Indian Pharmaceutical Industry: Industry Analysis and Strategies
Interim Report Strategy Implementation and Control
Submitted BY Group 6: Akhil, Harshitha, Jagjot, Pankaj
Indian Pharmaceutical Industry:
Industry Analysis and Strategies
Introduction
The pharmaceutical industry is the worlds largest industry due to worldwide revenues of approximately US$2.8 trillion. Pharma industry has seen major changes in the recent years that place new demands on payers, providers and manufacturers. Customers now demand the same choice and convenience from pharma industry that they find in other segment. Indian Pharmaceutical Industry is poised for high consistent growth over the next few years, driven by a multitude of factors. Top Indian Companies like Ranbaxy, Dr Reddys, Lupin and Sun Pharma have already established their presence. The pharmaceutical industry is a knowledge driven industry and is heavily dependent on Research and Development for new products and growth. However, basic research (discovering new molecules) is a time consuming and expensive process and is thus, dominated by large global multinationals. The Indian pharmaceutical industry is estimated to be worth USD 21.5 billion1 as of 2009-10 and is expected to grow at a CAGR of 16-18 percent during 2009-2010 to 2014-15 to reach USD 43-46 billion.
Trends
In terms of scale, the Indian pharmaceutical market is ranked 14 th in the world. By 2015, it will rank among the top 10 in the world, overtaking Brazil, Mexico, South Korea and Turkey. More importantly, the incremental market growth US$14 billion2 over the next decade is likely to be third largest among all markets.
1 2
KPMG Report: Indian pharma Outlook McKinesey&Company Report: Indian Pharma 2015
2013 Outlook: Indian Pharmaceutical3
2013 Outlook of Indian Pharmaceutical Industry is stable having more profitable value driven growth. Key aspects of outlook are discussed below:
Stable Outlook: The credit and liquidity profiles of large pharma companies are likely to improve. However,
mid to small-size players may face challenges in managing competitive pressures.
Revenue Growth: Top players of the sector will continue to grow strongly in 2013 (over 20% pa), primarily
led by exports.
Rise in Generic Spending: As per IMS Health, global generic spending is expected to increase to USD400bnUSD430bnby 2016 from USD242bn in 2011.
Rising R&D Spends: R&D spends will likely continue to increase in 2013 as Indian players have started
targeting complex chemistry products.
Product Pipeline Monetisation: Robust product pipelines may bear fruit in 2013 on commercialization. Pick Up in M&A Activity: Many large Indian pharma companies have made small, niche acquisitions for
product augmentation/geographical expansion.
India Ratings & Research 2013 Outlook Report
Business Models in India
Usually four business models, explained below, are followed by Multinational companies in Indian pharmaceutical sector. Each is serving specific level of market presence and revenue aspiration. For example if the aspiration is to be among the leading players in the market, then the approach needs to be indigenized.
Global Demand Drivers4
Growing and aging global population Growing sick population Rising incidence of non-communicable & Infectious diseases Improved access to healthcare Higher affordability
: CII Pharma Summit 2012
Each has been explained in below diagram.
Growth Drivers in India
Active participation by foreign pharma companies Changing disease profile and favorable demographics Exports to regulated and semi regulated markets Growing alliances in emerging
Growth Drivers
markets
Growth in the market has been driven by following factors: Changing disease profile and favorable demographics: In India, socio-economic changes and urbanization along with sedentary lifestyle are leading to rapid epidemiological transition. As a result, the Indian population is becoming affluent, living longer and increasingly suffering from lifestylerelated ailments such as obesity, heart disease, stroke, cancer and diabetes. The number of Indian people suffering from these diseases is set to double by 2020. This change in patient demographics will fuel the demand for quality and affordable treatment in the domestic market. Active participation by foreign pharma companies: Over the years, foreign pharma companies have tapped the Indian pharma market through a series of major acquisitions, launches of new products (especially in the branded segment with India-centric pricing) and expansion of field force. Further, MNCs have adopted Indiacentric strategies such as differential pricing strategy to strengthen their presence in India and address the issue of affordability. Growing alliances in emerging: Indian companies have also been partnering with MNCs in emerging markets. Such alliances benefit from the R&D (formulation development) and manufacturing capabilities of the Indian partners and the extensive marketing and distribution footprint of the MNCs in those markets. There is also an increasing trend among MNCs for partnering in the domestic market, where marketing and distribution footprint of Indian companies and the product portfolio of MNCs is being leveraged upon. Exports to regulated and semi regulated markets: Exports have made significant contribution to Indian pharma industrys growth story, with the critical market of US generics driving the growth. 148 billion USD worth of patent expiries are expected between 2012 and 2018. In addition, the healthcare reforms initiated by the US government, aimed at reducing healthcare spending and covering a larger proportion of population under public healthcare, are also likely to provide impetus to growth in the generics market. Apart from the developed markets, the Indian pharma companies have strengthened considerable presence in some of the other fast-growing semi-regulated markets of Russia, South Africa and some in Latin American countries (Brazil, Mexico, etc.) and South-East Asia.
Key Strategies of Indian Pharmaceutical Enterprises
Outward Greenfield Foreign Direct Investment
Brownfield Overseas Investment
Key Strategies Contract Manufacturing and Strategic Alliances
Raising Resources Abroad
Competitive advantages of the Indian pharmaceutical industry also critically hinges upon the types of strategies adopted by its firms. Internationalization strategy that tends to complement and upgrade the technological strength of Indian pharmaceutical companies can be very crucial for sustaining and enhancing their competitive position in the world market. For example, as large number of Indian pharmaceutical firms lack technological capabilities for product development, acquiring overseas business enterprises with new product portfolios, technology and skills can allow them to emerge as global players. A Few strategies are discussed below:
Outward Greenfield Foreign Direct Investment: A growing number of Indian pharmaceutical firms are
undertaking outward FDI to diversify their business overseas. The number of joint and whollyowned ventures undertaken by Indian pharmaceutical companies has consistently increased from just 1 in 1990 to a peak of 31 in 1997. Between 1990 and 2000 their total numbers stood at165 joint and whollyowned ov erseas ventures involving about $243 million. The number of outward investing firms has increased from 1 in 1990 to 11 in 1995 to 14 in 2000. A total of 52 pharmaceutical firms are observed to have been engaged in overseas green field investment activities during 19902000. It is interesting to note that outward FDI activity of Indian pharmaceutical industry is not entirely confined to the largesized firms alone. Rather a number of mediumsized firms like Parenteral Drugs, Ace Laboratories, Max India, Claries Life Sciences, Gufic Ltd., etc., are also active in such overseas investment activity.
Brownfield Overseas Investment: Last ten years or so have seen Indian pharmaceutical firms
progressively adopting brownfield investment as an alternative strategy f or transborder growth through acquisitions of business enterprises abroad. The number of investments for overseas acquisitions increased significantly from just 1 in 1995 to 21 in 2005. Between 1997 and 2005, the amount of consideration involved in overseas acquisitions has increased by 71 times from just $7.5 million to reach $532.9 million.
Contract Manufacturing and Strategic Alliances: Very recently contract manufacturing emerged as a
new growth strategy for many Indian pharmaceutical companies, besides offering contract services like marketing, research, clinical trials, data management and laboratory services to global pharmaceutical companies The process of outsourcing brings substantial economic gains to large global firms as they contract the production of their products to those who can work cost effectively and qualitatively and thus relieve them to focus on their core competencies and high valueadded operations like research and marketing. Indian pharmaceutical companies with their low cost manufacturing capabilities meeting international regulatory standards, expertise in process research and easy availability of qualified workforce in India are better placed globally to get real boost from this global trend of outsourcing. For Indian firms, outsourcing and strategic alliances not only provide additional sources of revenues, but also access to new technologies, marketing networks and best business practices abroad. A large number of Indian companies diversified into the business of contract manufacturing in the 1990s. A few names can be mentioned like Ranbaxy Laboratories, Lupin Laboratories, Nicholas Piramal, Dishman Pharmaceutical, Divis Laboratories, Matrix Laboratories, Shasun Chemicals and Jubilant Organosys. Ranbaxy Laboratories was one of the first Indian companies to adopt the strategy of contract manufacturing, licensing and collaborative research to strengthen its competitive strength in India and overseas markets. It entered into a joint venture with Eli Lilly of USA in 1992 to market selected Lilly products in India and in 1993 Eli Lilly started sourcing Cefaclor intermediates from Ranbaxy.
Raising Resources Abroad: In 1990s, Indian pharmaceutical firms have increasingly drawn on the global
avenues of financing for their growth. As increasing number of Indian firms are setting up subsidiaries abroad or going for inorganic growth through overseas acquisitions, they need to raise resources for these purposes. In true sense of internationalization, their financeraising activities have spilled over the national boundary. A
large number of firms have raised resources abroad by issuing Foreign Currency Convertible Bonds (FCCBs) and from foreign capital markets like Luxembourg, New York, London, and Singapore by sponsoring GDRs (Global Depository Receipts) and/or ADRs (American Depository Receipts). Since Indian pharmaceutical firms already have good business record and brand image in the regulated markets, tapping the global financial markets becomes easier for them. A good number of firms including Ranbaxy Laboratories, Dr Reddys Laboratories, Matrix Laboratories, Sun Pharmaceuticals, Nicholas Piramal India, Cipla, Jubilant Organosys, Strides Arcolab, Lupin, Glenmark Pharmaceuticals, Cadila Healthcare, Wockhardt Ltd, Biocon, Dishman Pharmaceuticals and Torrent Pharma have been observed to have raised resources abroad in recent years.
Name of Company Ranbaxy Laboratories Limited Lupin Limited Sun Pharmaceutical Industries Limited Dr. Reddys Laboratories Limited
Ranbaxy Laboratories Limited
Company Profile:
Ranbaxy is a leading Indian pharmaceutical company, with a strong international business complementing its leading presence in India. Ranbaxy is also one of most integrated companies with backward integration into APIs.
Shareholding Pattern:
Sales in over 150 countries 2012 Sales: over $2.3 Bn ~80% International Ground presence in ~40 countries Indias first New Chemical Entity (NCE), SynriamTM, a synthetic anti-malarial drug launched in India R&D Strength in technology 1,100+ R&D Personnel with over 75% are qualified scientists 14 Brands of Ranbaxy featured in the Top 300 list in India Growth focus: (1) Focus on building Branded Generics business, worldwide (2) Leverage Ranbaxy's strong presence in, growing Emerging Markets (3) Continue to create niche/ exclusive opportunities197 Filings made across various global markets
Revenue mix by segment
Strategic Focus of Ranbaxy: Contract manufacturing, licensing and collaborative research Strategic Synergies :Daiichi Sankyo Partnership. Innovator and Generic Pharmaceutical Powerhouse
Outward investment as a strategy to become a global player
Strategic Focus
Outward investment as a strategy to become a global player: Ranbaxy pursued outward investment
as a strategy to become a global player. It has about46 subsidiaries and one joint venture covering important regions across the world. The international operations now account for about 80 per cent of the total sales of the company. The business model of the company is based on twin objectives of innovation for drug delivery and discovery and of expanding geographical presence in world generics business. Contract manufacturing, licensing and collaborative research actively pursue acquisitions in the American region: Ranbaxy Laboratories was one of the first Indian companies to adopt the strategy of contract manufacturing, licensing and collaborative research to strengthen its competitive strength in India and overseas markets. It entered into a joint venture with Eli Lilly of USA in 1992 to market selected Lilly products in India and in 1993 Eli Lilly started sourcing Cefaclor intermediates from Ranbaxy. In 2002 Ranbaxy entered into two overseas agreements for reverse outsourcing and this contract manufacturing has been one of the core strategies for Ranbaxy till date. Strategic Synergies: Daiichi Sankyo Partnership. Innovator and Generic Pharmaceutical Powerhouse: In 2008, Ranbaxy (generic company) partnered with Daiichi Sankyo (innovator company) forming a Hybrid business model to explore synergies between the two companies across areas of their expertise right from R&D, manufacturing capabilities and marketing & distribution network. To begin with, Daiichi Sankyo has started out licensing select branded products from its portfolio to Ranbaxy for launch in markets where Ranbaxy has strong distribution presence. Strategic combination created an Innovator and Generic Pharmaceutical Powerhouse.
Lupin Limited
Company Profile:
Lupin Limited, established in 1968 is one the fastest growing generic formulations company with major presence in India, United States, Japan and some of the other emerging generic markets such as South Africa, Australia and Philippines. The company has a strong focus on research, manufacturing and commercialization of pharmaceuticals. 8th largest Market Cap amongst Global Generic Companies ~$5.7 billion Revenues > $ 1.74 billion 3rd largest Pharmaceutical company in India Onshore presence in 10 countries R&D expenditure @ 7.5% of net sales Vertically integrated 12 manufacturing sites NDTV Business Leadership Awards Pharma Company of the Year 2012 5th largest and fastest growing generic player in the US by prescriptions 7th largest and the fastest growing generic player in Japan Evolved into a multinational company with >70 % of turnover from outside India
Shareholding Pattern:
Strategic Focus of Lupin:
Actively pursue acquisitions in the American region
Multi-pronged strategy to improve its brand image, increase revenues, and expand its product and service portfolio
Increase in R&D expenditure and strategic investments
Strategic alliance Partners
Strategic Focus
Increase in R&D expenditure and strategic investments: Lupin has focused on R&D throughout its growth phase. The company has improved its stature in the international market by developing various innovative processes, products and technologies. In FY 2006, Lupin increased its R&D expenditure and strategic investments to US$ 24.24 million. It owns considerable intellectual property and has filed more than 40 ANDAs in the American market. Actively pursue acquisitions in the American region: Lupin has plans to actively pursue acquisitions in the American region. The company has raised US$ 100 million through FCCBs to fuel its acquisitions in this market to build a stronger product portfolio. It also plans to acquire some established brands in the pharmaceutical segment to gain market share as well as develop a strong brand presence in the American market. Multi-pronged strategy to improve its brand image, increase revenues, and expand its product and service portfolio: Lupin has established a multi-pronged strategy to improve its brand image, increase revenues, and expand its product and service portfolio in the market. Lupin has been very active in developing innovative products in the pharmaceutical segment. The company has undertaken various initiatives for tapping future growth prospects. Its various initiatives could be categorised under a product approach and a market approach. Product Approach: The Company has undertaken some major initiatives to secure future growth. It has identified innovation as a key driver and plans to increase its focus on R&D. Further, it plans to:
Aggressively launch novel high-value pharmaceutical products Improve manufacturing capability and offer products in the emerging life style pharmaceutical segment Pursue innovation in the delivery and packaging of its pharmaceutical products Utilise extensive promotional mediums for its products and services Market Approach: The Company has plans to expand its presence in various pharmaceutical markets across the globe. To increase the global credibility of its products and services, the company plans to enter into strategic alliances.
Strategic alliance partners: Lupin plans to increase its focus on developing strategic alliance partners to market its products in an aggressive manner. The company also has plans to: Venture into advanced pharmaceutical markets such as the EU, Japan, Australia and the USA Explore opportunities in the new therapies and business segments The company has plans to make strategic investments in the new product pipeline for the American market for its generic business and specialty products segment.
Sun Pharmaceutical Industries Limited
Company Profile:
Sun Pharmaceutical Industries Limited Indian global pharmaceutical company headquartered in Mumbai, Maharashtra that manufactures and sells pharmaceutical formulations and Active Pharmaceutical Ingredients (APIs) primarily in India and the United States. The company offers formulations in various therapeutic areas like cardiology, psychiatry cardiology, psychiatry, neurology, gastroenterology and diabetology. It also provides APIs such as warfarin, carbamazepine, etodolac, and clorazepate, as well as anticancers, steroids, peptides, sex hormones, and controlled substances. The company offers formulations in various therapeutic areas like cardiology, psychiatry cardiology, psychiatry, neurology, gastroenterology and diabetology. It also provides APIs such as warfarin, carbamazepine, etodolac, and clorazepate, as well as anticancers, steroids, peptides, sex hormones, and controlled substances.
Revenue Mix5
Shareholding Pattern6
Strategic Focus of Sun Pharmaceutical:
5 6
Sun Pharma Investors Presentation 2013 Sun Pharma Investors Presentation 2013
Create Sustainable Revenue Streams: Sun Pharma predominantly focuses in manufacturing drugs that are meant for chronic therapies and ailments. It differentiates itself from other players by manufacturing technically complex products. It also reduces the amount of friction between having an idea and bringing it to the market, thus saving out on time and also builds up the momentum of the company. Seek Cost Leadership: Sun Pharma follows a vertical integration strategy wherein it expands its business into areas that are at different points on the same production path such as owning its suppliers and distributors. By adopting this strategy it helps the company to reduce its cost and further improve its efficiency by decreasing transportation expenses and reducing turnaround time. Balance Profitability and investments for future: Sun Pharma follows a Greenfield strategy wherein it acquires foreign lands and starts a new venture by constructing its new operational facilities from the ground up. Furthermore Sun Pharma differentiates itself from other competitors by manufacturing complex generics.
Dr. Reddys Laboratories Limited
Company Profile:
Founded as a small firm in 1984 by Dr Anji Reddy, Dr Reddys laboratories has grown to become the 2 nd largest Pharmaceutical Company following a series of acquisitions and strategic alliances. There have been several reasons behind the success of DRL, but the major driving forces were its position as a first mover in introducing new products, getting listed in the New York stock exchange, obtaining patents and combating legal battles in India and abroad. Its operations span across three segments, namely; Global generics, Pharmaceutical services and active ingredients and propriety products. The revenue earned from India operations was INR 14.6 billion. Revenue has been increasing at a compounded annual growth rate of 14% from FY 2009 to FY 2013. As of 2013, the consolidated revenue was INR 116 billion. This growth was primarily driven by North America and Emerging markets in global generics.
Strategic Focus of Dr Reddys laboratories:
High quality portfolio: Dr Reddys has around 150 products in its portfolio. The Company is a leading player in the oncology market with a strong branded generics portfolio including Capiibine (capecitabine), Docetere (docetaxel) and Cytogem (gemcitabine). The oncology portfolio registered a growth of 13.6% in FY2013. Service Level Excellence: Dr Reddys aims at continued strong engagement with strategic customers. Revenues grew by 29% to Rs 30,702 million from Rs 23,812 million in FY2012. This growth was largely driven by new product launches to generic customers and improved customer orders. Steady growing business: Dr Reddys has a strong presence in highly regulated markets such as the United States, the United Kingdom and Germany, as well as in other key markets such as India, Russia, Venezuela, Romania, South Africa and certain countries of the former Soviet Union.
High Quality portfolio :Mix of limited competition and complex generics products to significantly enhance
Service Level excellence: Continued strong engagement with strategic customers
Steady growing business : 12-15 new launches annually with launch-year
Strategic Focus
References
1. 2. 3. 4. 5. 6. 7. http://www.ranbaxy.com http://www.drreddys.com http://www.lupinworld.com http://www.sunpharma.com http://indiaratings.co.in/upload/research/specialReports/2013/1/29/fitch29Pharmac.pdf http://www.cii.in http://www.mckinsey.com
