INDUSTRY ANALYSIS PHARMA INDUSTRY Himanshu Maheshwari Kavita Kulkarni80303170060 Faculty Guide –NMIMSHyderabad TABLE OF CONTENTS S.No Content Page No. 1 Introduction 2 Industry and Competition: Market Size and Characteristics 3 Industry and Competition: Market Trends 4 Industry and Competition: Market Structure 5 Characteristics of Competitors 6 Behavioral Traits of each Major Competitor 7 Industry Analysis- Metrics 8 References Introduction The PharmaIndustry develops, manufacture, and markets drugs licensed for use as medicines.For this they have a well-equipped Research and Development department.
Pharmacompanies are allowed to deal in generic and/or brand medicines and medicaldevices. They deals with variety of laws and regulations of the governmentregarding the patenting, testing, pricing and ensuring safety and adequacy andmarketing of drugs. The Indian Pharma industry is the second-largest in theworld by volume and is ahead to manufacturing sector of India. The first pharmacompany of India was Bengal Chemicals and Pharma Works, which still existstoday as one of 5 government-owned drug manufacturers, in Calcutta in the year1930.
For the next 60 years, most of the drugs in India were imported bymultinationals either in fully formulated or bulk form. The government startedto encourage the growth of drug manufacturing by Indian companies in the early1960s, and due to the Patents Act in 1970, the industry got an opportunity togrow. This patent act removed composition patents from food and drugs, andthough it kept process patents, these were shortened to a period of five toseven years. The lack of patent protection made the Indian market undesirableto the multinational companies who had dominated the market, and while theystreamed out, Indian companies started to take their places.
The multinationalswere market leaders at that time because of their superior technology. As aresult of this, they had gained expertise in reverse-engineering new processesfor manufacturing drugs at low costs. Although some of the larger companieshave taken small steps towards drug innovation, the industry as a whole hasbeen following this business model until the present. Introduction to PharmaIndustry 28 Research and Development Drug discovery is the process by which therequired drugs are discovered or designed. In the past most drugs have beendiscovered either by isolating the active ingredient from traditional remediesor by serendipitous discovery. A great deal of early-stage drug discovery hastraditionally been carried out by universities and research institutions.
Allthis requires constant innovation and research by either the traditional ormodern methods, or a combination of both. Drug development refers to activitiesundertaken after a compound is identified as a potential drug in order toestablish its suitability as a medicines. Objectives of drug development are todetermine appropriate Formulation and Dosing, as well as to establish safety.Research in these areas generally includes a combination of in vitro studies,in vivo studies, and clinical trials.
The amount of capital required for latestage development has made it a historical strength of the larger pharmacompanies. Often, large multinational corporations contribute in a broad rangeof drug discovery and development, manufacturing and quality control,marketing, sales, and distribution. On the other hand, smaller organizationslay emphasis on a specific aspect such as discovering drug candidates ordeveloping formulations. Often, collaborative agreements between researchorganizations and large pharma companies are formed to discover any probabilityof new drug. Market Size ofIndian Pharma Industry and Its Characteristics Indianpharma sector is estimated to account for 3.
1- 3.6 % of the global pharmaindustry in terms of value and 10 % in value terms.It is estimated to grow to 100US$ billion by 2025. India accounts for 20 per cent of global exports ingenerics. India’s pharma exports stood at US$ 16.84 billion in 2016-17 and are expected to reach US$ 20billion by 2020. During April – September 2017, India exported pharma products worth Rs.411.
3 billion (US$ 6.4 billion). During April – October 2017, India exported pharma products worth Rs.478.3 billion (US$ 7.4 billion).
Figure 1: Revenue of Indian pharma sector ($billion)Source:Department of Pharmas, PwC, McKinsey, TechSci Research Notes: F – Forecast, CAGR – CompoundAnnual Growth Rate The market size isexpected to grow to US$ 55 billion by 2020 and become the 6th largestpharma market globally by absolute size. Branded generics with nearly 80% ofmarket share will dominate the pharmas market (in terms of revenues). According to datafrom the Ministry of Commerce and Industry, India has out- performed China in pharmaexports with a YoY growth of 11.44% to US$ 12.91 billion in FY 2015-16, onother hand imports rose marginally by 0.80 % YoY to US$ 1,641.15 Million.
Figure 2:Projected size of Indian Pharma market in $ billion Source: Mckinsey Analysis, secondaryResearch Figure 3:Formulation and Bulk Drugs Export Outlook: Source:CRISIL research; KPMG in India analysis The US Food and DrugAdministration (USFDA) approved 201 in FY 2015-16 drugs of Indian companies,nearly doubled from 109 in FY 2014-15. India accounts for around 30% (byvolume) and about 10% (value) of US generics market which stood at US$ 70-80billion in 2015-16. India’s biotechnology industry made ofbio-agriculture, bio-pharmas, bio-services, bio-informatics and bio-industry isexpected grow at an average growth rate of 30% a year and expected to reach$100 billion by 2025. Figure 4:Percentage Distribution of Biotech Companies in Various Segments Biopharma, therapeutics, comprising vaccines anddiagnostics, is the largest sub-sector of biotech contributing nearly 62% ofthe total revenues at Rs 12,600 crore ($ 1.
88-billion). Geographical Clusters: Most of the pharma manufacturing units are concentrated inMaharashtra and Gujarat. These two states are home for 44% of the pharmamanufacturing units. Source:Ministry of Skill Development & Entrepreneurship Table 1: GeographicalDistribution of the Pharma Companies In India State No. of Manufacturing units Total Formulation Bulk Drugs Maharashtra 1928 1211 3139 Gujarat 1129 397 1526 West Bengal 694 62 756 Andhra Pradesh 528 199 727 Tamil Nadu 427 98 570 Others 3423 422 3845 Total 8174 2389 10563 Sources:Department of Pharmas; KPMG in India analysis, ASSOCHAM The data clearly suggests that due to better infrastructurefacilities, enhanced support from small-scale companies, conductive industrialatmosphere and skills in chemistry, Maharashtra remains an attractivedestination for Pharma companies.
The Maharashtra government promotes the”Centres of Excellence” working on cutting-edge R&D in emerging areas oftechnology and life sciences. Figure: PercentageDistribution of Pharma Companies in Various RegionsSources:Department of Pharmas; KPMG in India analysis, ASSOCHAMOn other hand Gujaratalways encourages new investments in the state and employs approximately 52,000people in this sector. The 5 tax-free states namely Himachal Pradesh, Uttaranchal,Jammu & Kashmir, Jharkhand and Sikkim are emerging as hot destinations forPharma companies. Uttarakhandand Himachal Pradesh (HP) is considered to beamong the fastest growing Pharma hubs in India. Baddi and some other areas inHP have over 300 manufacturing units. Haridwar, Roorkee, Dehradun and Rudrapurof Uttarakhand have 200 pharma manufacturing units.
Figure:Manufacturing hotspot for various companies across IndiaSource:KPMG in India analysis, IBEF August 2013 The investment in the region is reported to be worth anestimated INR30 billion in recent years. Alembic, Dr. Reddy Lab, Alkem,Mankind, Torrent, Lupin, Cadila, Indswift Lab, Unichem, Morepen, Klitch, Ranbaxy, Nector, Surya, Cachet, Indchemie, Galphaare some of the major companies to have established their units in these areas. (Cf. KPMG in Indiaanalysis, IBEF August 2013). Market Trends ofIndian Pharma Industry GLOBAL TRENDS Figure: Global Pharma Market, Regional Market Share Forecast, 2017* *Based at ex-manufacturer price levels, not including rebates and discounts.
Contains audited and unaudited date. All compound annual growth rates (CAGR) based on five years. Pharmerging countries include: Algeria, Argentina, Colombia, Egypt, Indonesia, Mexico, Nigeria, Pakistan, Poland, Romania, Saudi Arabia, South Africa, Thailand, Turkey, Ukraine, IMS has estimated a compoundannual growth rate (CAGR) for the global pharma market of 3-6% in the forecast period of 2013-2017. The USpharmamarket is expected to grow at a rate of 1–4%. As faras Europe is concerned, the markets of the European Union are expected toexperience a CAGR of 0–3%, and the rest of Europe is should have a CAGR of(-1%) to 2%.
Emerging markets, may see strong growth, but are expected to showslower growth than in the previous forecast period.IMS expects China’s market willexperience a CAGR of 13–16%, between 2013–2017 compared to aCAGR of 22% during 2008–2012. IMS estimates that the pharma markets of Brazil, India, and Russia may to see a CAGR of10–13% between 2013–2017 compared to a CAGR of 16%during 2008–2012. Tier 3 ‘pharmaerging’ markets have a prognosis to have pharma industry growth of 6–9% between2013–2017 compared to a CAGR of 9% during 2008–2012.Due to reporting purposes,CAGR forecasts are estimated in constant dollars, andhistorical CAGR in actual dollars. The influence of emergingmarkets in pharmaindustry growth is substantially proven by several key projections offered byIMS. By 2017, 50% of drugs by volume are forecastedto be in ‘pharmerging’ markets, and the US and Europe each respectivelywill account for only 13% of pharma volume by 2017.
China will take the lead, and the BRICcountries (Brazil, Russia, India, and China) will account for 70% of all’pharmerging’ market sales by 2017 on a value basisand strategically will continue to be the reasons of thriving among emergingmarkets. Pharma sales in China are estimated to touch $167 billion by2017, $49 billion in Brazil, $24 billion in India, and $27 billion in Russia. LOCAL TRENDS: Government expenditure onpharma in the country increased from US$14 billion in 2008 to US$ 53 billion in2016. The expenditure expanded at a CAGR of 18.1 per cent over 2008–16to reachUS$ 53 billion. Under Union Budget 2017-18, new 5,000postgraduate seats inmedical colleges wereannounced by the government, to ensure availability of specialist doctors.
Under Union Budget 2017-18, new 5,000 postgraduate seats in medical collegeswere announced by the government, to ensureavailability of specialist doctors. Medical technology park in Vishakhapatnam,Andhra Pradesh has alreadybeen set up with an investment of US$ 183.31 million.States like Himachal Pradesh, Gujarat, Telangana and Maharashtra are showinginterest for making investments in these parks. German technical services provider TUV Rheinland’s Indian subsidiaryhas partnered with Andhra Pradesh MedTech Zone(AMTZ) to create aninfrastructure for Electro-Magnetic Interference (EMI/EMC) at an investment ofUS$ 12.64 million over a course of fourto five years. Rising share of government expenditure (US Billion$) Effects of GST on the Healthcare IndustryThe passing of theGST (Goods andServices Tax) Bill has grabbed the attention across all the industries in thecountry. It would benefit most of the sectors andmake the taxation process easier as it will replace a number of different taxesand duties.
The IndianHealthcare Industry is now among of the majorsectors with respect to revenue and to employment. As the expenditure on theHealthcare increases, so do revenues from taxes. Recently, the Government ofIndia decided for the implementation of GST, which would subsume various taxesof the complex tax system in the country into oneuniform tax system.It is expected thatGST would have a constructive effect on the Healthcare Industry particularlythe Pharma sector. It would help the industries by streamlining the taxationstructure since 8 different types of taxesare imposed on the Pharma Industry today. An amalgamation of all the taxes into oneuniform tax will ease the way of doing business in the country, as wellas minimising the cascading effects of manifold taxes that is appliedto one product. Moreover, GST would also improve theoperational efficiency by rationalising the supply chain that could aloneadd 2 percent to the country’s Pharma industry.
GSTwould help the Pharma companies in rationalising their supply chain; the companies would need to review their strategy anddistribution networks. Furthermore, GST implementation would also enable a flowof seamless tax credit, improvement the overall compliance create an equallevel playing field for the Pharma companies in the country. The biggest advantage for thecompanies would be the reduction in the overall transaction costs withthe withdrawal of CST (Central Sales Tax). GST is also expected tolower the manufacturing cost.One more benefitlikely to accrue due to GST is the reduction in theoverall cost of technology. Currently, the technical machinery and equipmentwhich are imported into the country by the healthcare sector are very costly.Also, the duty which is levied is not allowed as a tax credit under the present tax regulations.
However, with GST thisscenario might change. Under GST, duty charged on the import of such equipmentand machinery would be allowed as a credit. Market Strucherof Indian Pharma Industry Thenumber of purely Indian pharma companies is fairly low. Indian pharma industryis mainly operated as well as controlled by dominant foreign companies havingsubsidiaries in India due to availability of cheap labor in India at low cost.In 2002, over 20,000 registered drug manufacturers in India sold $9 billionworth of formulations and bulk drugs.
85% of these formulations were sold in Indiawhile over 60% of the bulk drugs were exported, mostly to the United States andRussia. Most of the players in the market are small-to-medium enterprises; 250of the largest companies control 70% of the Indian market. Majorplayers in pharma Industries are .4 SUN PHARMA: 1. It has 48 manufacturing facilitiesacross five continents and employs more than 30,0000 people as on FY162.
Nearly 74 per cent of its salescame from international markets in 20163. Revenues of Sun Pharmaincreased from USD932 million in FY09 to USD 4.2 billion in FY16, witnessinggrowth at a CAGR of 24.
16 per cent over FY09-164. In March 2015, Sun Pharmacompleted the acquisition of Ranbaxy Laboratories Ltd to become the fifthlargest global specialty pharma company, No 1 pharma company in India, andensure a strong positioning in emerging markets.5. The company reported net profitof USD 335.8 million for the period July2016 – September 2016 DR REDDY’S1.
The company’s revenues increased from USD1.5 billion in FY09 toUSD2.4 billion in FY16, at a CAGR of 6.
84 per cent over FY09-162. Global generics comprised over 81 per cent of its revenue mix inFY15 3. Dr Reddy’s is investing heavily on R&D to differentiate itselfin the market. In FY15 – 16 Dr Reddy’s spent around 13.8 per cent of sales onR4.
The company’s revenues increased from USD1.5 billion in FY09 toUSD2.4 billion in FY16, at a CAGR of 6.
84 per cent over FY09-165. Dr Reddy’s has access to numerous emerging markets throughpartnerships with GlaxoSmithKline (GSK)LUPIN:1. Its revenues increased from USD822.5 million in FY09 to USD2.1billion in FY16, witnessing growthat a CAGR of 14.3 per cent over FY09-16.2.
Its revenues increased from USD822.5 million in FY09 to USD2.1billion in FY16, witnessing growth at a CAGR of 14.
3 per cent over FY09-16.3. In February 2017, Lupin has received the final approval from USFDAto market potassium sulfate, sodium sulfate & magnesium sulfate oralsolutions, which are used to treat a form of cancer.
4. Lupin is a renowned pharma player producing a wide range of quality,affordable generic and branded formulations and APIs. PORTER’S FIVE FORCES ANALYSIS: Competitive Rivalry: Growthopportunities for pharma companies are expected to grow in next few years, withmany drugs going off-patent in the US and other countries, thus increasingcompetition • Indian pharma companies will face competition from big pharmacompanies, backed by huge financial muscle.Threats of new Entrants: Strictgovernment regulations strict entry of new players.
Also difficult to survivebecause of high gestation period.Substitute Products:Threat tosubstitute products is low; however, homeopathy and Ayurvedic medicines can actas substitute.Bargaining Power of Suppliers:Difficult-to-manufactureAPIs such as steroids, sex hormones and peptides give bargaining power tosuppliers. However, generic APIs do not have much of that power.Bargaining Power of Customers:Genericdrugs offer a cost effective alternative to drugs innovators and significantsavings to customers.
Bio similar offer significant cost saving for insurancecompanies in India