Indian Pharma Industry

INDUSTRY ANALYSIS
A Study on:
Pharmaceutical Industry
A Study on Pharmaceutical Industry
A Study on:
Pharmaceutical Industry
Under the Guidance of:
Prof. Dr. Dennis Rajakumar
Prepared By:
Group 7 Finance A
Apurva Gupta
Garima Kumari
Neel Jain
Prashant Choraria
Preya D. Shah
Submission Date: 26-03-2013
MASTER OF BUSINESS ADMINISTRATION (MBA): July 2012-14

DECLARATION 3
This is to declare that the report titled A study on Pharmaceutical Industry

has been made for the partial fulfilment of the course-Industry Analysis (Batch
July 2012-14). We the students of Group 7, Finance A would like to state that
the report is our diligent work. The due references have been quoted in the
References/Bibliography section of the report.
Group Members Registration No. Signature
APURVA GUPTA 12010121051
GARIMA KUMARI 12010121414
NEEL JAIN 12010121394

PRASHANT
12010121250
CHORARIA
PREYA D. SHAH 12010121259

CERTIFICATE 4
I hereby certify that this report is the original work of the students of Group 7,
Finance A, MBA July 2012-14, Alliance University- School of Business.
The students have successfully completed their Industry Analysis Report on

PHARMACEUTICAL INDUSTRY under my supervision and guidance as
partial fulfilment of their requirements as per the Master of Business
Administration Course- Alliance University.
Prof. Dr. Dennis Rajakumar
Project Guide (faculty)
Alliance University- School of business
Date: __________
Place: Bangalore
ACKNOWLEDGEMENT 5
We would like to express our sincere gratitude to all the people whose support
has been tremendous in completing this project.
We would like to thank ALLIANCE UNIVERSITY- School of Business

for giving us the opportunity to undertake this project.
We would also like to acknowledge the constant help and encouragement of our
project guide Prof. Dr. Dennis Rajakumar who has helped by giving his
valuable suggestions, expert guidance and support throughout.
We would also like to thank all those who have directly or indirectly helped us
in preparation of this project.
TABLE OF CONTENTS 6
Chapter
Particulars Page No
No
1 Executive Summary 8
2 Introduction 13
2.1 Key Domestic Players 18
3 Industry Structure
3.1 HHI and 4 firm Concentration Ratio 21
3.2 PESTL Framework 22
3.3 PORTER's Five Forces Analysis 27
3.4 SWOT 29
4 Industry Conduct
4.1 Pricing Strategy 33
4.2 Advertising Strategy 36
4.3 R & D Strategy 38
4.4 Expansion Strategy 40
4.5 Import/Export 41
4.6 Impact of FDI 42
5 Industry Performance
5.1 Profitability 46
6 Future outlook 49
7
7.1 Emerging role of IT in Pharma Industry 52
7.2 Emerging technologies in Pharma Industry 54
8 Conclusions and Recommendations 57
9 Detailed calculations 59
10
10.1 Annexure
Table 4.3.1 Yearly expenditure on R & D 63
Table 4.5.1 Exports of Drugs and Pharmaceuticals from India 63
Table 4.5.2 Imports of Drugs and Pharmaceuticals in India 64
Table 4.4.1 List of Acquisitions by Indian Companies in 2011-12 64
Table 4.4.2 List of JV/Alliances among Indian Players in 2011-12 65
FDI INFLOW IN THE DRUGS AND PHARMACEUTICAL INDUSTRY
Table 4.6.1 65
(US $Mn)
Figure 5.1 Profitability (Bulk Drugs and Formln M/S) 66
Figure 5.2 Profitability (Bulk Drugs and Formln Lrg) 66
10.2 Limitations 67
10.3 Bibliography 68
CHAPTER 1
EXECUTIVE SUMMARY
The report focuses on the Indian Pharmaceutical industry and the various
factors which influence it. The report highlights the future outlook and the
global scenario of this industry. It assesses the growth potential of the domestic
industry taking into account the current performance and conduct of domestic
players, changes in the regulatory environment and global scenario. Research
has been conducted by collection of secondary data from different sources.
(Refer Section: References/Bibliography)
Objectives of the report:
To understand and analyze the Indian Pharma industry.
To attain knowledge about the global Pharmaceutical scenario.
To understand about the market favourability and conditions in order to

analyze the industry attractiveness.
To carry out the macro environmental analysis of the Pharma industry.
To look briefly into the financials, Mergers and Acquisitions and various
profitability measures of the industry.
To analyze the future of the Pharmaceutical industry both as Indian and

global scenario.
In the report Chapter-3 Industry structure deals with the structural features of
the industry. The Pharmaceutical industry has evolved with time. Today this
industry tops amongst Indias science based industries. The industrys growth is
due to the changing socio-economic conditions that have framed industry-
focused policies. These policies have catalyzed the growth of the
Pharmaceutical industry. HerfindahlHirschman Index, or HHI and four firm

9
concentration ratios have been calculated and analyzed to understand the market
concentration of the industry
Some of the key features of the industry are:
A highly organized sector estimated to be worth $ 4.5 billion (as of FY

2012), growing at about 8-9 % annually.
It is highly fragmented with severe price competition and government

price control.
Indian Pharmaceutical industry meets 70 % countrys demand for bulk

drugs, drug intermediates and formulations.
Globally India ranks third in terms of manufacturing Pharma products

by volume.
In past few years the demand for Pharmaceutical drugs has increased due to-
Rise in population, especially the urban.
Improved health infrastructure
Rising awareness.
However the rural health infrastructure still remains poor.
Chapter-4 discusses the conduct of the Pharmaceutical industry. It analyses the

R&D, advertising, pricing intensity and expansion strategy which are the key
differentiators of this industry. Export-import graph highlights the growth of the
industry in the recent years. FDI inflows are analyzed to understand the impact
of foreign policies on the Pharma industry. The following conclusions were
drawn from the analysis of the conduct of Pharma industry:
The rising retail sector has a great influence on the conduct of this
10
industry.
The domestic players need to vary in terms of pricing to sustain

competition
R&D intensity needs to be further increased by the way of

technological advancement
Indian Pharma industry is emerging as a major contributor to Indian

exports
A weak rupee is affecting the imports.
Chapter-5 Industry Performance examines the financial health of the industry

in terms of key financial ratios. Sales based profitability ratios have been
calculated at the present value to attain credibility. Understanding profitability
helps to analyze the current position of the industry.
The ratios highlight:
Stringent prices is affecting the profitability of the Pharma companies
Rising costs of fuel and power would be affecting the profitability
After understanding and analyzing the Pharma industry in all aspects we have
concluded the following reasons which will lead to the further growth of this
industry in the near future.
Doubling of disposable incomes
Increase in number of middle class households
Expansion of health infrastructure

Rising awareness of health insurance

11
More adoption of product patents
Greater market penetration by smaller companies
Analyzing of different factors gives an encouraging outlook to the industry.
Towards this end the suggestions are:
Strengthening the existing regulatory system especially for enabling more

detailed and universal classification of drugs and chemicals between branded
generic and generic.
Strengthening the information system where simple drugs are known to

consumers
Strengthening the public procurement process of drugs by public health

system.
12
CHAPTER 2
13
INTRODUCTION
The Indian Pharmaceutical industry is currently valued at US$20 billion and has
been growing at a CAGR of 15.37% in past three years. It is the third largest
market globally in terms of volume and 13th largest by value today. The
domestic Pharma market is expected to grow at a CAGR of 15-20% annually to
become a US$49 billion market by 2020.The growth of the sector has been
fuelled by exporting life-saving drugs to developing countries and supplying
quality drugs to the developed nations at affordable prices, which resulted in a
29.8% growth in FY12 in Indian drug exports in comparison to the prior year.
Indian Pharma companies are increasingly filing Abbreviated New Drug
Approvals (ANDAs) applications for the approval by the US Food & Drug
Administration (FDA).Since the US is the largest market for generics,
increasing number of approvals by the US FDA gives an opportunity to
penetrate deeper into the global market. Today, the Indian Pharma industry is
the largest exporter of generics in the world. It caters to an ever-rising demand
for generics from developed nations like the US, UK and Japan, as the
governments of these countries is switching over to generic drugs from branded
drugs in order to curb the rising.
Technologically strong and totally self-reliant, the Pharmaceutical industry in

India has low costs of production, low R&D costs, innovative scientific
manpower, strength of national laboratories and an increasing balance of trade.
Indian Pharmaceutical industry today is ranked world class, in terms of
technology, quality and range of medicines manufactured. From simple
headache pills to sophisticated antibiotics and complex cardiac compounds,
almost every type of medicine is now made indigenously. The industry today
14
can boast of producing the entire range of Pharmaceutical formulations, i.e.,
medicines ready for consumption by patients and about 350 bulk drugs, i.e.,
chemicals having therapeutic value and used for production of Pharmaceutical
formulations.
HISTORY:
At the time of independence in 1947, Indias Pharmaceutical market was

dominated by Western MNCs that controlled between 80 and 90 percent of the
market primarily through importation. Approximately 99 percent of all
Pharmaceutical products under patent in India at the time were held by foreign
companies and domestic Indian drug prices were among the highest in the
world. The Indian Pharmaceutical market remained import-dependent through
the 1960s until the government initiated policies stressing self-reliance through
local production. To facilitate an independent supply of Pharmaceutical
products in the domestic market, the government of India founded state-owned
Pharmaceutical companies. Today, India is the worlds one of the leading
producer of bulk drugs.
Government policies:
The abolition of product patents on food, chemicals, and drugs; the

institution of process patents;
The limitation of multinational equity share in India Pharmaceutical

companies, and the imposition of price controls on certain formulations and
bulk drugs.
Subsequently, most foreign Pharmaceutical manufacturers abandoned the

Indian market due to the absence of legal mechanisms to protect their patented
products.
Accordingly, the share of the domestic Indian market held by foreign

15
drug manufacturers declined to less than 20 percent in 2005. As the MNCs
abandoned the Indian market, local firms rushed in to fill the void,
and by 1990, India was self-sufficient in the production of formulations

and nearly self-sufficient in the production of bulk drugs.
With changes in Indias patent laws in the early 1970s, Indian drug producers
became experts in reverse engineering and increased its supply of less
expensive copies of the worlds best-selling patent protected drugs. Indias
Pharmaceutical industry grew and prospered in a highly regulated environment
with government price controls on a significant number of formulations and
bulk drugs.
The Patent Act, 1970: The Acts stated objective was to foster the
development of an indigenous Indian Pharmaceutical industry and to guarantee
that the Indian public had access to low-cost drugs. This allowed the domestic
industry build up considerable competencies and offered a large number of
cheaper generic versions legally in India at a lower cost.
Drug Price Control Order, 1970 (DPCO): The order was introduced when
most of Indias drugs were under strict price controls. Since its introduction,
the number of bulk drugs under price controls gradually declined. The National
Pharmaceutical Pricing Authority, founded in 1997, is responsible for
monitoring prices using the DPCO to fix ceiling prices on drugs and ensure that
no Indian company in a monopoly position takes advantages of its monopolistic
position by profiteering.
Thirty-five years of protection has enabled the Indian Pharmaceutical industry

to perfect its scientific and manufacturing capabilities, allowing many of its
leading companies to move up the value added chain. Indias Pharmaceutical
industry consists of large, medium, and small companies and is one of the
worlds most prices competitive. Companies focusing on producing similar

16
generic drugs, with possibly hundreds of companies producing the same drug,
have characterized the industry by fierce competition and high volumes, razor-
thin profit margins, overcapacity, and declining prices.
R&D-
Largest R&D expenditures attracted from Pharmaceutical sector. R&D

intensity for the Pharmaceuticals sector was much higher than that for other
sectors.
There have been substantial increases in growth rates of patents filed in

India during the last decade, the share of patents filed for work in India through
indigenous research is less than 2 0 per cent of the total.
A White Paper on R&D prepared by consultancy firm Deloitte in July 2

01 1 estimates that more than 3 00 MNCs have set up R&D centers in India.
India based Pharmaceutical companies are not only catering to the domestic
market and fulfilling the countrys demands, they are also exporting to around
220 countries. They are exporting high quality, low cost drugs to countries such
as the US, Kenya, Malaysia, Nigeria, Russia, Singapore, South Africa, Ukraine,
Vietnam, and more.
Currently, the US is the biggest customer and accounts for 22 percent of the
sectors exports, while Africa Accounts for 1 6 percent and the Common wealth
of Independent States (CIS) places around eight percent of orders, as per
Research and Market report. For most of the Pharma companies, domestic
business contributes in the range of 2 0-50% of the overall revenue.
17
Trends:
All companies, including MNCs, have increased their field force in the
last one year.
Indian companies are entering into strategic tie-ups with MNCs to

strengthen their product portfolio.
Companies are expanding their presence in rural markets.
Acquisitions by MNCs to gain quick foothold in the fastest growing

Indian Pharma market
18
2.1 Key Domestic Players:

CIPLA: engages in the manufacture and sale of
pharmaceutical products in India and
internationally. provides agrochemicals comprising
pesticides; and technology services consisting of
consulting, project appraisal, engineering, plant
supply, commissioning, training, operational
management, support, know-how transfer, and
quality control services.
RANBAXY: is a subsidiary of Daiichi Sankyo Company,

Ltd. and engages in the manufacture, marketing, and sale of
pharmaceuticals products. It offers generic pharmaceuticals,
branded generics, active pharmaceutical ingredients and
intermediates, formulations, drug discovery, and consumer
health care products.
Dr. REDDYs: operates as an integrated

pharmaceutical company. It operates in three
segments: Pharmaceutical services and Active
Ingredients (PSAI), Global Generics, and
Proprietary Products. It offers a portfolio of
branded generics in the therapeutic areas of gastro-
intestinal, cardiovascular, central nervous system, pain management, oncology,

19
anti-infective, hormones, urology, respiratory, gynaecology, paediatrics, and
dermatology.
AUROBINDO PHARMA: engages in the development,

manufacture, and marketing of active pharmaceutical ingredients and finished
dosage formulations in India and internationally. It offers a range of
formulations in the therapeutic areas of CVS, central nervous system,
antibacterial, anti-retroviral, antibiotics, gastroenterological, anti-diabetics, anti-
allergic, anti-fungal, anti-emetics, and anti-viral.
20
CHAPTER 3
21
3.1 HHI and 4 firms Concentration Ratio:
The CR4 is simply the sum of the market shares of the four largest firms in the market in
question.
HHI is generally considered a superior measure of market concentration. The HHI is the
sum of the squares of the market shares of all firms in the market. The value of the HHI
decreases as the number of firms in a market rises. Similarly the value of the HHI will be
greater the larger the degree of inequality in firm size.
The findings are as follows:
The companies considered for calculation were 80 on the basis of the sales value.
(Refer section: detailed calculations)
Observation: The HHI has come out to be 446.68 which reveal that the industry is
highly competitive. There is no monopoly existing in this market.
Also, the 4 firm concentration ratio shows a value of 32.74 which again indicates the
market structure as highly competitive.
22
3.2 Political Economic Social Technological Legal (PESTL)

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

Health & family welfare), Government of India provides general information
about drug regulatory requirements in India.
NPPA Drugs (Price Control) Order 1995 and other orders enforced by
National Pharmaceutical Pricing Authority (NPPA), Government of India.
D & C Act, 1940 The Drugs & Cosmetics Act, 1940 regulates the import,
manufacture, distribution and sale of drugs in India.
Schedule M Schedule M of the D&C Act specifies the general and

specific requirements for factory premises and materials, plant and
equipment and minimum recommended areas for basic installation for

23
certain categories of drugs.
Schedule T Schedule T of the D&C Act prescribes GMP specifications

for manufacture of Ayurvedic, Siddha and Unani medicines.
Schedule Y The clinical trials legislative requirements are guided by

specifications of Schedule Y of The D&C Act
The following are the key political aspects which affect the performance of the
industry:
Political uncertainty- Indian politics is a synonym for change.

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

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

approximately 1% of the GDP. Considering the contribution as low the
economic policies need to be more industry focused.
Low Per capita income- the per capita income of an Indian is Rs.
24
5729 per month which is very low. Hence the spending on Pharma products
slips down the priority list.
The incidence of taxes is high for Indian Pharmaceutical companies-
The burden of taxes is very high. Taxes such as excise duty, custom duty,
service tax, professional tax, license fees, royalty, pollution clearances tax,
hazardous substance license, income tax etc. make up about 40-45% of the cost.
Adequate storage and transportation facilities are lacking. This makes the
Pharma product s more susceptible damage and spoilage.
India has a high interest rate regime.
The Pharmaceutical industry is subjugated to strict price system so as to

maintain ease of use if superior affordable drugs are available. Ceiling prices
may be fixed for any conceptualization and it is requisite for all, including small
scale industries and products marketed under a common name to follow the
prices fixed.
The setting up and scheming of the prices of mass drugs and

formulations under the Essential Commodities Act is prepared by the National
Pharmaceutical Pricing Authority (NPPA).
Socio-cultural:
India still faces the problem of poverty and malnutrition. This

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

cities and villages.
Indian people prefer household treatments for common ailments.

25
This reduces the Pharma products consumption intensity to an extent.
Smoking, drinking, poor oral hygiene and early child bearing are
some of the socio-cultural factors which influence the Indian Pharma industry.
More than 70% of India's population lives in rural areas, where

education levels are fairly low and public health communications is weak;
besides, more than 700 million Indians do not have ample hygiene.
Technological:
Advanced automated machines have been developed and made its

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

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

discovered. This can be substantiated from the fact that more than 10,000
substances have been filed for patenting.
Legal:
The protection of intellectual property rights in India, which was one of the
biggest concerns of global Pharmaceutical companies seeking to enter India in
the past, has changed rapidly to adapt to a post-TRIPS and WTO scenario.
Currently, there are well-established statutory, administrative, and judicial
frameworks to safeguard intellectual property rights in India. India has
complied with its obligations under TRIPS by passing necessary legislations

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

Controller is required to obtain consent of the Central Government before
granting such permission for invention relevant for defence purpose / atomic
energy. The application is to be disposed of within 3 months. OR
Patent application for the same invention has been first filed in
India at least six weeks before the application outside India and there is no
direction passed under Section 35 for prohibiting /restricting publication/
communication of information relating to invention.
The PEST framework analyses the viability of the industry. Hence we conclude
that the Macro-Economic variables are favourable for the firms to operate and
perform in the Indian Pharma industry.
3.3 Porters Five forces Analysis 27
Power Of
suppliers -
LOW
Threats of
Industry Threat of
new
Competition- subsitutes-
entrants - HIGH MODERATE
HIGH
Power of
Buyers -
LOW
Power of Suppliers: The bargaining power of suppliers is very low as the

Pharma companies can switch between the suppliers at minimal cost. Moreover
the competition amongst the suppliers is extremely high hence it reduces their
bargaining power. The only problem which could be faced is that the suppliers
go for forward integration and add competition to the industry.
Threat of Substitutes: As such the industry is not currently facing much threat
from the availability of its substitutes. But, natural treatments like ayurvedic and
homeopathy etc could pose a threat to the industry. Moreover with the advances
made in the field of bio-technology, the synthetic Pharmaceutical industry is
under threat.
Bargaining power of buyers: The bargaining power of the buyers is low for
the simple reason that they need to consume the medicine prescribed by the
doctor. The consumers are quite scattered. Moreover the consumers do not have
any say regarding the prices which is controlled by the NPPA (National
28
Pharmaceutical Pricing Authority).Though there is brand identity, the doctors
are major influencers.
Threat of new entrants: The threat of new entrants is high as there are very
low barriers to enter the industry. The Government policies are supportive
though the industries face price regulation by the government. From a long term
point of view, the creation of a good brand name would take time. The patent
regime would create some barriers to enter and the quality regulations would
put some hindrance to new firms but would definitely not de motivate them.
Competitive Rivalry: The industry is highly competitive as the firms have

economies of scale and more over the fixed costs are quite low though there is
high requirement of working capital. The top five firms have just a mere share
of 18% which indicates the level of competition. Since the barriers to entry are
minimal, competition keeps getting added. Moreover, certain suppliers have
gone for forward integration and added to the competition. The strategy to gain
a competitive advantage would be to go for cost effectiveness as product
differentiation is not effective; though a good brand name acts as a tool for
product differentiation. Since a new patent regime has been brought in place, a
lot of companies are increasing their expenditure on R&D.
3.4 Strength Weakness Opportunity Threat (SWOT) 29
Framework
It is a strategic planning tool which involves specifying the objectives of
any industry & then identifying the external & internal factors that are
favourable & unfavourable in achieving that objective.
The SWOT analysis of the industry reveals the position of the Indian Pharma
industry in respect to its internal and external environment.
Strengths:
1. India with a population of 122 Crore is mostly untapped market. The

penetration of modern medicines is less than 30 per cent in India. Per capita
expenditure on health care in India is US$ 93 while the same for countries like
Brazil is US$ 453 and Malaysia US$189. This means people spend less on
health care which directly shows they spend more on drugs.
2. The growth of middle class in the country has resulted in fast changing
lifestyles in urban and to some extent in rural areas also. This opens a huge
market for lifestyle drugs, which has a very low contribution in the Indian
markets.
3. Indian manufacturers are one of the lowest cost producers in the world.
They produce drugs at very low costs when compared to rest of the world.
They spend about 40- 50% less on the costs as compared to other countries.
4. Indian Pharmaceutical industry posses excellent chemistry & process

reengineering skills. This provides the competitive advantage for Indian
Companies. As a result of strengths in chemicals, it helps Indian
Companies to develop processes, which are cost effective.
5. There is Strong Marketing & Distribution network in domestic as

30
well as international market.
6. There is an easy access to pool of highly trained & skilled scientists,

both in India as well as abroad.
7. Well established network of Laboratories and R & D infrastructure

which provides a strong network for new drug discovery & development.
Weaknesses:
1. The Indian Pharmaceutical companies are affected by the price

regulation. The NPPA (National Pharma Pricing Authority), which is the
authority to decide the pricing parameters, sets prices of different drugs, lower
than expected which results in lower profitability for the companies.
2. Indian Pharmaceutical market is one of the least penetrated in the

world. As a result, Indias major Pharmaceutical companies rely on exports
for growth. India accounts for almost 16% of the world population while the
total size of industry is just 1% of the global Pharma industry.
3. Indian Pharmaceutical sector has been adversely affected by lack of

product patent, which prevents Global Pharma companies to introduce new
drugs in the country and discourages innovation and drug discovery.
4. Sometimes production of spurious & low quality drugs damages

the image of industry at home & abroad.
5. Indian Pharmaceutical Companies have inadequate resources to

compete with MNCs for new drug discovery Research.
Opportunities:
1. Opening up of health insurance sector and the expected growth in

31
per capita income are key drivers from a long-term perspective. This will lead to
expansion of Pharmaceutical industry in near future.
2. Being the lowest cost producer in the world, Indian

Pharmaceutical Industry has significant Export potential to the developing
as well as developed countries.
3. India can be a niche player in global Pharmaceutical R & D

by developing world class Infrastructure.
4. Increasing incomes & buying power of people especially in

rural areas has opened the great opportunity for Indian Pharma
Companies. Around 70% of total population of India lives in rural areas.
5. There is growing awareness among people for health & their

spending on health has also increased in recent years.
Threats:
1. Threats from other countries like China and Israel exist as they also
produce Pharmaceutical products at lower cost. But when compared to quality,
India is better relative to China.
2. The short-term threat for the Pharma industry is uncertainty regarding

the implementation of VAT. Though this is most likely to have a negative
impact in the short-term, the implications over the long-term will be positive for
the industry.
3. Exports efforts are hampered by procedural formalities in India

as well as Non-Tariff Barriers imposed abroad.
4. DPCO puts lots of restrictions on product prices & profitability &

thus Pharma Companies are not able to generate surplus revenues.
32
CHAPTER 4
4.1 PRICING STRATEGY 33
The Government of India issues The drug price control order (DPCO)
under the essential commodities act which empowers it to fix the prices of some
essential bulk drugs and their formulations.
The national Pharmaceuticals pricing authority (NPPA) implements the

provisions of the DPCO. The authority is also responsible for monitoring and
enforcing these prices. It announces two types of prices: ceiling prices (for each
of the bulk drugs and their commonly market standard pack-size formulations)
and non-ceiling prices (company-specific).
These prices are usually exclusive of excise duty and local taxes. The DPCO 95
also prescribes the margins for retailers. Therefore, the producer, wholesaler or
distributor sells a formulation to a retailer at a discount to the retail price that is
equivalent to the margin specified.
The NPPA assists the Government in policy making and issues concerning
providing affordable medicines to the consumer. Regarding the non-scheduled
formulations the NPPA monitors and analyses month-wise price movements of
the drugs based on the reports of IMS Health. NPPA monitors the prices of non-
scheduled formulations through various methods like:
(a) Scrutiny of price lists submitted by manufacturers
(b) Analysis of monthly Stockiest Secondary Audit Reports published by

IMS Health, and
(c) Complaints / references received from official and non-official sources.
Wherever price increase beyond 10% is noticed, manufacturers of such

formulations are asked to clarify the reasons for such price increases. The
manufacturers are impressed upon to bring down the prices voluntarily and to
maintain the price level. Prices of 95 non-scheduled formulation packs have

34
been reduced through the intervention of NPPA till 15th January 2012.
Background-
Price control over drugs was first introduced in India in 1962-63.

Thereafter, a series of price controls have been implemented on several
occasions in 1966, 1970 (under the Essential Commodities Act), 1978, 1979 and
1987.
All these policies were broadly based on the principle of effecting

control over prices of key bulk drugs and their formulations through various
different principles, in which the span of control of prices as well as the nature
of control varied.
The present Drug Policy of 1994 was implemented through the Drug
Price (Control) Order (DPCO) in 1995 which brought a major change in the
way in which the key drugs were identified for price control. The policy was
based on the selection process on the market share of different companies in the
context of total sales of various drugs. Thus, drugs with annual sales at a
particular level where the market share of leading players was beyond a
particular level were brought under the price control.
Current scenario-
The Department of Pharmaceuticals has recently released the draft note

on the National Pharmaceutical Pricing Policy (2011), which if accepted would
replace the present Drug Policy introduced back in 1994.
In its proposed form, the policy framework aims at widening the ambit of
medicines under price control as it proposes to include all of the 348 essential
drugs listed in the National List of Essential Medicines (NLEM) as compared to

35
the 74 bulk drugs, which forms part of the present policy regime.
It is estimated, that the new policy in its proposed form would bring
approximately 60% of the Rs, 48,200 Crore domestic formulation industry
under the pricing control compared to ~20% earlier.
The market-based pricing mechanism proposed by the policy also marks

an important shift over the current framework wherein prices are decided
through a cost-based approach.
The policy also aims at only regulating the prices of formulations as

compared to formulations and bulk drugs in the present regime. With the
proposed policy expected to cover nearly 60% of the domestic formulations
industry, the impact of price control is likely to expand considerably across
therapy segments and result in price reduction across the board.
The overall impact on the industry would be limited as intense

competition ensures that the prices remain below/at par with ceiling prices for
most of the highly competitive therapeutic segments. Companies with higher
dependence on the domestic formulations, especially on premium priced
products are however likely to have higher impact. Overall, the policy hints at
adopting a more practical and transparent mechanism for arriving at prices,
which would be positive for the industry over the long-term.
4.2 ADVERTISING STRATEGY 36
Reports indicate that Pharmaceutical industry has moved itself back on

marketing to physicians & consumers, but there are some initiatives which
are still taken by them. Advertising for Pharmaceutical market was in peak
in 2004, with industry promotion to physicians declining to 25 percent by
2010 which was only 9 percent of the sales. Similar declines were seen in
direct to consumer advertising which now remains concentrated among a
smaller number of products.
There have been some important changes in the Pharmaceutical marketplace

during the past decade, including changes in the types of therapies that are
being brought to the market. Since demand for drugs is being influenced by
Pharmaceutical promotion & it also affects physicians prescribing its
important to know how drugs are being marketed & promoted.
According to Competition Law and Indian Pharmaceutical Industry
In 1998, the World Health Organization (WHO), came out with a landmark
Ethical criteria for medicinal drug promotion. It is an outline document which
defines drug promotion as all the information and persuasive activities by
manufacturers and distributors in order to induce the prescription, supply,
purchase and/or use of medicinal drugs.
Drug promotion in India includes the activities of medical representatives, drug

advertisements to physicians, provision of gifts and samples, drug package
inserts, direct-to-consumer advertisements, periodicals, telemarketing, holding
of conferences, symposiums and scientific meetings, sponsoring of medical
education and conduct of promotional trials. The blurring boundaries of what
constitutes fair practices are of intense debate in issues involving drugs
promotion.
Studies have identified the variety of ways and means in which the drug
37
industry influences doctors and the doctors in turn due to their fiduciary
position are susceptible to perverse incentives. In the year 2008, the
Pharmaceutical industry in India spent a total of Rs 4941.15 Crore, in which
Advertising expenses were 823.57 and drug marketing 2470.44 Crore Indian
rupees.
The Drugs Enquiry Committee, 1930 under the chairmanship of Sir R N.

Chopra was the first authoritative attempt by the Government which scrutinized
the pamphlets of drugs which made spurious claims.
In India the drug manufacturers promote their products through:
Representative visits
Free samples
Gifts
Conference travel (including pleasure trips)
Continued Medical Education Funding
Research Materials/journals and other promotional literature

4.3 R & D STRATEGY 38
It is often argued that innovation capabilities in the Indian Pharmaceutical

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

It is necessary for the Indian Pharmaceutical Industry to become globally

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

domestic Pharma industry in last decade in terms of availability of trained
manpower, publications and patents, value and volume API finished
formulation market.
Source: DCGI
4.4 EXPANSION STRATEGY 40
Acquisitions played a vital role for Indian companies in establishing their

presence in international markets. These helped them in catering to the
international market and build a worldwide rapport. Investments in generic
space have been aimed at gaining presence in newer markets, access to
technologies or even acquiring marketing and distribution front-end. Also,
preference towards forming JVs/alliances with focus on specific markets or
therapy segments is gaining importance. (Refer Table 4.4.1 and 4.4.2 in
Annexure)
There are high instances of cross-border acquisitions, and unlike in case of

mergers they are acquisitions by foreign companies. Large number of
acquisitions occurred among the foreign owned firms. It is noted that foreign
firms are increasingly willing to raise their stakes in the Indian subsidiary. The
reasons being a favourable investment policy of the government and a
conducive patent law regime for marketing new technology products (Refer:
Mint, 2009).
4.5 IMPORT/EXPORT 41
The Indian Pharmaceutical industry is also a major exporter. The growth since
1990s has been export led. The Indian Pharmaceutical industrys growth has
been fuelled by exports. Its products are exported to a large number of countries
with a sizeable share in the advanced regulated markets of the US and Western
Europe. India currently exports drug intermediates, active Pharmaceutical
ingredients, finished dosage formulations, bio-Pharmaceuticals and clinical
services to various parts of the world. The top five export destinations of Indian
Pharmaceutical products are USA, Germany, Russia, UK and China. Indian
exports of drugs and Pharmaceuticals grew at a CAGR of 16.5% to $ 451.4 bn
over FY02-FY12 (up to Dec 2011). (Refer 4.5.1 in Annexure)
Import of drugs and Pharmaceuticals into India recorded a CAGR of 17.6%

during FY02-FY12 (up to Dec 2011). During FY12 (up to Dec 2011),
Pharmaceutical products worth $102.2 bn were imported into India. India is
almost self sufficient in formulations; its imports mostly comprise bulk drugs
and some intermediaries. These imports are freely permitted, except those that
are restricted in the foreign trade policy. Import restrictions are mostly on drugs
that contain narcotics and psychotropic components. (Refer 4.5.2 in Annexure)
4.6 IMPACT OF FDI 42
The Indian Pharma sector-estimated at almost R1 Lakh Crore- allowed 100%

FDI for both Brownfield and Greenfield projects.
In December 2012 on the issue of FDI policy, the Government decided that all
foreign investments in existing domestic Pharma firms should be allowed only
after clearance by the Foreign Investment Promotion Board (FIPB) till such
time the Competition Commission of India (CCI) is empowered to vet such
deals.
By and large, the decision is just right However, the issue is not merely about
competition but control and access to affordable medicines.
India has a booming Pharma industry, which is the leading generic drug
supplier for much of the developing world.
The discourse on FDI is, or ought to be, to maintain and enlarge this
commanding position. If you ignore reinvested earnings of existing foreign
investors, normally FDI comes in the form of equity capital or working capital.
The result could be some form of control or leverage over the domestic
company. Indias Pharma companies are not in a dire state that they require
equity or working capital from abroad. But the threat of takeover and resultant
control even with a 10 per cent shareholding in Indias Pharma companies is
real.
At least three of Indias leading companies have been taken over in the recent
past Ranbaxy, Nicholas Piramal and Shanta Biotech (the technology for the
latters best selling Hepatitis vaccine came from a Hyderabad-based
government lab), creating windfall wealth for its owners.
Self-reliance in bulk drugs and R&D are more important than FDI in this
43
industry.
The other argument given for bringing in FDI is that the process will bring in
technology. It may. But we do not need technology in formulations, which is the
core of Indias Pharma exports. At best such technology is incremental.
The government of India is moving ahead with FDI plans in Pharma sector, but
it has also certain concerns that drug prices may increase due to the mergers and
acquisitions of domestic firms by multinational companies. The common public
and even the government view that takeover of Indian companies by MNCs will
lead to increase in the prices of generic drugs.
Of the major approvals in the Pharma sector, the largest chunk of Rs.800 Crore
as FDI inflow is accounted for by Mumbai-based Pfizer, which proposes to
induct foreign equity in an operating-cum-investing company. Likewise, Arch
Pharma labs of Mumbai have proposed to bring in Rs.372.36 Crore through
induction of foreign investment in an existing company. (Refer 4.6.1 in
Annexure)
FDI comes also in other non-equity guises. Some of these such as licensing,
franchising, subcontracting, alliances can effect, cripple and tie the hands of
the domestic company which, in accepting these arrangements, sacrifices
longer-term freedom for short-term gains.
FDI proposals have now been cleared but the approvals, however, are subject
to three specific conditions:
First, it has been specified that the quantitative level of NLEM (National List
of Essential Medicines) drugs production annually at the time of induction of
foreign investment will be maintained at that level for the next five years.
Secondly, the research and development (R&D) expenses annually incurred

44
by the investee company at the highest level in the three preceding years to
induction of foreign investment will be maintained in value terms annually over
the next five years.
Thirdly, the administrative ministries concerned and the FIPB secretariat will
be provided complete information pertaining to transfer of technology, if any,
along with induction of foreign investment into the investee company.
The implementation of 100% in FDI is no doubt going to increase the fund flow
in India. It would lead to a substantiate increase in the foreign fund flow. But
simultaneously it would also affect the domestic companies due to the mergers
and takeovers by the giant foreign players.
We analyzed that this FDI policy along with some policies of government can
together help Pharma industry grow and succeed.
45
CHAPTER 5
46
PROFITABILITY OF THE INDUSTRY

The R & D expenditure of top five companies is 5% to 10% of revenues.
This ratio is still very less as compared to global average of 15% to 20% of
sales. Indian Companies have adopted various strategies for their R & D
efforts. Some of the companies have entered into collaboration &
partnership agreements with innovator companies while others have out-
licensed their molecules for milestone payments.
The total turnover of the Indian Pharma sector is estimated to be close to US$
21 bn of which around US$ 9 bn comes from exports while the rest comes from
domestic sales.
Profitability
(Bulk Drugs and Formln M/S)
25.00
20.00
15.00
10.00
5.00
0.00
Latest 2012 2011 2010 2009 2008 2007
Gross Profit Margin (%) Operating Profit Margin (%)

Pretax Margin (%) Net Profit Margin (%)
(Refer 5.1 in Annexure)
Pharmaceutical Industry on the whole shows fluctuating trend in

profitability position as Gross, Operating & Pre-tax profit margin are in
fluctuating condition. Net profit margin also shows a fluctuating trend but Net
47
Profit margin is very less as compared to gross profit. From this it can be
interpreted that, Pharmaceutical industries have more profits but their net
profits are reduced because of more interest & tax payments.
Profitability (Bulk Drugs and Formln

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

Pretax Profit Margin (%) Net Profit Margin (%)
(Refer 5.2 in Annexure)
As a result, Pharmaceutical Companies should focus more on reducing their

interest component by taking less debts which in turn will help them in
increasing profitability. India ranks as top in exporting generic medicines
worth US$ 11 billion & currently Indian Pharmaceutical Industry is one of
the worlds largest & most developed. The Indian Generic Drug Market
is likely to grow at a CAGR of 17% between 2010-11 & 2012-13.
48
CHAPTER 6
49
FUTURE OUTLOOK
Overall growth outlook for the Indian drugs and Pharmaceutical industry
appears positive. Pharma manufacturers are likely to benefit from rise in
demand for generic products. Some of the factors that would drive growth in the
domestic Pharma industry are:
Low cost operations
Research-based processes
Improvements in API and
Availability of skilled manpower.
The domestic formulations and bulk drugs markets are currently facing price
pressure as benefits of cheaper drugs have been shifted to end-users and trade
channels. Hence, consolidation, partnership and alliances are expected to gather
momentum in the near future. Off patenting of branded drugs would increase
demand for generic drugs. This provides immense opportunities to the Indian
Pharmaceutical companies especially given their prior experience in generic
drug development. Some other factors such as high penetration in the global
markets and increase of share in Abbreviated New Drug Application (ANDA)
filings are likely to power growth of the formulations market. Major growth
drivers for the Indian bulk drug industry include rise in demand for contract
manufacturing, increase of share in Drug Master Files (DMF) filings and
process innovation.
Furthermore, initiatives of the Government will act as a backbone for growth.

Some such initiatives include:
Allowing 100% FDI under the automatic route in drugs and Pharmaceuticals
50
including those involving use of recombinant technology
Increasing weighted tax deduction on expenditure in in-house R&D activities

to 200% in the Budget 2010 and
Setting up a US$ 639.56 mn venture capital fund to support drug discovery and
strengthen Pharmaceutical infrastructure.
Thus, Indian Pharmaceutical is ready to experience the fast growth trends.

51
CHAPTER 7
7.1 Emerging role of IT in Indian 52
Pharmaceutical industry
The Indian Pharmaceutical sector has made phenomenal progress in the last few
years, making its presence felt in the world market. Widespread technological
advances and changes in IT industry have paved the way for the growth of this
sector. The Pharmaceutical companies in India are identifying various strategies
such as adoption of Information Technology (IT) tools to increase productivity,
efficiency and achieve regulatory compliance. The Indian Pharmaceutical
industry which had little technological competence to manufacture modern
drugs locally in the 1950s, has emerged today as the most dynamic
manufacturing segment of the Indian economy. It has achieved technological
capabilities to manufacture quality drugs indigenously and cost effectively, and
emerged as a major competitor in the world market.
Information Technology (IT) solutions are increasingly being implemented

across the Pharma sector. IT now plays a strategic role in organizations rather
than just as a support system. Software solutions aid the smooth functioning of
Pharma units and improve efficiency, accuracy and decision making. Now, IT
solutions are incorporated into businesses to simplify the work of managers and
increase company returns.
In the area of Pharmacy, there are volumes of data with respect to drug
formulations, chemical compounds for drugs, details of clinical trials, etc. which
can be stored using IT4. Pharmaceutical companies are using IT across various
functional areas like R&D, QC, QA, Clinical Development, Manufacturing and
Supply Chain, Sales, Marketing and Corporate Management. Not only the
industries, but also hospital, clinical and community Pharmacies are
acknowledging the importance of IT solutions. Information Technology is used

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

7.2 Emerging Technologies in 54
Pharmaceutical industry
Context-Based Services: Wide-scale use of smart phones and other 3G and 4G
devices have helped pharmaceutical companies find new ways to engage
patients and provide them with useful services that can improve quality of life.
New generation of wireless sensors opens up a whole world of potential for life
sciences companiesfor gathering targeted information for research, efficacy
and compliance.
Using "Big Data" for New Value: Pharmaceutical industry now learns how to
utilize Big Data the composite term for the explosion of data and technologies
emerging to support it. In healthcare, now electronic medical record (EMR) data
is coming together with genomic and genetic data; financial data; and patient-
reported data to deliver insight into which therapies provide the highest overall
value to patients and healthcare systems at the lowest cost.
Industrialized Data Services: Data services will enable R&D organizations to

organize data from multiple outlets, including contract research organizations
(CROs), academic institution, research lab partners and public health institutes.
This allows for creative new solutions and a greater understanding on the
efficacy and safety of drugs and devices.
Pharma Gets Social: social media has been a highly sensitive area for life
sciences companies, which are often bound by strict marketing and FDA
regulations. But some companies are beginning to experiment with the new
medium. For example, drug maker Sanofi has emerged as a social media leader
by building a Facebook community for diabetes sufferers who connect online to
share their experiences with the disease.
Focusing on the Cloud to Cut Cost and Improve Business Functions: The
55
cloud market is now adapting to meet the needs of all areas within life sciences
and has proven to be helpful to overcome IP issues, security issues and has
allowed many companies to cut down on operational costs. Drug maker Roche
recently announced it was moving to Googles cloud-based applications,
including Gmail and Google Docs, to support its more than 90,000 employees
globally.
Platform as a Service, or PaaS, is a complete, pre-integrated platform that

facilitates the deployment of applications without the cost and complexity of
buying and managing underlying hardware, software or hosting capabilities.
Growing Security Concerns: organizations must move from simply

monitoring and collecting data to understanding it and visualizing new
behaviours and anomalies.
56
CHAPTER 8
CONCLUSIONS AND RECOMMENDATIONS 57
The Pharmaceutical industry in the country grew at a CAGR of 14%during 11th

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

Rs 100 crore) is a welcome move for manufacturing sector in general; number
of Pharmaceutical companies benefitting from this would be limited.
58
CHAPTER 9
DETAILED CALCULATION OF 59
HHI AND 4 FIRM

CONCENTRATION RATIO
Industry - Pharmaceuticals - Indian - Bulk Drugs & Formln M/S and Bulk Drug & Formln Lrg
Square of Market %Market
Company name Sales Market Share
Share Share
Cipla 6,977.50 0.094953 0.009016112 9.50
Dr Reddy's Labs 6,686.30 0.090990 0.008279257 9.10
Ranbaxy Labs. 6,112.44 0.083181 0.006919088 8.32
Aurobindo Pharma 4,281.45 0.058264 0.0033947 5.83
Sun Pharma.Inds. 4,015.56 0.054646 0.002986152 5.46
Mylan Lab. 3,952.38 0.053786 0.002892924 5.38
Cadila Health. 3,150.80 0.042878 0.00183849 4.29
Intas Pharma. 2,622.22 0.035684 0.00127338 3.57
Wockhardt 2,560.40 0.034843 0.001214046 3.48
Ipca Labs. 2,329.37 0.031699 0.001004839 3.17
Torrent Pharma. 2,076.04 0.028252 0.000798162 2.83
Alkem Lab 1,953.39 0.026583 0.000706639 2.66
Surya Pharma. 1,622.95 0.022086 0.000487787 2.21
Glenmark Pharma. 1,619.98 0.022045 0.000486003 2.20
Mankind Pharma 1,406.88 0.019146 0.00036655 1.91
Macleods Pharma 1,392.35 0.018948 0.000359018 1.89
Alembic Pharma 1,375.28 0.018715 0.000350269 1.87
Ind-Swift Labs. 1,320.68 0.017972 0.000323009 1.80
Piramal Enterp. 1,153.48 0.015697 0.000246399 1.57
Aditya Medisales 1,137.32 0.015477 0.000239544 1.55
Glenmark Generi. 1,068.83 0.014545 0.000211562 1.45
Unichem Labs. 803.19 0.010930 0.000119469 1.09
Cadila Pharma. 766.85 0.010436 0.000108903 1.04
Emcure Pharma 765.96 0.010424 0.000108651 1.04
Claris Lifescien 713.37 0.009708 9.4243E-05 0.97
FDC 699.24 0.009516 9.05466E-05 0.95
J B Chem & Pharm 686.42 0.009341 8.72568E-05 0.93
Hetero Drugs 684.07 0.009309 8.66604E-05 0.93
Unimark Remedies 620.7 0.008447 7.13482E-05 0.84
Strides Arcolab 613.29 0.008346 6.96549E-05 0.83
Maneesh Pharma 584.74 0.007957 6.33206E-05 0.80
Indoco Remedies 568.77 0.007740 5.99091E-05 0.77

Paras Pharma 492.17 0.006698 4.4859E-05 0.67 60
Aanjaneya Life. 479.96 0.006532 4.26609E-05 0.65
Natco Pharma 432 0.005879 3.45611E-05 0.59
Calyx Chem. 417.17 0.005677 3.22289E-05 0.57
TTK Healthcare 353.74 0.004814 2.31733E-05 0.48
Morepen Labs. 269.5 0.003667 1.34505E-05 0.37
Blue Cross Lab. 268.87 0.003659 1.33876E-05 0.37
Biological E 236.25 0.003215 1.03363E-05 0.32
Ind.Immunologica 221.76 0.003018 9.10722E-06 0.30
Shantha Biotech. 206.41 0.002809 7.89007E-06 0.28
Kopran 198.9 0.002707 7.32638E-06 0.27
RPG LifeScience. 192.82 0.002624 6.88531E-06 0.26
Jagsonpal Pharma 176.52 0.002402 5.77042E-06 0.24
Tablets India 155.59 0.002117 4.48315E-06 0.21
Raptakos, Brett 154.78 0.002106 4.43659E-06 0.21
Mangalam Drugs 153.18 0.002085 4.34534E-06 0.21
Medley Pharma 149.38 0.002033 4.13242E-06 0.20
Lyka Labs 139.81 0.001903 3.6199E-06 0.19
Bal Pharma 139.69 0.001901 3.61368E-06 0.19
Bharat Serums 139.59 0.001900 3.60851E-06 0.19
Themis Medicare 138.02 0.001878 3.5278E-06 0.19
East India Phar. 127.6 0.001736 3.01523E-06 0.17
Geno Pharma. 124 0.001687 2.8475E-06 0.17
Alembic 116.87 0.001590 2.52945E-06 0.16
Hindustan Max GB 114.54 0.001559 2.4296E-06 0.16
Cosme Farma Lab 113.17 0.001540 2.37182E-06 0.15
Laborate Pharma 88.46 0.001204 1.44915E-06 0.12
JK Drugs & Pharm 88.25 0.001201 1.44228E-06 0.12
Anglo-French Dr. 85.01 0.001157 1.33832E-06 0.12
Gufic BioScience 83.57 0.001137 1.29336E-06 0.11
Ortin Labs. 78.91 0.001074 1.15314E-06 0.11
Sven Genetech 78.15 0.001064 1.13104E-06 0.11
Dey's Medical 73.26 0.000997 9.93925E-07 0.10
Lyka BDR Intl. 69.57 0.000947 8.96321E-07 0.09
Ozone Pharma 65.77 0.000895 8.01079E-07 0.09
Nestor Pharma 64.18 0.000873 7.62815E-07 0.09
Merind 63.73 0.000867 7.52155E-07 0.09
Hind.Antibiotic 63.25 0.000861 7.40868E-07 0.09
Penam Lab 63.14 0.000859 7.38293E-07 0.09
Mesco Pharma 61 0.000830 6.89095E-07 0.08
Ceejay Tobacco 60.68 0.000826 6.81884E-07 0.08
Indian Drugs 56.7 0.000772 5.95368E-07 0.08
Brooks Lab. 56.08 0.000763 5.82419E-07 0.08
Alps Pharma. 55.86 0.000760 5.77858E-07 0.08
Cepham Organics 53.03 0.000722 5.2079E-07 0.07

Scott Edil 47.72 0.000649 4.21716E-07 0.06 61
ICPA Health 46.48 0.000633 4.00085E-07 0.06
Malladi Drugs 46.27 0.000630 3.96478E-07 0.06
Total 73,483.56 1.000000 0.044668849 100.00
HHI: Sum of
Squares of
446.6884876
Market Share
*10000
4 Firm
Concentration
Ratio: sum of % 32.74
market shares of
top 4 firms
62
CHAPTER 10
10.1 ANNEXURE 63
R & D expenditure information:
(Source: Planningcommission.com)
Table 4.3.1 Yearly expenditure on R & D
Exports of Drugs and Pharmaceuticals from India:
Table 4.5.1
Imports of Drugs and Pharmaceuticals in India:

64
Table 4.5.2
List of Acquisitions by Indian Companies in 2011-12
Table 4.4.1
List of JV/Alliances among Indian Players in 2011-12

65
Table 4.4.2
Table 4.6.1 FDI INFLOW IN THE DRUGS AND PHARMACEUTICAL INDUSTRY

(US $Mn)
66
Profitability Ratios:
Figure 5.1
Profitability (Bulk Drugs and Formln M/S)
Latest 2012 2011 2010 2009 2008 2007
Gross Profit
Margin (%)
14.91% 12.52% 18.13% 18.15% 12.99% 10.65% 12.37%
Operating
Profit
Margin (%) 18.86% 16.40% 21.52% 22.41% 17.31% 14.28% 15.02%
Pretax
Margin (%) 12.22% 10.43% 15.41% 15.25% 10.22% 7.87% 10.10%
Net Profit
Margin (%) 10.12% 8.93% 12.89% 12.50% 8.37% 5.44% 7.55%
Figure 5.2
Profitability (Bulk Drugs and Formln Lrg)
Latest 2012 2011 2010 2009 2008 2007

Gross Profit
Margin (%) 12.80% 24.08% 52.95% 24.42% 21.24% 10.47% 21.91%
Operating
Profit Margin
(%) 17.61% 26.92% 55.94% 26.70% 23.61% 14.25% 25.44%
Pretax Profit
Margin (%) 9.24% 20.52% 49.27% 20.65% 17.90% 7.02% 18.60%
Net Profit
Margin (%) 6.52% 17.22% 37.80% 16.53% 14.61% 7.48% 15.58%
10.2 LIMITATIONS 67
CR 4 provides only limited information about actual market structure.

The HHI ratios considered can be just indicative of the market structure.
The data considered for profitability is just indicative and cannot be
considered as complete and consistent.
The data for the whole import and export is not available. Thus, a
complete picture of the industry could not be portrayed.
The Pharma industry is very huge. Thus consideration to each and every
aspect could not be given.
10.3 BIBLIOGRAPHY 68
www.capitaline.com
www.planningcommission.nic.in
http://wtocentre.iift.ac.in
http://www.icra.in
www.Pharmaceuticals.gov.in
www.indiastats.com
http://www.cci.gov.in/
www.industryweek.com/

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INDUSTRY ANALYSIS

Under the Guidance of:

Prof. Dr. Dennis Rajakumar

Submission Date: 26-03-2013

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

This is to declare that the report titled A study on Pharmaceutical Industry

Group Members Registration No. Signature

APURVA GUPTA 12010121051

GARIMA KUMARI 12010121414

NEEL JAIN 12010121394

PREYA D. SHAH 12010121259

The students have successfully completed their Industry Analysis Report on

Prof. Dr. Dennis Rajakumar

Project Guide (faculty)

Alliance University- School of business

We would like to thank ALLIANCE UNIVERSITY- School of Business

Objectives of the report:

To understand and analyze the Indian Pharma industry.

To attain knowledge about the global Pharmaceutical scenario.

To understand about the market favourability and conditions in order to

To carry out the macro environmental analysis of the Pharma industry.

To analyze the future of the Pharmaceutical industry both as Indian and

Pharmaceutical industry. HerfindahlHirschman Index, or HHI and four firm

Some of the key features of the industry are:

A highly organized sector estimated to be worth $ 4.5 billion (as of FY

It is highly fragmented with severe price competition and government

Indian Pharmaceutical industry meets 70 % countrys demand for bulk

Globally India ranks third in terms of manufacturing Pharma products

Rise in population, especially the urban.

Improved health infrastructure

However the rural health infrastructure still remains poor.

Chapter-4 discusses the conduct of the Pharmaceutical industry. It analyses the

The domestic players need to vary in terms of pricing to sustain

R&D intensity needs to be further increased by the way of

Indian Pharma industry is emerging as a major contributor to Indian

A weak rupee is affecting the imports.

Chapter-5 Industry Performance examines the financial health of the industry

The ratios highlight:

Stringent prices is affecting the profitability of the Pharma companies

Rising costs of fuel and power would be affecting the profitability

Doubling of disposable incomes

Increase in number of middle class households

Expansion of health infrastructure

Rising awareness of health insurance

Greater market penetration by smaller companies

Analyzing of different factors gives an encouraging outlook to the industry.

Towards this end the suggestions are:

Strengthening the existing regulatory system especially for enabling more

Strengthening the information system where simple drugs are known to

Strengthening the public procurement process of drugs by public health

Technologically strong and totally self-reliant, the Pharmaceutical industry in

At the time of independence in 1947, Indias Pharmaceutical market was

The abolition of product patents on food, chemicals, and drugs; the

The limitation of multinational equity share in India Pharmaceutical

Subsequently, most foreign Pharmaceutical manufacturers abandoned the

Accordingly, the share of the domestic Indian market held by foreign

and by 1990, India was self-sufficient in the production of formulations

Thirty-five years of protection has enabled the Indian Pharmaceutical industry

worlds most prices competitive. Companies focusing on producing similar

Largest R&D expenditures attracted from Pharmaceutical sector. R&D

There have been substantial increases in growth rates of patents filed in

A White Paper on R&D prepared by consultancy firm Deloitte in July 2

Indian companies are entering into strategic tie-ups with MNCs to