceutical Industry 2012 Diversification, Expansion & Ambitions The days when the Indian pharmaceutical industry was synonymous with cheap generic drug production are passing. While generics continue to play a major part in the industrys success, many companies have started down the long road of drug discovery and branded product development. With low-cost manufacturing, high-quality research and manufacturing facilities and educated personnel, the Indian pharmaceutical industry presents both a competitive threat and partner opportunities. India is the worlds fourth largest producer of pharmaceuticals by volume, accounting for around 8% of global production. In value terms, production accounts for around 1.5% of the world total. The Indian pharmaceutical industry directly employs around 500,000 people and is highly fragmented. While there are around 270 large R&D based pharmaceutical companies in India, including multinationals, government-owned and private companies, there are also around 5,600 smaller licensed generics manufacturers, although in reality only around 3,000 companies are involved in pharmaceutical production. Most small firms do not have their own production facilities, but operate using the spare capacity of other drug manufacturers.

The advent of pharmaceutical product patent recognition in January 2007 changed the ground rules for Indian companies. In the run up to the new post-patent era and since, the Indian industry has been evolving. R&D departments are moving away from reverse-engineering in favour of developing novel drug delivery systems and discovery research.

Opportunity Analysis in Pharmaceutical industry

Page 17

INDUSTRY STRUCTURE AND GROWTH

The structure of the Indian Pharmaceutical Industry is characterized by fragmentation, with over 20,000 players a large number of them in the small scale sector, only 260 in the organized sector. As a result, no individual market share in Indian retail formulations market exceeds 7%. However a trend of consolidation is visible at the top. In 2001, the top five players accounted for 22% while in 2011, they account for 28% of the market share. Also the top ten in 2010 accounted for 36%, and in 2011 they accounted for 42%. The pharmaceutical industry can be divided on the basis of form and therapeutic application. On the basis of form, the industry can be divided into bulk drugs and formulations, while on the basis of application; it can be divided into various therapeutic segments. Formulations occupy most of the market share. The antiinfective segment remains the largest in the Indian retail formulations market at around 25%. The Indian pharmaceutical industry is the world's second-largest by volume and is likely to lead the manufacturing sector of India. India's bio-tech industry clocked a 17 percent growth with revenues of Rs.137 billion ($3 billion) in the 2011-10 financial year over the previous fiscal. Bio-pharmaceutical was the biggest contributor generating 60 percent of the industry's growth at Rs.8,829 crore, followed by bio-services at Rs.2,639 crore and bio-agriculture at Rs.1,936 crore. The first pharmaceutical company are Bengal Chemicals and Pharmaceutical Works, which still exists today as one of 5 government-owned drug manufacturers, appeared in Calcutta in 1930. For the next 60 years, most of the drugs in India were imported by multinationals either in fullyformulated or bulk form. The government started to encourage the growth of drug manufacturing by Indian companies in the early 1960s, and with the Patents Act in 1970, enabled the industry to become what it is today. This patent act removed composition patents from food and drugs, and though it kept process patents, these were shortened to a period of five to seven years. The lack of patent protection made the Indian market undesirable to the multinational companies that had dominated the market, and while they streamed out, Indian companies started to take their places. They carved a niche in both the Indian and world markets with their expertise in reverseengineering new processes for manufacturing drugs at low costs. Although some of the larger companies have taken baby steps towards drug innovation, the industry as a whole has been following this business model until the present.

Opportunity Analysis in Pharmaceutical industry

Page 18

The Indian Pharmaceutical industry, now a $ 4 billion industry has shown tremendous progress in terms of infrastructure development, technology base and wide range of products. The industry produces bulk drugs belonging to all major therapeutic groups requiring complicated manufacturing process and has also developed excellent Good Manufacturing Practices (GMP) compliant facilities for the production of different dosage forms. The strength of the industry is developing cost effective technologies in the shortest possible time for drug intermediates and bulk actives without compromising on quality. This is realized through countrys strengths in organic synthesis and process engineering. The country's fame as a low cost producer of Antiretrovirals and supplier of the same to international organisations and more important by the needy African markets is now part of history. Many Indian companies maintain highest standards in Purity, Stability and International SHE requirements, namely, Safety, Health and Environmental protection in production and supply bulk drugs to even innovator companies. This speaks of the high quality standards maintained by large number of Indian companies as these bulk actives are used by the buyer companies in the dosage forms which are again subject to stringent assessment by various regulatory authorities in the importing countries. More Indian Companies are now seeking regulatory approvals in USA in specialized segments like Antiinfectives, Cardiovasculars, Central Nervous System. Stimulants (CNS group). Along with Brazil and PR China, India has carved a niche for itself by being a top generic pharmaceutical player. Considering that the pharmaceutical industry is an industry involving sophisticated technology and stringent GMP requirements, major share of Indian pharmaceutical exports itself going to highly developed western countries speaks not only about excellent quality of Indian pharmaceuticals but also about the reasonableness of the prices. More of Indian companies, in addition to having WHO GMP, have also been getting plant approvals from International regulatory agencies like United States Food & Drugs Administration (USFDA), MCA UK, TGA Australia, MCC South Africa. The value growth of Indian pharmaceutical market as per secondary sales for the month of Mar 2010 was higher at 18.4%, as compared to 13.3% growth in the month of Feb 2011, according the latest data from ORG IMS, a business intelligence firm. The value growth as per Mar 2011 MAT once again touched the double-digit mark of 10.1%, with marginally higher growth, as compared to 9.8% as per Feb 2011 MAT. The value growth in the month of Mar 2011 was higher at 16.8%, as compared to 12.5% in the month of Feb 2011. In October 2010, sales in the
Opportunity Analysis in Pharmaceutical industry Page 19

Rs 35,000-crore drug retail market had dipped by 1.2%, the first time in many years, due to consumers shifting to cheaper brands and stockists facing a financial crunch. However, retail sales has gradually strengthened and in February, it rose 13.3%. ORG IMS tracks the sales figures of stockists and not the actual sales of drugs sold by over five lakh chemists across the country. During March, drugs worth Rs 2,908 crore were sold to stockists. Despite the brief slowdown in growth in 2010, ORG projects the Indian pharmaceutical industry to grow at 15-20% over the next few years. The industry has been growing at 14-15% over the last few years. Due to economic prosperity, a lot more customers are entering organised healthcare, antibiotics and acute therapies are normally the first line of defence, say analysts. While Indias metros and class I cities drive the growth tier II cities and rural market add to the growth momentum. Rising disposable income, improving health infrastructure such as the governments incentives to set up 100-bed hospitals in non-metro towns, and the general increase in health awareness due to deep penetration of the electronic media are the corner stones of sales expansion. Even though export and overseas trade remains key for most of the domestic companies, many of them derive nearly 40% of their sales from the domestic market. As far as MNCs in India are concerned most of the sales are generated in urban or semi-urban areas. However, multinationals like GSK, Sanofi-Aventis, MSD India (Merck) etc., have started tapping the rural sector too, of late, realizing their growing potential. A highly organized sector, the Indian pharmaceutical industry is estimated to be worth $4.5 billion, growing at about 8% to 9% every year. The pharmaceutical industry in India ranks very high in Third World countries, in terms of technology, quality and range of medicines manufactured. Globally the Indian pharmaceutical industry ranks fourth in terms of volume (with an 8% share in global sales), 13th in terms of value (with a share of 1% in global sales) and produces 20% to 24% of the worlds generic drugs (in terms of value). The Indian pharmaceutical sector is highly fragmented. It has more than 20,000 registered units and faces severe price competition along with government price control. The pharma industry has grown exponentially in the last two decades. As many as 250 leading pharmaceutical
Opportunity Analysis in Pharmaceutical industry Page 20

companies control over 70% of the market, with the market leader holding nearly 7% of the market share. India is emerging as the global hub for contract research and manufacturing services due to a combination of low-cost and world-class quality standards. According to a study by Ernst & Young, the total market for clinical research activities in India is expected to touch $1.5 billion - $ 2 billion by 2010. With pharmaceutical majors facing increased pressure on profit margins, spiraling R&D costs and rising overheads, outsourcing of clinical research processes to third parties in developing countries seems a viable option. By contracting such work to India, they save 40% to 60% in new drug development. Consumer spending on healthcare went up from 4% of GDP in 1995 to 7% in 2009. That number is expected to rise to 13% of GDP by 2015.

SWOT ANALYSIS OF INDIAN PHARMACEUTICAL COMPANY Strengths 1. Low cost of production.

Opportunity Analysis in Pharmaceutical industry Page 21

2. Large pool of installed capacities 3. Efficient technologies for large number of Generics. 4. Large pool of skilled technical manpower. 5. Increasing liberalization of government policies. Opportunities 1. Aging of the world population. 2. Growing incomes. 3. Growing attention for health. 4. New diagnoses and new social diseases. 5. Spreading prophylactic approaches. 6. Saturation point of market is far away. 7. New therapy approaches. 8. New delivery systems. 9. Spreading attitude for soft medication (OTC drugs). 10. Spreading use of Generic Drugs. 11. Globalization 12. Easier international trading. 13. New markets are opening. Weakness 1. Fragmentation of installed capacities. 2. Low technology level of Capital Goods of this section. 3. Non-availability of major intermediaries for bulk drugs. 4. Lack of experience to exploit efficiently the new patent regime. 5. Very low key R&D. 6. Low share of India in World Pharmaceutical Production (1.2% of world production but having 16.1% of world''s population). 7. Very low level of Biotechnology in India and also for New Drug Discovery Systems. 8. Lack of experience in International Trade. 9. Low level of strategic planning for future and also for technology forecasting.

Opportunity Analysis in Pharmaceutical industry

Page 22

Threats 1. Containment of rising health-care cost. 2. High Cost of discovering new products and fewer discoveries. 3. Stricter registration procedures. 4. High entry cost in newer markets. 5. High cost of sales and marketing. 6. Competition, particularly from generic products. 7. More potential new drugs and more efficient therapies. 8. Switching over form process patent to product patent.

PEST ANALYSIS
1. POLITICAL (i) Product patent act: product patent regime will filter the best from the pack and would be favorable to players with built-in scientific and technical resources. (ii) Pharmaceutical Export Promotion Council (Pharmexcil): Facilitation of exports of Drugs, Pharmaceuticals, Biotechnology products, Herbal Medicines, Diagnostics. (iii) Foreign Direct Investment (FDI): FDI upto 74% in the case of bulk drugs, their intermediate Pharmaceuticals and formulation.

Opportunity Analysis in Pharmaceutical industry

Page 23

(iv) Automatic approval for Foreign Technology Agreement (FTA) is already available in the case of all the bulk drugs cleared by Drug Controller General (India). (v) Introduction of Value Added Tax (VAT). (vi) Schedule M of Drugs and Cosmetics Act ,1940- strengthen the pharma industry as a producer of quality medicines 2. ECONOMIC (i) GDP growth rate less (7.9%) as compared to previous year. (ii) Inflation rate is high at 12.14% leading in increase in prices of commodities. (iii) Interest rates: Due to uncertainty in the economy the interest rate has been revised many times & is comparatively higher at around 9.5%. This increase in interest rate can affect any new company trying to set up operations for which it would require some financing from the banks. (iv) Appreciating rupee has been the cause of concern for the pharma industry in the recent times, resulting in declining exports revenues for domestic companies. 3. SOCIAL FACTORS (i) Health consciousness: increased awareness about diseases has lead to increased health Consciousness. (ii) Population growth rate: the current population growth rate in India is 1.578% (2010 EST), thereby creating demand for more medicines & healthcare. (iii) Age distribution: the age structure is 31.5% in 0-14 years age group; 63.3% in 15-64 years & 5.2% over 65 years of age. The median age is 25.1 years; male age is 24.7 years & female 25.5 years.

Opportunity Analysis in Pharmaceutical industry

Page 24

(iv) Emphasis on safety 4. TECHNOLOGICAL FACTORS (i) R& D activity (ii) Rate of technological change- has been keeping pace with the changing technologies evolving on a regular basis to combat competition.

PORTERS FIVE FORCES ANALYSIS ANALYSIS

1. THREAT OF NEW ENTRANT: has low entry barrier for new entrants. The major barriers to entry are: (i) The presence of economies of scale in manufacturing, R&D, marketing, sales etc & capital requirement & financial requirements. The exsisting companies have advantage in terms of costs involved in launching new drugs & formulations. The new companies would find it difficult to achieve this. (ii) Differentiation of products from the existing products in the market & creating brand awareness in the minds of doctors & pharmacists. New entrants will face difficulties in gaining

Opportunity Analysis in Pharmaceutical industry

Page 25

trust of doctors/patients & they also need time to develop efficient distribution channels & preffered arrangements with doctors/ pharmacists. (iii) Regulatory policies including patents, regulatory standards. The Indian Patent Act, 1970 recognized process but not product patents. The introduction of TRIPS part of WTO agreement has led to huge barriers for potential entrants. (iv) The capital requirement for the industry is very low; creating a regional distribution network is easy, since the point of sales is restricted in this industry in India. 2. BARGAINING POWER OF BUYERS: the buyer doesnot have much power over the manufacturers because of the presence of influencing element i.e. the doctors. Due to the extremely fragmented nature of industry & government policies like DPCO (Drug Price Order Control), 1970 under which the power to control prices is with the NPPA (National Pharmaceutical Pricing Authority) the low power of buyers does not have much effect on the manufacturers. Except in generic & OTC medicines, the buyer doesnot normally switch medicines.

3. BARGAINING POWER OF SUPPLIERS: the main suppliers are the organic chemical industry & labor forces. The fragmented nature of the organic chemicals industry prevents it from having much bargaining power over the manufacturers as the switching cost is low for the manfaturers. 4. THREAT OF SUBSTITUTES: the main substitutes to the synthetic pharmaceutical industry are mainly the emerging biotechnology chemical industry. Also in developing countries like India, the traditional medicines also play a major substituting role. 5. INTENSITY OF RIVALRY: the Indian Pharmaceutical industry is highly fragmented with around 250-300 manufacturing & formulation units in the organized sector which contribute to only 70% of the market share of the total sales in the country. The concentration ratio (proportion of total industry output by the largest firm in the industry) for the industry is very low. Also government subsidies have led to the proliferation of many small players. Since the
Opportunity Analysis in Pharmaceutical industry Page 26

product patents were not valid in the country till 2007, the differentiation in the product is very low. The key driver in this industry is the cost-competitiveness. Afer 2007, major MNCs like Pfizer & GSK started introducing newer products in the market thereby increasing competition in the industry.

Opportunity Analysis in Pharmaceutical industry

Page 27

POLICY INITIATIVE AND ADVANTAGES IN INDIA

Policy Initiative
1. The Indian pharmaceutical policy stipulates abolition of industrial licensing and FDI up

to 100 per cent through the automatic route except for the drugs kept under industrial licensing.
2. A centralized system of registration has been introduced from 1.1.2005 for the imports of

drugs and pharmaceuticals.

3.

Automatic approval for Foreign Technology Agreements will be adopted and a centralized system of registration will be introduced for the imports of drugs and pharmaceuticals.

4. India presently follows the process-patent regime. However, in accordance with WTO

stipulations, 2007 onwards India will grant product patent recognition to all New Chemical Entities (NCEs) i.e. bulk drugs developed.
5. The government has announced that the foreign pharmaceutical units setting up their

manufacturing units in SEZs will be exempt from import licenses and also from registering with the Indian drug control authorities. Advantages in India 1. Competent workforce: India has a pool of personnel with high managerial & technical competence as also skilled workforce. It has an educated workforce & English is commonly used. Professional services are easily available. 2. Cost-effective chemical synthesis: its track record of development, particularly in the area of improved cost beneficial chemical synthesis for various drug molecules is excellent. It provides a wide variety of bulk drugs & exports sophisticated bulk drugs. 3. Legal & Financial framework: India has a 53 year old democracy & hence has a solid legal framework & strong financial markets. There is already an established international industry & business community.
Opportunity Analysis in Pharmaceutical industry Page 28

4. Information & Technology: it has a good network of world class educational institutions & established strengths in IT. 5. Globalization: The country is committed to a free market economy & globalization. Above all, it has a 70 million middle class market, which is continuously growing. 6. Consolidation: for the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation which has become a generalized phenomenon in the world pharmaceutical industry has started taking place in India.

Opportunity Analysis in Pharmaceutical industry

Page 29

FUTURE OUTLOOK
1. Better growth is expected in the domestic market & the players initiatives to focus on contract research & manufacturing services & generics in advanced markets can sustain expansion in the international markets. 2. The pharmaceutical industry is one of the fastest growing sectors in Indian economy. Visiongain predicts that market for pharmaceuticals in India has strong potential for increased growth from 2010 right through to 2023. India has had a strong domestic pharmaceutical industry and a rapidly expanding market with a population of over a billion and a rapidly expanding economy. 3. Prevalence values of many diseases are likely to increase with expansion of population, urbanization and with higher identification rates in the coming decade. 4. India's pharmaceutical market is increasingly important in global pharma, with both domestic and foreign companies benefiting. Healthcare provision both public and private is improving, leading to fast-expanding markets for healthcare products, especially modern pharmaceuticals. 5. As the demand for medicines would never lessen, on the other hand this would increase owing to new disease discovery & the discovery of drugs to counter these diseases. So in this situation it is evident that the Indian Pharma Industry has a huge growth prospects. 6. India is an interesting geography for several global drug majors who are attracted by huge talent pool, scientific skills & cheap labour that has enabled Indian companies manufacture drugs at about a third of the cost in the west. There can be an increase in the nuber of global players entering the Indian market despite of the current economic conditions.

Opportunity Analysis in Pharmaceutical industry

Page 30

7. Future state (2010): at least 100 NCEs in various stages of development; Contract Research: High end drug discovery services; Clinical Research: At least 10 % of global trials. Global Distribution: Top 15-20 Indian players to have direct presence.

Opportunity Analysis in Pharmaceutical industry

Page 31

PHARMACEUTICAL COMPANY ANALYSIS

Opportunity Analysis in Pharmaceutical industry

Page 32

History
Cipla Limited Cipla, originally founded in 1935 by Khwaja Abdul Hamied as The Chemical, Industrial & Pharmaceutical Laboratories is a prominent Indian pharmaceutical company, best-known outside its home country for manufacturing low-cost anti-AIDS drugs for HIV-positive patients in developing countries. Cipla makes drugs to treat cardiovascular disease, arthritis, diabetes, weight control, depression and many other health conditions, and its products are distributed in more than 180 countries worldwide. Cipla is declared as no.1 Pharmaceutical Company in India. The reasons are 1) Turnover exceeds Rs.2200 Crore 2) Over 2000 products 3) Presence in over 50 therapeutic categories 4) Over 40 dosage forms

5) Over 7000 employees

6)

Manufacturer in 30 state-of- the-art units

Cipla is pioneer in the following product categories: Anti-infective, Respiratory, Cardiovascular, Antiretrovirals, Anticancer, Ophthalmic,

Dermatological, Urological, Gynecological, Antiosteoporotic and Antiemetic. Vision Cipla started with a vision to build a healthy India. And along the way realised, that in our own small way, we could contribute to making the world a healthier place. Well continue to bring a smile on as many faces as we can to heal the world as much as we can. Because therell always be a better world out there for those who have the passion to create it.

Opportunity Analysis in Pharmaceutical industry

Page 33

Abdul Hamied, the founder of Cipla, was born on October 31, 1898. The fire of nationalism was kindled in him when he was 15 as he witnessed a wanton act of colonial highhandedness. The fire was to blaze within him right through his life. In college, he found Chemistry fascinating. He set sail for Europe in 1924 and got admission in Berlin University as a research student of "The Technology of Barium Compounds". He earned his doctorate three years later. In October 1927, during the long voyage from Europe to India, he drew up great plans for the future. He wrote: "No modern industry could have been possible without the help of such centres of research work where men are engaged in compelling nature to yield her secrets to the ruthless search of an investigating chemist." His plan found many supporters but no financiers. However, Dr Hamied was determined to being "a small wheel, no matter how small, than be a cog in a big wheel." Birth of Cipla This was the time when our country was under rule of British government. Dr.K.A. Hamied realized that our country needs medicines which are produces and sale within the country. In 1935 he set up Chemical Industrial & Pharmaceutical Laboratories which is now known as Cipla. The aim of Dr.K.A.Hamied was to make India self-reliant in health care from all aspect. The small step taken by Dr.K.A.Hamied has now becomes a Pharmaceutical giant. After 70 years of birth of Cipla now it has become a front-runner in the Pharmaceutical industry with latest technology to beat disease and suffering. Cipla Timeline The origins of Cipla can be traced back to 1935, when Dr Khwaja Abdul Hamied set up "The Chemical, Industrial and Pharmaceutical Laboratories Ltd", popularly known by the acronym Cipla, in a rented bungalow, at Bombay Central.

Opportunity Analysis in Pharmaceutical industry

Page 34

Opportunity Analysis in Pharmaceutical industry

Page 35

Ranbaxy Laboratory Limited Ranbaxy Laboratories Ltd. is the largest pharmaceutical company in India, and one of the world's top 100 pharmaceutical companies. Long a specialist in the preparation of generic drugs, Ranbaxy is also one of the world's top 10 in that pharmaceutical category as well. Yet, with India's agreement to apply international patent law at the beginning of 2007, Ranbaxy has begun converting itself into a full-fledged research-based pharmaceutical company. A major part of this effort has been the establishment of the company's own research and development center, which has enabled the company to begin to enter the new chemical entities (NCE) and novel drug delivery systems (NDDS) markets. In the mid-2000s, the company had a number of NCEs in progress, and had already launched its first NDDS product, a single daily dosage formulation of ciprofloxacin. Ranbaxy is a truly global operation, producing its pharmaceutical preparations in manufacturing facilities in seven countries, supported by sales and marketing subsidiaries in 44 countries, reaching more than 100 countries throughout the world. The United States, which alone accounts for nearly half of all pharmaceutical sales in the world, is the company's largest international market, representing more than 40 percent of group sales. In Europe, the company's purchase of RPG (Aventis) S.A. makes it the largest generics producer in that market. The company is also a leading generics producer in the United Kingdom and Germany and elsewhere in Europe. European sales added 16 percent to the company's sales in 2006. Ranbaxy's other major markets include Brazil, Russia, and China, as well as India, which together added 26 percent to the group's sales. Ranbaxy posted revenues of $1.18 billion in 2006. The company, which remains controlled and led by the founding Singh family, is listed on the National Stock Exchange of India in Mumbai. Moneylending Luck in the 1960s Ranbaxy Laboratories had its origins in the early 1960s when Ranjit Singh and Gurbux Singh, two employees of a Japanese pharmaceutical company operating in India, formed their own pharmaceutical preparations company in Amritsar, in Punjab state. The two merged their names to form the name for their company, Ranbaxy. Through the 1960s, India's pharmaceutical market remained dominated by foreign drug makers. The domestic pharmaceutical manufacturing industry was limited in large part to the dosage
Opportunity Analysis in Pharmaceutical industry Page 36

preparation, packaging, and distribution of existing formulations. Like many Indian drug companies of this period, Ranbaxy linked up with a European pharmaceutical company, and began production in 1962. Ranbaxy's owners sought additional financing and turned to a local moneylender, Bhai Mohan Singh. By 1966, the pair had built up debts to Singh of more than the equivalent of $100,000. When Singh, a native of Pakistan who had arrived in India at the beginning of that decade, came to collect, the Ranbaxy partners offered to turn over their company to him instead. Singh agreed to the deal and launched the Ranbaxy family on the path toward building one of India's largest business empires. Under Bhai Mohan Singh, Ranbaxy initially maintained its course of preparing and packing existing branded pharmaceutical products for the Indian market. The entry of Singh's eldest son, Parvinder, into the company in 1967, however, set the company on a new course to become a fully independent pharmaceutical company. Parvinder Singh had just graduated with a PhD in chemistry from the University of Michigan. The younger Singh's background in chemistry complemented his father's business flair. Yet Parvinder Singh himself quickly displayed a talent for business and was credited, in large part, with guiding the company into the ranks of the global pharmaceutical leaders. Ranbaxy's good fortune came in 1970, when the Indian government passed legislation that effectively ended patent protection in the pharmaceutical industry. Indian pharmaceutical manufacturers were now able to produce low-cost, generic versions of popular, yet expensive drugs, revolutionizing the drug industry in India and in much of the world. The Singhs quickly took advantage of India's large, highly trained, yet inexpensive workforce, building up a strong staff of chemists and chemical engineers. The company struck pay dirt early on, when it launched Calmpose, a generic formulation of the hugely popular Roche discovery, Valium. Released in 1969, Calmpose immediately placed Ranbaxy on India's pharmaceutical map. The company expanded quickly, and by 1973, Ranbaxy opened a new factory, in Mohali, for the production of active principal ingredients (APIs). This facility enabled the company to expand its range of generic medications and ingredients. To finance its growth, the company listed on the Indian Stock Exchange that year.

Opportunity Analysis in Pharmaceutical industry

Page 37

Ranbaxy's ability to produce generic medications at far lower cost than its branded competitors placed the company in a strong position for international expansion, especially in less developed markets. The company began its internationalization early on, launching a joint venture in Nigeria. That operation opened a production facility in Lagos in 1977. Developing Research Expertise in the 1980s Ranbaxy expanded its production at home as well, opening a new state-of-the-art dosage plant in Dewas in 1983. In 1987, the company became India's leading antibiotic and antibacterial producer when it completed a new API plant in Toansa, in Punjab, that year. The Toansa facility backed up Ranbaxy's plans to enter the U.S. market, and in 1988, the Toansa plant received Food and Drug Administration (FDA) approval. Ranbaxy formulated a new strategy, that of becoming a full-fledged pharmaceutical company. The driving force behind the company's new direction was Parvinder Singh, who was named the company's managing director in 1982. Nonetheless, Bhai Mohan Singh remained in control of the company. As part of its new strategy, Ranbaxy launched its own research and development center in 1985. The company also stepped up its marketing efforts, launching a new dedicated marketing subsidiary, Stancare, that year. By 1990, the company had a new product to sell, when Ranbaxy was granted a U.S. patent for its doxycycline antibiotic preparation. The following year, the company was granted a U.S. patent for its cephalosporin preparations, and the company built a new state-of-the-art facility for their production in Mohali. A major milestone for the company came in 1992, when it reached a marketing agreement with Eli Lilly & Co. The companies set up a joint venture in India to produce and market Lilly's branded pharmaceuticals for the domestic market. At the same time, Lilly agreed to begin marketing Ranbaxy's generic medications in the United States. In this way, Ranbaxy gained widescale access, backed by the highly respected Lilly, into the world's single largest drugs market. Parvinder Singh took over as head of the company--ousting his father in what was described as a family feud--in 1992. By then, Ranbaxy had grown into one of India's largest pharmaceutical
Opportunity Analysis in Pharmaceutical industry Page 38

companies on the basis of its generics production. Yet as pressure grew on India to begin enforcing international drug patents, the company itself appeared to have reached a crossroads-whether to remain focused on copying generic molecules, or to begin developing new drugs inhouse. The company chose the latter, and in 1993 adopted a new corporate mission to announce its reformulated ambitions: "To become a research-based international company." Global Branding for the New Century Ranbaxy made good on its mission--by the middle of the next decade, nearly 80 percent of its sales came from outside of India. As a first step, the company launched a new joint venture, in China, backing its entry into that market with a production facility in Guangzhou. The following year, the company established subsidiaries in London, England, and in Raleigh, North Carolina. In 1995, the company stepped up its U.S. presence with the purchase of Ohm Laboratories Inc., which gave the company its first manufacturing plant in that market. Ranbaxy then launched construction of a new and state-of-the-art manufacturing wing, which, completed that year, gained FDA approval. This new facility enabled Ranbaxy to step up its presence in the United States, and in 1998 the company began marketing its generic products under its own brand name. That year, in addition, the company filed an application to begin Phase I clinical testing on its first in-house developed NCE. The following year, the company's NDDS efforts paid off as well, when Bayer acquired the rights to market Ranbaxy's single daily-dosage ciprofloxacin formulation. Ranbaxy's international expansion continued as well, with the launch of marketing operations in Brazil. As the largest pharmaceuticals market in Latin America, that country was the cornerstone of the company's plans to expand throughout the region. Ranbaxy also expanded in Europe, with the agreement in 2000 to acquire Bayer's Germany-based generics business, Basics. The company also added production plants in Malaysia and Thailand. Parvinder Singh died in 1999 and longtime righthand man D.S. Brar took over as company leader, naming family outsider Brian Tempest as company president. The new management team continued Singh's expansion strategy, opening a new manufacturing plant in Vietnam in 2001.

Opportunity Analysis in Pharmaceutical industry

Page 39

Ranbaxy also sought new alliances, and in 2005 the company reached a global drug discovery and development partnership with GlaxoSmithKline. That agreement called for Glaxo to handle the later-stage development process for Ranbaxy created molecules. The company's international expansion also took a major step forward at the end of 2002, when it agreed to acquire RPG (Aventis) in France, that country's leading generic drugs producer. Ranbaxy's sales had by then topped the $1 billion mark, placing the company not only as the leader in India's pharmaceuticals industry, but also among the ranks of the world's top 100 pharmaceuticals companies. Ranbaxy also boasted a place among the world's top ten generic drugs producers. In addition, the company had advanced a growing number of its own NCE and NDDS molecules into clinical testing. The company's transition into research-based product development was seen as crucial as India announced its intention to enforce international drug patents at the beginning of 2007. Ranbaxy appeared prepared to meet this challenge, however, and confidently set its sights on boosting its annual sales past $2 billion by 2009 and to more than $5 billion by the beginning of the next decade. International growth remained an essential part of that strategy. The company began negotiations for a major acquisition in Germany at the end of 2006, which was expected to be completed in 2007. The company also launched construction of a new $100 million production facility in Brazil. Meanwhile, Ranbaxy continued to increase its research and development budget, with the goal of generating as much as 40 percent of its revenues from its in-house innovations by the 2010s. Ranbaxy expected to remain India's drug leader into the new century. Principal Subsidiaries: Basics GmbH (Germany); Gufic Pharma Ltd. (98%); Ohm Laboratories Inc. (United States); Ranbaxy (Hong Kong) Ltd.; Ranbaxy (Malaysia) Sdn. Bhd. (56.25%); Ranbaxy (Netherlands) B.V.; Ranbaxy (S.A.) Proprietary Ltd.; Ranbaxy (UK) Ltd.; Ranbaxy Do Brasil Ltda.; Ranbaxy Drugs and Chemicals Company; Ranbaxy Drugs Ltd.; Ranbaxy Egypt Ltd.; Ranbaxy Europe Ltd. (United Kingdom); Ranbaxy Farmaceutica Ltda. (Brazil; 70%); Ranbaxy Fine Chemicals Ltd.; Ranbaxy France SAS; Ranbaxy Ireland Ltd.; Ranbaxy Nigeria Ltd. (84.89%); Ranbaxy Panama, S.A.; Ranbaxy Pharmaceuticals Inc. (United States); Ranbaxy Poland Sp. z.o.o.; Ranbaxy PRP (Peru) S.A.C.; Ranbaxy Unichem Company Ltd. (Thailand; 88.56%); Ranbaxy
Opportunity Analysis in Pharmaceutical industry Page 40

USA, Inc.; Ranbaxy Vietnam Company Ltd.; Ranbaxy (Guangzhou China; 83%); Ranbaxy, Inc. (United States); Ranchem Inc. (United States); Ranlab Inc. (United States); RanPharm Inc. (United States); Rexcel Pharmaceuticals Ltd.; Solus Pharmaceuticals Ltd.; Unichem Distributors (Thailand; 99.96%); Vidyut Investments Ltd.; Vidyut Travel Services Ltd.

Ratio Analysis
1. Return on Equity (Percentages) =

Profit After Tax

Page 41

Opportunity Analysis in Pharmaceutical industry

Shareholders Fund
(In Billion)

Cipla Limited Profit After Tax (crs.) Total Shareholders Funds Return on Equity

March 2011 776.81 1554.6 49.96 %

March 2010 701.43 1554.6 45.12%

Ranbaxy Limited Profit After Tax (crs.) Total Shareholders Funds Return on Equity

March 2011 571.98 2102.1 27.21%

March 2010 -1044.80 2101.9 -49.71%

Opportunity Analysis in Pharmaceutical industry

Page 42

Interpretation: From above calculation we can say that the return of equity of the Cipla Company is more than the Ranbaxy in the both the years. The Cipla Limited has given the better return to their shareholder so this company is more efficient, while in case of the Ranbaxy Laboratory has committed the lose in 2010 and so not able to give any dividend in 2010.

2. Earning Per Share (Rs)=

Profit After Tax No. of Shares

(In Billion)

Opportunity Analysis in Pharmaceutical industry

Page 43

Cipla Limited Profit After Tax (crs.) No. of equity EPS

March2011 776.81 388.405 2

March 2010 701.43 350.715 2

Ranbaxy Limited Profit After Tax (crs.) No. of equity EPS

March 2011 571.98 476.65 1.2

March 2010 -1044.80 476.68 0

Opportunity Analysis in Pharmaceutical industry

Page 44

Interpretation: The Capital Market has become the major source of capital, both equity as well as bonds or debentures, for the industry. The ability of a company to raise the capital is largely depend on the quality of the promoters and the project as the first time entrants and then on the performance, financial position and investors servicing track record of the company. The investors in capital market put the value on the company equity on the basis of the Earning per share. The higher the per share earning the more preferential script for the investment. So, in case of the Cipla Limited they consistently gives 2 rupees per share but in the case of the Ranbaxy the earning per share in 2011 was 1.2 per share but in previous year in 2010 was 0 because in this the company has committed loss so they were untenable to give earning per share.

Opportunity Analysis in Pharmaceutical industry

Page 45

3. Debt-Equity Ratio =

Debt Equity

Cipla Limited Debt (crs.) Equity (crs.) Debt-Equity Ratio

March 2011 155.46 1554.6 0.10

March 2010 186.55 1554.6 0.12

Ranbaxy Limited Debt (crs.) Equity (crs.) Debt-Equity Ratio

March 2011 175.83 2102.1 0.08

March 2010 162.07 2101.9 0.07

Opportunity Analysis in Pharmaceutical industry

Page 46

Interpretation: This ratio helps to determine that whether the company is more depend on the debt capital for financing the assts. Higher the debts, more its financial risk of defaulting the interest and debts services. It is also hamper the capacity to raise the fund from the open market. A high capital content means not passing the cost differentiation of the debts (which is cheaper) and equity to the equity holders, companies therefore, needs to have an optimum capital structure. The standard ratio of the debt equity ratio is 1.5:1 while financing the Project so in case of the both company they are more dependent on their own capital but the Cipla Limited is more dependent on debts compare to Ranbaxy Laboratory.

4. Market Price Ratio(Times):

Market Price of the Equity Share Net Asset Value

Opportunity Analysis in Pharmaceutical industry

Page 47

Cipla Limited Market Price of the Equity Share Net Asset Share Market Price Ratio

March 2011

March 2010

5282.02

4327.38

Ranbaxy Laboratory Market Price of the Equity Share Net Asset Share Market Price Ratio

March 2011

March 2010

7482.99

7442.15

Interpretation: This ratio measures the market price of the share vis--vis to its Net Asset Value. While the NAV is base on historical values, the market price is on current value. It needs to understood that in case of the splits, right issues and bonus etcetera. The market price should be after necessary adjustment for these transactions. Market price of the share is generally higher than its NAV. At times, however the variety of the reason such share are undiscovered and industry is not doing well or the size of the equity is being large or market price is low despite of the industry doing well. The ratio thus reflect the investment potentiality of the share. It also gives the opportunity to the company to buy back its share from the capital market.

5. Price Earning Ratio (Times):

Market Price of the Equity Share Earning Per Share

Cipla Limited

March 2011

March 2010
Page 48

Opportunity Analysis in Pharmaceutical industry

Market Price of the Equity Share Earning Per Share Market Price Ratio 2 2

Ranbaxy Laboratory Market Price of the Equity Share Earning per share Market Price Ratio

March 2011

March 2010

1.2

Interpretation: P/E ratio is the most important, most sought after and most widely prevalent valuation share. Is pre eminent published in media and talks about its financial market. An Investor wanted money in equity share of a company will first find out what is the P/E and EPS of the shame. As extension of the direct relationship to EPS this ratio play most important role in valuation of the share in initial public offering.

CONCLUSION
Opportunity Analysis in Pharmaceutical industry Page 49

The global pharmaceutical industry has grown at 9% in 2009 and the focus of the pharmaceutical market continues to shift towards emerging countries where the growth rate is higher. As per industry reports, the size of Indian industry is increasing at more than 10% a year. Robust economic growth, availability of a skilled scientific workforce at low cost, a fairly stringent regulatory environment and largest number of US FDA approved plants outside the USA, makes India an attractive destination in the eyes of multinational conglomerates. Contract research and contract manufacturing is one area offering plenty of opportunities to India. After more than four decades as a closed economy and 14 years of reform, India has made its name in the global arena and laid the groundwork for rapid growth in Industries such as pharmaceuticals and IT. The foundation is in place for the pharmaceutical industry to substantiate its place in the world market, but further effort and unwavering commitment are needed for Indian pharmaceutical companies to emerge as undisputed leaders in the global arena. The various models used for analysis have evidently served the purpose. The Porters Five Forces model gives a fair idea about the industry in which a company operates and the various external forces that influence it. However, it must be noted that any industry is not static in nature. It's dynamic and over a period of time the model, which have been used to analyze the pharmaceutical industry may itself evolve. The S.W.O.T analysis has been used which analyzes the position of the industry with respect to its internal & external environment. P.E.S.T analysis has been used to examine the external environment of the industry.

BIBILIOGRAPHY

Opportunity Analysis in Pharmaceutical industry

Page 50

1. http://biotechindia.wordpress.com/2010/02/22/an-overview-of-the-indian-pharmaceuticalindustry/
2. www.pharmabiz.com 3. http://ezinearticles.com/?Impact-of-Product-Patent-on-FDI-in-Indian-PharmaceuticalIndustry&id=89594) 4. www.managementparadise.com

5. http://www.rediff.com/money/2006/aug/27pharma.htm
6. Strategic Value-chain Analysis of Indian Pharmaceutical Alliances by Gaurav Raizada & Atul Pall (IIM, Lucknow).

7. Capital Market Feburary 2010 issues.

8. Indian%20Pharmaceutical%20Industry-%20Vision%202010

Opportunity Analysis in Pharmaceutical industry

Page 51