INDUSTRY ANALYSIS

       PHARMA INDUSTRY

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Himanshu Maheshwari         Kavita Kulkarni

80303170060                           Faculty Guide –NMIMS
Hyderabad

 

 

 

 

 

 

 

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 Pharma
Industry develops, manufacture, and markets drugs licensed for use as medicines.
For this they have a well-equipped Research and Development department. Pharma
companies are allowed to deal in generic and/or brand medicines and medical
devices. They deals with variety of laws and regulations of the government
regarding the patenting, testing, pricing and ensuring safety and adequacy and
marketing of drugs. The Indian Pharma industry is the second-largest in the
world by volume and is ahead to manufacturing sector of India. The first pharma
company of India was Bengal Chemicals and Pharma Works, which still exists
today as one of 5 government-owned drug manufacturers, in Calcutta in the year
1930. For the next 60 years, most of the drugs in India were imported by
multinationals either in fully formulated or bulk form. The government started
to encourage the growth of drug manufacturing by Indian companies in the early
1960s, and due to the Patents Act in 1970, the industry got an opportunity to
grow. This patent act removed composition patents from food and drugs, and
though it kept process patents, these were shortened to a period of five to
seven years. The lack of patent protection made the Indian market undesirable
to the multinational companies who had dominated the market, and while they
streamed out, Indian companies started to take their places. The multinationals
were market leaders at that time because of their superior technology. As a
result of this, they had gained expertise in reverse-engineering new processes
for manufacturing drugs at low costs. Although some of the larger companies
have taken small steps towards drug innovation, the industry as a whole has
been following this business model until the present. Introduction to Pharma
Industry 28 Research and Development Drug discovery is the process by which the
required drugs are discovered or designed. In the past most drugs have been
discovered either by isolating the active ingredient from traditional remedies
or by serendipitous discovery. A great deal of early-stage drug discovery has
traditionally been carried out by universities and research institutions. All
this requires constant innovation and research by either the traditional or
modern methods, or a combination of both. Drug development refers to activities
undertaken after a compound is identified as a potential drug in order to
establish its suitability as a medicines. Objectives of drug development are to
determine 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 late
stage development has made it a historical strength of the larger pharma
companies. Often, large multinational corporations contribute in a broad range
of drug discovery and development, manufacturing and quality control,
marketing, sales, and distribution. On the other hand, smaller organizations
lay emphasis on a specific aspect such as discovering drug candidates or
developing formulations. Often, collaborative agreements between research
organizations and large pharma companies are formed to discover any probability
of new drug.

 

 

Market Size of
Indian Pharma Industry and Its Characteristics

 

 

Indian
pharma sector is estimated to account for 3.1- 3.6 % of the global pharma
industry 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 in
generics. India’s pharma exports stood at US$ 16.84 billion in 2016-17 and are expected to reach US$ 20
billion 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 – Compound
Annual Growth Rate

 

 

The market size is
expected to grow to US$ 55 billion by 2020 and become the 6th largest
pharma market globally by absolute size. Branded generics with nearly 80% of
market share will dominate the pharmas market (in terms of revenues).

 

According to data
from the Ministry of Commerce and Industry, India has out- performed China in pharma
exports with a YoY growth of 11.44% to US$ 12.91 billion in FY 2015-16, on
other 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, secondary
Research

 

Figure 3:
Formulation and Bulk Drugs Export Outlook:

 

 

Source:
CRISIL research; KPMG in India analysis

 

The US Food and Drug
Administration (USFDA) approved 201 in FY 2015-16 drugs of Indian companies,
nearly doubled from 109 in FY 2014-15. India accounts for around 30% (by
volume) and about 10% (value) of US generics market which stood at US$ 70-80
billion in 2015-16.

 

India’s biotechnology industry made of
bio-agriculture, bio-pharmas, bio-services, bio-informatics and bio-industry is
expected 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 and
diagnostics, is the largest sub-sector of biotech contributing nearly 62% of
the total revenues at Rs 12,600 crore ($ 1.88-billion).

 

 

Geographical Clusters: Most of the pharma manufacturing units are concentrated in
Maharashtra and Gujarat. These two states are home for 44% of the pharma
manufacturing units.

 

Source:
Ministry of Skill Development & Entrepreneurship

 

 

Table 1: Geographical
Distribution 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 infrastructure
facilities, enhanced support from small-scale companies, conductive industrial
atmosphere and skills in chemistry, Maharashtra remains an attractive
destination for Pharma companies. The Maharashtra government promotes the
“Centres of Excellence” working on cutting-edge R&D in emerging areas of
technology and life sciences.

 

Figure: Percentage
Distribution of Pharma Companies in Various Regions

Sources:
Department of Pharmas; KPMG in India analysis, ASSOCHAM

On other hand Gujarat
always encourages new investments in the state and employs approximately 52,000
people in this sector.

 

The 5 tax-free states namely Himachal Pradesh, Uttaranchal,
Jammu & Kashmir, Jharkhand and Sikkim are emerging as hot destinations for
Pharma companies. Uttarakhandand Himachal Pradesh (HP) is considered to be
among the fastest growing Pharma hubs in India. Baddi and some other areas in
HP have over 300 manufacturing units. Haridwar, Roorkee, Dehradun and Rudrapur
of Uttarakhand have 200 pharma manufacturing units.

 

Figure:
Manufacturing hotspot for various companies across India

Source:
KPMG in India analysis, IBEF August 2013

 

The investment in the region is reported to be worth an
estimated INR30 billion in recent years. Alembic, Dr. Reddy Lab, Alkem,
Mankind, Torrent, Lupin, Cadila, Indswift Lab, Unichem, Morepen,

 

Klitch, Ranbaxy, Nector, Surya, Cachet, Indchemie, Galpha
are some of the major companies to have established their units in these areas. (Cf. KPMG in India
analysis, IBEF August 2013).

 

 

 

 

 

 

 

 

 

Market Trends of
Indian 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 compound
annual growth rate (CAGR) for the global pharma market of 3-6% in the forecast period of 2013-2017. The US
pharma
market is expected to grow at a rate of 1–4%. As far
as Europe is concerned, the markets of the European Union are expected to
experience 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 show
slower growth than in the previous forecast period.
IMS expects China’s market will
experience a CAGR of 13–16%, between 2013–2017 compared to a
CAGR of 22% during 2008–2012. IMS estimates that the pharma markets of Brazil, India, and Russia may to see a CAGR of
10–13% 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% between
2013–2017 compared to a CAGR of 9% during 2008–2012.Due to reporting purposes,
CAGR forecasts are estimated in constant dollars, and
historical CAGR in actual dollars. 

The influence of emerging
markets in pharma
industry growth is substantially proven by several key projections offered by
IMS. By 2017, 50% of drugs by volume are forecasted
to be in ‘pharmerging’ markets, and the US and Europe each respectively
will account for only 13% of pharma volume by 2017. China will take the lead, and the BRIC
countries (Brazil, Russia, India, and China) will account for 70% of all
‘pharmerging’ market sales by 2017 on a value basis
and strategically will continue to be the reasons of thriving among emerging
markets. Pharma sales in China are estimated to touch $167 billion by
2017, $49 billion in Brazil, $24 billion in India, and $27 billion in Russia.

 

LOCAL TRENDS:

 

 

Government expenditure on
pharma in the country increased from US$14 billion in 2008 to US$ 53 billion in
2016. The expenditure expanded at a CAGR of 18.1 per cent over 2008–16to reach
US$ 53 billion. Under Union Budget 2017-18, new 5,000
postgraduate seats in

medical colleges were
announced by the government, to ensure availability of specialist doctors.
Under Union Budget 2017-18, new 5,000 postgraduate seats in medical colleges
were announced by the government, to ensure
availability of specialist doctors. Medical technology park in Vishakhapatnam,
Andhra Pradesh has already
been set up with an investment of US$ 183.31 million.
States like Himachal Pradesh, Gujarat, Telangana and Maharashtra are showing
interest for making investments in these parks. German technical services provider TUV Rheinland’s Indian subsidiary
has partnered with Andhra Pradesh MedTech Zone(AMTZ) to create an
infrastructure for Electro-Magnetic Interference (EMI/EMC) at an investment of
US$ 12.64 million over a course of four
to five years.

 

 

 

Rising share of government expenditure (US Billion$)

 

Effects of GST on the Healthcare Industry

The passing of the
GST (Goods and
Services Tax) Bill has grabbed the attention across all the industries in the
country. It would benefit most of the sectors and
make the taxation process easier as it will replace a number of different taxes
and duties.

The Indian
Healthcare Industry is now among of the major
sectors with respect to revenue and to employment. As the expenditure on the
Healthcare increases, so do revenues from taxes. Recently, the Government of
India decided for the implementation of GST, which would subsume various taxes
of the complex tax system in the country into one
uniform tax system.

It is expected that
GST would have a constructive effect on the Healthcare Industry particularly
the Pharma sector. It would help the industries by streamlining the taxation
structure since 8 different types of taxes
are imposed on the Pharma Industry today. An amalgamation of all the taxes into one
uniform tax will ease the way of doing business in the country, as well
as minimising the cascading effects of manifold taxes that is applied
to one product. Moreover, GST would also improve the
operational efficiency by rationalising the supply chain that could alone
add 2 percent to the country’s Pharma industry. GST
would help the Pharma companies in rationalising their supply chain; the companies would need to review their strategy and
distribution networks. Furthermore, GST implementation would also enable a flow
of seamless tax credit, improvement the overall compliance create an equal
level playing field for the Pharma companies in the country. The biggest advantage for the
companies would be the reduction in the overall transaction costs with
the withdrawal of CST (Central Sales Tax). GST is also expected to
lower the manufacturing cost.

One more benefit
likely to accrue due to GST is the reduction in the
overall cost of technology. Currently, the technical machinery and equipment
which 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 this
scenario might change. Under GST, duty charged on the import of such equipment
and machinery would be allowed as a credit.

 

 

Market Strucher
of Indian Pharma Industry

 

 

The
number of purely Indian pharma companies is fairly low. Indian pharma industry
is mainly operated as well as controlled by dominant foreign companies having
subsidiaries 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 billion
worth of formulations and bulk drugs. 85% of these formulations were sold in India
while over 60% of the bulk drugs were exported, mostly to the United States and
Russia. Most of the players in the market are small-to-medium enterprises; 250
of the largest companies control 70% of the Indian market.

 

 

Major
players in pharma Industries are

 

 

.4 SUN PHARMA:

 

1.     
It has 48 manufacturing facilities
across five continents and employs more than 30,0000 people as on FY16

2.     
Nearly 74 per cent of its sales
came from international markets in 2016

3.     
Revenues of Sun Pharma
increased from USD932 million in FY09 to USD 4.2 billion in FY16, witnessing
growth at a CAGR of 24.16 per cent over FY09-16

4.     
In March 2015, Sun Pharma
completed the acquisition of Ranbaxy Laboratories Ltd to become the fifth
largest global specialty pharma company, No 1 pharma company in India, and
ensure a strong positioning in emerging markets.

5.     
The company reported net profit
of USD 335.8 million for the period July2016 – September 2016

 

     DR REDDY’S

1.  The company’s revenues increased from USD1.5 billion in FY09 to
USD2.4 billion in FY16, at a CAGR of 6.84 per cent over FY09-16

2.  Global generics comprised over 81 per cent of its revenue mix in
FY15           

3.  Dr Reddy’s is investing heavily on R&D to differentiate itself
in the market. In FY15 – 16 Dr Reddy’s spent around 13.8 per cent of sales on
R

4.  The company’s revenues increased from USD1.5 billion in FY09 to
USD2.4 billion in FY16, at a CAGR of 6.84 per cent over FY09-16

5.  Dr Reddy’s has access to numerous emerging markets through
partnerships with GlaxoSmithKline (GSK)

LUPIN:

1.  Its revenues increased from USD822.5 million in FY09 to USD2.1
billion in FY16,       witnessing growth
at a CAGR of 14.3 per cent over FY09-16.

2.  Its revenues increased from USD822.5 million in FY09 to USD2.1
billion 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 USFDA
to market potassium sulfate, sodium sulfate & magnesium sulfate oral
solutions, 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: Growth
opportunities for pharma companies are expected to grow in next few years, with
many drugs going off-patent in the US and other countries, thus increasing
competition • Indian pharma companies will face competition from big pharma
companies, backed by huge financial muscle.

Threats of new Entrants: Strict
government regulations strict entry of new players. Also difficult to survive
because of high gestation period.

Substitute Products:

Threat to
substitute products is low; however, homeopathy and Ayurvedic medicines can act
as substitute.

Bargaining Power of Suppliers:

Difficult-to-manufacture
APIs such as steroids, sex hormones and peptides give bargaining power to
suppliers. However, generic APIs do not have much of that power.

Bargaining Power of Customers:

Generic
drugs offer a cost effective alternative to drugs innovators and significant
savings to customers. Bio similar offer significant cost saving for insurance
companies in India