In pharma each company is operating differently with different products:

Some companies are doing API, some are doing Formulations in USA, domestic, Europe Africa and
Russia.

There are CRAMPS and CDMO-

There are also Biosimilars and biologics.

In domestic some companies prepare acute medicines and some manufacture Chronic disease.
Chronic medicines changes every year where as acute is fixed.

Each company has its own driver, which is distinction of this sector.

Terminology

Us market

Domestic market.

Other, API market

Valuation

Us and domestic formulation is completely different.

CRAMPS and CDMO are depend on Innovation and how much is outsourced by research business.

In pharma if we are analyzing CRAMPS we will see whether that molecule wll be commercialized or
not and it depends on how much innovator is in which phase on which our business is developed.

Value chain:

 Long research through R and D

 Molecule is converted into API which is Active pharmaceutical Ingredients and is used to
prepare formulations.
 API is converted into formulation and it is final product and every tablet is formulation.
 Companies can either prepare API through Integration or they can purchase API
 Company like Sun pharma started first API, then it forward integrated and started domestic
formulations and when export market started boom, they started exporting to US and
started US formulations and then capture other markets.
 Domestic and US formulations have completely different drivers and different markets.
 One is innovation and one is generic, innovation is someone who is finding new molecule, if
he is successful, he will do patent and then when patent expires people started backward
integration and copy that product and prepare generic product.
  In US everything is expensive and therefore companies which are innovating are very costly,
therefore they outsource to India or Chinese customers and ask them to research and
manufacture them which is called Custom research and manufacturing services as it is does
at cheap cost.
 CDMO is custom development and manufacturing organizations and in this only
development will be done where as in CRAMPS research and development both.
 Also, Formulations can be of two types:
o Chemical synthesis- Base is chemical like fluorine bromine ETC.
o Biologics- Used from bacteria, virus ETC and in India is hub of chemical because
biology has long gestation, it is very complex, expensive and therefore entry barriers
are high. Biocon is the only company in India which is focusing on biology where as
in US one third is biological.
 Indian companies are mostly generic.


 In India very few companies are based on research like Suven life and SPARC and therefore
their revenue is minimal and therefore debt has to be taken.
 Directly API is not used to prepare formulations, we use Fluorine as base chemicals and
some KSM are mixed and some intermediaries are mixed and then API is manufactured and
again intermediaries are prepared and then formulation is done.
 Like to manufacture Paracetamol first PAP is prepared which is Para amino Acid which mixed
with methanol and acetone which are commodities and available at cheap rate, therefore
Acetone and Methanol are base and PAP is semi commodity and therefore Paracetamol is
prepared.
 API can be Commodity or specialized, commodity can be manufactured after some time and
its depend on usage and manufacturing companies. Also API is commodity value added
depends on how easy is to make the API.
 Some companies are whole backward integrated and some are half integrated like GSFC sells
Commodity, Granules prepare API and than Glaxo pharma prepare Formulations.
 Also, GSFC which is preparing some chemicals needs some Natural base resource like crude
oil, Natural gas, coal ETC and then petrochemical is manufactured which is prepared by
Deepak nitrate from GSFC and then petrochemical is used by Deepak nitrate to prepare
phenol which is used in manufacturing of API.
 Also within selling Branded and unbranded are two things in which branded has high
margins when the process is whole integrated.

Terminology:

 Majority is API, formulations of domestic market and US market and CRAMPS and CDMO.
  CRAMPS: Research and manufacturing. Suven Pharma. CRAMPS can help innovator in form
of API and Intermediaries and when custom manufacturing is done we should look at
whether it is helping in research, API or intermediaries.
 CRO: Customer research organization- It is done only research for customers. In this As final
product volume is low, it is called on Kilogram and prices are very high and therefore
margins are high. It is not research business, in this research is done for customers. CRO is
also called CCS custom synthesis system
 CDMO: Customer development and manufacturing organizations. Divis laboratories. It is sold
on Tone and their volume is large and pricing is lower.
 CMO: This is when generic product is developed. This is when people help generic product
development like providing them API like Suven pharma. Therefore, research include help in
generic product.
 When there is CRO or CRAMPS people help innovator In form of API, Intermediaries and
formulation and generally people help in Intermediaries and API. Divi’s helps in API of both
general and specific where as Suven focus on general API.
 API is another name of bulk drug and API we get through synthesis and after we get
formulated product of finished dosage.
 Therefore, in CDMO we have to see whether our focus is on for innovator or generic, within
it whether it is Research or development, within development whether it is API,
intermediaries or Formualtions.
 ANDA- Abbreviated new drug Application and it is for generic product.
 NDA- New drug application and it is for innovator.
 Efficacy means how many people will be cured from that medicine.

Drug discovery:

 Whenever drug is innovated, it needs approval of FDI and FDI approval is necessary.
 Like Suven Life this is the research process first chemical will be tested on animals and then
pre-clinical trial will start and it is tested to human on 10-100 people and then the process
follows on. After every step Approval of FDI is required if side effects are lower.
 This is the costing structure of research process and it combinedly it takes 10-15 years and,
in this process, CDMO and CRO helps them and it took a period of 10-15 years to complete
the cycle. CDMO helps when commercialization of product has started.
Some companies after reaching phase 3 takes patent of their product so that some peers
don’t copy and you can sell immediately but its drawback is your patent period after
commercialization will reduce due to which your patent will be utilized is less.

Segmentation:
  In domestic business we can either sell API which is small market and Domestic formulations
includes MNC pharma which is subsidiary of global MNC like Sanofi.
 In export market there is formulations there are regulated and unregulated.
o In regulated process is very clear and facility is clean like USA, EU ETC but the
process of application is very complex and it is difficult to get permission
o In Unregulated market process is not clear and it is prepared in bad facility.
 LMIC tender basis- In this WHO takes a tender and provides help in countries in which there
is no financial health to purchase medicines and therefore companies get tender like Ajanta
pharma, Laure’s Lab (HIV), Aurobindo Pharma. Countries like Africa, some countries in
Europe.

Regulated vs Unregulated:

 In unregulated process approval for plants is very fast and therefore people can set plant
easily where as it is vice versa in regulated.
 In regulated product filing has to be done, then API filing, then formulations filing and
gestation is very large which is Australia, Europe, US etc.

Distribution:

 Generic has two segments:

o Branded- It is generally B2C business and you have Field force like dealers
distributors and sold to chemist and also company has connection n with doctors
and therefore medicine is sold. Company will sold product and doctor will prescribe
the name of company and product where as in unbranded it is sold directly by the
name of product through distributors. India it has branded model. In Branded model
price depends upon doctor prescription, how much doctor advise to his patients and
 also banded unbranded depends on country to country. Also in generic medicines
volume is so high that unbranded makes profit on scale.
 In branded there is OTC and doctor prescription, OTC business is where
customer directly goes to table to purchase that by taking the name of
medicine of specific problem.

o Unbranded: It is sold directly to distributors and they will sell according to them and
unbranded is sold by the name of product no matter what the producer is. In this
name of molecule is spoken and whatever is provided by owner, it will be sold.
o In India it is branded because people don’t take any risk in unbranded product
where as in USA it is unbranded because they are only 4 distributors and therefore
they will sell that medicine which they will get cheap.
o Also, distribution can be through government in which we have to sold to
government and government sells to people of country where as government sells
to Unbranded and people selling unbranded generic wants scale to be profitable.
o Every country has an authority to sell the drugs. In India it is CDSO, Central drugs
Standard control organization. Similarly, in US it is FDA.
o Efficacy means how many persons can be cured from your medicine.
o API is also called bulk drug.
o Therefore, distribution can be done through three methods:
 B2C
 Field force
 MR- medical representatives.
 Government Tender
 Many times company have marketing partner also.
 Within API it is important to see whether it is for domestic or export or it is regulated market
or unregulated market.
 India is branded generic market where as USA Europe are Generic Generic market.
 Innovator need to start with discovery and then it has to go through stages.

Patent and Exclusivity:

 Exclusivity means for that period of time you have exclusive right to sell that product, it is
not as patent and in patent we have to file and show it as an asset where as in exclusivity for
a short period of time.
 NTE- New Therapeutic entity, it is same medicine as tablet but it is given in different form
and therefore patent is extended.
 Patent are of two types- Product patent and process patent.
 In complex generic less players enter the market and in unbranded generic more players
enter the market when patent expires because it is easy to formulate.
 Branded generic is sold under a brand name and unbranded generic is sold under a molecule
name. EG Valsartan.
 New drug Innovation filing and launching product through a new route is called NDA and if
generic drug is filled after someone else expiry it is ANDA.
 For API innovation filing in US it is called Drug master file.
 In India formulation is called dossier where as API is called API filing.
 In Pharma in generic model we have different classifications:
o PARA 1 and PARA 2- In Para 1 and Para 2 the product is expired and anyone can sell
it.
o PARA 3- In para 3 we suppose if a product is going to expire someone will take the
right to sell after patent expire, in which one can sell only when patent expires.
o PARA 4- In Para 4 also first step is that innovator accepts that his patent is wrong
and therefore generic can sell that product. In para 4 if you have to sell the patented
medicine of an innovator you have to litigate against the innovator patent and if you
wins the case you will get an 180 days exclusive rights to sell the product and if he
wins you have to pay him. Also in this case Innovator and generic people do
settlement and therefore they come I deal that generic people will sell this much
portion of market share.
o When there is settlement there is an issue of anti-competitive law and therefore it is
an issue.
o Patent can be litigated in many ways like through on route delivery or through some
process because there are many steps of manufacturing, if one step can be litigated
it is an issue.
o After para 4 filing you can have a windfall gain because suddenly your ebitda
increase and also we have to sell at less price than innovator after winning Para
filling.
 In Patented product takes 12-15 years for launch and for Generic product it takes 2-4 years
for launch.
 Orange book- All the ANDA filings filled by the company are shown in orange book.
 Tentative approval- FDA is not sure that whether the product will be successful or not and
therefore it gives an tentative approval.
 Blockbuster drug: It is drug which has a market share of more than 1 billion dollar in US.
 First to file: First to file is a process in which a company who first file for the product which is
going to expire gets some rights to sell the product and therefore it is called first to file but it
is available to only if maximum 2 players have filed.
 Bioequivalence- In this company proves that their product has equal effects to the effect of
Innovator and therefore they first have to file for this theory. In this you have tom prove that
efficacy of your product is equal to product of competitior.
 CGMP- Current good manufacturing Practice- Your manufacturing quality is good.
 Certificate of suitability (CEP- for API filling in Europe).
 Orphan drug exclusivity- This is patent for the disease which is very rare to found and
therefore innovator gets extra 7 years of patent.
 Purple book -All the filings related to Biosimilars are find in purple book.
 Reading- PPFAS, FDA website, Alpha Invesco blog on pharma.
 Price erosion- Price reduces when number of companies manufacturing it Increases.
 o
o In US price erosion happens and therefore revenue growth is to be done by
launching new product where as in India people can grow revenue by selling higher
volumes of same product.

Domestic formulations:

 Domestic Formulations business is branded generics. In domestic formulation Investment

are low and WC is low and margins are high due to branded.
 Distribution is field force and they are selling OTC where as in US no MR and not field force is
required.
 IN domestic formulation you have pricing power where-as opposite in US.
 In India target market is 1.7 lac crore where as in US it is 480billion dollar and where as 380
billion dollar is patented and rest unpatented.
 In India you have to take care of branding and marketing, where-as In USA main focus
should be on R and D, Integration, How is your manufacturing capabilities.
 In India regulatory cost are not there and most business works on outsourcing model where-
as in US it is more regulatory and there is huge cost on ANDA file/R and D cost.
 In India Working capital in formulation business has higher power in terms of thei capacity,
therefore they have power and hence their payables are less and majority sale is in cash and
inventory is low and hence working capital requirement is low.
 One point missed.


 In India main drug Co has the pricing power and the new online sales channel can purchase
directly from super stockists because in India company cant purchase directly from
manufacture companies.
 

 Association Of druggist and Stockists In India releases data at stockists level that how much
volumes are sold for a specific product.


 Medical representatives connect between doctor and medical representatives. Every MR has
different field and therefore their productivity changes and therefore there is difference of
acute and chronic disease and there is difference between growth. Therefore, productivity
of MR of company is different.

o
 We can compare MR by doing time series or we can change comparison between revenue
growth, change in revenue, change in MR Productivity and then compare.

Product Portfolio:

 Proportion of Acute and Chronic- In Chronic consumer is sticky and people take it for lifetime
and chronic share is increasing due to lifestyle, competition in chronic is increasing.
 Key therapies and products: Companies which have leadership in some therapies and
therefore their margins are different.
 
 In therapies we have to look at market share in key therapies and how much concentration
of revenue is there.
 Market share in each brand and how much brand you have which shows your scalability.
 Your product in top 50,100,1000 selling brands.
 New launches, there are how much new launches in market.


 This is data of association and we get monthly sales but these is available only in industry
therefore we have to see through annual report and punch the data.

o
 This is the way we have to punch though annual report and by this we track acute and
chronic disease and their MR productivity.
 In Tier 3 and Tier 4 cities there is no much distribution of top companies because there is nor
proper distribution and therefore unbranded generics survive there and players are
distributed regionally. Recently players are thinking to enter unorganized market.

Will generic enter India?

  If whole market turns into generic than profit pool will reduce because price erosion will
happen due to which distributor and retailers margin will fall because their expense will
remain same and therefore due to low margins koi business nai karega.
 NLEA- national List of essential medicines- Government put cap on essential drug and their
price will increase in on the basis of WPI and therefore this law was implemented in 2016
and due to this pricing power of company is decided based on how much portfolio is within
NLEA like companies like FDC, Alkem and Eris have problem. Every year NLEM list is updated
and therefore we have to track how much drugs are in NLEM and what is revenue
contribution of that Drug.

MNC Pharma:

 In MNC majority revenue comes through private companies and there is lot of governance
issues because capex plans are not clear and without growth of public companies they are
getting higher multiples and therefore this is a problem.

Conclusion:
US generic business:

Cost of drug is 1-2-3 for drug formation and entire process takes 10-15 years and therefore they get
patent product and for next 20 years they can charge they want and this is called innovator drug.

Generic is reverse engineering of Innovator product and its fair range is 2-5 USD million dollars and
cost is of scientist, material and filing charge of ANDA.

Cost of ANDA in many countries is benefit of operating leverage as cost is fixed and therefore
directly revenue flows to the profit.

In US is ANDA filing and in other countries it is dossiers.

Bioequivalence means you have to prove the similarity of the product and there is no need of clinical
trials.

One can copy innovator only after 5 years of data exclusivity.

 Product selection: It is necessary to understand on which we have to do R and D. Suppose
you have to do generic you have to file Para 4 or FTF and you have to do r and D in area
which are you special.
o We have to track volume and method of consuming that product. Volumes and
market size of that molecule should be tracked.
o We can divide Market size/Price per product to get the volumes and check the price
erosion and then decide.
o IQVIA app on mobile.

o
o We have to consider the price erosion on the basis of competitor and then enter the
market.

o
o You have to source API source while you manufacture your product.
 Research and development:
 o
o We have to see API first at few scale and therefore it has to be made in quantity and
majority of KSM are produced form china.
o If we are vertical Integrated you have to also file for DMF if it is preparing dossier
and we have to also track DMF filing.


 Formulation is done in laboratories and ANDA filing takes time.
 Its not necessary that even after approval you will launch the product and it depends on the
competition also.

Till now product is launched.

Now how the product is sold:

 You have marketing partner.

 You have own front end.


 Own front end has to maintain relationships, he will see which product can have demand-
supply mismatch and have to negotiate with dealers.
o

 More the scale you can also bargain more and that what marketing partner do. Sometimes
company tell some other front end company to market their product.
 Marketing partner
o Profit share- You have 100 rupees price and sell it at 105 and marketing player sell it
at 150 then the remaining is profit. Depends on size of product and your
relationship.
 o
o Cost Plus model: In this model marketing partner has share of profit fixed.


o Mix of both.

Natco pharma: It has Para 4 filing, he will do research and product will be sell by main big business
like Teva, sun, Reddy etc or marketing partner and also all litigation were settled by marketing
partner.

Value chain:


 Pharmacy Benifeciory company: They have to purchase drug by squeezing the margins of
pharma company and the more they squeeze more they will pay.
 o

2007
o But now everything is now consolidated and all value chain have been captured by 3
players and there are consolidation happened and 3 players are controlling the
market.
o

 All consolidation is happening and now it can turn into buyer market and therefore
consolidation can come.


 This is process for making product launch faster and that why companies are able to
launch product faster in markets due to which supply shooted in market.

Where to opportunities in generic markets?

 FTF opportunities
o It is Rare as many players enter the market.
  Complex generics- Like cipla recently entered the market.
o In complex generics are moving up the value chain. People manufacturing Oral
products going to Injectables and are moving to Biologics and there are
opportunities where people are focusing on Injectables.

o
 Shortage- Leading to the rise in prices.

o
o Issue in operations of one player leads to some API and then the company which is
doing backward integration can win at that time.
o Whenever this issues come it takes 4-5 years to resolve that issue and therefore that
period creates shortage.

Fcailities:

 We have to see how many facilities for product.

 We have to see whose Accredition has been filed.
 We will have to see inspection and see observations.
 We have to see whether the plant is multipurpose.

EIR: Establishment Inspection report:4

o Form 483: Letter issued by FDA to be improved.

o Warning letter: You have violated rules and regulations and we cant producr form
that plants and it takes 12-15 years for launch.
 o Import alert: From that facility form that machine.
o

o We have to see when us FDA has come for inspection.

Forecasting:

o We have to focus on future pipeline and approved pipeline and us generic business will
erode and in approved business we have to see how much erosion will happen and then
forecast.

o
o

o For Forecasting we have to see market size of product and in which players are less
and then forecast revenue.
 To calculate product size we can either ask in concall or if some other company or we can
see some other company press release to see size of molecule and then erode the product
price to decide the market size of the product.

For forecasting we have to see how many products are to be commercially launched or we can see
filing of company in orange book and we have to see pipeline research that how money has to be
made.
We can see therapy and market size form google or orange book and its patent holder and when
patent will expire.

There are about 7-8 companies of API in India like Divis laboratories etc which has been focusing on
API/CDMO but there are very few companies which are only focusing on API like aarti drug. Other
companies are Laures, solara, neuland and Shilpa medicare and all companies are doing and
focussing mainly on API.

API is needed when there is commodity or normal product which has to be prepared for many
Company has common drug API.

DMF

We get filing data form DMF and in this final approved product is there.

Search Innovator from orange book.

We have to track the suppliers in market.

We have to check ANDA filing and DMF filing from orange book and DMF file.

Generally, API is 15-40% of Innovator final product.

We have to track where there are less than 5 suppliers and market size is sufficient.

How to understand Large Business:

Summary: