A

Summer Project Report

On
“THE PRESENT AND FUTURE OUTLOOK OF
PHARMACEUTICAL COMPANIES”

AEGON LIFE INSURANCE

In the partial fulfillment of the Degree of

Master of Management Studies (Finance)

under the University of Mumbai

By
Mit Doshi

Class: MMS-A & Roll No: 18

Specialization: Finance
Batch: 2018-20

Under the Guidance of

Mr. Vaibhav Patil

(Internal Guide)

ATHARVA INSTITUTE OF MANAGEMENT STUDIES

Malad-Marve Road, Charkop Naka,
Malad (West), Mumbai 400 095.
 ACKNOWLEDGEMENT

I hereby take this opportunity to thank Aegon Life Insurance for providing me with
a productive period of 2 months by way of Summer Internship.

I would like to express my thanks to Mr. Jyoti Prakash (Vice Precident-

Investments) who, in spite of being busy with his duties, took time out to guide me
and give valuable inputs throughout the internship period.

I perceive this opportunity as a big milestone in my career development. I would

also like to express my thanks to our Director Dr. Sujata Pandey, who rendered all
the facilities.

I would like to extend my sincere thanks to my faculty guide Prof. Vaibhav Patil
for his constant support, guidance and encouragement throughout my internship.

I firmly believe that there is always a scope of improvement. I welcome any

suggestions for further enriching the quality of this report.
 DECLARATION

I, Mit Doshi student of MMS 2018 – 2020 batch, hereby declare that this project
report entitled, “The present and future outlook of pharmaceutical companies”,
which is being submitted for the fulfilment of the requirement of the course, is true
and original to the best of my knowledge. I have completed this project in the
academic year 2018-2020, as a part of my curriculum.

The content of this project reflects the work done by me during the academic
period of the Post-Graduation of Atharva institute of Management studies,
Mumbai.

I further declare that I or any other person has not previously submitted this project
report to any other Institute or University for any other Degree or Diploma
certification.

Place - Mumbai
Date - Student- Mit Doshi
 TABLE OF CONTENTS

Sr. no. Topics Page no.

1 Company Overview 1
2 Executive Summary 10
3 Research Objective 11
4 Formulation of research problem 12
5 Research Hypothesis 12
6 Introduction 13
7 Data Collection – Primary and Secondary 17
8 Data Analysis 30
9 Data Interpretation 33
10 Recommendations 44
11 Conclusion 45
12 Bibliography 46
 Company Overview

Aegon Life Insurance

Aegon Life is present in more than 20 countries in the Americas, Europe and Asia.
It began operations 173 years ago, and today, we have 30 million customers, more
than 29,000 employees and manage investments worth 743 billion Euros.

In India, our partner is a very respected group who know the country like the back
of their hand. Times Group, the Company whose flagship newspaper, the Times of
India, has been touching the life of almost every Indian in one way or the other.

Being 179-year old, TOI today enjoys the support of 25,000 advertisers and
millions of readers across the continents.

Aegon has developed into an international company, with businesses in more than
20 countries in the Americas, Europe and Asia. In the US, Aegon’s a leading
market, it operates under the Transamerica brand. Today, Aegon is one of the
world’s leading financial services organizations, providing life insurance, pensions
and asset management. Aegon never loses sight of its purpose to help its customers
secure their long-term financial future.

With a recent global study estimating 92% are uninsured in a typical Indian house,
customer education has become more important than ever. In line with this
statistic, spreading awareness and educating customers on adequate
protection by meaningfully engaging with them is the highest priority for us at
Aegon Life Insurance.

Today, Aegon Life has grown into a new-age digital service company with our
own company-employed service team that is fully geared to provide you the
highest levels of service. Because we have removed external Agents, our premiums
are usually lower, and our direct dialogue with our customers make for greater
clarity and transparency.

1
 Investment Team

My work for the entire duration of the internship was with the investment team.
They are mainly into ULIP Funds. ULIPs are insurance policies that come with
dual benefits- growth and protection. These plans come with the combined benefits
of insurance and investment under one single plan.

What is ULIP

Unit Linked Insurance Plan (ULIP) is a mix of insurance along with investment.
From a ULIP, the goal is to provide wealth creation along with life cover where the
insurance company puts a portion of your investment towards life insurance and
rest into a fund that is based on equity or debt or both and matches with your long-
term goals. These goals could be retirement planning, children’s education or
another important event you may wish to save for.

How does ULIP work?

When you make an investment in ULIP, the insurance company invests part of the
premium in shares/bonds etc., and the balance amount is utilized in providing an
insurance cover. There are fund managers in the insurance companies who manage
the investments and therefore the investor is spared the hassle of tracking the
investments.

ULIPS allow you to switch your portfolio between debt and equity based on your
risk appetite as well as your knowledge of the market’s performance. Benefits like
these which offer investors the flexibility of switching is a huge factor contributing
to the popularity of these investment instruments.

Lock-in-period of ULIP

One of the changes brought about by the Insurance Regulatory and Development
Authority of India (IRDAI) in the year 2010 as regards ULIPs, was to increase the
lock in a period from 3 years to 5 years. However, insurance being a long-term
product, as an investor you may not really reap the benefits of the policy unless
you hold it for the entire term of the policy which can range from 10 to 15 years.

2
Why you should invest in ULIPs?

 Life cover: First and foremost, with ULIPs you get a life cover coupled with
investment. It offers security that a taxpayer’s family can fall back on in case
of emergencies like the untimely death of the taxpayer, etc.
 Income tax benefits: Not many are aware that the premium paid towards a
ULIP is eligible for a tax deduction under Section 80C. Additionally, the
returns out of the policy on maturity are exempt from income tax under
Section 10(10D) of the Income-tax Act. This is a dual benefit that you can
claim with this policy.
 Finance Long Term Goals: If you have long-term goals like buying a
house, a new car, marriage, etc., then ULIP is a good investment option
because the money gets compounded. As a result, the net returns are
generally more. This stands true even if you want to exit after the 5 year
lock-in period in comparison to not having invested the amount at all and
retaining it in a savings account or in the form of an FD. But, under ULIP,
the mantra is to always keep the policy going for a longer time horizon to
reap the best out of it.
 The flexibility of a portfolio switch: As already mentioned, ULIPS are
usually designed in a way that they allow you to switch your portfolio
between debt and equity based on your risk appetite as well as your
knowledge of how the market is performing. Insurance companies, on the
other hand, allow a very few numbers of switches free of cost.

Things to consider as an investor

Following are some important factors you should weigh in before investing in
ULIPs:

 Personal financial goals: If your financial goal is about wealth creation and
you want to save money for retirement, ULIP is one of the best options
available.
 Compare ULIP offerings: Once you have determined your financial goal
and the type of ULIP that will help you achieve it, the next step would be to
compare the ULIP offerings in the market. Look for a comparison in the
form of background expenses, premium payments, ULIP performance, etc.

3
 Also, investigate the nature of funds that the ULIP invests in to ascertain the
returns from investments in the particular ULIP.
 Risk factor: Since ULIP investment is not as diversified as compared to
ELSS, the risk in ULIP is probably a bit high compared to schemes like
ELSS.
 Investment horizon:ULIPs have a lock-in period of 5 years. If a ULIP is
surrendered in the first three years, the insurance cover would cease
immediately. However, the surrender value can be paid only after three
years.

Types of ULIPs

ULIPs are categorized based on the following broad parameters:

Funds that ULIPs invest in

i. Equity Funds: Where the premium paid is invested in the equity market and
thereby is subject to higher risk.
ii. Balanced funds: Where the premium paid is balanced between the debt and the
equity market to minimise the risk for investors.
iii. Debt Funds: Where the premium is invested in debt instruments which carry a
lower risk but in turn also offer a lower return.

End use of Funds

i. Retirement Planning: For those of you who plan to invest for the retirement
days while you are still employed.
ii. Child Education: You can iYou can invest with a long-term goal of saving to
fund your child’s education or save for some unforeseen circumstances.
iii. Wealth Creation: You can make investments to build a heavy corpus that you
can utilize for a future financial goal

Death benefit to Policy Holders

i. Type I ULIP: This pays higher of the assured sum value or the fund value to the
nominee in case of death of the policyholder.
ii. Type II ULIP: This pays the assured sum value, plus the fund value to the
nominee in case of the death of the policyholder.

4
 ULIPs Vs Mutual Funds

Particulars ULIPs Mutual Funds

Nature Investment cum Pure Investment product

insurance product

Withdrawal Only after lock-in- Can be withdrawn anytime

period of 5 years

Switching Alternating between Switching is permitted

funds is permitted and between schemes of the
not subject to taxation. same fund house. However,
it’s treated as a redemption
and the resulting capital
gains are taxable.

Charges Mortality charges, No entry load, the annual

premium allocation fund management charges
charge, fund apply and an exit load, if
management charge applicable.
and administration
charges

5
 ELSS vs ULIP – Comparative Analysis

Particulars ULIP (Unit Linked ELSS (Equity Linked

Insurance Plan) Savings Scheme)

Lock-in ULIPs have a ELSS have a

period mandatory lock-in of mandatory lock-in of 3
5 years years

Returns The returns can vary Being market-linked,

because an investor the returns depends on
can choose any the scheme, but an
combination of investor can expect an
equity, debt, hybrid approximate return of
funds in his 12-14%.
investment.

What are the The invested amount LTCG under ELSS is

tax benefits? offers tax deduction taxed @ 10% over and
under Section 80C, above Rs. 1 lakh
but gains are taxable.

What are the There are complex Exit load and fund
charges and multiple charges management charges
applicable? like policy are specified in the
administration SID clearly and are
charges, premium easy to understand.
allocation charges,
mortality charges, etc.

What about Funds can be Funds will be

liquidity? available after the available after the
lock-in of 5 years lock-in of 3 years.
subject to further
policy conditions.

6
There is a whole variety of ULIPs on offer. You can choose anything from Wealth
creation ULIPs to Retirement Planning ULIPs, depending on your particular
investment profile and desired portfolio.

Income Tax Benefits

Premium paid on ULIPs is eligible for a deduction under Section 80C up to a

maximum of Rs 1.5 lakhs during a year. Further, the amount you receive on
maturity is tax exempt under Section 10(10D).

Types of fees and charges

In every investment, there are various charges that need to be paid. In the case of
ULIP, the charges can be broadly classified as:

Premium Allocation Charge

Premium Allocation Charge is deducted as a fixed percentage from the premium

paid in the initial years of the policy. This is charged at a higher rate. The charges
include the initial and renewal expenses and intermediary commission expenses. It
is a front load charge as it is deducted from your premium paid.

Mortality Charges

This charge is to provide for the insurance coverage under the plan. Mortality
charges depend on a number of factors like age, sum assured, etc., and is deducted
on a monthly basis.

Fund Management Charges

Fund Management Charge is the fee imposed by the insurance company for the
management of the various funds in the ULIP. It is levied for the management of
the funds and is deducted before arriving at the NAV figure. The maximum charge
allowed is 1.35 percent per annum of the fund value and is charged daily.
Generally, insurers levy the maximum amount allowed in equity funds, while the
charge on non-equity funds is much lower.

7
Partial Withdrawal Charge

ULIPs have the option of partial withdrawals of funds. Some plans offer unlimited
withdrawals, but some restrict it to 2-4 withdrawals. These withdrawals can be free
for up to a certain limit or you can be charged based on your transactions.

Switching your funds

The moving of funds or investments between options is called switching. There are
options to switch your funds for free up to a certain limit per year. Any further
changes might incur a charge of Rs. 100 -Rs.250 per switch.

Policy administration charges

This charge is levied for the administration of the policy and it is deducted on a
monthly basis by the cancellation of units from all funds chosen. This charge can
be levied at a fixed rate or as a percentage of your premium.

8
ULIP as a mode of investment is a good choice given it offers the benefits of
insurance with investment. With part of the investment spread across stock
markets, you stand to gain higher returns. This also means that your investment is
subjected to market risks. If your risk profile meets the tradeoff, this could be
worth exploring.

Few of those are:

Enhanced Equity Fund

Accelerator Fund
Pension Enhanced Equity Fund
Pension Index Fund
Group Equity Fund
Blue Chip Equity Fund
Opportunity Fund
Debt Fund
Pension Debt Fund
Secure Fund
Pension Secure Fund
Conservative Fund
Balanced Fund
Pension Balanced Fund
Stable Fund
NAVPF Fund

All the Funds are segregated based on the risk profile that a client wishes to stay in.
Some are only equity funds, some are hybrid, while some are purely debt funds.

9
 Executive summary

The scientific technology on which the pharma industry rests has improved vastly
over the years. Technologies for collecting and synthesizing biological data are
improving and becoming much cheaper and more efficient. However, within
the short term, the trade continues to face challenges like patent formation,
rising drug discovery value, harsher rules and worth controls, coupled with
spiraling healthcare cost.

However, in order to sustain the growth in the long run, companies will need to
modify their business models and connect with their customers faster and work on
innovative ideas to serve them better.

Global pharmaceutical markets are facing major discontinuities. While growth in

developed markets will start slowing down, emerging markets will take pole
position in the coming decade. The Indian pharmaceuticals market with the
markets of China, Brazil and Russia, will spearhead growth.

The past few years have been glorious ones for the Indian companies, as some
of the best brands lost their patent protection, paving way for generics. The
growth will be because of higher incomes and supported by varied factors:
better medical infrastructure; increased prevalence and treatment of chronic
diseases; higher health insurance coverage and new market creation in existing
white spaces.

However, with each passing year there are lower patented drug opportunities for
the Indian companies for the launch of generics. Thus, Indian pharma companies
have increased their R&D expenses and the companies are spending more to
establish niche product portfolios for the future.

India has an important position in the global pharma sector. The country also has a
large pool of scientists and engineers who can steer the industry ahead to an even
higher level.

10
India's biotechnology industry which consists of bio-pharmaceuticals, bio-services,
bio-agriculture, bio-industry and bioinformatics is expected grow at an average
growth rate of around 30% a year.

Research Objective

The purpose of this study is to gauge the potential growth prospects and valuations
of Indian pharmaceutical industry. This sector includes the bulk drug industry,
formulations and major therapeutic segments. It examines these clinical data that is
used in hospitals, clinics and doctor's offices.

The principal objectives of this analysis are to:

1) determine viable technology drivers through a comprehensive look at available

technologies for the Indian pharmaceutical industry;

2) understand the practices of Indian pharmaceutical industry from its basic

principles to its applications;

3) discover opportunities by identifying high growth avenues in different areas of

the Indian pharmaceutical industry;

4) focus on global industry development through analysis of the major world

markets for pharmaceuticals, including forecasts for growth;

5) find out of the relevant processes and trends to exploit the market growth
potential.

11
 Formulation of research problem

To analyze the present and future outlook of Pharma Sector, gauge the potential
barriers, and determine which company looks best suited for consistent growth in
near future.

Research Hypothesis

H0: Pharma industry is well placed to extract maximum possible valuation based on
growth prospects in India and around the world

H1: Pharma industry is uncertain about its growth prospects and valuation

12
 Introduction

The Indian Pharmaceutical market accounts for approximately 3% of the

global pharmaceutical industry and 20% in the volume terms. Indian
pharmaceutical market, world’s largest provider of generic drugs, accounting
for 20% of global export volume. The growth in 2018 stood at 10% year
over year. Based on robust historical growth, quite a few MNC companies
have active presence in the Indian pharmaceutical space.

Indian pharmaceutical sector provides for around 50% of global demand for
numerous vaccines, 40% of generic demand in the US and 25% of all medicine
in UK.

The Indian Pharmaceutical market is fragmented. The top ten companies

include domestic as well as MNC companies which makes up for more than
a third of the market. The market is dominated by branded generics, which
constitutes nearly 70% of the overall market. Over the counter (OTC)
medicines and patented drugs constitute 21% and 9% respectively.

The Indian government is additionally considering a proposal for increasing

public expenditure on drugs from 0.1% of GDP to 0.5% of GDP5 and
provide free essential medicines to all. Further reforms are required in the
insurance sector to include coverage of outpatient expenses and drug-related
expenditure.

Indian pharma companies get a large chunk of the revenues coming from
exports. Major companies have revenues coming from the sale of
intermediates, API and formulations in various global markets. These
include modern markets like US, Europe, Japan and developing markets
across the world. Some companies also derive revenues by providing custom
research and manufacturing services to other companies.

13
 Other trends like increase in coverage of health insurance, advancement in
medical technology and penetration of mobile health services will give
further impetus to the growth of the Indian pharma industry.

Several factors attract global pharmaceutical companies to India:

 Low cost of production due to variety of factors including cheap labor and
raw material cost;
 Big market not only for life saving drugs but also for lifestyle drugs;
 Potential for conducting research and development activities in India – India
has more than 300 medical colleges, over 20,000 hospitals;
 Existing manufacturing capability to produce active pharmaceutical
ingredients (APIs) as well as intermediates at lower cost while maintaining
quality.
 India has maximum number of USFDA approved plants outside USA which
are over 16910 in number.
 Ease of conducting clinical trials and bio availability and bioequivalence
studies due to India’s ability to provide speedier and less expensive trials
without compromising quality and vast patient pool;
 Product patent regime;

While the market has gained confidence in last few years, it is also facing a
period of slowdown. First, the healthcare sector is experiencing
discontinuous development. Exponential rise in healthcare, increasing
awareness of patients, expanding insurance across the income group on the
masses and the emergence of new hospital formats illustrates this flux.
Second, in past couple years, industry structure in pharmaceuticals has
changed with remarkable shifts in the leader board. Finally, traditional
drivers of growth are making way for newer ones. For instance, while new
products will cease to drive growth, existing large brands would need to find
ways to fill in the gap.

Rising income levels and enhanced medical infrastructure has increased the
growth trajectories. This growth has been spread across therapy and
geography segments. Several leading players are diverting their attention on

14
new and emerging opportunities. The pace of innovation in business models
has been mind boggling. The launch of generics businesses and significant
expansion of market coverage by multinationals illustrates this point. Hence,
the expectations from the India companies have increased and aspirations
have become bolder.

With the change in growth momentum, the main question that was asked
since years about the Indian pharmaceutical market has changed as well. “Is
India a good and a viable option to expand bases?” is no longer the central
question. Instead, industry is debating over, “How will the Indian market
space scale up to a much higher growth trajectory and also achieve its full
potential?” Heads are asking, “How do we establish a superior leadership in
this important and evolving market?”

Q How can industry stimulate the existing growth stories and expand the
market faster? What are the risks and how should these be managed?

Q Which are the most attractive domains in the Indian market? What are
their unique characteristics?

Q Which capabilities will differentiate the leaders of tomorrow? What will

be the relative importance of sales coverage versus sales force capabilities?
How can brand building be enhanced in view of diminishing new product
launches and also retain growth?

Q Do we need to change the way organisations are structured and managed

as the portfolio of opportunities becomes wider? To what extent will industry
need to outsource?

However, bringing new drugs under Drug Price Control Order (DPCO) and
National List of Essential Medicines (NLEM), imposing price ceiling on drugs
and government focus to make medicines affordable are likely to restrict the
growth in prices of drugs and, in turn, constrain the rise in value of
Indian pharma industry in this fiscal.

15
Pharma companies are growing both organically and inorganically. Inorganic
growth is growing because licenses and partnerships as highly valued assets is
making acquisitions difficult and joint ventures difficult. Further, companies are
still growing organically by means of their operations and productivity,
penetrating in Tier II and III cities and also expanding their product portfolios.

16
 Data Collection – Primary and Secondary

The major sources of data collection were various Analyst Reports, several
concalls with research Analysts who are bullish/bearish on pharma sector as well
getting consensus valuation reports from Bloomberg Terminal.

To study the price history and historical valuations of various pharma stocks, the
technical charts provide a clear picture.

Chart of Nifty Pharma is attached below. Looking at it one can recognize whether
the whole sector is consolidating, in uptrend or downtrend.

17
To compare how a stock moves with respect to benchmark indices (Nifty pharma),
we can compare their price movements with benchmarks movement over the years.

My research involved three companies:

 Dr Reddy Laboratories Ltd

 Cipla Ltd
 Sun Pharma Ltd

Dr Reddy / Nifty Pharma

18
Cipla / Nifty Pharma

19
Sun Pharma / Nifty Pharma

20
Constituents companies of Nifty Pharma Index with weightage
(As on 28 September 2018)

21
List of Pharma Mutual Funds:

1. Reliance Pharma Fund Growth

NAV: ₹142.11
Net Assets (Cr): ₹2,420
Returns-
3 Months: -8%
6 Months: -6.2%
1 Year: -0.1%
3 Year: 0.3%
5 Year: 7.4%

TOP 5 HOLDINGS OF Reliance Pharma Fund(G)

(As of 16/08/2019)

S.No. Name of Holding Net Assets (%)

1 Sun Pharmaceutical Industries Limited 11.83

2 Divi's Laboratories Limited 10.45

3 Cipla Limited 9.56

4 Aurobindo Pharma Limited 8.04

5 Lupin Limited 7.5

22
One-year growth chart (NAV)

23
2. TATA India Pharma & Healthcare Fund Growth

NAV: ₹8.9539
Net Assets (Cr): ₹166
Returns-
3 Months: -3.2%
6 Months: 2%
1 Year: 3.1%
3 Year: -3%
5 Year: N.A

TOP 5 HOLDINGS OF Tata India Pharma & Healthcare Fund-Reg(D)

(As of 16/08/2019)

S.No. Name of Holding Net Assets (%)

1 SUN PHARMACEUTICAL INDUSTRIES LTD 11.81

2 DR REDDYs LABORATORIES LTD 11.39

3 IPCA LABORATORIES LTD 9.93

4 DIVI LABORATORIES LTD 9.73

5 LUPIN LTD 9.54

24
One-year growth chart (NAV)

25
3. UTI Healthcare Fund Growth

NAV: ₹79.7508
Net Assets (Cr): ₹392
Returns-
3 Months: -7.8%
6 Months: -5.5%
1 Year: -5.4%
3 Year: -5.2%
5 Year: 2.5%

TOP 5 HOLDINGS OF UTI Healthcare Fund-Reg(G)

(As of 16/08/2019)

S.No. Name of Holding Net Assets (%)

1 EQ SUN PHARMACEUTICALS INDUSTRIES LTD. 11.43

2 EQ DIVIS LABORATORIES LTD. 9.43

3 EQ DR REDDY'S LABORATORIES LTD. 9.09

4 EQ LUPIN LTD. 8.63

5 EQ CIPLA LTD. 7.51

26
One-year growth chart (NAV)

27
4. SBI Healthcare Opportunities Fund Growth

NAV: ₹109.593
Net Assets (Cr): ₹894
Returns-
3 Months: -10.4%
6 Months: -9.4%
1 Year: -3.5%
3 Year: -8.5%
5 Year: 2.7%

TOP 5 HOLDINGS OF SBI Healthcare Opp Fund-Reg(G)

(As of 16/08/2019)

S.No. Name of Holding Net Assets (%)

1 Sun Pharmaceutical Industries Ltd. 14.48

2 Divi's Laboratories Ltd. 9.98

3 TREPS 8.96

4 Dr. Reddy's Laboratories Ltd. 6.99

5 Lupin Ltd. 6.92

28
One-year growth chart (NAV)

29
 DATA ANALYSIS

Therapy Areas

Dr Reddy Cipla Sun Pharma

1.Gastrointestinal 1.Women's Health 1.Cardiology
2.Oncology 2.Devices 2.Psychiatry
3.Pain Management 3.Cardiovascular 3.Neurology
4.Cardiovascular 4.Children's Health 4.Gastroenterology
5.Diabetes 5.Dermatology 5.Diabetology
6.Dermatology 6.Diabetes 6.Respiratory
7.Dental 7.HIV/AIDS 7.It makes specialty
8.Nephrology 8.Hepatitis APIs, including
9.Urology 9.Oncology peptides, steroids,
10.Malaria hormones and
11.Neurosciences anticancers
12.Ophthalmology
13.Osteoporosis
14.Respiratory
15.Urology
16.Urology

30
 Global Presence

Dr Reddy Cipla Sun Pharma

1.USA 1.USA 1.USA
2.India 2.South-East Asia 2.Europe
3.Russia and CIS 3.Middle-East, 3.Russia
4.Germany 4.Latin America 4.Romania
5.UK Venezuela 5.Africa 5.South Africa
6.South Africa 6.Australia 6.Brazil
7.Romania. 7.New Zealand 7.Mexico.
8.Russia-CIS
Through strategic 9.Algeria
alliance 10.Morocco
with GSK: - 11.Malaysia
1.Brazil 12.Vietnam
2.Mexico 13.Yemen
3.Chile
4.Philippines
5.Middle East
6.North Africa

31
 Highest Revenue Contribution

Dr Reddy Cipla Sun Pharma

Global Generics Pharmaceuticals India Formulations
(includes biologics US Formulations
business)

Recent Launches and Approval

Dr Reddy Cipla Sun Pharma

 Daptomycin for  Generic cinacalcet Infugem injection
Injection hydrochloride tablets
($640.8 million for  Received final approval
twelve months ending in for Ambrisentan Tablets
March 2019) from US FDA
 Testosterone Gel ($943 million in 2018)
($815.6 million for
twelve months ending
in February 2019)

Pending ANDAs & NDAs

Dr Reddy Cipla Sun Pharma

107 pending ANDAs 89 pending ANDAs 123 pending ANDAs
& 3 pending NDAs &6
pending NDAs

32
 Data Interpretation

Dr Reddy (Future Outlook)

1. Expect 30 ANDA launches in FY20. Assuming US$4mn revenue per ANDA,

the new launches can add US$120mn to DRL’s US business.
2. Approval of DFN-02 can potentially turn around the proprietary business.
3. The company has given 21% to 22% tax rate guidance for FY20.
4. Capex - 700 crore in FY19, 15-20% towards maintenance capex; FY20 capex is
likely to be lower than FY19 spend.
5. The management has given guidance of better margins in the PSAI business
segment (earlier 56%)
6. The company launched 10 products in the US during this quarter and it has 110
cumulative products filed so far there. The company has given guidance of
launching 30 products in the US next financial year.
7. The company launched six products in Germany, four in the UK and 12 in
France
8. China strategy- The management sees major opportunities in the backdrop of
positive regulatory changes; has identified 70+ products for launches.

Key Risks

1. Earnings recovery in the US hinges on three key molecules: - gNuvaring (birth

control) - Launch Delayed, gCopaxone (treats multiple types sclerosis) and
gSuboxone - one-third of FY21 estimates.
2. Escalation of observations at the Srikakulam API facility.
3. Failure to get approvals for biosimilars and delays in ramp up of proprietary
pipeline.
4. Currency fluctuation.
5. Considerable one-off income for the quarter (INR1.8b as revenue and INR159m
for sale of intangible assets. Other income also includes INR423m on sale of API
plant and INR423m on sale of intangible assets).

33
Cipla (Future Outlook)

1. Cipla continued its outperformance in FY19; grew by 11.2% vs market growth

of 10.5%
2. Launched 10+ products in the US including the launch of generic Albuterol
metered dose inhaler (MDI). The management has guided for double digit growth
in the US
3. The management expects some softness in South African tenders, which is
likely to be compensated by private business.
4. Indore and Goa Unit came out clean from USFDA inspections.
5. Company plans to enter Chinese market with respiratory and oncology products.
6. Strong performance in the domestic inhaler space, new launches in the US DTM
business, and outperformance in the African private market will be the key
drivers for growth.
7. The R&D spending was in line with guidance, at 7.1% of sales.
8. Tax rate should be at 27-29% for FY20E.
9. The company is expecting to file for two products in 1QFY20 and the launch of
Albuterol inhaler during the year.

Key Risks

1. Delays in high-value US launches are key risks to estimates.

2. A decline in the Global Access business due to challenges in the funding
environment poses a risk.
3. Should R&D costs increase beyond the current 7-8% of sales, the savings from
other cost optimisation measures nwould be nullified.
4. Supply constraints, Iran/Yemen geopolitical uncertainty, and raw material
prices.
5. Higher-than-expected pricing pressure in Africa business and currency volatility
in Emerging Markets.

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Sun Pharma (Future Outlook)

1. The management has guided for double-digit top-line growth in FY20E, and for
capex of ~Rs 14bn
2. R&D will scale up on the back of specialty and differentiated products. Expect it
to remain in the range of 8-9% of sales
3. Cequa launch is expected in 2QFY20 as against 1QFY20
4. Sun doesn’t expect the change in distributor to have an impact on domestic sales
going ahead.
5. Effective tax rate would move upward, going forward.
6. Expansion capex would be USD200m for FY20.
7. Headwinds in the US for SPIL’s generic business are easing and the specialty
business is positioned for a ramp-up post recent approval for specialty assets –
Ilumya for psoriasis and Cequa for dry eye disease
8. Cequa will be launched in CY19, while Xelpros is not a blockbuster in US. The
company has achieved 10.5% market share in Odomzo.
9. Ilumya is gradually gaining traction in the US with around 1,200 doctors having
prescribed the product till date
10. Japan foray- As per the management, Pola Pharma has a large field force
serving dermatologists which can be leveraged to push Ilumya and other derma
products in Japan

Key risks

1. Adverse outcomes in the ongoing US Department of Justice investigation on

drug price collusion
2. Escalation of SEBI investigation
3. Delays in US approval and ramp-up of the specialty business
4. Higher-than-estimated initial upfront investments in R&D
5. Above-expected price erosion in US generics

35
Policy & regulatory landscape

Over the past year, there have been interventions at the regulatory level such as
compulsory licensing, FDI policy, pricing policy, marketing code and regulatory
approvals, which will require careful considerations as companies develop
strategies for future growth.

Pricing policy

The National Pharmaceutical Pricing Authority (NPPA), monitors and controls

pricing in the Indian market for essential medicines, through the Drug Price
Control Order (DPCO). The revised proposal is to shift from cost-based pricing to
marketbased pricing by using the weighted average price of all brands in a segment
with more than 1% of market share by volume. The All India Drugs and Chemists
Association has estimated that the overall impact on the industry is likely to be at
2.3%.

Compulsory licensing

According to legal experts compulsory licensing has been granted on the following
grounds under Section 84 of the Indian Patent Act:
(1) the drug failed to meet the reasonable requirements of the public,
(2) the drug was not reasonably affordable and
(3) the patent was not being sufficiently ‘worked’ in India because it was not
locally manufactured.

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Enforcement of marketing code in the pharma industry

In a bid to streamline marketing efforts, the Department of Pharmaceuticals (DoP)

has released a code of marketing practices for the industry in 2011. The DoP code
lays down strict guidelines on the most common and well-known areas of
violation, like exaggerated claims; audiovisual promotions; activities of medical
representatives (MRs); and sponsorships by pharma companies. The code was
voluntary, but in a recent meeting convened between the key industry stakeholders,
the industry agreed in principle to enforce a code that will restrict them from
offering gifts or other sops to doctors in order to prescribe their medicines. DoP
intends to review its implementation after a set interval of time. This is the correct
time for India to set its own specific guidelines on selling and marketing practices.
There has been parallel development on the tax front with respect to deductibility
of expenses on sales and marketing activities. Please see the side bar for details on
the CBDT circular.

Delay in approvals for clinical trials

India has 15% of the world’s population, but less than 2% of global clinical trials
take place in India. Since last year, the DCGI has withdrawn from its role of
approving drug trials in the country and has handed over the responsibility to a 10-
member new Drug Advisory Committee (NDAC). This year, the NDAC has
approved only nine drugs for clinical trials. Even while India is a cheaper
destination to conduct clinical trials as compared to many countries, frequent
regulatory delays raise the costs to levels comparable with US or EU levels. As a
result, some CROs are looking to increase focus on other geographies like
Malaysia and east European countries like Poland. Given the tremendous
opportunity in the sector, the industry can benefit from speedy approvals and
stronger ethical infrastructure for conducting trials in India.

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FDI in pharma

The government has decided to take stock of the decade-old FDI policy for the
pharma sector. This decision was in response to the potential threat of dominance
from foreign players and a general rise in overall drug prices in the country,
developing because of increased takeovers of Indian companies by MNCs starting
in 2006. At the same time, FDI up to 100% under the automatic route was
continued for greenfield investments in the pharma sector. The FIPB has
mentioned guidelines for approving future proposals. MNC’s looking at buying a
stake higher than 49% in an Indian pharma company will need to maintain the
same level of investment in research activities and production of NLEM drugs for
next five years.30 However, it is still at the proposal stage and the final decision is
expected soon from the Prime Minister’s office. However, the broad consensus
amongst the stakeholders in the pharma sector remains that FDI reforms in this
sector should not curtail investments.

38
Implications of Pharma Industry

Over the next decade, the market will grow exponentially, presenting a variety of
opportunities. To lead, players must not only participate in multiple opportunity
areas, but also rethink their business models to enable a profitable scaling up.
Pharmaceutical companies have paid attention to these new opportunities and have
started to make meaningful investments in these areas.

On balance, MNCs have probably covered more ground. MNCs have planned out
bold business model for their India businesses, adopted a localized model
including dramatic sales force ramp-ups and branded generics launches, and made
major investments in their local organizations. Leading local players have made
employed their capital on market creation, developed differentiated business
models and maintained the momentum of new product launches. Given that these
steps are in the right direction, there is lot more to be done to fully capture the
potential of the market.

The requirements for leadership have gone up manifold. Enhanced competition and
a rapidly evolving market have left limited room for complacent players. For
example, a few years ago, market creation entailed expanding therapies to new
doctor segments and geographies, identifying opportunities in underpenetrated
therapies, and deepening penetration in established markets.

Another a good example is the rising importance of large brands, particularly in the
context of dwindling generics launch opportunities. Not only can the large brands
make up for the gap created in the topline, they can also bolster profitability.
Unfortunately, in the last few years, big brands have slowed down significantly
and lost share. This is a cause for concern.

Winning in the Indian market will require streamlined focus, the capabilities that
require the most substantial improvements are related to the commercial model.
We believe that commercial capabilities will be critical. These capabilities will
need to be supported by a strong organization and collaborative partnerships with
stakeholders within and outside the industry.

39
Key Issues and Challenges in Pharma Industry

 Promotion and Advertisement

Pharma companies are finding it increasingly difficult to engage physicians and

patients in an informationintensive day and age. It is not possible under Indian
laws for an Indian pharmaceutical company to pay for a physician’s travel and
accommodation in order to enable him to attend an educational event. It is also not
possible under Indian laws to advertise prescription medicines or any medicines
with claims that may induce a person to think that certain diseases and conditions
could be treated or cured.

 Price Control

India’s drug price control regime is erratic in its implementation. The drugs whose
prices are decided by the government are identified in the national list of essential
medicines. The industry has no representation in deciding which medicines may be
decided as essential and included in the list. The result is that the industry is always
anxious prior to making sizeable investments in any drug, lest it should find itself
under price control. The other aspect of India’s price control regime is that once
the government decides the price using a formula, the industry has put that into
effect immediately even though it may be aggrieved with the calculation of the
price. It may be several months before the government agrees to rectify the price,
but until then the industry has lost significant money.

 Labelling

For a very long time, there existed a strange dichotomy under Indian laws.
Antibiotics did not require a declaration on the label that they are prescription
products and must be sold under a valid prescription. It has been rectified now.
However, a pressing consideration that still remains whether any labelling
declaration that is inserted as a condition of marketing approval is required to be
carried on in perpetuity or not. The background is that marketing approval is
required for new drugs only. Thus, a generic drug does not require marketing
approval. This results in a situation where the innovator drug carries a certain

40
labelling declaration as it part of the marketing approval, but the generic drug does
not do it because it was not subject to a marketing approval. So, the same drug
exists in market with different labelling declarations such as whether or not the
drug is to be sold under a prescription or not.

 Clinical Trials

All sponsors who are part of global clinical trials are required to give an
undertaking that upon successful completion of clinical trials and marketing of
drug in other jurisdictions, the sponsor will market in India as well. Though the
objective behind the taking the undertaking is to be appreciated, this creates a
situation where the sponsor is required to commit upfront that the drug will be
marketed in India. It is difficult to give this undertaking because decision to market
a drug depends on many considerations, foremost amongst which is pricing. The
lack of data exclusivity and patent linkage provisions in India is also a deterrent for
some companies to market the drug in India.

 Environmental Diligence

Pharmaceutical manufacturing units in India have been accorded the highest rating
in terms of the risk that they may pose to the environment, especially through
contamination of ground water sources. The fine print of the authorizations is
important to be reviewed prior to making an investment into a pharmaceutical
manufacturing company. Sometimes, there are limitations on the ability to
manufacture a certain quantity of pharmaceuticals in the year or certain type of
pharmaceuticals in a year. Sometimes, there is a requirement to install expensive
capital equipment for processing waste at the manufacturing premise as a
precondition to start manufacture. Non-compliance with these requirements may
result in suspension or permanent cancellation of the authorization, resulting in
closure of the manufacturing premise

41
 Fixed Dose Combinations

Since 1988, Indian law requires that any combination of drugs must be approved
by the DCGI before they could be marketed in India. However, since the power to
license manufacture of drugs is with the State-level Licensing Authority and there
is no requirement to submit proof of approval from DCGI to the licensing authority
at the time of making an application for manufacturing license, there resulted a
situation where a large number of fixed dose combination drugs were licensed in
India without any approval from DCGI.

 The future of biosimilars

Biosimilars are booming since a few years and there is strong growth predicted
across all markets, forecasting over 20% increases over the next five years.
However, even though biosimilars are growing at an accelerated rate, the market is
still dominated by small molecules with 76% of the market share.
Biosimilars is a growing segment but there are some challenges to their production.
Based on progress to date, the development of biosimilars seems to provide
challenges of its own. Even when they are growing considerably, the market is still
in early development, for some markets, this development is being further slowed
by lawsuits over biologic patents.
Even if biosimilars create competition for biologics, they will create significant
savings for the consumer. In the United States, the projected cost savings from
switching to biosimilars is expected to be between $40 and $250 billion within the
next 10 years. This will go some way in combatting the drug price crisis and make
life saving medicines more affordable.
Since they are still unknown to mass markets, biosimilars also present an
opportunity for pharmaceutical companies. Companies that will efficiently market
biosimilars within their product range stand to gain an edge over their
competitors. Even companies with limited knowledge about biosimilars can grow
their portfolios with strategic mergers/acquisitions to increase their capabilities.

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  Brexit

With the deadline fast approaching, the effect of the potential outcomes on the
pharmaceutical industry, both in the UK and globally, is unknown. The fear of a
no-deal brexit is causing a sense of panic in the European industry.
For example, European Union pharma companies that rely on UK supplies, namely
Sanofi and Novartis are beginning to stockpile drugs. Also, there are concerns over
batch testing, blood and organ supply, and changes to regulatory and clinical trial
processes which will slow down medicines reaching the UK from the EU post-
Brexit.
This is proving to be an interesting year for the pharmaceutical industry for many
reasons. Slowed market growth, Brexit implications and inflated drug prices are
some of the critical concerns, but we have also seen historically that the market
bounced back and adapted to change.

43
 Recommendations

 However, for the industry to sustain a robust growth rate of 15–20% till
2020, companies will have to find better avenues to grow and sustain their
business.
 Pharma companies will still continue to grow inorganically through alliances
and partnerships. They have to focus on improving operational efficiency
and productivity.
 However, they will have to adopt new business models and think of
innovative ideas to service their evolving customers faster and better to meet
the requirements of changing business environment.
 Consistent growth in domestic as well as international sales will also depend
on the ability of companies to target their product portfolio towards chronic
therapies for diseases such as such as cardiovascular, anti-diabetes, anti-
depressants and anti-cancers that are on the rise.
 The government is continuously trying to reduce costs and bring down
healthcare expenses. Speedy introduction of generic drugs into the market
has remained in focus and is expected to benefit the Indian pharma
companies. The thrust on rural health programmes, lifesaving drugs and
preventive vaccines also augurs well for the pharmaceutical companies.
 Encouraging research in universities and Medical colleges, upgrading
training & technical facilities, creating world-class toxicological laboratories
etc can trigger economic, technological & intellectual growth.

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 Conclusion

 Medicine spending in India is projected to grow 9-12 per cent over the next
five years, leading India to become one of the top 10 countries in terms of
medicine spending.
 Pharma companies will still continue to grow inorganically through alliances
and partnerships. They have to focus on improving operational efficiency
and productivity.
 The recent changes in insurance sector, medical technology sector will boost
the growth of the pharma industry by removing financial and physical
barriers to healthcare across India.
 Overall, the regulatory interventions from US and other countries will
require careful consideration by the pharma industry. How companies adjust
to the regulatory environment as they seek to capitalize on the opportunities
provided by the Indian market will be an interesting space to watch in the
coming years.
 As emerging markets become increasingly important and as India’s role
among these markets becomes progressively significant, both domestic and
pharma MNCs will need to adapt their business models, organizations and
processes and create customized strategies.
 From a predominantly bulk drug manufacturer to pharmaceutical fonnulators
and more recently into developing novel drug delivery systems and its foray
into new chemical entities, the Indian Pharmaceutical Industry is carving a
niche for itself in the global village.
 India has become so an R&D hub not just because of cost arbitrage but value
arbitrage.
 The country has adequate resources in terms of manufacturing base,
scientific manpower and facilities to manufacture as well as to undertake
R&D on bulk drugs.
 To build innovative pharma in India, we need to create a conducive
environment for R&D, streamlining the regulatory process to make it
simple, transparent and accountable.
 It is therefore imperative to network Govemment, Industry & Academia and
envisage necessary support to create centers of excellence.

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 Bibliography

 https://www.pwc.in/
 http://ficci.in/
 https://www.brandindiapharma.in/
 https://www.mckinsey.com/
 https://www.bccresearch.com/
 http://pharmaceuticals.gov.in/
 https://www.hdfcsec.com/
 https://www.motilaloswal.com/
 https://www.transparencymarketresearch.com/
 The Truth about the Drug Companies
 Pharmaceutical Biotechnology

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