STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

WHAT CAN BE DONE AS A BETTER ALTERNATIVE

To Improve The Ratio Of Development Costs And Sales Revenue ?
There Are Three Overlapping Components To Manage, Both Independently And
Sequentially:

Pre-Clinical Development From Patent To Target Product Profile (Tpp)

Selection.

Pre-Regulatory Approval From Choice Of Indication To New Drug

Application.

Pre-Marketing Activity From Target Market Profile(Tmp) To Launch.

WHAT ARE THE LIKELY FUTURE TRENDS AND THEIR

PROBABLE IMPACT ON INDUSTRY STRUCTURE AND
GROWTH?
Threats and opportunities are both global and local. The top competitors
will continue to be concentrated around us lead market in terms of product
development, regulatory approval and marketing. To compete on equal;
terms, non-American companies will set up and other major interests
inside the us pharmaceutical and biotechnology regional clusters. Europe
will continue to play a secondary role until regulatory harmonization is
achieved and market pricing and preference listings show greater

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

consistency across boundaries. It is unlikely that those macroeconomic
factor described elsewhere will have a major impact on the future
development of the industry. Good health is high on most personal, family
and social agendas within the advanced industrialized/information
economies. One significant change will be the lower-cost availability ofpatented drugs, however. This predictable and inevitable development will
lower the drugs bill in the developed world, creating budgetary space for
the new expensive drugs sought in particular for generic and geriatricbased diseases. The
Only contentious issue is who pays for such treatment ad for a prolonged
active life.
In the rest of the world, cheaper generic drugs will be much more readily
available to those economies that can afford it. A soft-landing recession in
the us and continued economic under-performing in Europe and Japan will
favor the us based pharmaceutical giants. This may lead towards more
selective acquisitions than mega-mergers, building global development
capabilities across chosen therapeutic areas. In discovery and in
marketing, collaborative partnerships, licensing in and out should grow
exponentially. The global development queen bees may command a hive
of innovative worker bee scientists, accessing a wide discovery field of
new active substances. Access to global marketing muscle will suit the
local producers of potential blockbuster drugs. Portfolio management will
be more disciplined and focused.
Those are the ideal trends. They should happen sooner rather than later,
particularly if healthcare cost becomes an even more serious issue for
both providers and payers. While a continued but slower pace of
horizontal consolidation is likely, convergence with biotechnology and
genetics should stay out fashion for a few more years. Vertical integration,
as seen in Merck and AstraZeneca, will remain a corporate parental whim,

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

unless real therapeutic breakthroughs depend on it. Continued global
differences and an imperfect market will inhibit a fully integrated disease
management programme. There may nevertheless be exceptions, such as
specialized cancer treatment and combined therapies for such serious
lifestyle diseases as obesity.
Perhaps the most significant future change will be in product
harmonization and global marketing. Branding, packaging and point-ofprescription promotion can only improve. Standards have been low,
creativity misapplied and last-minute strategic decisions taken outside the
context of an integrated marketing plan. Psychology plays a significant
part in the healing process, if only in resolving many of the difficulties
arising from non-compliance-failing to take the medicine. The expertise
exists within the industry. Novartis, Johnson $ jonshan, GlaxoSmithKline,
Procter and gamble and others have a strong fmcg or otc pedigrees.
Parental influence is already having an impact here. The driving force is
the force is the opportunity through franchise long after patents have
expired.
The

twenty-first

century

offers

challenging

opportunities

for

the

pharmaceutical company, big or small or even stuck in the middle. Further

consolidation among the giants should hold the combined market share of
the top 20 above 65 percent to 2010 and the market should double to
$680 billion. There will be a few significant breakthroughs from the new
technologies giving the emerging pharma company entry into global
markets. The temptation of access to development/marketing resources
and a deal with a big player has recently forged this kind of alliance:.
interneuron to Pfizer/Warner-Lambert, vertex to Novartis, millennium to
Aventis ands oxford glycosciences to glaxo.

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

The greatest pressure will fall on those companies ranked 21 st to 100th, not
big enough to attract or search for the new blockbuster drugs. As middlemarket squeeze is a familiar and present characteristic in other mature
markets such as automotive, computing or banking. Niche strategies are a
way forward, since smaller target markets lower entry costs and
strengthen portfolios through handpicked licensing deals. Thinking small
before the giants lessen their fixation on blockbuster drugs is the narrow
growth corridor for 50 or so medium-size companies in Europe alone. In
Germany, the largest European market, Merck, gulden and Schering could
press bayer and boehringer ingelheim for a place in e top twenty. To
support such rapid growth they need, in particular, long-term access to the
$100 billion us market, only achievable through equal partnerships with
other of a similar size.

GLOBAL PHARMA SALES IN 2002 BY REGION

% of Global
% Growth*
Region
Sales Sales
(constant $)
North America
203.6 51
12
European Union
90.6
22
8
Rest of Europe
11.3
3
9
Japan
46.9
12
1
Asia, Africa and Australia
31.6
8
11
Latin America
16.5
4
-10
TOTAL
400.6
1
8
*Over the previous year; totals may not tally due to rounding off error
Figures in US$ billion; Source : IMS World Review 2003

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

LEADING THERAPEUTIC SEGMENT IN GLOBAL PHARMA SALES

Sales %
of
Audited World
% Growth
in
Global
Rank
Therapy Class
2002 Sales
(constant $)
1
Antiulcerants
21.9
6%
9%
Cholest.
&
Triglyceride
2
21.7
5
12
Reducers
3
Antidepressants
17.1
4
5
4
Antirheumatic Non-Steroidals 11.3
3
1
5
Calcium Antagonists, Plain 9.9
3
-1
6
Antipsychotics
9.5
2
19
7
Erythropoietins
8.1
2
18
8
Oral Antidiabetics
8
2
2
9
ACE Inhibitors, Plain
7.8
2
0
Cephalosporins
&
10
7.6
2
-3
Combinations
TOTAL
122.8
31%
6%
Figures

in

US$

billion,

Growth

over

previous

year

Source : IMS World Review 2003

Leading products in 2002 global pharmaceutical sales*
Audited World
Sales in
% Growth
Rank
Therapy Class
2002
(constant $)
1
Lipitor
8.6
20
2
Zocor
6.2
13
3
Losec/Prilosec
5.2
-19
4
Zyprexa
4
21
5
Norvasc
4
6
6
Erypo
3.8
18
7
Ogastro/Prevacid
3.6
3
8
Seroxat/Paxil
3.3
13
9
Celebrex
3.1
-1
10
Zoloft
2.9
12
Total
10
Leading
44.7
11
Products
Figures

in

US$

billion,

Growth

over

previous

year

Source : IMS World Review 2003

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Production - Pharmaceutical Bulk Drugs

Production - Pharmaceutical Formulations

Exports

Imports - Composition

The Indian pharmaceutical industry is a success story

providing employment for millions and ensuring that
essential drugs at affordable prices are available to the vast
population of this sub-continent.

INTRODUCTION:

INDIAN HEALTH INDICATORS

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

1981

1991

2000

Total Population (millions)

685

844

967

Urban Population

137

169

193

Rural Population

548

765

774

Life Expectancy at Birth

50.50 Yr.

59.0Yr.

64.0Yr.

Infant mortality per 000 Live Birth 114

80

60

Death Rate per 000

15

9.6

8.2

Birth Rate per 000

37.2

29.9

23.1

INDIAN PHARMACEUTICALS WITH GLOBAL PERCEPTIVE

The Indian Pharma market is valued at US $ 4.5 bn, representing 1.6% of
the global size and growing at an average rate of 8-9%. However, the annual per capita
drug expenditure is amongst the lowest in the world.
India is now a self-sufficient country for its pharma requirements. From simple headache
pills to sophisticated antibiotics and complex cardiac compounds, almost every type of
medicine is now made in the country. Infect more than 25% of formulations produced in
the country (US $ 3 bn) are exported.
Currently, only process patents are recognized in India. However, by virtue of India being
a member of the World Trade Organisation (WTO) and a signatory to the General
Agreement on Tariffs and Trade (GATT) it is bound recognize product patents, latest by
2005. Thus the country is committed to free market economy and globalization.
The process of consolidation, which is now, a generalized phenomenon in the global
pharma market, has started in India too. The industry is witnessing a consolidation phase

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

with Indian pharma companies increasingly looking at stepping up growth by acquiring
companies/brands.
The drug price control order (DPCO) continues to be a menace for the industry. The
pricing authority arbitrarily sets prices of drugs that fall within its ambit without giving
due consideration even to the costs of production. This has made the profitability of the
sector susceptible to the whims of the pricing authority. Companies are resorting to
aggressive product launches to dilute DPCO effect. However, as per the recent budget
proposal the current list of 74 drugs under DPCO coverage would be reduced
considerably to 29. This is expected to increase profitability of companies having
relatively older portfolios, particularly MNCs.
The average R & D spend in India in-spite of growing at a CAGR of 18% over last five
years is just 1.9% of sales as against 9-10% spend by global pharma companies. Though
miniscule in comparison to global benchmarks, Indian companies are stepping up their
research activities to make themselves more self sufficient in terms of product
development ahead of the year 2005 deadline. Companies like Dr. Reddy's and Ranbaxy
have already achieved reasonable measure of success in their R&D efforts.
Another peculiar feature of the domestic R&D initiative is a lack of facilities and
resources to develop a molecule, conduct trials and then launch the product. Indian
companies will thus have to depend on their international peers to undertake the more
expensive clinical trials and product launches.

INDUSTRY SENARIO

The pharmaceutical industry comprises 20,053 manufacturing units and provides

employment to approximately 33 lakh people. The total production in the country
in 1999-2000 was Rs.19, 737 crores with formulations accounting for Rs.15,960
crores and bulk drugs contributing Rs.3,777 crores. The total capital investment
in the pharmaceutical industry was Rs.2,500 crores with R&D expenditure being

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Rs.320 crores. The countrys exports stood at Rs.6, 631 crores in 1999-2000,
imports were Rs.3,441, a net surplus of Rs.3,190 crores. (Source: OPPI)
The leading 250 pharmaceutical companies control 70 per cent of the market
with the market leader having a share of around seven per cent. Over 60 per
cent of Indias bulk drug production is exported and the balance is sold locally to
other formulators. With more than 85 per cent of formulation production in the
country sold in the domestic market, India is largely self-sufficient in the case of
formulations, even though some life saving, new generation, under patent
formulations continues to be imported, especially by MNCs.

GROWTH OF PHARMACEUTICAL INDUSTRY (Rs.Crores)

Capital
Investment
Production :

Formulations
Bulk Drugs

Import
Export
R&D

1965-66
140

1980-81
500

1997-98
1840

150
18
8.20
3.05
3

1200
240
112.54
46.38
14.75

12068
2623
2868.00
5353.00
220.00

1998-99
2150
13878
3148
3128.00
5959.00
260.00

1999-2000
2500.00
15960.00
3777.00
3441.00
6631.00
320.00

Expenditure
Source: OPPI
India is one of top five manufacturers of bulk drugs in the world and is among the
top 20 pharmaceutical exporters in the world. The industry manufactures almost
the entire range of therapeutic products and is capable of producing raw
materials for manufacturing a wide range of bulk drugs from the basic stage.

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

The government has taken measures to give impetus to domestic production of
drugs and formulations, creating an environment conducive for channelizing new
investments into the pharmaceutical sector. However, the industry and experts
feel that time has come for the government to announce new policy initiatives,
particularly relating to the research and development and pricing regime, in order
to propel the industry into a new growth orbit as well as to face the challenges of
a WTO-led trading system and a TRIPS-driven product patent environment.
Given a conducive policy environment, the R A Mashelkar committee report has
set the following targets for the industry by the year 2005:

Achieve five times of 1997-98 turnover (Rs.14,691 crores)

Attain cumulative dollar exports growth rate of 20 per cent per annum.

List at least 20 pharmaceutical companies in NASDAQ.

Attract atleast Rs.500 crores investment in new start-up R&D companies.

Attain three times increase from the 1997-98-market capitalization figure.

In the field of pharmaceutical R&D, the committee has set the following targets:

Attain investment in R&D of Rs.1000 crores per annum.

File ten new INDs annually.

File over 500 patents annually.

Export pharma R&D worth over Rs.200 crores per annum.]

EXPORTS

10

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Exports form a vital component of the growth strategy of most Indian pharmaceutical
companies. The industry has made rapid strides in this area in the last few years and
export sales of companies such as Ranbaxy have been growing at a faster rate than their
domestic sales. The compounded annual growth rate of pharmaceutical exports over the
last five years has been more than 20 per cent although in 1999-2000, exports grew by 11
per cent.
In 1999-2000, on a region-wise basis, Indias biggest export markets are East Asia
(Rs.1527 crores); West Europe (Rs. 1488 crores); Africa (Rs.780 crores); North America
(Rs.766 crores) and East Europe (Rs.670 crores). On a country-wise basis, Indias five
largest export markets are USA (Rs.671 crores); Russia (Rs.493 crores); Germany
(Rs.325 crores); Hong Kong (Rs.356 crores) and Nigeria (Rs.257 crores).

Exports (Rs.Crores)
YEAR

Finished

% of Total

Formulations

Bulk

Drugs % of Total

Total

including
Quinine Salts

1997-98

3180

59

2173

41

5353

1998-99

3194

54

2764

46

5959

6631

1999-2000
Source : OPPI

While overall pharmaceutical exports have grown in 1999-2000, Indias exports to a few
of its leading markets have declined. For instance, according to a CHEMEXCIL report,
Indias pharmaceutical exports to USA have declined to Rs.671.8 crores in 1999-2000
from Rs.724.5 crores in 1998-99; Germany to Rs.325 crores from Rs.375 crores; Hong

11

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Kong to Rs.356 crores from Rs.404.5 crores and exports to China have declined to
Rs.179.5 crores from Rs.137 crores.
Notwithstanding the decline in exports to some key markets, Indias export prospects
remain bright. As against a global pharmaceutical industry of over $300 billion, Indias
export sales are in the region of $1.5 billion The potential for growth is enormous, a 20
per annual growth in exports over the next five years will take the overall export figure to
$4 billion by 2005. The next five years will witness a spate of patent expires of
blockbuster drugs that will accord opportunities to supply bulk drugs and formulations to
advanced markets.
TOP COUNTRIES OF EXPORTS OF INDIAN PHARMACEUTICALS
(Rs.Crores)
Name of the Country

1999-2000 (Rs.)

USA

672

RUSSIA

493

GERMANY

325

HONG KONG

356

U.K.

257

SINGAPORE

245

NETHERLANDS

219

IRAN

180

BRAZIL

163

VIETNAM

141

CHINA

137

ITALY

151

SPAIN

129

NEPAL

123

12

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

SRI LANKA

124

JAPAN

120

Source: CHEMIXCI

MARKET SEGMENTATION

The industry manufactures bulk drugs and formulations of which formulations

constitute about 82%. Formulations can further be classified as essential drugs
and common drugs.
Essential drugs comprise five major sectors - cardiovascular, antibiotics,
antibacterial, anti-TB and anti-parasitic.
Common drugs comprise six major sectors - rubs and balms, cough and cold
preparations, general nutrients, vitamins and minerals, tropical ointments, and

13

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

anti-inflammatory and analgesics. Antibiotics constitute the largest therapeutic
segment with a market value of over Rs 2,800 crore.
Of late therapeutics for lifestyle diseases like cardiovascular, diabetes etc are
growing at a faster rate than traditional antibiotics, in view of the increase in
incidence of these diseases due to the change in the life style of the Indian
population in general, and urban population in particular.
Given the metamorphosis that the industry is undergoing, there could be further
segmentation in the post product patent era as research based pharma
companies, generics, contract research firms etc.

PHARMACEUTICAL INDUSTRY IN INDIA

14

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

INDIAN HEALTHCARE SCENARIO

Going by measures of improved healthcare in terms of life expectancy and infant

mortality, India has certainly made progress. Life expectancy during the period
(1951-2003) has increased from 37 to 65 years. Infant mortality (per 1000 live
births) during the same period has come down to 64 from 150. Also, death rate
(per 1000) and birth rate (per 1000) have also come down from 25 to 8 and from
41 to 25 respectively during the same period. The pharmaceutical industry is a
major contributor for the improvement in health indicators. This is noteworthy,
considering the fact that neither sanitation nor environmental hygiene has
improved significantly during the period.
India with 16% of world population, has 18% of worldwide mortality and 20% of
worldwide morbidity. The investment on healthcare, however, is only 1% of the
world healthcare investment. Moreover, allocation on healthcare in five-Year
Plans has declined to 1.4% of total plan outlay during 10th Five Year Plan (200203 to 2006-07) from 3.3% in the 1st Five Year Plan (1951-52 to 1955-56). Hardly
3.5% of the population (mainly public service and industrial employees) are
covered by health insurance. India carries a mixed disease burden age-old
infectious diseases; re-emergence of diseases like T.B. and malaria; dreaded
diseases like cancer, AIDS as also lifestyle diseases like cardiovascular, diabetes
and depression.
The changing disease profile calls for more advanced and innovative therapies. A
more substantial share of population (about 200 million middle class with
disposable incomes and health consciousness) will be able to pay for medicines

15

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Improved literacy rates and access to medical information will lead people to use
more medicines, being the least costly component of total healthcare. The per
capita expenditure on medicines, currently at U.S.$ 5.6, is likely to increase
substantially.
Ageing population, focus on preventive aspects such as vaccination and
immunization and shifting disease patterns will create new opportunities and
drive robust growth of pharmaceutical companies. People are naturally looking
forward to lead longer, healthier and more productive lives. This opens up new
vistas of research into newer and better medicines.

R&D IN PHARMA INDUSTRY

INDIAN PHARMA INDUSTRY

The Indian drug and pharmaceutical industry has made rapid strides over the
years. Today the industry is manufacturing practically the entire range of the
therapeutic products; it is capable of producing raw materials for the manufacture
of a wide range of bulk drugs from the basic stage and a range of pharma
machinery and equipment. The industry has achieved global recognition as a
"low cost producer of quality bulk drugs and formulations". Leading Indian
16

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

companies have established marketing and manufacturing activities in over 60
countries including USA and Western Europe. The phenomenal progress made
by the industry over the years is depicted in Tables 1 & 2.
Table 1. TEMPORAL PROGRESS OF THE PHARMA INDUSTRY

Year

Status

1950s

Formulations

Mostly imported MNC dominance

1960s

Formulations

Domestic endeavour on imported bulk drugs

Some imports.

1970s

Formulations
Bulk drugs

1980s

Indigenous manufacture by domestic companies

Formulations

Marginal

imports

(<5%)

Bulk drugs

Significant indigenous manufacture (based on domestic

R&D)

1990s

Table 2.

Formulations

Significant

exports,

minimal

Bulk drugs

Self reliant (exports > imports)

imports

(<

2%)

GROWTH OF PHARMA INDUSTRY

(Rs. in Million)
Compound

INDICATORS

1965-66

1994-95

1997-98

growth over

17

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

94-95 (%)
Investment

1,400

12,000

18,400

53.3

30

1,400

2,200

57.0

1,500

79,350

1,20,680

52.0

180

15,180

26,230

72.8

30

9,240

28,050

32.9

30

12,607

21,730

58.0

2,000

8,250

R&D Expenditure
Formulations
Turnover
Bulk Drugs

Exports

Formulations
Bulk Drugs

No. of manufacturers

Source: published reports

The year 1994-95 was the turning point for the industry due to the advent of the
WTO. The industry has since sought to reorient itself from looking inwards to
being a player in the global arena. The thrust on R&D by the Indian
pharmaceutical industry is reflected by the increased proportion of R&D
expenditure to both investment and turnover.

18

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

R&D IN PHARMA INDUSTRY

Investment in R&D by industry as a whole in India has been low, only around
0.6% of the turnover. In the Indian pharmaceutical industry the average R&D
expenditure is around 2% of the turnover contributed by around 150 companies.
The low investment in R&D is due to the low levels of profitability and
comparatively small size of the companies. However, the scenario is now
changing. Some pharma companies now spend nearly 5% of their turnover on
R&D. In addition to R&D in industry, substantial pharma related R&D is carried
out in publicly funded research organizations, mainly by the laboratories of
Council of Scientific & Industrial Research (CSIR), Indian Council of Medical
Research (ICMR), around 25 universities and a few pharmacy colleges. Some of
the new R&D units in industry and a few of the publicly funded laboratories are
equipped with sophisticated laboratory equipment, instruments and pilot plant
facilities. The R&D manpower is generally highly qualified and proficient in
conventional techniques of pharmaceutical R&D.
Hitherto, R&D was largely concentrated on process development for known bulk
drugs albeit through novel and innovative process routes, invariably substituting
for expensive imported raw materials enhancing the productivity and efficiency of
the processes, besides research on formulations and known drug delivery

19

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

systems. Indias R&D forte has been in synthetic organic chemistry and process
development. A few new drugs, using conventional screening techniques, have
emerged from the Indian R&D, but none of them have been blockbusters.
Not much R&D is being pursued in traditional systems of medicine. Even the
limited R&D is concentrated on standardization of raw materials and final
products. A few companies are now using modern scientific methods and limited
biological screening as well as toxicity studies for validation of formulations.

STRATEGIES

FOR

SMALLER

INDIAN

PHARMACEUTICAL COMPANIES
Many leading Indian Pharmaceutical companies relied heavily on the domestic market
until the mid-1990s. Most recently, many Indian Pharmaceutical companies have taken
advantage of the lucrative global generics market. The anticipated $ 80 billion worth of
blockbuster products set to lose patent protection by 2008 will drive growth of the U.S.
generics market between 2002 and 2008. Within this market, one of the stronger forces is
the economically competitive generic drugs companies from China and India. India
especially is well positioned in the industry with their product development skills through
advanced chemistry and low cost manufacturing.
According to SSKI report, Ranbaxy was the first Indian Pharmaceutical company
to recognize and take advantage of the generics market. Ranbaxy declared a
revenue of USD 1 Billion I 2004, with-65% of the revenues being generated in
Regulated markets and USA accounting for 50% of the total revenues. As one of

20

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

the ten largest generic companies in Indian player. Ranbaxy has established
itself as a world player, not just an Indian player. Ranbaxy already sells 70 drugs
in the US, and has a pipeline of 40 products pending approval. In the next five
years, Ranbaxy may be one of the top five pharmaceutical companies in the
world.
The other tow companies that are also very active in the world generic drug industry are
Dr Reddy and Cipla. Dr Reddys estimated generics sales in USD 100 million in F.Y2004.
Sun Pharma and Wockhardt have reached USD 50 million in generic drug sales. Suns
US subsidiary, Caraco Pharma has turned around and is likely to clock sales of US$50
mn in 2004. Ranbaxy, DRL and Sun now, have their own sales team in the US, which
gives them a competitive edge.
Cadila is rapidly expanding its infrastructure to position itself for the generics market. Is
acquisition of a generic company in France, US FDA approval of its Moraiya plant,
opening up subsidiaries in US and applications of DMF and ANDA are major steps in
these directions,
The small companies are also gathering pace. Aurobindo has invested over US$100 mn
over the last four years to upgrade its manufacturing facilities to meet international
standards. Its strengths include a wide range of portfolio and complete integration,
especially in the SSP (synthetic smi penicillin) segment.

Lupins export turnover (32% of sales in F.Y 2003) is also growing rapidly, most of it
coming from APIs. Also, it has made inroads into regulated markets like US and Europe.
Orchid has already make a mark in area of injectables, and its strengths include
international standard facilities. It has already entered into a tie up with Apotex of US to
supply injectables.

21

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

IPCA is a fast growing generics company, which is now planning to enter the US market.
It is already a significant player in the EU market with a significant part of exports going
to UK.
Shasun is a generic bulk suppler to both generic companies and innovators. It is now
diversifying its product portfolio to reduce dependence on three drugs. It is also planning
to get into contract research.
Indian firms are arguably the world best in drug development (of both APIs and finished
dosages.) With their superiority established in process development they are refining their
legal skills to fight the innovator companies in patent challenges. While the smaller
companies are devising strategies, the large ones have already established their own
networks. By 2005, Indian companies are expected to file 60 ANDAs almost 20 % of
total filling. The scenario in bulk drug supply is even better. Indian pharma companies
had a 25% share in the total Drug Master Files (DMFs) filed with the US FDA in the
quarter March June03. Indian companies have also shown their excellence in
developing non-infringing processes. For instance, Ranbaxys non-infringing process for
generic version of cefuroxime axetil enabled it to be the sole seller of this generic for
almost 17 months, product. However, Few firms apart from Ranbaxy and DRL have the
legal skills to make the most of the generics opportunity.
In order for the smaller Indian Pharmaceutical companies to take advantage of this giant
market, there are various ways of entering and capturing the market share. This market is
highly competitive as these Indian companies are not only fighting with the domestic
giants who are currently active in the generic drugs industry, but also with the
multinational corporations and many American and European specialty pharmaceutical
companies and generics drugs industry, but also with the multinational corporations and
many American and European specialty pharmaceutical companies and generics drug
companies in the space. In order for the smaller Indian Pharmaceutical companies to

22

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

survive, it is vital for look for longer term gain instead of focusing on shorter term
outlook.

PARTNER UP WITH LARGER INDIAN COMPANIES

With distribution channels and know-how already established, it might be worth
partnering up with the large Indian pharmaceutical companies. The large Indian
drug companies i.e. Ranbaxy, Dr. Reddy, Cipla, can help the smaller companies
by offering their distribution channels and the smaller pharmaceutical companies
can offer their technology, their current research, etc. Of course, this is under the
assumption that Ranbaxy and Dr. Reddy and likes are willing to partner up with
the smaller Indian companies. If the smaller companies have a special product to
offer, this might be more feasible. However, the large companies might shy away
from helping the smaller companies become their next competitors.

PARTNER WITH LARGER U.S OR EUROPEAN DRUG COMPANIES

If the partnerships with the domestic companies are difficult due to

reluctance of the larger Indian companies, it might be an attractive
option to seek international partnership. Many U.S and European
drug companies, especially mid-size companies, would welcome the
opportunity to gain exposure to and partner with Indian
pharmaceutical companies.

OUTSOURCING OPPORTUNITES IN PHARMACEUTICAL

INDUSRTY

With large intellectual capabilities and existing cost advantage at all levels, India
has become the outsourcing capital to the U.S and European companies in many
23

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

different industries; I believe that one of the most attractive industries beyond IT
services and call centers are the pharmaceutical industries. Many companies,
such as GE with their new John F Welch Technology center has identified
immense amount of intellectual base that currently exist in India. Many large U.S
and European Pharmaceutical companies already have outsourcing different
functions such as drug discover, clinical services, and manufacturing
domestically and internationally. Kotak estimates that the global outsourcing
opportunity in pharmaceuticals for the Indian companies, which was at $24 billion
in 2002, will rise to $48 billion by 2007. With additional pressure to cut cost
couple with thinning pipeline, the U.S and European pharmaceutical companies
are looking for creative solutions. Indian pharmaceutical companies are well
positioned to capture a large share of outsourcing opportunities with the worlds
larges pool of trained analytical and development chemists and low
manufacturing costs. In addition, Kotak also expects the big firms like Ranbaxy
and Dr Reddy are not likely to be the ones that will look at manufacturing costs.
In addition, Kotak also expects the big firms manufacturing outsourcing as a
major factor for their revenues. This will open up a tremendous opportunity for
small and medium sized Indian pharmaceutical companies to capture this market
that is forecasted to almost double in next 3 years.

RECENT TRENDS

The major players of the Indian pharma industry are aggressively increasing their
overseas business, which will help the domestic pharma industry to grow from
the present US$ 6 billion to US$ 25 billion by 2010, says a report by McKinsey.

24

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

The domestic formulation market grew by 6.3% to Rs 18212 crore in the twelve
months ended Feb'03 according to ORG MAT Feb'03. Though GlaxoSmithKline
(including Burroughs Welcome India) reported 1.5% fall in sales to Rs 1075 crore
during this period, it retained the top slot by wresting 5.91% market share. Cipla
reported impressive 13.7% rise in domestic formulation sales to Rs 968 crore
and wrested a market share of 5.32% and finished second. Ranbaxy
Laboratories reported 4.8% increase in domestic formulation sales to Rs 840
crore, thereby achieving a market share of 4.62%, which helped it to achieve the
third slot.
During the above period, Dr Reddy's Laboratories reported impressive 17.2%
jump in domestic sales to Rs 513 crore, enabligh it to gain 2.82% market share,
and thereby finished sixth. On the otherhand, Sun Pharma reported 16.0% rise
in domestic sales to Rs 538 crore, leading to a market share of 2.96%, enabling it
to finish fifth among top ten players.
The Drugs Controller General of India (DCGI) has approved 44 drugs during the
seven months ended Oct'02, of which Sun Pharma and Cipla have got approval
for six drugs each. Ranbaxy Laboratories will become the first Indian pharma
company to receive royalty on original research. The company will receive
royalty from 2003 from Bayer AG when Cipro XR (a once a day formulation)
launches the product of 500 mg strength and 1000 mg strength. Bayer AG has
already received USFDA approval for 500 mg product and it expects approval of
1000 mg product in the middle of 2003.
A recent Crisil report on Indian Pharmaceutical Industry has projected that the
demand for formulations is expected to increase at a CAGR of 10% in the next
five years to Rs 25000 cr by FY 2005-06. It further expects that lifestyle segment
would replace lower margin anti-infective sales in the domestic markets.
The US$ 4.5 billion Indian pharma industry is expected to touch US$25 billion by
2010. Amongst high growth segments are IT-related new horizon, novel

25

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

research, bioinformatics, genomics and proteomics.
research

include

pharmacogenomis

The potential areas in

(personalised

medicine),

bio-

pharmaceuticals, outsourcing utilities, contract research and as a tool and

technology partners in informatics.
On the other hand, in June'02, a global report on biotechnology by Ernst & Young
predicted that the Indian Pharma Industry will grow to US$ 9 billion by 2005, from
US$3 billion in 1997. It further said that India's expertise in manufacture of
generic pharma products, and this has also provided a huge platform for the
sunrise biotech industry.
Further, generic exports are expected to improve the profit margins of leading
domestic pharma companies. These large players are expected to move up the
value chain of research from low end reverse engineering to analogue research
and NDDS.
In Dec'01, the government notified that Good Manufacturing Practices (GMP) will
be mandatory under Schedule M of the Drugs and Cosmetics Act for all drug
units in the country. However, the government has given time upto Dec'03 for the
drug units to become GMP complaint.
According to the industry sources, the new GMP will put them in difficulty as they
need to supply fresh stocks of bulk drugs that should match the claimed shelf life
of the final product. The earlier version of GMP regulations was only concerned
with the shelf life of the final product and not all the ingredients that goes into
making it. Nevertheless, the country's moves closer to the GMP practices in the
advanced countries will not only ensure safe medicines for the domestic market
but will also facilitate greater exports of bulk drugs and pharmaceuticals.

KEY SUCCESS FACTORS

26

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

The noteworthy features of the Indian Pharmaceutical Industry are immense
flexibility in the industry to move from one drug to another with ability to respond
quickly to new demands and needs, strong distribution networks with strong presence in
the foreign markets (net exporter of bulk drugs & formulations), advantage of low
production and R&D costs as compared to other nations and availability of high skills in
process development, low R&D expenditure by Indian manufacturers mainly due to
relative small size and resource base of individual units compared to major international
Pharma companies limiting R&D options, world class manufacturing plants approved by
US-FDA, and low profit margins as it is a highly fragmented industry with intensive
competition.

CRITICAL SUCCESS FACTORS

Investment in R $ D (especially basic research), an extensive distribution

network and marketing strategies, new product introductions, penetration into global
generics markets, effective anti-dumping duties, logistics management nad brand building
are critical.
Compliance with the international GMPis critical to expand the markets
beyond the domestic market. Likewise, compliance with domestic GMP, which will
became mandatory from Dec03 are critical for sustaining in the domestic market.
Domestic pharma companies which target global generics and in US in
particular, have to gain vast expertise to challenge the patent holders, that are likely to
take the generic firms to court, just to protect their patents even after their expiry.
Likewise innovations are also likely to be challenged before court, and the home grown
companies need to specialize and gain expertise in dealing not only with chemicals but
also on and off the court, to reap benefits from their research.

27

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

RATIO ANALYSIS

Structure Ratio:

Capital structure indicates the debt capital proportion in the capital

structure plays an important role to the operating income.

Composition
16%
32%

28%

Net worth

Reserves & surplus

Borrowings

24%

Current liabilities & provisions

The above chart shows the composition of the total liability, it includes networth,
free reserves total borrowings. The chart shows the average percentage data for
the years 1999-2003.Thew composition shows 32.62% of Net worth, 25.39% of
Reserve & surplus, 25.02% of Borrowings, 16.96% of current liabilities &
provisions.

28

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Industry Growth:

This chart indicates that there ia an upward trend for total income, pbdit and pat.
There is a very huge difference between total income and pbdit, which indicates
that the proportion of raw materials, operating and administrative expenses are
INDUST RY GROWT H

RUPEES

350000
300000
250000

Total Income

200000

PBDIT
PAT

150000
100000
50000
0
1999 2000 2001 2002 2003
YEAR

very high. high Difference between pbdit and pat arises because of high rate of
depreciation, interest rate and tax rate. Industry maintains PAT below 10% of
total income.
PAT as a % of Net Sales:

PAT as a Net Sales

10

8.57

8
6
4

6.28
3.67

3.35

1999

2000

4.03

2
0
2001

2002

2003

year

This ratio determines the overall profitability of the industry due to various factors
such as operational efficiency, trading on equity, etc. The ratio of the firm has
increased from 3.87% to 8.57% in the period of 1999-2003, which shows that the
industry has greater capacity to withstand adverse conditions like decline in sales
& increase in the cost of production.
29

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Appropriation of profit(as a % PAT):

Appropriation of profits(as a% of PAT)
39%

61%

Dividend

Retained Profit

In the overall pharmaceutical industry the average dividend

distributed to the investors is 61% and the average retained profit is
39%. It means that the amount distributed as dividend is higher than
the investment done from the industrys PAT. So as per the customer
point of view the pharmaceutical industry is profitable.
Dividend as a % of PAT:
Dividend as a % of PAT

99.61

100
90
80
70
60
50
40
30
20
10
0

99.61

69.8

63.09

43.44

1999

2000

2001

2002

2003

Year

This ratio reflects the dividend distributed from the profit after tax of
the industry. Dividend distributed to the investors was highest 99.81%
in the year of 2000 and 2003. It implies that these both the years are

30

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

highly profitable in the pharmaceutical industry as per customers

point of view.
Liquidity Ratio:
CURRENT-QUICK RATIO

1.538

1.519

TIMES

1.5
1

0.56

1.494

0.62

0.54

1.551

1.435

0.68

0.54

0.5
0
1999

2000

2001

2002

2003

YEAR
quick Ratio

Current Ratio

A quick ratio of 1 to 1 is considered to represent a satisfactorly

current financial condition. But here the quick ratio is less than one.
A current ratio of 2 to 1 or more is considered satisfactory. But here the current ratio is
below 2 to 1.
It may be interpreted to be insufficiently liquid .
Retained Earning as a % of Total Debt:

Retained Earning as a % of Total Debt

20
18
16
14
12
10
8
6
4
2
0

19.01

10.04

3.65

3.14
0.03

1999

2000

2001

2002

2003

Year

31

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Retained Earning as a % of Gross Fixed Asset:

Retained Earning as a % of Gross Fixed Asset

12
11
10
9
8
7
6
5
4
3
2
1
0

11.9

6.99

2.67

2.29
0.02

1999

2000

2001

2002

2003

Year

Debt-Equity Ratio:

TIMES

DEBT EQUITY RATIO

1.5
1

0.955

0.991

1999

2000

0.817

0.839

2001

2002

0.649

0.5
0
2003

YEAR

Interest Coverage Ratio:

TIMES

INTEREST COVERAGE RATIO

4
3
2
1
0

3.54
1.76

1.67

2.05

1999

2000

2001

2.57

2002

2003

YEAR

32

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

The interest coverage ratio shows the number of times the interest charges
are covered by funds. The ratio is increased from 1.76% to 3.54% from the
year 1999-2003.It indicates that craze to utilize debt amount is decreasing
and the industry rely more on owners fund.

Statistics
Foreign Trade of Pharmaceuticals from India
Year
Exports*
% growth
(in crores)
1996-97
4341.8
n.a.
1997-98
5419.32
24.82
1998-99
6256.06
15.44
1999-2000
7230.16
15.57
2000-01
8729.89
20.74
#
of
medicinal
and
*

of

Drugs,

Pharmaceuticals

Import#
% growth
(in crores)
1039.18
n.a.
1447.12
39.26
1625.19
12.31
1616.21
-0.55
1701.46
5.27
Pharmaceutical
and

fine

products
chemicals

Source : Department of Chemicals and Pharmaceuticals

Production of Pharmaceuticals in India
Year
Production of Pharmaceuticals
Bulk drugs
Formulations
Total
% Growth*
1990-91
730
3,840
4,570
12.56%
1991-92
900
4,800
5,700
24.73%
1992-93
1150
6,000
7,150
25.44%
1993-94
1320
6,900
8,220
14.97%
1994-95
1518
7,935
9,453
15.00%
1995-96
1822
9,125
10,947
15.80%
1996-97
2186
10,494
12,680
15.83%

33

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

1997-98
1998-99
1999-00
Figures

2623
3148
3777
in

Rs

12,068
13,878
15,960
crore;

14,691
17,026
19,737
Over

Source : Organisation of Pharmaceutical Producers of India

R & D expenditure in Indian Pharma Industry
Years
1981-82
1983-84
1985-86
1986-87
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
Figures
in
Rs

15.86%
15.89%
15.92%
previous

year

Amount
29
40
48
50
125
140
160
185
220
260
320
Crore

Source : Organization of Pharmaceutical Producers of India

MARKET LEADER IN THE PHARMACEUTICAL MARKET OF

INDIA
RANBAXY

Overview
RANBAXY

Ranbaxy Laboratories Limited, headquartered in India, is an integrated, research based,

international pharmaceutical company producing a wide range of quality, affordable
generic medicines, trusted by healthcare professionals and patients across geographies. It
is ranked amongst the top ten generic companies worldwide.

34

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

The Companys products are sold in over 100 countries with manufacturing operations in
7 countries and ground presence in 46. The Company was incorporated in 1961 and went
public in 1973. For the twelve months ended December 31, 2004, Global Sales at US
$1174 Mn registered a growth of 21%. Overseas markets accounted for 78% of the global
sales. USA accounted for 36%, while Europe and BRIC (Brazil, Russia, India, China)
countries contributed 16% and 26% to global sales, with a combined turnover of US $924
Mn. With the acquisition of RPG (Aventis) SA, Ranbaxy has positioned itself amongst
the largest generic Companies in France and has expanded its overall presence in Europe
considerably.
The Company has an expanding international portfolio of affiliates, joint ventures and
representative offices across the globe with JV's/ subsidiaries in USA, UK, Germany,
France, Spain, Ireland, Netherlands, India, China, Brazil, South Africa, Japan etc. While
Ranbaxy aggressively pursues the internationalisation of its business, the growth strategy
equally focuses on enhancing market share in India. The Company has a strong Brand
marketing team and distribution network in India. Ranbaxys global consumer healthcare
business in India recently launched three herbal brands under New Age Herbals range,
further strengthening its OTC range of products.
The Company has established state-of-the-art multi-disciplinary R&D facilities at
Gurgaon (near New Delhi), India. It is one of the largest investor on R&D in the Indian
pharmaceutical industry with an R&D spend of 7% of its sales during 2004. The
Company's major research focus is in the areas of, Urology, Anti-infectives, Respiratory,
Anti-inflammatory and Metabolic disorders segments.
While the Company would continue to enhance its momentum in the generics business,
emphasis on NCEs (New Chemical Entities) for long term value building and on NDDS
(Novel Drug Delivery Systems) in the medium term are the key anchors of future growth.
Ranbaxys continued focus on R&D has resulted in several approvals in developed
markets and significant progress in NDDR. The Company has a promising NCE pipeline,
with various molecules at different stages of drug discovery and development. To

35

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

accelerate its research programme, Ranbaxy has joined hands with GlaxoSmithKline Plc
for a global alliance in the area of drug discovery and development. Ranbaxys
collaborative research initiative with Medicines for Malaria Venture, Geneva, to develop
a new drug for Malaria, reflects its commitment to eradicate such diseases from the
world.
Ranbaxys foray into NDDS has led to several proprietary know-how "platform
technologies" resulting in many products under developmental or commercial stages. Its
first NDDS innovation once -a -day Ciprofloxacin has been licensed to Bayer AG, the
originator for select markets. Ranbaxys NDDS focus is on developing prescription
products and value added dosage forms and expanding its platform technologies.
The Companys vision is to achieve significant business in proprietary prescription
products by 2012 with a strong presence in developed markets. It also aspires to be
amongst the Top 5 generic players with US $5 Bn sales by 2012. To translate these
objectives into reality and to optimize value creation, the Company has adopted a multipronged strategy. Acquisition of brands overseas; an emphasis on brand marketing in the
US and Europe; entering high potential new markets with value added product offerings;
will be the major thrust areas for Ranbaxy in the coming years.
Together with the commitment of around 9,000 strong multicultural workforce, Ranbaxy
continues to aggressively pursue its strategies to become a Research- based International
Pharmaceutical

MARKET CHALLENGER IN THE PHARMACEUTICAL MARKET

OF

INDIA

DR REDDY'S LABORATORIES
EXECUTIVE SUMMARY

36

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

DRL has transformed itself from process engineering and research driven
pharmaceutical company in the past 5 years. The company achieved several
landmarks in 2001 with its ADR issue, launch of generic fluoxetine in the US and
license of anti diabetic molecule to Novartis.
The US$300bn global pharmaceutical industry is research driven. New drug
R&D cost being prohibitive, MNCs in developed nations where product patents
are enforced, are more active. High prices of under-patent drugs are causing a
shift to generics, especially in USA and European markets. So, to spread their
R&D costs over a larger base, pharma MNCs are consolidating through mergers/
alliances. Historically, India has recognized only process patents. Under WTO, as
per TRIPs agreement India too has to enforce product patents latest by year
2005 AD.
In the Rs160bn Indian pharma sector, prices of over 60% of the drugs/
formulations are Government controlled (through DPCO). In the domestic bulk
drugs market, low entry barriers have resulted in overcapacity and price wars.
So, major players are focussing on formulations, where brand image and
distribution network act as entry barriers. Most players are increasing their
overseas marketing/-manufacturing network in order to enhance exports (under
patent drugs to third world countries and generics to developed nations). In
anticipation of WTO, MNCs are strengthening their ranks in India - either setting
up new 100% subsidiaries or marketing tie-ups with major domestic players.
Large local players are consolidating through brand acquisitions, co-marketing/
contract manufacturing tie-ups with MNCs etc.
DRL has formulated new chemical entities (NCE) with two licensed to Novo
Nordisk and one to Novartis. After the merger with sister company Cheminor
Drugs, DRL has gained entry into the lucrative US generics market. The
company created headlines in August 2001 when it was the first company to
launch generic version of Fluoxetine 40 mg dosage form and enjoyed six month
37

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

exclusivity to market the same. In international market the focus areas are CIS
countries, Brazil, China, Middle East, South Africa, South East Asia.
DRL has consolidated its position in domestic formulations market through aggressive
product launches as well as acquisitions. The takeover of American Remedies in 2000
added to its brand portfolio

HOW MANY INDIAN PHARMA COMPANIES WILL

SURVIVE AFTER 2005?

Indian pharma industry dominated by Indian owners has done well during 80s 90s due
to encouragement given by the government and apathy of MNC in India. The
opportunities helped many companies to prosper. Good opportunity created a boom in
pharma industry leading India to produce bulk drugs, formulation at economical price
compared to our neighboring countries and European countries. Success leads to
complacency and lethargic attitude. Market has grown due to mushrooming of
manufacturing companies. High degree of competition has also checked over
profiteering. However, Indian parka companies did not show much interest in :

R&D

Developing skills of personnel

Improving productivity
38

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Becoming more professional

Removing trading mentality

Improving quality through better manufacturing facilities

Developing brands

Many owners were stockiest. The mindset did not change. This mental block did not
allow them to become more professional. Therefore, a big question is emerging Will
Indian pharma companies survive or they have to become trader again?
Recently during journey to Vasai, on outskirts of Mumbai, a group of Indian owners
expressed that it will be difficult to complete if they do not change their mindset. Infact,
one of the entrepreneurs reported that it will be better to become a trader again!! What a
change in scenario? Will it happen? How can they overcome such situation? What
strategies should be adopted?
Indian companies can survive post 2005 provided they make effort to become more
professional and not just trading activities. If they initiate action today, it can sure help
them to face the competition better.
Do Swot analysis:
How many times they have done swot for the company? A regular analysis will help the
company to accelerate growth. Can they compare the same with GROWING COMPANY
IN THE INDUSTRY? The bench marking approach using swot analysis can definitely be
beneficial. Analysis of top 20 reveals that many may not figure after 2005. Some of the
weakness may be:

Lack of professionalism

More dependency on trade scheme

Untrained people unable to face competition in changed environment

Customer creation priority not customer retention

Lack of brand branding

No efforts to build brands

39

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

A comparison with progressive companies will help the organization to re-orient
themselves.

Become more innovative :

Innovation is the key to success. Innovation can be in any areas. Only innovative
companies can survive as they are with times. They understand customers better.
Lakes an Indian company brought innovation through right product introduction. A to
Z, Taxim-O etc are classical examples. Introducing different types of products through
different type of customer focused segmentation helped Sun pharma an Indian company
to register better growth compared to industry norm.
Nicholas has improved their growth through brand/company acquisition. Dr. Reddys
growth also can be attributed to this route. This was unthinkable earlier. M & A can be
termed as innovation in a given situation. Innovation needs rapid change in the
infrastructure too. Are Indian companies geared to change with time?. If yes, how many
will change? The activities of these companies revealed that it will be few not many.
Rapid Change:
Environment has changed. What about the organization culture, thinking process?
Todays success does not guarantee success tomorrow. Are they geared to face global
market when entire world will become one market"? Are they geared to zero percent
quality product? The rapid change needs skilled professionals.
Schedule M implementation will lead to closure of many companies or increase in cost of
goods manufactured by small scale companies. How many companies are geared up?
Mindset has to change. India is one of the biggest market where even today 60% of the
population rely on herbal. Middle class population will account for entire Germany &

40

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

France. Geriatric market is opening up and India will have the largest geriactric
population in the world. Therefore, more professionalism is required
Develop and recruit more skilled professional not yes men :
When market condition is good, any person can perform. Performance achievement may
vary. However, when degree of competition is high, market is sluggish, only skilled
professional will improve business. Trading is a short-term activity to generate sales.
Many pharma companies, infact, today are doing the same as given below

Brand building activities are not taking place

Tomorrows need will be for skilled people not yes men. Availability of skilled personnel
is crucial. How may companies have skilled personnel? Why companies, which were
doing well are not doing well today? It is mainly because of lack of training of people on
a continous basis. This led to fixed mindset and people become lethargic to change and
are not proactive.
Be proactive and focussed :
Study conducted by author earlier published in Pharma Pulse, India revealed that
proactive companies have never failed. How many companies are proactive? A focussed
and proactive strategy will enable companies to do better.
Sun Pharma, Dr. Reddys Lab, Ranbaxy, Wockhardt, CIPLA, Nicholas, Zydus Cadila are
few golden companies because of their proactive and more focussed approach. But what
about others?

41

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Develop R & D product development infrastructure :
Only research based or companies with good product development department can do
better. It is expected to get new innovation through such activities. Sun
Pharma/Glenmark/Lupin are classical companies, which have invested in such
infrastructure and are getting good results. New ideas can be translated into a product
provided such facilities are available. Universal Medicare, Systopic, Medlely are doing
good job too in product development and got good benefits. What about others?
Companies with such facilities can be counted on finger only. How many medium and
small scale companies are spending their time on such valuable activities? This
innovation in R & D can lead to better productivity and profit too. "Registration of new
products are going to become costly. Schedule M implementation will make
manufacturing cost on higher side. WHO approval will lead to better opportunity. But
how many companies are investing on infrastructure? Improved productivity with
technology can be the main thrust (Mantra) for tomorrow.
Improve productivity/person:
This can be important tool to fight competition. Higher the productivity, greater will be
the strength. More muscle power backed by finance can help the company to take risk,
fight competition, invest in new areas etc. Therefore, for survival, productivity will be the
key arsenal. Any company with high productive people can survive and face competition.

PRODUCTIVITY COMPETITION LINKAGE STABILITY CHAIN

42

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Study revealed that higher productivity leads to greater retention of people and their
loyalty.
Retention of Internal/External customers :
Study in US of more than 100 years old companies revealed that they have survived due
to retention of customers.

Therefore, companies should strive to retain not only "external customers" but also
internal customers. Thus, loyalty can lead to better stability.
How many companies are doing such activities? Failure to do has led to downfall and
degrowth of many companies. Analysis of 400 companies by the author on these
parameters revealed the following.
*From existing 250 top listed companies of India 50% will vanish and will be replaced
by in progressive companies hopefully.
Thus, very few companies will remain active companies. Rest will close down, merge,
sold or become stockiest. The authors earlier prediction in Pharma Pulse, India, 4 years
back was 450. India has 700 companies. There is upward trend due to greater awareness
among Indian owners. It is possible some of them will become contract manufacturers.

43

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

Situation appears to be grim as it will lead to more unemployment to those who are not
willing to change. Loss in profit to those who can continue to have trader mentality.
Wiser counsel will prevail for better health of the industry.

44

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

45

STRATEGIC ANALYSIS OF PHARMACEUTICAL INDUSTRY-MRP 1

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