swot analysis of indian pharmaceutical industry

SWOT Analysis

It is often said that the pharma sector has no cyclical factor attached to it. Irrespective of whether
the economy is in a downturn or in an upturn, the general belief is that demand for drugs is likely
to grow steadily over the long-term.

Strengths:
1. India with a population of over a billion is a largely untapped market. To put things in
perspective, 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.
2. The growth of middle class in the country has resulted in fast changing lifestyles in urban and
to some extent rural centers. 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 of drugs in the world. With a
scalable labor force, Indian manufactures can produce drugs at 40% to 50% of the cost to the rest
of the world.
4. Indian pharmaceutical industry possesses excellent chemistry and process reengineering skills.
This adds to the competitive advantage of the Indian companies. The strength in chemistry skill
helps Indian companies to develop processes, which are cost effective.
Weaknesses:
1. The Indian pharma companies are marred by the price regulation. The National Pharma
Pricing Authority, which is the authority to decide the various pricing parameters, sets prices of
different drugs, which leads to lower profitability for the companies. The companies, which are
lowest cost producers, are at advantage while those who cannot produce have either to stop
production or bear losses.
2. Indian pharma sector has been marred by lack of product patent, which prevents global
pharma companies to introduce new drugs in the country and discourages innovation and drug
discovery.
3. Due to very low barriers to entry, Indian pharma industry is highly fragmented. This makes
Indian pharma market increasingly competitive. The industry witnesses price competition, which
reduces the growth of the industry in value term.
Opportunities
1. The migration into a product patent based regime is likely to transform industry fortunes in the
long term. The new product patent regime will bring with it new innovative drugs.
2. Large number of drugs going off-patent in Europe and in the US during 2005 - 2009 offers a
big opportunity for the Indian companies to capture this market. Since generic drugs are
commodities by nature, Indian producers have the competitive advantage, as they are the lowest
cost producers of drugs in the world.
3. Being the lowest cost producer combined with FDA approved plants; Indian companies can
become a global outsourcing hub for pharmaceutical products.
Threats:
1. Threats from other low cost countries like China and Israel exist. However, on the quality
front, India is better placed relative to China.
2. The short-term threat for the pharma industry is the implementation of VAT. Though this is
likely to have a negative impact in the short-term, the implications over the long-term are
positive for the industry.

STRATEGIES FOLLOWED BY INDIAN PHARMACEUTICAL COMPANIES

TILL 2006

Indian companies have adopted different strategies in order to penetrate regulated generics markets.
Some have entered these markets through partnerships with established generic companies; others
have set up their own sales and marketing organisations, either organically or through acquisitions. A
number have gone one stage further and acquired manufacturing bases in their target markets. Ranbaxy
acquired Ohm Laboratories in the US in 1995, providing the company with an entry into the US market.
Jubilant Organosys acquired US generic company Cadista Pharmaceuticals (formerly Trigen Laboratories)
in 2005. Aurobindo Pharma acquired an FDA-compliant formulations manufacturing plant in Dayton,
New Jersey in 2006. Dr. Reddy’s has MHRA-approved manufacturing facilities in the UK. Wockhardt has
manufacturing facilities in the UK, Ireland and France.

Indian pharmaceutical companies are no strangers to competition. The Indian market is highly
competitive with more than 300 organised players and branded promotional costs associated with every
product, yet the industry is able to offer low-priced products and remain profitable in India. However,
whether the Indian industry will be able to maintain the pace of expansion across the world is
questionable in the current economic climate.

INTERNATIONAL DEVELOPMENT... A STEP TOO FAR IN A TOUGH

MARKET

Outside India, the US and EU generics markets are currently the major targets for companies
following a generic strategy – but for how long? The attractive opportunities offered by the loss
of patent protection on several major products in the coming period has to be offset against price
reduction pressures driven by the ongoing economic downturn and aggressive competition for
the business that is on offer.

US Market...Ranbaxy

Ranbaxy is an established player in global generics and the US is the company’s largest market.
In 2008, 26.6% of the company’s formulations revenue was generated from North America
compared with 19.7% in Europe. In 2006/07, North America was the leading revenue generator
for Dr. Reddy’s, contributing 43.5% of the total. In 2007/08, however, the company’s revenue
from this market dropped significantly due to loss of market exclusivity for key products and
higher manufacturing costs and was down to 16% of the total. Problems with lower revenues in
other markets, notably in the European area, may cause Ranbaxy to reconsider its international
operations.
Wockhardt IN EUROPE
For Wockhardt, Europe is the more important market. In 2007, the company gained 53.1% of its
revenue in Europe compared with 10.2% in the US. Growth has been through strategic
acquisitions, alliances and new products. During 2006, Wockhardt completed its largest
acquisition to date, Pinewood Healthcare, to become a major player in the Irish generics market.
The company also has a significant presence in the UK and Germany and has recently purchased
a research-based pharmaceutical company, Negma Laboratories in France. Europe is likely to
account for more than 60% of the company’s revenue, however the current economic downturn
has increased pressure on prices in key European markets and industry speculation is rife
concerning Wockhardt’s trading position.