ANALYSIS OF

PHARMACEUTICAL INDUSTRY

BY VLSS CONSULTANCIES
 INTRODUCTION
• Pharmaceutical Industry in India is one of the largest
and most advanced among the developing countries

• The Indian pharmaceutical industry has come a long

way from waiting for imports of bulk drugs from
global players to breaking new grounds in medical
research worldwide.
GROWTH OF THE INDUSTRY
• Worth of the industry – $ 6 billion
• CAGR – 13%
• Accounts for - 1% of the world's pharma industry
in value terms and 8% in volume terms.
• M&As: Over 25 with 15 cross border transaction
worth $600-700 million.
• Revenues generated - US$ 7.6 bn and have
grown at an average rate of 10% over last five
years
 STRUCTURE OF INDUSTRY
• Fragmented with 24000 players – 300 organized
• Leading 250 – 70% of the market
• Market leaders hold 7%
• Manufactures : Bulk drugs – APIs
Formulations (75:25)
• Adopts high technology & produces high value
products
 FRAMEWORK OF ANALYSIS:
• (A)QUALITATIVE ANALYSIS
SWOT ANALYSIS
MICHAEL PORTER 5 FORCES MODEL

• (B)QUANTITATIVE ANALYSIS
RATIO ANALYSIS
 Opportunities :-
Strengths :- 1. Significant export potential.
1.Cost Competitiveness 2. Marketing alliances for MNC products in domestic
2 Developed Industry with Strong market and international market.
Manufacturing Base 3.Contract manufacturing arrangements with MNCs
3.Well Established R&D infrastructure 4. Potential for developing India as a centre for
4. Access to pool of highly trained scientists, international clinical trials.

Weaknesses:- Threats :-
1. Low investments in innovative R&D. 1.Product patent regime poses serious challenge to
2. Lack of resources to compete with MNCs domestic industry unless it invests in research and
for New Drug Discovery & Research development
3. Lack of strong linkages between industry 2. R&D efforts of Indian pharmaceutical companies
and academia. hampered by lack of enabling regulatory requirement.
4. Low medical and healthcare expenditure 3.Drug Price Control Order puts unrealistic ceilings
in the country on product prices and profitability
4. Export effort hampered by procedural hurdles in
India as well as non-tariff barriers imposed abroad.
 Power of Suppliers
Volume benefits occur
Inputs standard, available locally
Numerous suppliers-switching cost low
Suppliers can go for forward integration
Raw material cost constitute more than 50% of
the total expenses

Barriers to Entry
Very low barriers to entry Industry Competition Threats of Substitutes
Government policies supportive Highly competitive. No substitutes for the medicines
For entry price regulation exists Top five players have mere
Biotechnology is a threat to
Economies of scale exist 18% market share
Lower fixed cost and high working capital synthetic pharma products
Proprietory technology and
Product will exist after 2005

Power of Buyers
End consumers do not have bargaining power
Brand identity exists but is in the hands
Of Influencer (Doctors)
Price Sensitivity is less
Highly fragmented market, so buyer
Concentration v/s industry is low
 RATIO ANALYSIS
• We have analyzed the top five companies in the Indian
pharmaceutical industry for the purpose of doing the quantitative
analysis.
• Our rationale behind selecting the top five companies has been
the –SALES AND PROFIT.
• The companies being:
 Cipla
 Ranbaxy
 Sun Pharma
 Piramal Healthcare
 Dr. Reddy’s Laboratories
YRC Aggregat Cipla Dr Reddy's Piramal Sun Ranbaxy
e Pharma. Labs.
200803 200803 200803 200803 200712

Key Ratios
DE Ratio 0.98 0.1 0.09 0.43 0.18 1.37
Long Term DE 0.69 0.1 0 0.28 0.18 0.92
Ratio
Current Ratio 1.58 2.66 2.37 1.54 3.04 0.98
Turnover Ratios :
Fixed Assets 1.78 2.05 2.27 1.74 3.62 2.04
Inventory 5.02 3.9 6.11 8.34 8.88 4.64
Debtors 4.53 3.38 3.53 7.5 3.96 4.72
Interest Cover 5.82 47.45 40.76 5.61 208.94 9.29
Ratio
Sales: Segment -wise
 EXPORTS
• BULK DRUGS

• FORMULATION
 DOMESTIC EXPORTS
(Source: DGCIS)

YEAR EXPORT (Rs. in Crores)

1998-1999 6256.06
1999-2000 7230.16
2000-2001 8757.47
2001-2002 9751.2
2002-2003 12826.1
2003-2004 15213.24
2004-2005 17857.8
2005-2006 22578.98
2006-2007 24942
 India’s Bulk Drug Export

Source: (CRISINFAC)
• Bulk Drugs Export- grew 28%CAGR (2001-02 and 2007-08)
• Reached $4.2 billion
India’s Formulation Export

(SOURCE: CRISINFAC)
REGULATORY BODIES & PATENT – THE
KEY FACET OF PHARMACEUTICAL
INDUSTRY IN INDIA
• National Pharmaceutical Pricing Authority (NPPA):
Established to fix/ revise the prices of controlled bulk drugs and formulations
under the Drugs Prices Control Order, 1995.

• Central Drugs Standard and Control Organization (CDSCO) :

Controls the quality of drugs imported into the country, co-ordinates the
activities of the State/UT drug control authorities, approves new drugs proposed
to be imported or manufactured in the country.

• Department of Chemicals & Petrochemicals (DCP) :

Provides prompt services to the public in matters relating to chemical,
pharmaceutical and petrochemical industries; take steps to speedy redressal of
grievances received; formulates policies and initiate consultations with Industry
associations and to amend them whenever required.
• Patent: a legal document granted by the government giving
an inventor the exclusive right to make, use and sell an
invention for a specified period of time.
• The Indian Patents Act of 1972:
 Granted the pharmaceutical sector the right to produce
any drugs the country needed.
 Also did away with the shackles imposed by monopoly.
• The Patent Amendment Act 2005:
 law only protects completely new compounds that were
invented after 1995.
 US FDA
• Implemented for drug safety system.
• India has the highest number of US FDA
approved plants outside the US at 75 plus.
• Of the overall Drug Master Filings to US
FDA, Indian players has jumped from
around 14% (2000) to 46% (2008).
• India has recorded 1671 DMF filings,
whereas China shows a tally of 520 only.
Increasing share of Indian companies in
DMF filings (US FDA)

(SOURCE: CRISINFAC)
GOVERNMENT POLICY
• POLICY MEASURES:

 Lifesaving drugs, Clinical trials, Anti AIDS drugs –

Exempted from excise duty
 Permitting FDI for manufacture of drugs on certain
conditional basis
 Extension of deduction of R&D expenses from 150% to
200%
MERGERS AND ACQUISITIONS
IN THE INDIAN
PHARMACEUTICAL
INDUSTRY
Announce date Target Acquirer Reason Deal Value Target Country

Feb-06Betapharm Dr.Reddy’s Labs Front end line in 570Germany

Germany
May-04Espama Gmbh Wockhardt Front end line in 11Germany
Germany
Nov-05Ranbaxy Daichii Sankyo Low cost 33.5Japan
manufacturing
and supply
chain
management

Nov-05Roche’s API Dr.Reddy’s Labs Increasing presence 58.97Mexico

Facility in Contract Mfg

Oct-05Avecia Nicholas Piramal Increasing presence 17.1UK,Canada

in Contract Mfg
 CONCLUSION
• Pharma industry being a growth industry
• Unaffected by the business cycle
• As per the present growth rate, the Indian Pharma
Industry is expected to be a US$ 20 billion industry by
the year 2015
• India has
 competitive strength in research services
 availability of low cost skilled doctors and scientists
 large patient population with diverse disease
characteristics
 adherence to international quality standards
• VLSS agencies recommends investment in this industry
to be a wise decision.
THANK YOU