Final Pharma

September 6, 2017 | Author: biswajitshukla | Category: Pharmaceutical Drug, Pharmaceutical Industry, Generic Drug, Mergers And Acquisitions, Economic Growth
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EXECUTIVE SUMMARY: India is gaining in importance as a manufacturer of pharmaceuticals. The global pharmaceutical market will grow by 4-6%. It also predicts a compounded annual growth rate of 4-7% between 2008 and 2013. India currently represents just U.S. $6 billion of the $16.6 billion global pharmaceutical industry but its share is increasing at 10 percent a year, compared to 7 percent annual growth for the world market overall. Also, while the Indian sector represents just 8 percent of the global industry total by volume, putting it in fourth place worldwide, it accounts for 13 percent by value and its drug exports have been growing 30 percent annually. Both multinational and local drug manufacturers could eventually benefit from the market potential of India's population of over one billion. The pharmaceutical industry is characterised by a highly risky and lengthy R&D process, intense competition for intellectual property, stringent government regulation and powerful purchaser pressures. In addition, India's long-established position as a preferred manufacturing location for multinational drug manufacturers is quickly spreading into other areas of outsourcing activities. Soaring costs of R&D and administration are persuading drug manufacturers to move more and more of their discovery research and clinical trials activities to the subcontinent or to establish administrative centers there, capitalizing on India's high levels of scientific expertise as well as low wages. India is a major export player of various drugs & medicine to countries like US, Europe, China etc. Ever since the TRIPS agreement (patent regime) has been introduced, pharmaceutical market is witnessing several changes & it is likely to have increased sales in the domestic pharmaceutical industry.

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Major Highlights of the report: The key areas of focus as a result of our study are as follows:  The contribution of the global pharmaceutical companies as a manufacturing industry.  In the global scenario we included the list of 10 largest pharmaceutical companies ranked by revenue as of 2009.  Discussed about the growth trend and market size of the top five pharmaceutical company of India  Discussed both the quantitative and qualitative aspects of the top performing companies in India.  We are addressing the forecasting of Indian Pharmaceutical Industry through the future opportunities and the impact of 2010 budget. In the past few years, the domestic Pharmaceutical industry has witnessed a fast mount in demand for medicines. The report discusses about the advent of Indian pharmaceutical industry, the current scenario, major players in the market, role of pharmaceutical industry in India, recent alliances, mergers & acquisitions of Indian and foreign companies and finally about CSR activities of the companies. We analyzed the future forecast of the industry. Over the next five to ten years, India is likely to grown-up further as a provider of services across the drug-development spectrum. Thus Indian pharmaceutical market will undergo a major transformation in the next decade and it will become one of the top ten markets in the world. There is a need for regulatory reform in India to encourage leading global players to continue and accelerate the outsourcing of their R&D activities-beginning with discovery research-to the subcontinent. This is particularly urgent in the face of the strong competition from China, where the government has been particularly proactive in encouraging foreign investments in pharmaceuticals and biotechnology. Alliance Business School

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Chapter 1 Global Pharmaceuticals

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GLOBAL INTRODUCTION In late 2003, Britain’s Guardian newspaper commented that, on the face of it, the global

pharmaceutical industry “looks like the epitome of a modern, mature industry that has found a comfortable way to make profits by the billion: it's global, hi-tech, and has the ultimate customer, the healthcare budgets of the world's richest countries.”The modern pharmaceutical industry is a highly competitive non-assembled1 global industry. Its origins can be traced back to the nascent chemical industry of the late nineteenth century in the Upper Rhine Valley near Basel, Switzerland when dyestuffs were found to have antiseptic Properties.

Manufacturing industries are important for an economy as they employ a huge share of the labor force and produce materials required by sectors of strategic importance such as national infrastructure and defense. Manufacturing industries came into being with the occurrence of technological and socio-economic transformations in the Western countries in the 18th-19th century. This was widely known as industrial revolution. Manufacturing industries came into being with the occurrence of technological and socio-economic transformations in the Western countries in the 18th-19th century. This was widely known as industrial revolution.

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Rank 1 2 3 4 5 6 7 8 9 10

Company Johnson & Johnson Pfizer Roche GSK Novartis Sanofi Aventis Astra Zeneca Abbott Labs Merck & Co Bayer Healthcare

Country US US Switzerland UK Switzerland France UK US US Germany

Revenue(USD) 61897 50009 45304 44421 44267 40870 32804 30800 27428 22297

Table 1.1 Top 12 Global pharmaceutical companies (As per 2009 Annual report)

The pharmaceutical industry is an important sector in the worldwide economy. Around 70% of pharmaceutical drugs are consumed as the solid oral dosage type, that is tablets and capsules and the majority of the constituents of a dosage form are particulate in nature. These constituents are the Active Pharmaceutical Ingredients (APIs) and the excipients. The particle size properties of pharmaceutical APIs and excipients are very important characteristics for these solid oral dosage formulations. During formulation development stages, in vitro tests are used to determine the profiles of solid dosage forms. This allows assessment of the interactive effects of these properties on the bioavailability of the API in the human body, and helps predict therapeutic efficiency. In general, while large particle size helps optimize flow during the granulation process of solid dose forms, a smaller particle size of APIs contained in tablets or capsules is known to enhance dissolution and absorption.

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Source: Fig 1.1 Global pharmaceutical sale as of 2009.

Years 2001 2002 2003 2004 2005 2006 2007 2008 2009

Total World Market(US$ in Billions) 393 429 499 560 605 648 715 773 825

Table 1.2 Top 12 Global pharmaceutical Sales Some facts •

50 billion aspirin tablets are consumed worldwide each year.

70% of pharmaceutical drugs are consumed as powders in the form of tablets or capsules.

Per capita drug expenditure Rs. 220 per annum

Number of units - 10,000 out of which approximately 300 in organized sector

Share of World Pharmaceutical market 1.0% in value 8% in volume terms

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As of 2008, Employment due to PI in India: 5 million direct, 24 million indirect

As of 2008, pharmaceutical sales comprised 1.22% of GDP

1.2 GLOBAL SCENERIO 1.2.1 Manufacturing and employment: Manufacturing industry trends suggest that a tendency for self employment is gradually catching up in the manufacturing industry scenario. There is a wide disparity between the ownership rates in the rural areas and the other parts of the country. Records reveal that there was growth in employment opportunities in the manufacturing industries by 14% between 1994 through 2005. 18% of GDP or gross domestic product in the year 1993 was due to revenues generated by the manufacturing industry, established according to reports of manufacturing industry analysis. There are four broad types of industry player: •



Generic and biotech. Each requires very different strategic capabilities. Producers of branded prescription

drugs require strong R&D and global sales and marketing infrastructure. Branded OTC drugs demand direct-to-consumer marketing capability. Generics companies focus on supply chain management and manufacturing cost leadership. Biotechs must create and defend intellectual property in specialized research fields. Because of the different attributes and cost structures involved, multinationals which own OTC and generics businesses generally operate them separately, frequently using another company name. Similarly, those that have acquired biotechs normally leave them to operate fairly autonomously.

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1.2.2 Sales and marketing capability It became an increasingly important stheirce of competitive advantage. A company that developed a strong global franchise with its customers could maximise return on its inhouse products and was in a good position to attract the best in-licensing candidates There are three regular channels to distribute and sell medications: •

Direct sale by pharmaceutical manufacturers;

State-owned nationwide sales network; and

Specialized medication wholesalers and retailers.

1.2.3 Corporate Social Responsibility: During the 20th century average life expectancy in developed countries increased by over 20 years. A significant part of this improvement can be attributed to pharmaceutical innovation the pharmaceutical industry needs to be very good at explaining the nature of its business and balancing societal and shareholder expectations. Lacking adequate sanitation, nutrition and primary health care facilities for much of their population, developing countries relied on pharmaceuticals as the first line of defense against a wide range of infectious and parasitic diseases. Diflucan free of charge and without time limits to people in the least developed countries living with HIV/AIDS and with cryptococcal meningitis and/or oesophageal candidiasis. It was argued that leading pharmaceutical companies could make a significant contribution such as reallocation of R&D efforts in favtheir of major tropical diseases, the sale of low-priced essential drugs and technology transfer. Among all the industries, Pharmaceutical Industry is suited best for the Foreign investors. Foreigners are enctheiraged to participate in the following areas: •

Antichloristic and Antipyretics

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Vitamins: Vitamin D3 and Nicotinic Acid

New anti-cancer drugs

New cardiovascular and encephalovascular drugs

pharmaceutical dosage forms, including sustained-release, controlled-release, targetdelivery and transdermal-delivery

New and efficient contraceptive drugs and instruments

New biopharmaceutics.

Global pharmaceutical industry is projected to grow at a CAGR of around 6% during 20102012. The growth will be driven by low cost factor, increasing prevalence of diseases worldwide and rising per capita income of consumers. The regional level analysis finds that the pharmaceutical industry is growing at a rapid rate in the emerging countries like India, China, Brazil, Russia, among others, while a slowdown in the growth has been encountered in the US and Western European countries.

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Chapter 2 Indian Pharmaceutical Industry

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2.1 OVERVIEW The pharmaceutical industry is one of the fastest growing sectors in India. The market has maintained a steady growth for the past decade and the production capacity has increased at the same pace. Import and export trade expected to be active and growing at a double-digit rate. Foreign investors are flocking into India for a slice of the market. The industry will continue its growing trend. Like many other sectors in India, the government plays a crucial role. Several recent changes in policy will reshape the industry and the market. The introduction and success of penicillin in the early forties and the relative success of other innovative drugs, institutionalized research and development (R&D) are the successful initiatives of the industry. The industry witnessed major developments in the seventies with the introduction of tighter regulatory controls, especially with the introduction of regulations governing the manufacture of ‘generics’. The industry expanded rapidly in the 1960s, benefiting from significant new discoveries with permanent patent protection. Regulatory controls on clinical development and marketing were light and healthcare spending boomed as economies prospered. There were two important developments in the 1970s. Firstly, the Thalidomide tragedy (where an antiemetic given for morning sickness caused birth defects) led to much tighter regulatory controls on clinical trials, greatly increasing development costs. Secondly, enactment of legislation to set a fixed period on patent protection (typically 20 years from initial filing as a research discovery) led to the appearance of “generic” medicines. Generics have exactly the same active ingredients as the original brand, and compete on price. Alliance Business School

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Pharmaceutical drugs are used for the benefit of human and animal health. Innovators in pharmaceutical R&D of new drugs have not only controlled life threatening diseases and improved the quality of life and productivity, but have also increased the average life expectancy during the past few decades.

Pharmaceuticals are essential in every health care system. The objective of pharmaceutical policy is to make sure that there is a reliable supply of good quality. The sector is pegged to be worth US$ 7.3 billion. The annual growth rate is estimated to be around 13%. Reports suggest that the domestic retail market would be worth around US$ 12 billion by 2012. India ranks 4th globally in terms of volume and 13th in terms of value. It has 8% share in global sales & 20%-24% share in production of generic drugs. The domestic players satisfy almost all of the country’s demand for formulations and bulk drugs. The “organized” sector of India's pharmaceutical industry consists of 250 to 300 companies, which account for 70 percent of products on the market, with the top 10 firms representing 30 percent. However, the total sector is estimated at nearly 20,000 businesses, some of which are extremely small. Approximately 75 percent of India's demand for medicines in met by local manufacturing. India's long-established manufacturing base also offers a large, welleducated, English-speaking workforce, with 700,000 scientists and engineers graduating every year, including 122,000 chemists and chemical engineers, with 1,500 PhDs. With the increase in the medical infrastructure, the health services would be transformed and it would help the growth of the Pharmaceutical industry further. Accounting for two percent of the world's pharmaceutical market, the Indian pharmaceutical sector has an estimated market value of about US $8 billion. It's at 4th rank in terms of total pharmaceutical production and 13th in terms of value. The total employment is about 340,000 in the sector and an estimated 400,000 doctors and 300,000 chemists are serving over 1 billion customers market It is growing at an average rate of 7.2 % and is expected to grow to US $ 12 billion by 2010. India is the preferred nation for pharmaceutical generation, with low charges for research and development as well as production of drugs. And the pharmaceutical companies in India Alliance Business School

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have made full use of the favtheirable environment offered by the country to make it big. The competition in the Indian pharmaceutical market is cutthroat and the market is divided among the top 10 pharmaceutical companies accounting for 36.1% of the overall R&H sales in the fiscal year 2008.

2.2 REASONS FOR PREFERING INDIA Global companies prefer and feel that India is the best place for outstheircing. The reasons are: Competent workforce: India has a pool of personnel with high managerial and technical competence as also skilled workforce. It has an educated work force and English is commonly used. Professional services are easily available. Cost-effective chemical synthesis: Its track record of development, particularly in the area of improved cost-beneficial chemical synthesis for various drug molecules is excellent. It provides a











Legal & Financial Framework: India has a 53 year old democracy and hence has a solid legal framework and strong financial markets. There is already an established international industry and business community. Information & Technology: It has a good network of world-class educational institutions and established strengths in Information Technology. Globalisation: The country is committed to a free market economy and globalization. Above all, it












Consolidation: For the first time in many years, the international pharmaceutical industry is finding great opportunities in India. The process of consolidation, which has become a generalized phenomenon in the world pharmaceutical industry, has started taking place in India.

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CHAPTER 3 Industry Analysis

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3.1.1 Strengths 1. Low cost of production. 2. Large pool of installed capacities 3. Efficient technologies for large number of Generics. 4. Large pool of skilled technical manpower. 5. Increasing liberalization of government policies. 6. Massive pharmaceutical market growth potential, highly reliant on modernization and reform. 7. Strong local manufacturing sector with leading domestic players establishing a notable international presence.

3.1.2 Weakness 1. Fragmentation of installed capacities. 2. Low technology level of Capital Goods of this section. 3. Non-availability of major intermediaries for bulk drugs. 4. Lack of experience to exploit efficiently the new patent regime. 5. Very low investment in R&D. 6. Low share of India in World Pharmaceutical Production (1.2% of world production but having 16.1% of world''s population). 7. Very low level of Biotechnology in India and also for New Drug Discovery Systems. 8. Lack of experience in International Trade. 9. Low level of strategic planning for future and also for technology forecasting. 10.Low expenditure for the health care. 11.Production of duplicate drugs, which is one of the major weakness of the pharma industry. 12.Absence of association between the various pharma institutes and institutions.

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3.1.3 Opportunities 1. Aging of the world population. 2. Growing incomes. 3. Growing attention for health among the people. 4. New diagnoses and new social diseases. 5. Spreading prophylactic approaches. 6. Saturation point of market is far away. 7. New therapy approaches. 8. New delivery systems. 9. Spreading attitude for soft medication (OTC drugs). 10. Spreading use of Generic Drugs leads to the increase in production of that. 11. Globalization 12. Easier international trading. 13. New markets are opening. 14. New innovative therapeutic products. 15. Manufaturing the drugs on contract. 16. Incredible in the export potential for drugs. 3.1.4 Threats 1. Containment of rising health-care cost. 2. High Cost of discovering new products and fewer discoveries. 4. Stricter registration procedures. 5. High entry cost in newer markets. 6. High cost of sales and marketing. 7. Competition, particularly from generic products. 8. Competition from the MNCs 9. More potential new drugs and more efficient therapies. 10. Switching over form process patent to product patent. 11. Small number of discoveries in the products. 12. Outdated method of sales and marketing used in the industry. 13.Non-traiff imposed by developed countries. Alliance Business School

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3.2 PEST ANALYSIS In order to know about the effects of various environment factors on any industry it is necessary to study the four cardinal influencers on the industry namely Political, Economic, Social and Technological factors. But unfortunate in India these factors have a rather disproportionate influence on the functioning of a commercial organization. From the days of independence the business environment has been overly regulated by a handful of bureaucrats, middlemen, businessmen and politicians. Its only a decade since the country has seen an emergence of a political thought that encourages free enterprise. 3.2.1 Political Factors 1.

Today there is political uncertainty in the air. A combination of diverse political thought have got together to cobble together a rag-tag coalition, that is riddle with ideological contradictions.

Therefore, any consistent political or economic policy cannot be

expected. This muddies the investment field. 2.

The Minister in charge of the industry has been threatening to impose even more stringent Price Control on the industry than before. This is throwing many an investment plan into the doldrums.


DPCO which is the bible for the industry has in effect worked contrary to the stated objectives. DPCO nullifies the market forces from encouraging competitive pricing of goods dictated by the market. Now the pricing is determined by the Government based on the approved costs irrespective of the real costs.


Effective January, 2005 the country goes in for the IPR (Intellectual Property Rights) regime, popularly known as the Patent Act. This Act will impact the Pharmaceutical Industry the most. Thus far an Indian company could escape paying a patent fee to the inventor of a drug by manufacturing it using a different chemical route.


companies exploited this law and used the reverse-engineering route to invent a lot of alternate manufacturing methods.

A lot of money was saved this way. This also

encouraged competing company to market their versions of the same drug. That meant that the impurities and trace elements found in different brands of the same substance were different both in qualification as well as in quantum. Alliance Business School

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Therefore different brands of the same medicine were truly different. Here Branding actually meant quality and a purer brand actually had purer active ingredient and lesser or less toxic impurities. Product patent regime will eliminate all this.

Now, a patented drug would be

manufactured using the same chemical route and would be manufactured by the inventor or his licentiates using the chemicals with same specifications. Therefore, all the brands of the same active ingredient would not have any difference in purity and impurities. The different brands would have to compete on the basis of non input-related innovations such as packaging, color, flavors, Excipients etc. This is the biggest change the environment is going to impose on the industry. The marketing effort would be now focused on logistics, communications, economy of operation, extra-ingredient innovations and of course pricing. 5.

In Pharma industry there is a huge PSU segment which is chronically sick and highly inefficient. The Government puts the surpluses generated by efficient units into the price equalization account of inefficient units thereby unduly subsidizing them. On a long term basis this has made practically everybody inefficient.


Effective the January, 2005 the Government has shifted from charging the Excise Duty on the cost of manufacturing to the MRP thereby making the finished products more costly. Just for a few extra bucks the current government has made many a life saving drugs unaffordable to the poor.


The Government provides extra drawbacks to some units located in specified area, providing them with subsidies that are unfair to the rest of the industry, bringing in a skewed development of the industry. As a results Pharma units have come up at place unsuitable for a best cost manufacturing activity.

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3.2.2 Economic Factors 1.

India spends a very small proportion of its GDP on healthcare ( A mere 1% ). This has stunted the demand and therefore the growth of the industry.


Per capita income of an average Indian is low ( Rs. 12,890 ), therefore, spending on the healthcare takes a low priority. An Indian would visit a doctor only when there is an emergency. This has led to a mushrooming of unqualified doctors and spread of nonstandardized medication.


The incidence of Taxes are very high. There is Excise Duty ( State & Central), Custom Duty, Service Tax, Profession Tax, License Fees, Royalty, Pollution Clearance Tax, Hazardous substance (Storage & Handling) license, income tax, Stamp Duty and a host of other levies and charges to be paid. On an average it amounts to no less than 40-45% of the costs.


The number of Registered Medical practitioners is low.

As a result the reach of

Pharmaceuticals is affected adversely. 5.

There are only 50,00,000 Medical shops. Again this affects adversely the distribution of medicines and also adds to the distribution costs.


India is a high interest rate regime. Therefore the cost of funds is double that in America. This adds to the cost of goods.


Adequate storage and transportation facilities for special drugs is lacking. A study had indicated that nearly 60% of the Retail Chemists do not have adequate refrigeration facilities and store drugs under sub-optimal conditions. This affects the quality of the drugs administered and of course adds to the costs.


India has poor roads and rail network. Therefore, the transportation time is higher. This calls for higher inventory carrying costs and longer delivery time. All this adds to the invisible costs. Its only during the last couple of years that good quality highways have been constructed.

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3.2.3 Socio-cultural Factors 1.

Poverty and associated malnutrition dramatically exacerbate the incidence of Malaria and TB, preventable diseases that continue to play havoc in India decades after they were eradicated in other countries.


Poor Sanitation and polluted water sources prematurely end the life of about 1 million children under the age of five every year.


In India people prefer using household treatments handed down for generations for common ailments.


The use of magic/tantrics/ozhas/hakims is prevalent in India.


Increasing pollution is adding to the healthcare problem.


Smoking, gutka, drinking and poor oral hygiene is adding to the healthcare problem.


Large joint families transmit communicable diseases amongst the members.


Cattle-rearing encourage diseases communicated by animals.


Early child bearing affects the health standards of women and children.


Ignorance of inoculation and vaccination has prevented the eradication of diseases like polio, chicken-pox, small-pox, mumps and measles.


People don’t go in for vaccination due superstitious beliefs and any sort of ailment is considered as a curse from God for sins committed.

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3.2.4 Technological Factors 1.

Advanced automated machines have increased the output and reduced the cost.


Computerization has increased the efficiency of the Pharma Industry.


Newer medication, molecules and active ingredients are being discovered. As of January 2005, the Government of India has more than 10,000 substances for patenting.


Ayurveda is a well recognized science and it is providing the industry with a cutting edge.


Advances in Bio-technology, Stem-cell research have given India a step forward.


Humano-Insulin, Hepatitis B vaccines, AIDS drugs and many such molecules have given the industry a pioneering status.


Newer drug delivery systems are the innovations of the day.


The huge unemployment in India prevents industries from going fully automatic as the Government as well as the Labor Unions voice complains against such establishments.

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3.3 PORTER’S FIVE FORCES ANALYSIS In today’s competitive world, where a perfect competition is going on in the business, the profit of the company operate in that particular industry may go zero. But it is not possible; because no company will be a price taker. Secondly, they strive to create a competitive advantage to thrive in the competitive scenario. Michael Porter, considered to be one of the foremost gurus' of management, developed the famous five-force model, which influences an industry.

Fig 3.1 Porter’s five forces of pharmaceutical industry In Short; Barriers to entry


Thread of Substitutes: LOW Power of Suppliers


Power of Buyers


Industry Competition: Highly competitive

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3.3.1 Industry competition Pharma industry is one of the most competitive industries in the country with as many as 10,000 different players fighting for the same pie. The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% market share, and the top five players together have about 18% market share. Thus, the concentration ratio for this industry is very low. High growth prospects make it attractive for new players to enter in the industry. Another important factor for the industry rivalry is the fact that the entry barriers to pharma industry are very low. The fixed cost requirement is low but the need for working capital is high. The fixed asset turnover, which is one of the gauges of fixed cost requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times. For smaller companies, it would be even higher. Many smaller players that are focused on a particular region, have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way. An important fact is that pharma is a stable market and its growth rate generally tracks the economic growth of the country with some multiple (1.2 times average in India). Though volume growth has been consistent over a period of time, value growth has not followed in tandem. The product differentiation is one key factor, which gives competitive advantage to the firms in any industry. However, in pharma industry product differentiation is not possible since India has followed process patents till date, with laws favoring imitators. Consequently, product differentiation is not the driver, cost competitiveness is. Going forward, we foresee increasing competition in the industry but the form of competition will be different. It will be between large players (with economies of scale) and it may be possible that some kind of oligopoly or cartels come into play. This is owing to the fact that the industry will move towards consolidation. The larger players in the industry will survive with their proprietary products and strong franchisee.

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3.3.2 Bargaining power of Buyers The unique feature of pharma industry is that the end user of the product is different from the influencer (read doctor). The consumer has no choice but to buy what doctor says. However, when we look at the buyer's power, we look at the influence they have on the prices of the product. In pharma industry, the buyers are scattered and they as such does not wield much power in the pricing of the products. However, government with its policies plays an important role in regulating pricing through the NPPA (National Pharmaceutical Pricing Authority).

3.3.3 Bargaining power of Suppliers The pharma industry depends upon several organic chemicals. Like the Pharma industry the chemical industry is also very competitive and fragmented. The chemicals used in the pharma industry are largely a commodity. So the suppliers have very low bargaining power and the companies in the pharma industry can switch from their suppliers without incurring a very high cost. However, what can happen is that the supplier can go for forward integration to become a pharma company. Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies, who turned themselves into pharmaceutical companies.

3.3.4 Barriers to entry Pharma industry is one of the most easily accessible industries for an entrepreneur in India. The capital requirement for the industry is very low, creating a regional distribution network is easy, since the point of sales is restricted in this industry in India. However, creating brand awareness and franchisee amongst doctors is the key for longterm survival. Also, quality regulations by the government may put some hindrance for establishing new manufacturing operations.

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Going forward, the impending new patent regime will raise the barriers to entry. But it is unlikely to discourage new entrants, as market for generics will be as huge. The barriers to entry will increase in the future. The change in the patent regime, will see new proprietary products coming up, making imitation difficult. The players with huge capacity will be able to influence substantial power on the fringe players by their aggressive pricing which will create hindrance for the smaller players.

3.3.5 Threat of substitutes This is one of the great advantages of the pharma industry. Whatever happens, demand for pharma products continues and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an on going concern, pharma industry seems to have an infinite future. However, in recent times, the advances made in the field of biotechnology, can prove to be a threat to the synthetic pharma industry.


Industry Trends Structural changes causing significant transformations, major factors leading to strong future sales growth, and point out the industry’s strong reliance on research and development are discussed here.

3.4.1 Structural changes The pharmaceutical industry is currently undergoing a period of very significant transformation. The majority of “Big Pharma” companies generate high returns, thus providing them with excess cash for further rapid growth – whether organic, or through mergers and acquisitions. Although size of the company on its own does not guarantee success, it gives a significant advantage, especially in pharmaceutical industry. Besides economies of scale in Alliance Business School

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manufacturing, clinical trials and marketing, bigger companies can allow investments in more research and development (R&D) projects that diversify their future drugs portfolio and make them much more stable in the long term. As the result, top-companies in the industry were active participants of mergers and acquisitions (M&A), new joint ventures and spin-offs of non-core businesses. The largest acquisitions in the industry during last years were the acquisition of Pharmacia by Pfizer (purchase price $58 billion), and acquisition of Guidant by Johnson & Johnson (purchase price $25 billion). Both acquisitions allowed these two U.S.-based companies to solidify their places among the elite of the pharmaceutical industry. European companies were even more aggressive in M&A activity than their American competitors – 3 out of 6 major European companies underwent mergers during the last several years: GlaxoSmithKline (merger of Glaxo Wellcome and SmithKline Beecham), AstraZeneca (merger of Astra and Zeneca) and Sanofi-Aventis (merger of Sanofi-Synthelabo and Aventis). Another form of structural change in the industry was establishing of new strategic alliances and joint ventures. So far as the research and development process for each drug take many years and requires significant investments, and the outcome of these investments of time and financial resources remains unclear until the final approval of the drug, “Big Pharma” companies are constantly looking for synergies that they can get from cooperation with their competitors. Last years gave multiple examples of such initiatives. For example, cooperation of Sanofi-Aventis and Bristol-Myers Squibb resulted in production of Plavix, which is currently one of the top-selling products for each of these companies. Finally, “Big Pharma” companies in order to maintain strong sales growth and meet profitability expectations of their shareholders were actively selling low-profitability or non-core businesses. For example, in 2003 Merck sold its low-profitability Medco Health Solutions that helped to increase its profitability margin. Massive sales of non-pharmaceutical businesses by Takeda also were compatible with its strategy to concentrate its financial resources on its core pharmaceutical business.

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3.4.2 Major factors of future growth The pharmaceutical industry showed high sales growth rates in the recent past, and a number of factors suggest that this trend will continue in the future. First, due to numerous advancements in science and technology, including those in the health care industry, life expectancy in the developed countries has been steadily growing. As the result, growing proportion of elderly people promises further growth of demand for healthcare products. Also, according to various studies, a significant portion of elderly population in the United States and other countries does not receive proper treatment. For example, only about one third of the U.S. population who requires medical therapy for high cholesterol is actually receiving adequate treatment. As it is expected, the Medicare Prescription Drug Improvement and Modernization Act starting from the beginning of 2006 will increase access of senior citizens to the prescription drug coverage, thus increasing pharmaceutical sales. Although developing countries at the moment have a small portion of world pharmaceutical sales, these countries also have a significant potential for the pharmaceutical industry in the future. Fast growing economies in Asia, South America and Central & Eastern Europe suggest an increasing solvency of population and make these markets more and more attractive for “Big Pharma” companies. Further reforms of legislation systems in the countries of these regions, especially regarding patent protection issues, will inevitably result in growing pharmaceutical sales. 3.4.3 Strong emphasis on R&D One of the distinctive characteristics of the “Big Pharma” companies is a very high level of investments in research and development. On average, it takes about 10-15 years, and millions of dollars to develop a new medicine. According to industry statistics, only about one in ten thousand chemical compounds discovered by pharmaceutical industry researchers proves to be both medically effective and safe enough to become an approved medicine, and about half of all new medicines fail in the late stages of clinical trials. Not surprisingly, according to “Research and Development in Industry: 2001” report of the National Science Foundation, in 2001 the pharmaceutical industry had one of the highest R&D expenditures as percentage of net sales.

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Chapter 4 Objective of the Study


 To have a glimpse of the global pharmaceutical industry.

 To explore the current functioning of Indian pharmaceutical industry.

 To determine the opportunities and threats those exist for firms within a competitive environment. Alliance Business School

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 To study the policies, regulations, patent acts and its impact on Indian Pharmaceutical industry.

 To make a comparative study of growing Indian pharmaceutical companies.

 To analyze both the quantitative and qualitative aspects of the top performing companies in India.

 To analyze the future prospects for Indian pharmaceutical Industry.

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4.2 SELECTION CRITERIA The companies are selected it’s based on the Turnover. The Top 5 players based on the 2008 Turnover are selected and listed here:  Ranbaxy (4589.14 Cr.)  Dr. Reddy Laboratories (4239.8 Cr.)  Cipla (4088.56 Cr.)  Sun pharma Industries (3210.76 Cr.)  Lupin labs (2609.86 Cr.)

Fig 3.1 Turnover of the selected companies

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Chapter 5 Company Profile

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5. COMPANY PROFILE 5.1 RANBAXY Mission To become a research based International Pharma Company

Vision Achieve Significant Business in proprietary prescription products by2012 with a strong presence in developed markets.

Overview Ranbaxy was incorporated in 1961 and went public in 1973. Ranbaxy Laboratories Limited (Ranbaxy), India's largest pharmaceutical company, is an integrated, research based, international pharmaceutical company, producing a wide range of quality, affordable generic medicines, trusted by healthcare professionals and patients across geographies. In June 2008, Ranbaxy entered into an alliance with one of the largest Japanese innovator companies, Daiichi Sankyo Company Ltd., to create an innovator and generic pharmaceutical powerhouse. The combined entity now ranks among the top 20 pharmaceutical companies, globally. The Company’s business philosophy based on delivering value to its stakeholders constantly inspires its people to innovate, achieve excellence and set new global benchmarks. Driven by the passion of its over 12,000 strong multicultural workforce comprising 50 nationalities, Ranbaxy continues to aggressively pursue its mission to become a Research-based International Pharmaceutical Company. RANBAXY possesses the manufacturing strengths that have established it as a producer of world-class generics, branded generics and a major supplier of its range of Active Pharmaceutical Ingredients for pharmaceutical products of companies worldwide. Using the finest R&D and Manufacturing facilities, Ranbaxy Laboratories Limited manufacture and

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markets generic pharmaceuticals, value added generic pharmaceuticals, branded generics, active Pharmaceuticals (API) and intermediates.

Business Performance Amidst a challenging business environment, Ranbaxy has achieved a growth of 4% on its top line. This was supported by the Company's focus on emerging markets, that contributed 54% to the business; consolidation in the business in developed markets and continued investment in building a high-value new product pipeline. Russia, Ukraine, Brazil and India led the growth in the emerging markets. The Company recorded a strong performance in these markets that was higher than the industry averages. Amongst the developed markets, Canada and Japan outperformed while Germany and France delivered good results. For the first time, Ranbaxy launched Authorised Generics, Omeprazole and Felodipine, in USA. On both these products, the company performed well and garnered good market positions. The business in both emerging and developed markets was supported by increased number of new product launches and continuous focus on key emerging therapies. On the innovation front, R&D saw a series of positive developments during the year. The company expanded their Drug Discovery & Development collaboration model by successfully entering into a new collaboration with Merck in the field of anti-infectives. In their GSK alliance, the company maintained steady progress during the year, filing an IND (Investigational New Drug) application in India for Phase I trials on the Respiratory molecule. Their Anti-Malaria combination molecule, Arterolane, progressed well, having successfully completed Phase II studies and obtained approval for Phase III studies in India. On the generics side, the company continue to drive a high value pipeline of differentiated and niche products to achieve greater productivity at the business end. The year 2008 witnessed an unprecedented economic downturn across all markets globally. The volatility and uncertainty in the financial environment was exceptionally high and led to sharp fluctuation in foreign currency rates. Since their business is spread widely across multiple geographies and foreign currencies, the weakened and fluctuating financial and Forex environment created a substantial negative impact on their profitability for the year inspite of sustained performance, at an operating level. Alliance Business School

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Corporate Governance Ranbaxy, in 2008, proactively adopted the latest financial guidelines (AS-30) related with foreign currency instruments and harmonised its financial reporting accordingly. The company were amongst the earliest companies in India to adopt these guidelines, ahead of time, thus aligning their Company with the global reporting norms while maintaining high standards of disclosure and complete transparency.

For the year 2009, Ranbaxy has a clear strategy to

harness its growth potential in emerging markets, rebuild the US business through a series of actions on products and facilities; actualise significant revenue upsides through First-to-File and Day-1 launches; strengthen the product / therapeutic pipeline and look for M&A opportunities, complementing their geographic and therapeutic basket. Their focus will be to resolve regulatory compliance issues and continue to strengthen GMP across all locations. Besides this, Ranbaxy and Daiichi Sankyo will identify key projects to realise synergies at both the front and back ends of the business, although, there will be much to contend with, considering that the industry is projected to grow at around 5% in 2009. Ranbaxy Global Consumer Healthcare (RGCH) has achieved a distinction for its Revital brand being in the top 15 pharmaceutical brands in India. This is now a US $ 44 Mn business, growing well consistently. During 2008, RGCH also launched Volini SR 100 in the Analgesics category and Chyawan Active, a sugar free Chyawanprash. Finally, the API Business is a global US $ 120 Mn business, with good support from Ranbaxy Chemical Research. The Company's Global ARV business continues to perform well, with sales of US $53 Mn during the year. In this period ARVs were supplied for treatment programs in various countries across the developing world. Further, the World Health Organization (WHO), Geneva, included three additional ARV products of the company in its pre-qualification list - Abacavir tablets, Fixed Dose Combination (FDC) tablets of Abacavir, Lamivudine and Zidovudine and FDC tablets of Lamivudine, Zidovudine and Nevirapine. This has taken the total number of Alliance Business School

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ARV products on the pre-qualification list to 18. The opportunity of Biosimilars at Zenotech Laboratories Ltd. Has been postponed a while, due to the on-going open offer.

Countries served by Ranbaxy •

North America



European Union

United Kingdom




Rest of Europe

Asia Pacific (excluding India)

Russia & Ukraine


Latin America

Corporate Social Responsibility (CSR) Reaching out to the underserved rural communities and helping them overcome their challenges is central to Ranbaxy's CSR philosophy. The companies always strive to make a meaningful impact on the quality of their lives by bringing preventive, promotive and curative healthcare services to their doorstep. Nearly three decades ago in 1979, Ranbaxy started its health care initiatives in certain identified rural areas of Punjab. As the reach of the program grew, the Ranbaxy Community Health Care Society (RCHS) was established in 1994. A novel idea of providing mobile health care outreach service for the poor and underprivileged was initiated. The program today benefits nearly 2 lakh people in 77 rural and urban slum areas in Punjab, Haryana, Himachal Pradesh, Madhya Pradesh and Delhi. Today, six well equipped Alliance Business School

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mobile health care vans with teams of medics and paramedics are actively engaged in the delivery of health care to their target population in these states. The issues addressed include maternal-child health, family planning, reproductive health, adolescent health, health education and AIDS awareness. As usual, the systematic efforts by RCHS during the year have delivered the desired positive results. A significant reduction in the infant mortality rate has been achieved in the old as well as new service areas. No infant death occurred due to diarrhea, a major killer disease in the past. The birth rate also continued to show a decline and no maternal death was reported. The company believe this achievement is significant especially in a country like India where deaths during pregnancy and childbirth are much higher than elsewhere in the world. These positive results are an outcome of the scientific and strategic approach being followed by RCHS in tackling issues like low birth weight, pneumonia, diarrhoea, lack of new born care and management of obstetrical emergencies. Additionally, the company are working hand in hand with the Government and other voluntary agencies to step up their medical and social interventions to deal with critical issues like HIV/AIDS, tuberculosis, malaria and female foeticide. The Company also actively participated in various national health campaigns, especially the pulse polio immunisation. The year saw Ranbaxy building partnerships with reputed national organisations like the Rajiv Gandhi Foundation, Voluntary Health Association of Punjab and the Society for Service to Voluntary Agencies for important projects on Reproductive Child Health and HIV/AIDS. EHS Management System (EHSMS) Ranbaxy firmly believes that quality in EHS is congruent with the quality of the Company's products and services. As a step in this direction, the company introduced a centralized and comprehensive Incident Tracking System to further streamline their EHSMS. Branded 'N'Vizion, the new state-of-the-art centralize tracking system provides a detailed analysis of the root cause of each incident, followed by the corrective and preventive actions taken and its impacts. This technology provides considerable support in reducing the number of incidents and their recurrence, making their workplaces a lot safer. The system is being rolled out in a phased manner across all their locations, worldwide. Their Corporate EHS Team also conducted audits at the Company's operating sites in the US and South Africa. These audits were Alliance Business School

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undertaken to substantially verify the implementation of the EHSMS. Additionally, comprehensive EHS audits of their key Active Pharmaceutical Ingredient (API) manufacturing facility at Toansa, in Punjab, were also concluded by one of their major business partners.

Occupational Health and Safety It is their constant endeavtheir to scale up and better their Occupational Health and Safety practices. A number of initiatives were undertaken during the year to enhance workplace safety. The emergency preparedness was ensured through regular tabletop exercises and mock drills at all thier manufacturing facilities and R&D centre’s. At their Toansa manufacturing facility, the 'Fire and Safety Risk Assessment' and the 'Hazardous Area Classification' was reviewed by third party specialists. The National Safety Council also conducted external safety audits at Toansa and Mohali. A cross functional team of Corporate EHS, Engineering and Facility professionals along with an external specialist further undertook external safety audits at the Corporate Office. Extensive safety training programs were also conducted by internal and external specialists at all their manufacturing facilities, including those managed by their contract manufacturing business partners. These diligent steps have led to the development of an extremely positive atmosphere at all their locations with Environment, Health and Safety being given due importance. These best practices are now a part of the system and are deeply ingrained into the very fabric of their operations.

Outlook on Threats, Risks and Concerns The global generics business has become more competitive with entry of new players in emerging countries and government led healthcare reforms in several countries. In developed economies Innovator pharmaceutical companies continuously evolve ways to enhance lifecycle of patented drugs which could delay entry of generic versions. The generic segment has inherent risks of patent litigations, product liability, increasing regulations and compliance related issues. The manufacture of generic pharmaceuticals is heavily regulated by governmental authorities around the world, including the US FDA. If the company or their third party suppliers Alliance Business School

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fail to fully comply with such regulations, there could be a government-enforced shutdown of concerned production facilities, revocation of drug approvals previously granted, failure or delay in obtaining approvals for new products, product recalls of existing drugs sold in the market, prohibition on the sale or import of non-complying products and criminal proceedings against non-complying manufacturers. The Company received two warning letters from the United States Food & Drug Administration (US FDA) on September 16, 2008 for two of its manufacturing sites located at Paonta Sahib and Dewas in India. Simultaneously US FDA also issued an import alert for products manufactured at these two plants. Further, on February 25, 2009, the Company received a letter from the US FDA indicating that the Agency has invoked its Application Integrity Policy (“AIP”) against Paonta Sahib facility (the “facility”). The US FDA has tested and analysed many products of the Company and has found them meeting applicable specification. US FDA has consistently maintained after above letters that the Company’s products meet their quality specifications, and there are no health risks associated with the Company’s products. Importantly, no other Ranbaxy plants, in India, or anywhere globally, are covered by this latest action. The Company continues to fully co-operate with the concerned authorities for their final clearance, pending which the company could continue to face delays for new product approvals and sales of existing products to the US.

5.2 CIPLA Mission •

To contribute to continued medical education and research into new drug delivery systems in the belief that this contribution will improve technical know-how and ultimately benefits all patients in South Africa.

To be the employer of choice in the pharmaceutical sector developing our most valuable asset, human capital, irrespective of race, colour or creed so that they may realise their full potential and ambitions. We pledge personal respect, fair compensation and a clean and safe working environment.

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To be recognised as innovators in the field of pharmaceutical marketing rather than just followers, be the investors pick and achieve sustainable above average returns to the investor.

To be recognised as the preferred partner in medicine.

Vision To heal South Africa and to become the biggest and the most admired pharmaceutical company in South Africa.

Overview Cipla was established in 1935. Cipla exports raw material, intermediates, prescription drugs, OTC products and veterinary products. Cipla products are bought by over 180 countries in the world. The range of services include consulting, project appraisal, engineering, plant supply, commissioning, training, operation management support, and quality control. Cipla makes drugs to treat cardiovascular disease, arthritis, diabetes, the companyight control, depression and many other health conditions, and its products are distributed in more than 180 countries worldwide. Cipla has recently launched i-Pill which is a single dose emergency contraceptive and has acquired a great deal of popularity in a short span of time. Other latest launches of Cipla include products such as Nova, Moxicip, Flomex, Fullform, Montair LC, and Imicrit. Cipla is the world's largest manufacturer of antiretroviral drugs. Cipla manufactures generic versions of many of the most commonly prescribed anti-retroviral medication in the market, and is a highly capable manufacturer in its own right. India is quickly becoming a global player in the pharmaceutical industry, and many of these companys' (such as Cipla) are evolving to become R & D companies and competing in the global marketplace. he firm announced the launch of the drug under brand name: "antiflu" on November 11, 2009 to be sold as a category X drung, strictly under prescription. The firm has already sold 2 lakh (200,000) doses to Indian Govt. Cipla is into anti-bacterial and anti-asthmatic segments and is the first player in Asia to launch non-CFC metered dose inhaler.

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The Indian pharmaceutical industry remained less affected compared to other sectors and, according to ORG-IMS, registered a growth of more than 10 per cent. While exports grew by more than 30 per cent due to the depreciating rupee (as per figures compiled by Pharmexcil), there the company challenges like falling liquidity in the global market, adverse currency fluctuations and increasing competition in various markets, including the USA.

Business Performance The Company’s turnover recorded a 22 per cent growth and crossed the Rs.5000 crore milestone. While exports grew by 30 per cent, the domestic sales grew by 15 per cent. Notably, technical fees fetched Rs.218 crore, marking a significant 42 per cent growth over the previous year. However, forward contracts entered into to hedge the Company’s foreign exchange business had an impact on net profit growth. According to ORG-IMS, Cipla remained the leader in the domestic market, as on 31st March 2009.

Fig 5.1 Performance Review Source: Company Sites.

Manufacturing Facilities Over the last three years, the Company has invested about Rs.1900 crore in fixed assets. This major expansion programme will help meet the increasing demands of domestic and international business and to sustain growth. It will also help take advantage of taxation and other fiscal benefits. The construction work at the Company’s Rs.750 crore Special Economic Zone (SEZ) project for pharmaceutical formulations, at Indore, Madhya Pradesh, is in full swing. Alliance Business School

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This project includes facilities for the manufacture of aerosols, respules, liquid orals, pre-filled syringes (PFS), nasal sprays, large volume parenterals (LVP), eye drops, tablets and capsules. During the current year, the Company proposes to take validation batches for these dosage forms and commercial production is expected to commence in the subsequent year. Cipla’s Rs.310 crore project in Sikkim for the manufacture of formulations including capsules, tablets, nasal sprays, inhalers, eyedrops and respules commenced commercial production during the year. Work at the Company’s SEZ project at Kerim, Goa remained suspended due to the stop-work order issued by the State Government. The Company has received a communication dated 11th July 2008 from the government revoking the stop-work order, consequent to the filing of a petition by the developer of the SEZ against the order. The petition is currently pending before the Goa bench of Bombay High Ctheirt.

Fig 5.1 Distribution of Revenue

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Regulatory Approvals Several dosage forms and APIs manufactured in the Company’s plants continue to enjoy the approval of major international regulatory agencies. These agencies include the US FDA, MHRA (UK), PIC (Germany), MCC (South Africa), TGA (Australia), Department of Health (Canada), ANVISA (Brazil), SIDC (Slovak Republic), Ministry of Health (Kingdom of Saudi Arabia), the Danish Medical Agency and the WHO.

Safety and Environment Care Various health, safety and environment awareness programmes were organised for villagers and school children living around the Company’s units at Baddi (Himachal Pradesh), Patalganga (Maharashtra), Kurkumbh (Maharashtra), Verna (Goa) and Bengaluru (Karnataka). As always, the Company kept up high standards of occupational health, safety and environment preservation practices at all its manufacturing units. The Company continued to maintain modern, well-designed effluent treatment plants at its factories. Treated water from these “zero discharge” facilities is used for maintaining a green belt at all the locations.

Internal Control Systems The Company’s internal control procedures are tailored to match the organisation’s pace of growth and increasing complexity of operations. These ensure compliance with various policies, practices and statutes. Cipla’s internal audit team carries out extensive audits throughout the year, across all functional areas and submits its reports to the Audit Committee of the Board of Directors.

Threads, Risks and Concerns Patents Following the change in the patent laws in March 2005, product patents have been brought into force with effect from January 1995. As expected, this has triggered a series of litigations. Cipla too has challenged some of these cases involving both pre-grant and post-grant patents, as it believes that these patents have no merit. The recent global outbreak of swine flu and the subsequent concerns about availability of medicines to combat the epidemic has Alliance Business School

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vindicated their oft-repeated stand on intellectual property laws. When it comes to saving lives, the destiny of the world cannot be left to one or two companies. It is necessary for all countries to modify their intellectual property laws to ensure availability of essential and life-saving drugs. This is possible only by introducing a permanent compulsory licensing system for all drugs, whereby a suitable royalty on net sales should be paid to the inventor and patent holder. Cipla has always been appealing to the Indian government to modify its intellectual property laws to safeguard Indian consumers from monopoly. The Indian government should adopt a pragmatic compulsory licensing system. This is the only possible way to make drugs available for the healthcare needs of their large population, at affordable prices. Recently, as reported in the media, pharmaceutical drugs of certain Indian companies were labelled as counterfeit drugs and some of these products are being detained at international airports for no valid reason. Drug Pricing The drug pricing policy has not been announced for more than five years. It is hoped the present government will address this issue with some sense of urgency. The government must take the lead and announce a policy which is fair, transparent and against monopoly. The company have always maintained that free and open competition is the best way to control drug prices. As stated earlier, Cipla is willing to share its pharmaceutical technology with the government of India, free of charge, so that the public sector pharmaceutical undertakings can also manufacture and market all vital and life-saving drugs at economical prices.

Corporate Social Responsibility Pursuant to section 217(2AA) of the Companies Act, 1956 it is confirmed that the Directors have: i.

followed applicable accounting standards in the preparation of the annual accounts; .


selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of the affairs of the Company at the end of the financial year ended 31st March 2009 and of the profit or loss of the Company for that period;

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Taken proper and sufficient care for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and


Prepared the annual accounts on a going concern basis.

5.3 SUN PHARMACEUTICALS Vision To be a leading pharmaceutical company in India and to become a significant global player by providing high quality, affordable and innovative solutions in medicine and treatment.

Overview Sun Pharma came into existence as a start-up in 1983. They make speciality pharmaceuticals and active pharmaceutical ingredients. With world-class technology and a team of strong professionals, the company have built sites and systems that meet the most stringent international manufacturing standards. Expert quality teams ensure that systems and processes remain in compliance with the latest standards. In 1996, a mixture of acquisitions like Chattem limited, Taro pharma, Able labs etc. The company tries to work by these principles in all its interactions with stakeholders, including shareholders, employees, customers, suppliers and statutory authorities. Important mergers were those of the US, Detroit based Caraco Pharm Labs.

The tally at the end of 2008:  17 manufacturing plants in 3 continents  8000 employees Alliance Business School

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    

2 World class research centers Brand selling in markets worldwide A growing presence in the US generic market Increasing research investments 60% of sales from international markets

Recapping their 2008-09 results: The company recorded sales of Rs. 42,723 million, a growth of 27% over the previous year Between Sun Pharma and Caraco, 38 ANDAs were filed covering 37 products 42 products were launched in India and ANDAs for 18 products were approved for the US The company received the first approval for a controlled substance ANDA from their Cranbury, New Jersey facility Their expansion plans at Dadra, Halol and Detroit are being completed as per Schedule Sun Pharma's annual sales for 2008-09 was Rs. 42,723 million, a growth of 27% over the previous year. The cumulative spend onR&Dover the years now amounts to Rs. 15 billion. In line with their intent of becoming an international generic pharma company, sales from international markets grew to 53% of their total turnover. Sales at Caraco were down4%toUSD337 million.

Products Sun Pharma's product portfolio consists of 4 main categories of products: 1. India Branded Generics 2. US Generics 3. International Branded Generics 4. Active Pharmaceutical Ingredients (API)

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Fig 5.2 Products of Sun Pharma Domestic formulations or India Branded Generics has shown rapid growth, contributing 45% to their total revenue during 2008-09. Their market share has grown from 2.6% in March 2001 to 3.5% during March 2009. The top 10 brands of the Company now contribute 21% of the sales in this segment. (Stheirce: IMS -ORGStockist Data) During 2008-09, the company demonstrated a 32% growth, with chronic therapy largely driving the growth. Fast-growing chronic therapies like Psychiatry, Neurology, Gastroenterology, Cardiology constitute more than 70% of their portfolio. The company continue to demonstrate market leadership in the chronic segments. The company rank amongst the top 3 in more than 50% of the brands from a portfolio of over 500 brands. A 2,500- representative strong field force across 18 marketing divisions helps build strong brand loyalty

Business Performance Sales of branded prescription formulations in India were at Rs. 4,473 million for the second quarter, a growth of 20% over the same quarter last year, contributing 37% of total sales. For the first half, domestic formulation sales were at Rs. 8,769 million, an increase of 19% over first half last year. Sun Pharma holds 3.4% market share in the highly competitive pharma market, as per latest IMS ORG report. 9 key products were launched during the quarter, taking the total for H1 to 16. Sun Pharma continues to sell generic Protonix and Ethyol, products that were Company’s “at-risk” launches. This quarter and half year too, these launches had a one-off effect on the US generic sales and profits. Sun Pharma subsidiary, Caraco Pharmaceutical Alliance Business School

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Industries, Ltd (Amex: CPD), recently announced Q2 FY09 sales of USD 122 million, up 195% from USD 41 million for Q2 FY08. Caraco recorded a net income of USD 8.4 million for Q2 FY09. For the first half, Caraco reported sales of USD 230 million and net income of USD 18 million. Between Sun Pharma and Caraco, ANDAs for 61 products are now approved. In the second quarter, ANDAs for 10 products have been filed, of which 7 are from Sun Pharma, and 3 from Caraco. With this, in the first half ANDAs for a total of 15 products have been filed. During the second quarter, ANDAs for 3 products from Sun Pharma have been approved. Counting this, ANDAs for 96 products now await USFDA approval, including 7 tentative approvals. This pipeline is expected to build revenues for our US generic business in the years ahead. Consolidated R&D expense for Q2 FY09 is Rs 884 million, or 7.5% of net sales. For the first half, the consolidated R&D expense is Rs. 1,626 million, or 7.3% of net sales. A cumulative of 117 DMF / CEP applications have been made, with 61 approved so far. The total number of patent applications submitted for Sun Pharma now stands at 228 with 72 patents granted so far. Sun Pharma has been successful in its defense of the litigation brought against it in the Tel-Aviv District Court by Taro and certain of its directors. Highlights Of The Year 2009 42 products have been brought to the market in India in FY09, across 18 marketing divisions. 9 products used a technology-based differentiation or were complex, 12 were integrated to API. Pantocid group, Aztor, Strocit and Gemer continue to grow at double-digit growth rates in extremely competitive markets. The company brought to the market hi-tech Octride Depot 20 mg and 10 mg once a month injections, a one-of-its-kind product for the treatment of serious and difficult to treat indications such as Neuroendocrine Tumors (NETs) and Acromegaly. The company introduced a number of complex products such as Tamlet (modified release Tamsulosin Hydrochloride & Extended Release Tolterodine Tartarate Capsules), Tyrogef (Gertifinib), Cernos Depot (Testosterone Undecanoate). Market scenario The generics market remains a major growth area in the global healthcare arena. It continues to grow at a faster pace than the global pharma market, largely due to regular patent expirations of blockbuster drugs. Rising healthcare expenditure also contributes to industry Alliance Business School

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expansion, with governments seeking cost-containment in several national healthcare sectors, by promoting the use of generic products over higher-priced originator products. However, the year 2008 witnessed significant reduction in sales growth, despite robust volume increases. This was largely on account of manufacturers increasingly competing in price battles within most of the world's major markets. Global generic products generated USD 78 billion in audited sales in the twelve months through September. The top eight global markets - the US, Germany, France, the UK, Canada, Italy, Spain and Japan - today account for 84% of total generics sales. (Stheirce: IMS 2008 Global Pharmaceutical Market and Therapy Forecast) US, the world's largest generics market with 42% of global sales, experienced a 2.7% sales decline in the twelve months ending September 2008 while volume increased 5.4 % during the same period. The market is currently valued at USD 33 billion, compared with USD 34 billion last year, reflecting declining prices and fewer blockbusters losing patent protection in 2008. (Stheirce: IMS 2008 Global Pharmaceutical Market and Therapy Forecast) Generic products now account for 71.5% of the total US pharmaceutical market volume, however accounting for only 21.6% of all dollars spent on prescription. (Stheirce: Generic PharmaceuticalAssociation 2009 Report) The return of Democrats to power in the White House and US Congress should further improve the prospects of generic companies in the US pharmaceutical market. In all likelihood, the new Democrat regime in the US will be additionally pro-generic, given thesignificant cost benefits associated with generics. According to the Generic Pharmaceutical Association (GPhA), while brand prescription drug prices rose by nearly 9%, generic drug prices decreased by an average of 10.6% in 2008. The new administration also has the eminent task of a comprehensive health care reform to rein in the skyrocketing health care costs that are driving Medicare closer to the financial brink. According to the Trustees' 2009 report on Medicare, the program will be insolvent by 2017, two years sooner than projected in last year's report. Perhaps the most important stimulus to the generics market will come from implementation of health insurance coverage for all Americans. This would mean that about 47 million Americans that are currently out of any health insurance will come under coverage, expanding the market for cost-effective therapeutics, including generics. Initial reports indicate that President Obama has already begun to take steps in this direction. In his first budget, he is expected to seek USD 634 billion over 10 years as a Alliance Business School

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down payment on health care reforms- more than half of the estimated total cost of bringing 47 million Americans under coverage. Europe is a region where the company intend to increase their generic focus in the years to come. According to European Generic medicines Association's (EGA) Market Review 2007, the EU generic medicines market was aboutUSD31 billion.The company continue with their efforts to enter key markets with a limited number of complex generic products viz. injectables initially. The company will then offer more products and selectively build up a portfolio in this market. India is on its way to become a global leader in API production The Indian API manufacturing industry is projected to make sales of USD 4.8 billion by 2010, exhibiting an average yearly growth rate of over 19%. Though, there was a global slowdown in the API market in 2008 due to the recession, long term prospects continue to be promising. With their rational costs, rapid speed to market and strong regulatory capability (133 DMF/CEP have been approved or are awaiting approval), Sun Pharma is well placed to capitalize on this opportunity. Around 160 specialty APIs are produced across 8 world-class locations, all of which are ISO 14001 and ISO 9002 approved, besides being approved by the respective foreign regulatory authorities. 6 of these are in India while the company have one plant each in Hungary and USA for the manufacture of APIs for controlled substances.The company also have standalone units in their plants in India for the manufacture of peptides, anticancers, steroids and sex hormones. A large part of their API capacity is used for in-house consumption. During 2008-09, their API sales grew to Rs. 4,846 million, contributing 11% to their total turnover. This segment has been growing at a 3 yearCAGRof 21%. 78% of API sales come from international markets. The European market has performed well for us this year with older products like 5ASA, Pentoxifylline and Clomipramine in which the company have good market shares. Their integration into API manufacturing is an important part of their business. It strengthens their Indian and developing markets business, and their ability to take on challenges in the US generic market. This year, the company scaled up 30APIs. This brings their total regulated market approvedAPI to 81 of 133 filings made forDMFandCEP.

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CSR (Corporate Social Responsibility) Their organization has identified health, education, disaster relief and civic utilities around the plants and research centers as areas where assistance is provided on a need-based and case to case basis.

5.4 LUPIN PHARMA Mission To become a transnational pharmaceutical company through the development and introduction of a wide portfolio of branded and generic products in key markets.

Vision To bring innovative products for the healthcare professional to improve the health and well being of individuals.

Lupin Pharmaceuticals, Inc. is well positioned for growth in the US market. We can capitalize on the strengths of our parent company, Lupin Limited: •

Scientific expertise to develop new and improved products and product line extensions;

Manufacturing technology, expertise and infrastructure;

Financial resources.

Overview Lupin Pharmaceuticals, Inc. is the U.S. wholly owned subsidiary of Lupin Limited,

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which is among the top six pharmaceutical companies in India. Because of the advantage of having their sales and marketing headquarters in Baltimore, MD, Lupin Pharmaceuticals, Inc. is dedicated to delivering high-quality, branded and generic medications trusted by healthcare professionals and patients across geographies. Lupin Limited, headquartered in Mumbai, India, is strongly research focused. It has a program for developing New Chemical Entities. The company has a state-of-the-art R&D center in Pune and is a leading global player in Anti-TB, Cephalosporins (anti-infectives) and Cardiovascular drugs (ACE-inhibitors and cholestrol reducing agents) and has a notable presence










They build their parent company’s strengths of vertical integration in discovery research, process chemistry, active pharmaceutical ingredient production, formulation development and regulatory filings. Lupin Pharmaceuticals, Inc. is committed to achieving its vision and mission of becoming an innovation led transnational pharmaceutical company. For the financial year ended March 2008, Lupin Limited's Revenues and Profit after Tax were Rs.27, 730 million (US$ 694 million) and Rs.4, 083 million (US$ 102 million) respectively. Guided by its mission to become an Innovation led, Transnational Pharmaceutical Company, Lupin’s scientific pool of close to 600 researchers constantly strive to develop new technologies and products. Lupin Research Park (LRP) at Pune, spread across 19 acres is the hub of the Company’s global research activity. The Centre harbours a culture that fosters innovation and helps shape inventions into innovative commercial products. The Company also has an advanced Research & Development facility - Kyowa Pharmaceutical Industry Co. Ltd, located at Osaka, Japan.

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Today, the Company has the proficiency to develop a wide range of pharmaceuticals, across the value chain encompassing complex APIs to value-added difficult-to-develop formulations. During 2008-09, the total investment of the Company in R&D (excluding depreciation) was over Rs.2,669 mn, 7.1% of consolidated net sales. Lupin's research and development initiatives are spread across: •

Generics Research o

Formulations Research


Process Research

Advanced Drug Delivery Systems (ADDS)

Lupin BioResearch Centre

Intellectual Property Management

Novel Drug Discovery & Development

Biotechnology Research

Products a) Generics Lupin Pharmaceuticals, Inc. entered the U.S. generic pharmaceutical market in 2003 with the ANDA approval for cefuroxime axetil. Since then we have received more than a dozen FDA approvals. Six of Lupin's 14 ANDA approvals were the first granted by the US FDA, reinforcing our ability to submit high quality dossiers and gain on time approvals. They vertically integrated, from process development of the API to the submission of dossiers for finished dosages. Expanding the product portfolio, Lupin Pharmaceuticals, Inc. is geared to file 15 or more ANDA’s per year in some of the following areas:

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Oral and injectable cephalosporins; Cardiovascular; Controlled release ANDA’s; Paragraph IV’s.

b) Specialty A commitment To Caring For Kids Lupin Pharmaceuticals, Inc. is committed to developing a branded pharmaceutical presence for pediatric practice in the US market. It committed to identifying, developing and marketing prescription drugs for children of all ages. Lupin has created a dedicated national sales force to call upon pediatricians. Lupin Pharmaceuticals, Inc., is very pleased to offer Suprax®, an important anti-infective product in pediatric and other physician practices within the United States. Suprax® is now available in tablets and suspension formulations. They plan to expand our family of pediatric products to help meet needs of children.

c)API Lupin is recognized as a leading manufacturer of cephalosporin API’s, with FDA approval to manufacture complex oral and injectable cephalosporins. Lupin is fast gaining share in the cardiovascular segment manufacturing a wide range of ACE-inhibitors and cholesterol reducing agents. Lupin’s capabilities in sterile processing, synthetic process development and fermentation skills coupled with its intellectual property strengths, puts the company in a very strong position to offer a diverse portfolio of niche API’s to its customers.

Business Performance

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Successfully achieved and closed Strategic Acquisitions & Equity Partnerships in Germany, Australia and South Africa – Hormosan (Germany), Pharma Dynamics – South Africa, Equity Partnership with Generic Health – Australia.

Successfully launched Divalproex Sodium Delayed-Release Tablets, 125 mg, 250 mg and 500 mg in the US following USFDA Aproovals

Forged Strategic Alliance in the US with Forest Laboratories, Inc. for Marketing and promoting AeroChamber Plus® thereby extending Lupin’s presence in the respiratory segment and our franchise with Pediatricians

Awarded the Wal-Mart Supplier Award of Excellence for the 2nd Quarter 2008 – for overall commitment, performance, on-time shipping, innovative programs and overall partnership

Domestic Formulations Business Growth at net sales level at 23.8% - outpaces and outperforms market growth rate of 12.8 %, (ORG MAT September 08)

Business in Japan contributes 11% to overall revenues

CSR activities: •

.Lupin Human Welfare & Research Foundation was set up on October 2, 1998 with the objective of providing an alternative model of rural development in the country, which is sustainable, replicable and ever evolving.

LHWRF Foundation has been successful in making a big difference in the development of poverty-ridden villages, and especially in the life of the poorest of the poor and empowerment of large number of women in these areas. Today LHWRF on its part is a catalyst, and an observer of a self-evolving, selfsustaining spectacular transformation.

Lupin HWRF has taken following innovative and new initiatives under its CSR activities:

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· Building local level institutions - LGVP · Convergence for scalability · Identification of potential areas for futuristic development · Conversion of problems into potentials •

Lupin Gram Vikas Panchayat (LGVP) (Village Development Committee) consists of representatives from different village communities, who are dedicated to the cause of service and village development.

The contribution in the form of man, material and cash is must for any developmental work. Villagers were motivated to contribute certain percentage of estimated cost of the work, rest of the money come from Lupin and Government. This work of infrastructure was executed by the committee of villagers namely LGVP.

Impact of Lupin programs Economic upgradation of BPL families: 55,708 families economically upgraded through agriculture, animal husbandry & rural industry activities of organizations operational area. •

Reduction of poverty in district: Lupin Foundation has selected entire Bharatpur district for holistic Rural Development. In 1988 they started their program the incidence of poverty was 34%. The multifaceted activities of economic and social development were under taken in close collaboration with District and State Government departments. At present, the incidence of poverty is around 12% and hope to bring it down to nearly 6% by 2015.

The World Bank has replicated Lupin’s model under the program of District Poverty Initiative Program (DPIP) by forming Common Interest Groups of the pattern of the LGVP.

Government has announced a policy intervention in the name of Apna Gaon Apna Kam. Lupin’s pattern of working with community’s contribution has impressed the State Government to announce policy intervention which became applicable to the entire state of Rajasthan i.e. 38,000 villages.

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5.5 Dr.REDDY’S LAB Overview Dr. Reddy's Laboratories is India's leading pharmaceutical company with presence in over 100 countries. Dr Reddy's manufactures a range of products such as Active Pharmaceutical Ingredients, Generic & Branded Finished Dosages, Specialty Pharmaceuticals, and Biopharmaceuticals. Dr. Reddy's Laboratories was founded in 1984 by Dr Anji Reddy. In 1986, Dr. Reddy's went public and entered international markets with exports of Methyldopa. In 1987, Dr. Reddy's obtained its first USFDA approval for Ibuprofen API and started its formulations operations. In 1988, Dr. Reddy's acquired Benzex Laboratories Pvt. Limited to expand its Bulk Actives business. In 1990, Dr. Reddy's, entered a new territory when it, for the first time in India, exported Norfloxacin and Ciprofloxacin to Europe and Far East. In 1993, Dr. Reddy's Research Foundation was established and the company started its drug discovery programme. In 1994, Dr. Reddy launched a GDR issue of US$ 48 million. In 1995, the company set up a joint venture in Russia. In 1997, Dr. Reddy's became the first Indian pharmaceutical company to out-license an original molecule when it licensed anti-diabetic molecule, DRF 2593 (Balaglitazone), to Novo Nordisk. In 1998, Dr. Reddy's licensed anti-diabetic molecule, DRF 2725 (Ragaglitazar), to Novo Nordisk. In 1999, the company acquired American Remedies Limited, a pharmaceutical company based in India. In the year 2000, became the first Asia Pacific pharmaceutical company, outside Japan, to be listed on the New York Stock Exchange. In 2001, Dr. Reddy's Alliance Business School

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Laboratories became India's third largest pharmaceutical company with the merger of Cheminor Drugs Limited, a group company. In 2002, Dr. Reddy's made its first overseas acquisition - BMS Laboratories Limited and Meridian Healthcare in UK. In 2003, Dr. Reddy's launched Ibuprofen, first generic product to be marketed under the "Dr. Reddy's" label in the US. In 2006, Dr. Reddy's achieved a revenue of US$ 1 Billion. In the same year, Dr. Reddy's acquired Betapharm- the fourth-largest generics company in Germany. Today, Dr. Reddy's Laboratories is leading pharmaceutical company in India in terms of turnover and profitability.

Products of Dr. Reddy's Laboratories Active Pharmaceutical Ingredients (API): Dr. Reddy's Laboratories product list span 24 major chemistries including stereo-selective synthesis, cryogenics, hydrogenations and cyanations. It has filed 84 US DMFs, the highest in India and second highest in the world. Custom Pharmaceutical Services: Dr. Reddy's executes cost-effective and time-bound projects for its customers, and provides them cGMP-compliant products manufactured in FDA-inspected, ISO-certified facilities. Generic Dosages: Dr. Reddy's Lab is a leading generic drugs manufacturer. It is the fourth largest player in Germany after the acquisition of betapharm. The company has expertise in customer-specific packaging, compliance packaging, anti-counterfeit packaging, and has won several awards globally for its packaging efforts, including the Asia Star, AmeriStar and WorldStar awards. Branded Dosages: Dr. Reddy's brands such as Omez (Omeprazole), Nise (Nimesulide), Stamlo (Amlodipine), Ciprolet (Ciprofloxacin), Enam (Enalapril) and Ketorol (Ketorolac) are leaders in their category in several countries. Discovery Research: Dr. Reddy's is actively involved in drug-discovery and clinical development programs.

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Specialty Pharmaceuticals: In the field of speciality pharmaceuticals, Dr. Reddy's deals in deals acquired proprietary technologies, internally developed proprietary drug-delivery platforms, and current internal compounds under pre-clinical and clinical development. Biopharmaceuticals: Grafeel (Filgrastim) was the first biologics product by Dr. Reddy's to enter the market. The company's second product Reditux (Rituximab) is the first biosimilar monoclonal











Major Achievements of Dr. Reddy's Laboratories: •

Dr. Reddy's is the 1st Asia Pacific pharmaceutical company, outside Japan to be listed on

the New York Stock Exchange. •

Dr. Reddy's biologics product Reditux (Rituximab) is the first biosimilar monoclonal

antibody to be developed and launched anywhere in the world.

CSR activities: They focus on the Foundation of Education & Livelihood creation through its various Livelihood Advancement Business Schools (LABS) and through its many innovative initiatives in the School Education space. •

Michael & Susan Dell Foundation In partnership with this Foundation, DRF has undertaken to provide sustainable livelihood training to 6000 youth from slum pockets.

Under the ‘Aarogya’ program, over 75 mobile food vendors in Karimnagar (AP) have been assisted in developing their businesses.

Under the ‘Sayodya’ program, 25 partially disabled youth in RR District (AP) have been assisted in earning their livelihoods through corn vending in specially designed kiosks.

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DRF signed an MoU with Rashtra Chenetha Jana Samakhya, a handloom weavers’ union based at Chirala (AP), under which DRF will provide funding for the development of a loom that will reduce the strain on a weaver.

DRF has set up eight Yuva Youth Learning Centers in Hyderabad and RR Districts, which run two bridge programs for disadvantaged youth, to enable them to obtain lateral entry into the mainstream education system.

Under the government-supported Sarva Siksha Abhiyan, DRF also conducted a Residential Bridge Course for outof- school children and those engaged in child labour.

Tribal School Program: In VR Puram Mandal (Khammam District, AP), DRF is working with 33 government schools in areas inhabited by Koya and Konda tribes.

Education Resource Centre: In partnership with government, civil society agencies and individuals working in the field of education and child rights, the ERC generates and shares resources among partners.

DRF has introduced ALTIUS, an advancement school that serves as a platform for graduates, post-graduates and diploma holders to access various career advancement opportunities by providing them with requisite employability skills.

Dr. Reddy’s Foundation for Health Education, DRFHE addresses the gap in patient education, enabling them with self-care capability and improving the cost.

Helping Doctors: At the level of Doctors, the Inner Circle program, assists young doctors to develop extra-medical soft skills and business competencies to be more effective in their professional careers.

Life at your Doorstep: It is focused on providing relief to chronically and terminally ill patients through pain and symptom management and by counseling the family.

DRFHE and Art of Living Foundation: DRFHE, in conjunction with Art of Living Foundation (AOL), launched a pilot lifestyle management program. This program encourages and helps patients suffering from chronic illnesses to adopt lifestyle changes to reduce risk factors and to self-manage their conditions.

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Sparsh: Sparsh, Dr. Reddy’s Patient Assistance Program, continues to improve the accessibility of Oncology drugs to patients in need. Over the past year, Sparsh has provided quality and affordable anti-cancer drugs to over 500 patients, through their doctors.

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Chapter 6 Comparative Analysis

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2009 3.146587 2.991543 1.972195 3.25057 Na 2.840224

2008 2.907291 2.836508 3.160981 3.848898 1.205009 2.791737

2007 3.011580222 4.787756 3.495937 3.911368 1.801153 3.401558844

2006 2.523965 7.819835 3.875236 3.72959 1.247255 3.839176

Table 6.1.1 Current Ratio

Fig 6.1.1 Current Ratio

Interpretation Alliance Business School

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On the basis of industry average from the above graph we can see that for the year 2009 Lupin Ltd. has a very low current ratio which is due to the fact that the other liabilities has shown a 881% increase. From the year 2006-07 current ratio for Ranbaxy has increased though it is low as compared to industry average.It is due to the fact that deposits with government and advance tax has increased significantly during the period which contributed to an increase in current assets. However Ranbaxy has maintained a very low current ratio which is a cause of concern for the company and its new owner Daiichi Sankyo must take concrete steps to bring back investors faith in the company to compensate its current liabilities. Sun Pharma has managed to bring down its very high current ratio to manageable levels owing to an increase of 388.52% in its sundry creditors which brought its current ratio close to industry average.




































Table 6.1.2 Quick Ratio

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Fig 6.1.2 Quick Ratio

Interpretation Cipla has maintained very high inventory levels which is the reason for their appreciable difference between their current ratio and quick ratio and thus they must take steps to bring down their inventory level to improve their cash position.Sun pharma has maintained a very high quick ratio which is very high as compared to industry averages and it also had very high inventory levels which was taken care during the period 2007-08 and 2008-09.Although their inventory levels didn’t change much but there was an increase in the amount of sundry debtors which helped them to perform in sync with industry averages. For Ranbaxy the quick ratio is very low owing to the number of acquisitions taken up by the company which deteriorated their cash position. Increasing inventory levels are also a cause of concern for Dr. Reddys but they have been most effective among all the companies to maintain their quick ratio close to industry averages.

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Table 6.1.3 Average Collection Period

Fig 6.1.3 Average Collection Period

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Interpretation Cipla has a very high value of the ratio as compared to industry average shows that the company takes a lot of time to convert its credit sales to cash. Sun pharma has a very low value of the ratio which is not a desirable situation as it shows that the company gives a very low credit period which discourages its clients. Ranbaxy is the most efficient company ion this respect as it has its value closest to industry average. Lupin and Dr. Reddy have been able to keep their ratios close to industry average throughout the considered period.





































Table 6.1.4 Interest Coverage Ratio

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Fig 6.1.4 Interest Coverage Ratio

Interpretation Sun pharma has been able to increase its interest coverage ratio to inflationary levels as it has reduced its debt to nil by the year 2009 which has resulted in no interest obligations thus no part of their profit is required to cover the interest on the debt. Ranbaxy has performed abysmally poor as it has invested its funds for acquisition which means that it has been unable to cover its debts. In 2008 the ratio went negative which is an alarming situation and was followed by acquisition of the company by Daiichi Sankyo. Lupin is also not performing well and must bring down its debts because the margin of interest covered by net profits is very poor. Cipla again has emerged as the best performer as it has performed as per the industry averages.

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Table 6.1.5 Earnings Per Share

Fig 6.1.5 Earnings Per Share

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Interpretation Cipla which has been the market leader and an efficient performer has low values of EPS owing to plans of its expansion in centers like Goa, Sikkim and Indore which is funded by a mix of debt and equity and thus it is an attractive bet for long term investors. Ranbaxy has showen a remarkable dip in EPS values which became zero in 2008 as it was not able to pay any dividends as its profits went negative. All the other players have been efficient in maintaining a high value of EPS.





















DR. REDDYS 3.783914









NA 3.867488




Table 6.1.6 Fixed Asset Turnover

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Fig 6.1.6 Fixed Asset Turnover

Interpretation Cipla has a low ratio compared to industry as although there was an increase in its net sales but at the same time its fixed assets have also grown in value and the proportional change in the value of the assets is more than the change in the sales volume. The high value for Sun pharma over the considered period is because the sales showed a tremendous growth and the change in the value of net stock was not appreciable. Dr. Reddy has a very impressive value of the ratios because of a significant increase in its net sales and thus has been successful in converting its fixed assets to sales.

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2009 3.223181 5.867476 3.618865 4.98 NA 4.42238

2008 3.01039 5.808274 3.825181 4.93 5.687546 4.652278

2007 2.717772 5.370867 4.397243 5.57 3.573118 4.3258

2006 2.562454 5.295914 4.894031 4.66 3.905192 4.263518

Table 6.1.7 Inventory Turnover

Fig 6.1.7 Inventory Turnover

Interpretation Alliance Business School

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This ratio tells us that how quickly a company completes its working capital cycle to convert its working capital back to cash at just enough inventory levels. Cipla has been very effective in keeping its ratio way below the industry average while Sun pharma and Dr. Reddy have never been able to achieve a performance at par with the industry because of their increasing inventory. Lupin is a significant improver in this contrast as it has managed to bring down its ratios for thye year 2008 and 2009. Ranbaxy on the other hand was doing well till the year 2007.





































Table 6.1.8 ROA

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Fig 6.1.8 ROA

Interpretation Ranbaxy has shown a very poor performance as in other ratios because of their falling profits which turned negative in the year 2008. All the other companies have been effective in converting their fixed assets to profits. Dr. Reddy has a low value in the year 2006 because of low profits that year.

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2009 0.179256 0.240703 0.305213 0.105162 NA 0.207584

2008 0.186508 0.238047 0.268054 0.098832 -0.10314 0.13766

2007 0.206216 0.250236 0.240565 0.268176 0.233631 0.239765

2006 0.310462 0.307821 0.287352 0.082183 0.161225 0.229809

Table 6.1.9 ROE

Fig 6.1.9 ROE

Interpretation Ranbaxy has consistently shown a decline over the years in its return to the shareholders as its profits have been low owing to the number of acquisitions taken up by the company. Dr. Reddy has also a sharp decline from the year 2007 to 2008 as the profits have shown a 60% decline in this period. All the other companies have been effective in giving the shareholders a consistent return on their investments. 6.2 NET PROFIT ANALYSIS All Figures in US$ billion

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Table 6.2 Net Profit

Fig 6.2 Net Profit


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All the other companies have been performing well in a booming sector except Ranbaxy. Ranbaxy was performing well till 2007 but it faultered with its net profits in 2008 because of the number of acquisitions taken up by the company. Lupin though has low values as compared to the industry but it has grown consistently over the period. Dr. Reddy has had an effective growth from the year 2006 to 2007 because of increase in its operating profit.

6.3 LIMITATION OF THE ANALYSIS The ratios for Ranbaxy for the year 2009 were not available as it has not yet disclosed its annual report for the year. Thus Ranbaxy has not been considered while interpreting the performance of the companies in the year 2009.

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Chapter 7 Growth Drivers

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7.1.1 Boost from population growth India’s pharmaceutical sector is receiving a major boost from population growth. According to UN estimates, the population total looks set to rise from 1.1 bn at present to 1.4 bn in 2020. Up until 2020 India will see as many children being born as there are people living in Germany, France, the UK and Italy together. By 2025, India will probably have overtaken China as the world's most populous country. Its population growth results not least from higher life expectancy. This is attributable, among other things, to improved preventive healthcare. Of course, though, average life expectancy in India is still markedly lower than in western countries. The ageing of the population in India offers considerable market opportunities. According to a UN estimate, the share of people over the age of 65 in the total population will rise from 5% currently to 8% in 2025. This would mean roughly 55 million more people aged 65 and over than today. As a result, typical age-related illnesses such as cancer and cardio-vascular diseases will be more wide-spread. The pharmaceutical sector will also receive a boost from the gradual spreading of civilisation diseases such as obesity and diabetes. According to PricewaterhouseCoopers (PWC), the number of Indians with diabetes will reach approx. 74 m in 2025 (currently 34 m); this is roughly the population of Turkey today. In the developing countries as a whole, there could be just under 230 m diabetes patients. This development should benefit India’s generics manufacturers.

7.1.2 Support from rising household incomes For the next 15 years we expect average annual growth in India of 6-7%.2 Strong income growths will broaden the middle class, an important group for foreign drugs manufacturers, as it has considerably higher incomes at its disposal than average Indians. Already today, nearly 60 millions people in India’s middle class, with disposable incomes of Rs.2, 18,807.23 to Rs.1, 062,777.96 p.a., can afford western- produced medicines. Until 2025 their number looks set to rise to approx. 580 millions (+12% p.a.).

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Over a space of ten years, a four-member middle-class family has seen spending on pharmaceuticals grow five times over, to approx. Rs.10627.78 p.a. People’s improved income situation has also led to a growing desire to insure against illness. At this juncture, only 4% of all Indians have health insurance, but this share should rise strongly over the medium term. This will have a positive impact on the demand for drugs as people with health insurance are usually more likely to obtain prescriptions than those without cover. Globalisation has not caused traditional medicine to be abandoned but with higher education, rising income and a change in lifestyle, western medical treatment is gaining in importance. At present the population especially in rural areas still sees western medicine as a stop-gap cure which is unlikely, though, to provide a lasting solution to health problems. Today, about 70% of the population on the Indian subcontinent depend entirely or at least in part on traditional Indian medicine which is cheaper and more easily available than western drugs.

Table 7.1 Income Distribution across households


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7.1.3 High level of education benefits pharmaceutical sector The fact that despite the low level of unit labour costs India boasts a highly skilled workforce has enabled the country's pharmaceutical industry at a relatively early stage to offer quality products at competitive prices. Each year, roughly 115,000 chemists graduate from Indian universities with a master’s degree and roughly 12,000 with a PhD. The corresponding figures for Germany – just under 3,000 and 1,500, respectively – are considerably lower. After many chemists from India migrated to foreign countries over the last few years, they now consider their chances of employment in India to have improved. As a result, a smaller number is expected to go abroad in the coming years; some may even return.

7.2 MAJOR ISSUES CONCERNING PHARMACEUTICALS IN INDIA  Failure of the new patent system: Prerequisites associated with Sec 3(d) of the Patent

(Amendment) Act 2005 restrict the copyright of an existing drug. Moreover, mandatory licensing permits Indian companies to keep producing generics of copyright products for overseas selling to underdeveloped nations.

 Lack of proper infrastructure: Issues associated with regular power cuts and lack of

suitable transport infrastructure will decelerate the expansion of the sector.

 Inadequate funds: Restricted funding from FIs, venture capitalists and the government

may decelerate the expansion of biotechnology sector in India.

 Regulatory impediments: Rising of due meticulousness and conformity with product

standards leads to high costs and interruption in the launch of new products.

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 Severe competition: Low margins and restricted capital to assist R&D is the result of

intense pricing competition among local producers. This rivalry will further deepen from the joining in of the big drug companies in the Indian market to control the cost benefit and large reserve sources.

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Chapter 8 Future Prospects

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The dream of Indian pharmaceutical companies for marking their presence globally and competing with the pharmaceutical companies from the developed countries like Europe, Japan, and United States is now coming true. The new patent regime has led many multinational pharmaceutical companies to look at India as an attractive destination not only for R&D but also for contract manufacturing, conduct of clinical trials and generic drug research. With market value of about US$ 45 billion in 2005, the generic sector is expected to grow to US$ 100billion in the next few years. The Indian companies are using the revenue generated from generic drug sales to promote drug discovery projects and new delivery technologies. Contract research in India is also growing at the rate of 20-25% per year and was valued at US$ 10-120million in 2005. India is holding a major share in world's contract research business activity and it continues to expand its presence. Clinical Research Outsourcing (CRO), a budding industry valued over US$ 118 million per year in India, is estimated to grow to US$ 380 million by 2010, as MNCs are entering the market with ambitious plans. By revising its R&D policies the government is trying to boost R&D in domestic pharma industry. It is giving tax exemption for a period of ten years and relieving customs and excise duties of all the drugs and material imported or exported for clinical trials to promote innovative R&D.

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Government Initiative The government has taken various policy initiatives for the pharmaceutical sector:  The government has offered tax breaks to the pharmaceutical sector. Units are eligible for weighted tax deduction at 150 per cent for the research and development (R&D) expenditure incurred.

 Steps have been taken to streamline procedures covering development of new drug molecules and clinical research.

 The government has launched two new schemes—New Millennium Indian Technology Leadership Initiative and the Drugs and Pharmaceuticals Research Programme— especially targeted at drugs and pharmaceutical research. According to Mr Ashok Kumar, Pharmaceuticals Secretary, the government is planning to set up a US$ 439.94 million corpus fund for the pharma industry soon. The fund would be set up with the help of the government and the industry and will be used for helping the pharma industry in R&D.

Investment  According to the Ministry of Commerce, domestic investment in the pharmaceutical sector is estimated at US$ 6.31 billion.

 The drugs and pharmaceuticals sector has attracted foreign direct investment (FDI) worth US$ 1.43 billion between April 2000 and December 2008.

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8.2 BUDGET 2009-2010 AND POLICY CHANGE Budget measures:  Budget 2009–2010 reduced the customs duty from 10 per cent to 5 per cent on imports of select life saving drugs and their bulk drugs for treating ailments such as breast cancer, hepatitis, rheumatic arthritis, etc.  Customs duty has been reduced from 7.5 per cent to 5 per cent on two specified life saving devices used in the treatment of heart conditions. These devices are now fully exempt from excise duty and countervailing duty (CVD) also.

Policy changes:  The government has approved the Drugs and Cosmetic (Amendment) Bill, 2008, which inter alia enhances the term for imprisonment from five years to at least 10 years, which may extend to lifetime, and raises the fine from Rs.10, 000 to Rs. 10, 00,000 or three times the value of the drug confiscated, for manufacturers of spurious and adulterated drugs.  The DCGI has directed state drug regulators not to allow companies to sell drugs that have undergone a composition change under their old brand names. Such drugs will be treated as new drugs and the companies would have to go through scrutiny before getting fresh approvals.

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 The DCGI has made the registration of all clinical trials compulsory for trials initiated after June 15, 2009. Earlier, the registration of clinical trials by various institutions and companies was voluntary.  The DCGI has withdrawn the powers given to state-level regulators to issue Certificate of Pharmaceutical Product (CoPP).  The DCGI has discontinued issuance of the WHO-GMP certificate for both pharmaceutical products and plant audits.

The future of Indian pharmaceutical sector is very bright because of the following factors:  Clinical trials in India cost US$ 25 million each, whereas in US they cost between US$ 300-350 million each.

 Indian pharmaceutical companies are spending 30-50% less on custom synthesis services as compared to its global costs.

 In India investigational new drug stage costs around US$ 10-15 million, which is almost 1/10th of its cost in US (US$ 100-150million).

Contract research —India an emerging hotspot

 Indian drug discovery and development outsourcing market is projected to grow at a rate of 50 per cent to reach US$ 900 million in 2009.

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 Presently, a major portion of the services are limited to chemistry-based lead identification/optimisation, pre-clinical and clinical research stages.  Select companies provide biology-based services for target validation; notable examples are Avesthagen, OcimumBiosolutionsand TCG Life Sciences.  Bioinformatics companies that offer research-enabling software technologies are also emerging as a valuable segment.

Fig 8.1 Clinical research —leveraging India‘s advantage


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 The clinical trials market in India is currently sized at approximately US$ 250 million to US$ 275 million and is expected to grow at a robust CAGR of 30 per cent over the next few years, at almost double the global average.

 Clinical trials for NCEs constitute around 60 per cent of the total revenue mix, while 40 per cent is accounted for by bioavailabilty/bioequivalence (BA/BE) studies for generics development. However, by volume, around 70 per cent of the work is directed towards generic research.

 The market for BA/BE studies in India was estimated to be around US$ 60 million to US$ 70 million in 2006. It is estimated to reach US$ 150 million to US$ 200 million by 2010–11 growing at a CAGR of 18 to 20 per cent.

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Fig8.2 Contract manufacturing

Source: “Takings Wings” Ernst & Young 2009  The Indian pharmaceutical manufacturing outsourcing market is valued at US$ 1.1 billion and the segment is growing at thrice the global market rate.

 India‘s share of the outsourcing market is estimated to increase from 2.8 per cent in 2007 to 5.5 per cent in 2010.

 APIs /intermediate outsourcing is more prevalent in India than formulation outsourcing; around 64 per cent of total outsourcing is in the area of APIs/intermediates.

 The market is estimated to increase to US$ 1 billion by 2010.

 By 2010, the demand for contract manufacturing of formulations is likely to be around US$ 210 million to US$ 300 million. APIs and intermediate demand is likely to be in the range of US$ 600 million to US$ 700 million by 2010.

Oncology —Indian players eyeing the global opportunity

 Cancer accounts for an estimated 7.6 million annual deaths globally.

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 Treatment for cancer is estimated to become the largest therapeutic segment by sales at US$ 55 billion by 2009, from the current US$ 45 billion.  The oncology pipeline is the richest in number, with a large number of pharmaceutical and biotech companies focussing on oncology drugs.  Over 50 new oncology products are expected to be launched in the next five years with new players entering the market.  About 30 per cent of all launches by 2010 will be in oncology.  The global oncology drug market is growing at 17 per cent annually.  Presently, the Indian oncology market stands at US$ 18.6 million and it is expected to treble by 2010.

Ranbaxy Laboratories Ltd has entered into a strategic alliance with ZenotechLaboratories Ltd Ranbaxy will market Zenotech'soncology cytotoxicinjectibleproducts under the Ranbaxy label, leveraging its global marketing and distribution network in the key markets of Latin America, including Brazil and Mexico, Russia and other CIS markets.


 With revenues of US$ 200 million in 2009, organised pharmaceutical retail constitutes just 2 per cent of the pharmaceutical retail market in India.

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 It is expected to grow at a high y-o-y growth of 30 to 40 per cent and is likely to become a US$ 400 million to US$ 530 million market by 2010.  The government is contemplating the increase of FDI cap to up to 51 per cent in the case of retail of single-brand products.  New entrants include EmamiGroup (Frank Ross Pharmacies), Dabur(Health and Wellness chain by the name of NewU), Reliance Wellness (in a joint venture with Alliance Boots of the UK) and ManipalCure & Care.

Rural market-opportunities at the bottom of the pyramid

 65 per cent of the population resides in rural areas with limited or absolutely no access to medicines and other healthcare facilities.  With a growth rate of 39 per cent in 2006, the rural market has outstripped the growth in the urban region across most of the therapeutic categories in both value and volume terms.  General physician-driven segments such as anti-infectives, analgesics, etc., have registered high growth compared to specialist-driven segments such as CNS.

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 Non-communicable diseases such as cancer, blindness, mental illness, hypertension, diabetes, HIV/AIDS, accidents and injuries are also on the rise.

Biopharma-domestic players eying the global biosimilar market  Globally, sales of biological drugs are estimated to reach US$ 52 billion by 2010.  Leading Indian companies are intensifying their focus on the biotech segment.  Moreover, Indian players are also eyeing the huge opportunity presented by biosimilarsacross the globe.  Biosimilarsare expected to be a US$10 billion market in the US and the EU by 2015.  Further, biologics as a drug class is itself growing rapidly and estimates suggest that by 2014 seven of the top 10 drugs by sales globally would be biologics.  Leading Indian pharmaceutical companies such as Biocon, Dr. Reddy‘s, Wockhardt, Intasand Zenotech, etc., have invested in manufacturing facilities for biosimilars..  A legal framework for biosimilarshas been established in the EU.  Further, the US is expected to set up an approval framework for biosimilarssoon.

8.4 GENERIC RESEARCH  According to a report by IMS Health, the Indian generic manufacturers will grow to more than US$ 70 billion as drugs worth approximately US$ 20 billion in annual sales faced Alliance Business School

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patent expiry in 2008. With nearly US$ 80 billion worth of patent-protected drugs to go off patent by 2012, Indian generic manufacturers are positioning themselves to offer generic versions of these drugs.  Indian generic drug makers received half a dozen more approvals from the US Food and Drug Administration (FDA) in 2009, over the previous year. Dr Reddy's Laboratories received the highest number of tentative and final approvals in 2009 at 32, followed by Aurobindo at 26 and Wockhardt at 23.

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Chapter 9 Conclusion

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9.1 RECOMMENDATIONS Pharma industry has been facing the challenge of increasing their research inputs to be able to compete with foreign giants. Till now the companies have been using the profit generated from their operational activities to fund their research but now Indian companies are looking at a trend of hiving-off or bee-off i.e., spinning off R&D into a separate company offers a unique way of de-risking the balance sheet for companies involved in the high-risk high return game of drugs discovery. Additionally, it opens up gateways for attracting investments and collaboration opportunities, such as out-licensing, co-development, commercialization, and more. Further separating generic and drug discovery business can command high valuation or avoid takeover altogether. According to various estimates, it is believed that if the country's top 10 pharma firms hive off their R&D divisions, the collective market capitalization of new research entities is expected to touch $120 billion in less than a decade. At present, approximately more than $20 billion has been invested in R&D in these firms. On the whole, the industry size is about $150 billion. The analysis of the company’s accounts tells us that Cipla has been very effective in performing as per the industry norms with the exception of Inventory management and Average collection period. Thus it must look into these aspects to consolidate its position. Sun pharma has had a very high sales and a very low credit period for its clients and thus had a very high current and quick ratio thus the company must emphasize on these issues to make use of their idle funds and increase their credit period to encourage client confidence. Sun pharma has also brought down its debt level to zero which shows that the company is investing more into research. Dr. Reddy has also shown an encouraging performance and has given a high earnings per share. The only factor for concern is the inventory levels of the company which needs proper management.

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555Lupin labs is a new player in this sector and has hence been taking significant steps to improve its situation as per the industry. The ratio that demands attention is the interest coverage ratio which is low due to the amount of debts taken by the company. Ranbaxy was a major player in the industry until 2007 when it ran into losses owing to the number of acquisitions taken up by the company and the company has been acquired by the Japanese pharma player Daiichi Sankyo which has been a good strategic move that will benefit both the players.

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9.2 CONCLUSION By 2020, the context in which Pharma operates will be very different from that which prevails today. The globalization of the market will also rise as demand for medicine rises in the developing world, the globalization of R&D will also grow as R&D will migrate to Asia; the globalization of the regulations governing the development of new medicines, as national and federal agencies collaborate and the globalization of information, as healthcare payers share data on the clinical and financial performance of medicines. If Pharma is to thrive in this new environment, though, it will have to make sweeping changes throughout the value chain. Moreover, the incumbent management will have to move fast. The disintegration of the traditional way of making and selling medicines could fuel another round of mergers and acquisitions very different in nature from those that took place a few years ago. Private equity houses and hedge funds could also play a significant role in reshaping the sector. Yet in some respects it does not matter that holds the reins, for Pharma cannot do everything itself. It cannot train a new generation of research scientists unless there are scientists to train. Nor can it make the medicines people need without society’s support. Several relatively small changes would make a considerable difference. Investing in school science labs and specialist teachers and giving science a more prominent place on the school curriculum would encourage more pupils to study the sciences at university, thus creating a larger pool of researchers on whom the industry could call. Altering the patent laws to recognize the value of long-term research, rewarding the development of vaccines and cures more generously and demonstrating a genuine commitment to the prevention of disease would likewise help to put the industry on a firmer footing in its efforts to decode the molecular basis of disease – surely one of the biggest and most worthwhile intellectual challenges the world faces. The Government should take immediate steps to remove the anomalies in the Indian Pharmacopoeia Commission created by it, and give necessary teeth to truly function as an independent and autonomous scientific body.

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DATABASES: Capitalline Corporate websites Annual Reports of various Pharmaceutical firms

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