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Pharmaceutical Sector
Ilma Israr
PGDM-Retail(08)
Contents
.
Top Five Players in Pharmaceutical Industry:
Ranbaxy:
Ranbaxy is among the predominant pharmaceutical companies in India and was founded in
1961.Ranbaxy is a research based pharmaceuticals giant and became a public limited company in
1973. Ranbaxy was recently ranked among the top 10 international pharmaceutical companies in
the world have presence across 49 countries. Ranbaxy is also reputed for its 11 state-of-the-art
manufacturing facilities in countries like China,India, Brazil, South Africa, and Nigeria. The company
has also won several awards and recognitions for its pioneering initiatives in the developing markets
of the world. Ranbaxy is also a member of the Indian Pharmaceutical Alliance and Organization of
Pharmaceutical Producers of India. In the present scenario Ranbaxy commands more than 5% share
of the Indian pharmaceutical market. Ranbaxy’s product portfolio is diverse and includes drugs that
cater to nutrition, infectious diseases, gastro-enteritis, pain management, cardiovascular ailments,
dermatology, and central nervous system related ailments.
Ranbaxy’s operations in India are designed under as many as 9 SBUs which take care of the various
categories of medicines and drugs that are manufactured by Ranbaxy. The company is especially
well-known for having the highest research and development (R&D) budget among pharmaceuticals
companies in the world which is as high as US$ 100 million.
Ranbaxy India operations are handled by 2,500 employees and the company’s market share in India
is worth around US$6 billion.
Dr. Reddy's Laboratories is one of the popular pharmaceutical companies with base
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are in Vapi, Silvassa, Panoli, Ahmednagar, and Chennai.
Laboratories:
Though set up in 1935, it was only in 1937 that Cipla began manufacturing and marketing its
pharmaceutical products. Today, the company has its facilities spread across several locations across India
such as Mumbai, Goa and Bangalore.
Apart from its strong presence in the Indian market, Cipla also has an extensive export market and
regularly exports to more than 150 countries in regions such as North America, South American, Asia,
Europe, Middle East, Australia, and Africa. For the year ended 31st March, 2007 Cipla’s exports were worth
approximately Rs. 17,500 million. Cipla is also considerably well-known for its technological innovation and
processes for which the company received know-how loyalties to the tune of Rs. 750 million during 2006-
07.
Sun Pharmaceuticals:
Cipla
3.
.
Aurobindo Pharma
Aurobindo Pharma, an India-based private pharmaceutical company having presence around the world.
Aurobindo
Pharma was set up in the year 1986 and started its operations in 1988-89 in Pondicherry, India. Now, the
company is headquartered at Hyderabad, India.
Aurobindo Pharma is one of the most respected generic pharmaceuticals and active pharmaceutical
ingredients (API) manufacturing company of the world. Aurobindo Pharma operates in over 100 countries
across the world. Further, the pharmaceutical major markets over 180 APIs and 250 formulations
throughout these destinations. This Indian pharmaceutical major has filed over 110 DMFs and 90 ANDAs
for the USA market. So far, Aurobindo has received 45 ANDA approvals (both final and tentative) from
USA alone.
Aurobindo Pharma products cover segments like –
• Antibiotics,
• Anti-Retro Virals
• CVS
• CNS
• Gastroenterologicals
• Anti-Allergics
Methods of Retail in Pharmaceutical Industry:
The healthcare sector in India is getting much more sophisticated than it was
earlier. The services side of the healthcare industry is growing quite substantially
and rapidly. In a sense, pharmaceuticals retailing is a proxy for the healthcare
sector. Therefore, it will grow accordingly. Also, the disease profile in India is
changing from infectious diseases to lifestyle diseases, where you require much
more intensive care. This will entail medication on an ongoing basis, which will in
turn make prescription-based medicine mandatory. In the past if you look at the
shelf space, in a pharmacy store, OTC drugs that were priced at Rs 10-20 used
significant space. Now you need tablets and medicines that are much more
expensive for lifestyle diseases. Sales of higher value products are hence, driving
the growth in pharmaceuticals retail. Moreover, life expectancy has increased
considerably resulting in an increase in drug consumption. Furthermore, there is
significant innovation in the industry. More new drugs are coming for many
discrete diseases that were not looked at so far. Overall expenses on drugs have
amplified per household as a result of growing health awareness.
APOLLO PHARMACY:
A Division of the Apollo Hospitals enterprises – Asia’s largest healthcare Group
India’s first and largest branded pharmacy network Over 1000 stores serving 24
hours daily Operating in 17 states across India Provides genuine medicines from
leading manufacturers Pharmacy outlets manned by qualified and
trained pharmacist.Value added services include personalized pharmacy –
refilling services ,Free health camps, Toll free Helpline services, Free health
insurance on purchases over INR 6000 in a year Health newsletters 24 hours
store operations .
GUARDIAN PHARMACY :
A Six year old retail chain in India offering Pharmacy, Wellness, Health and
Beauty products Currently serves through 230 outlets Aims to have 400
operational stores by 2012 Has presence in 26 cities, spread across North, East
and West India Stores have an international look and feel Stores managed by
professionally trained pharmacist. Advisory services on drugs and their usage
Maintain record of customer’s medicine requirements Guardian Xtravalu cards:
Help earn points every time a customer shops Monthly health magazine:
Guardian Health Chronicle Senior citizen discounts: 10% discount on medicines
and an additional 1% discount on prescription medicines .Free health Check up
camps. Community service: Provide cut strips of medicines to NGOs. Tie ups with
individuals Corporates retailers.Store format is High Street stores Malls
Neighborhood stores .
RELIGARE WELLNESS:
A Part of the Religare group, which amongst other business interests carries the
‘Fortis’ brand Pioneering endeavor within India’s healthcare industry putting
health solutions on the retail map. Incorporates setting up of a Pan India World
Class Retail Network of health stores that would provide comprehensive solutions
under one roof Hopes to have a chain of 1000 complete health stores all across
India covering 400 cities by 2012 Stores managed by professionally trained
employees Value added services include Supplement advisory Ayurveda &
Homeopathy advisory Customer loyalty programs: points on purchase Free Home
delivery and 24 hours operational stores.
MEDPLUS
Established in the year 2006 with the aim of eliminating the risk of consumers
purchasing fake drugs Presently serves through over 800 pharmacy stores in five
states covering 98 cities and towns in Andhra Pradesh, Maharashtra, West
Bengal, Karnataka, and Tamil Nadu Owns India’s first exclusive hospital
pharmacy chain – RiteCure Launched state-of-the-art diagnostic lab services
which can aid in the prevention, detection, or management of a wide range of
illnesses Guided by three themes - quality, convenience, and low prices Market
share.
HIMALAYA HEALTHCARE
A Part of the Himalaya drug company that was founded in 1930 Specializes in
extending only Ayurvedic products to consumers Serving across 71 countries
Converted Ayurveda’s herbal tradition into a complete range of proprietary
formulations dedicated to healthy living and longevity .
Online Pharmacy:
Online pharmacies have been a preferred channel of purchasing medicines in
most European countries but India is still taking baby steps in this retail mode.
However, it comes as no surprise that online pharmacy players are looking to
expand their presence in the Indian market, as Indian consumers already have
access to much cheaper generic medicines available here.
In India a limited numbers of online pharmacies are operational through different
channels. For e.g. Apollo Pharmacy has installed fax machines in clinics of
doctors, from where prescriptions are faxed to Apollo stores, which then deliver
the medicines to customers at the desired location. Lifeken (Religare Wellness)
has a feature to post the requirement of drugs on the website, based on which
medicines are dispensed at the desired location. Typical online pharmacies such
as in.keegy.com, realpharma.com, chennaiclassic.com, worldwide online
pharmacy. B-2-B online pharmacies which cater to other online pharmacies
abroad make up the third channel.
Online pharmacies could have been a welcome change in the drug distribution
system however; invasion of this system by illegal operators has put safety of
the consumer/purchaser at stake. The consumer is handicapped in a sense that
he has no source to check the reliability of his service provider. In recent times
there have been a number of changes to the online pharmacy scene which has
been complicated by the large number of illegal sites that have mushroomed.
Many of them remain functional for just a few weeks to a few months and then
are shut down and restarted under different names.
Many online pharmacies do not have adequate checks in place and end up
selling harmful prescription drugs to underage people. Some pharmacies actually
promote themselves as 'no prescription required' pharmacies and induce
consumers to buy counterfeit or spurious medicines. Due to the poor regulatory
framework and inadequate implementation of rules in India, nearly 20 percent of
the global burden of illegal online pharmacies is based in India. Unfortunately, as
of now, in India, the drawbacks of online pharmacies overshadow their benefits.
The lack of separate regulations is a serious lacuna.
If contained within regulations and laws, online pharmacy will prove a very good
concept .In fact if regulators are vigilant and if adequate checks are in place,
legal full service online pharmacies that operate within domestic markets can
help ensure that patients refill their prescriptions and hence improve compliance
rates and will serve patients and customer in the right sense.
Level of Intergration in Pharmaceutical Industry :
In pharmaceuticals industry the backward integration covers research and
development (R and D) and Active Pharmaceutical Ingredients (API) part while
the forward integration includes logistic support, marketing and country brand.
Companies like Wockhardt and Ranbaxy are e.g. where pharmaceuticals and
healthcare are converged.It is a forward integration from the pharmaceuticals
company's side and a backward integration from the hospital's side. In
Wockhardt most of the drug requirement is met by the pharma arm, which is
given the first prescription. Similar is the case of Ranbaxy and Fortis
Hospitals.Also the two coming close will provide the pharmaceuticals companies
with a ready database of patients to conduct clinical trials, a research site, and
access to a vast population, hence an expansion strategy for them.
There are three things which can be achieved through this, one is the research
and development.Second they will have access to huge clinical data and the
other is clinical research and third is forward integration through which they will
be able to sell all your medication.
Legal Requirement & Taxation in Pharmaceutical
Sector:
Customs duty consists of Basic Customs Duty (BCD)-12.5 percent, additional
duty of customs under section 3(1) ('CVD')-16.32 percent and additional duty of
customs under section 3(5) (ADC)-four percent. Further, education cess at two
percentages is also levied on aggregate of customs duty. The above aggregates
to an effective rate of customs duty of 36.74 percent.
Drugs and medicines are subject to excise duty on the basis of the Maximum
Retail Price (MRP) printed on the package with an abatement of 40 percent of
MRP.
VAT/CST is levied on sale of movable goods in India. Drugs and medicines are
taxed at four percent except Assam where the rate is six percent. Although, it
was expected that VAT would bring in uniformity in classification of products,
descriptions in the tariff schedule varies from state to state. For example,
medical devices are taxed at 12.5 percent in three states, whereas in all other
states, the tax rate is four percent.
CST rate is four percent against furnishing of prescribed declarations. Otherwise,
the rate of tax is 10 percent or the VAT rate prevailing in the originating state,
whichever is higher.
Industry Competition:
Pharmaceutical 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
concentration ratio for this industry is very low. High growth prospects make it
attractive for new players to enter in the industry.
Another major factor that adds to the industry rivalry is the fact that the entry
barriers to pharmaceutical 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 pharmaceutical is a stable market and its growth rate
generally tracks the economic growth of the country.
The product differentiation is one key factor, which gives competitive advantage
to the firms in any industry. However, in pharmaceutical industry product
differentiation is not possible since India has followed process patents till date,
with laws favouring imitators. Consequently, product differentiation is not the
driver, cost competitiveness is.
In pharmaceutical 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).
Bargaining power of suppliers:
The pharmaceutical industry depends upon several organic chemicals. The
chemical industry is again very competitive and fragmented. The chemicals used
in the pharmaceutical industry are largely a commodity.
The suppliers have very low bargaining power and the companies in the
pharmaceutical 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 pharmaceutical company.
Barriers to entry:
Pharmaceutical 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 long-term survival. Also, quality regulations by the government may put
some hindrance for establishing new manufacturing operations.
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 very
huge.
Threat of substitutes:
Bibliography
• http://www.mckinsey.com
• http://www.cci.in/
• www.expresspharmaonline.com
• http://www.slideshare.net/
• http://knowledge/webopac/
• http://site.securities.com/ch.html?pc=IN
• http://www.ey.com/
• Retail BIZ January 2011