INDIAN PHARMACEUTICAL INDUSTRY

The Indian Pharmaceuticals sector has come a long way, being almost non-existing during 1970,
to a prominent provider of health care products, meeting almost 95% of country’s
pharmaceutical needs. The domestic pharmaceutical output has increased at a compound growth
rate (CAGR) of 13.7% per annum. Currently the Indian pharma industry is valued at
approximately $ 8.0 billion. Globally, the Indian industry ranks 4 th in terms of volume and 13th in
terms of value. Indian pharmaceuticals industry has over 20,000 units. Around 260 constitute the
organized sector, while others exist in the small scale sector.
The pharmaceutical industry in India is going through a major shift in its business model in the
last few years in order to get ready for a product patent regime from 2005 onwards.
This shift in the model has become necessary due to the earlier process patent regime put in
place since 1972 by the Government of India. This was done deliberately to promote and
encourage the domestic health care industry in producing cheap and affordable drugs. As prior to
this the Indian pharmaceutical sector was completely dominated by multinational companies
(MNCs). These firms imported most of the bulk drugs (the active pharmaceutical ingredients)
from their parent companies abroad and sold the formulations (the end products in the form of
tablets and capsules, syrups etc.) at prices unaffordable for a majority of the Indian population.

The Indian Pharmaceutical Industry today is in the front rank of India’s science-based
industries with wide ranging capabilities in the complex field of drug manufacture and
technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5
billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of
technology, quality and range of medicines manufactured. From simple headache pills to
sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now
made indigenously.
Playing a key role in promoting and sustaining development in the vital field of medicines,
Indian Pharma Industry boasts of quality producers and many units approved by regulatory
authorities in USA and UK. International companies associated with this sector have stimulated,
assisted and spearheaded this dynamic development in the past 53 years and helped to put India
on the pharmaceutical map of the world.

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It
has expanded drastically in the last two decades. The leading 250 pharmaceutical companies
control 70% of the market with market leader holding nearly 7% of the market share. It is an
extremely fragmented market with severe price competition and government price control.

The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs,
drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and
injectibles. There are about 250 large units and about 8000 Small Scale Units, which form the
core of the pharmaceutical industry in India (including 5 Central Public Sector Units). These
units produce the complete range of pharmaceutical formulations, i.e., medicines ready for
consumption by patients and about 350 bulk drugs, i.e., chemicals having therapeutic value and
usedused for production of pharmaceutical formulations.

Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the
drugs and pharmaceutical products has been done away with. Manufacturers are free to produce
any drug duly approved by the Drug Control Authority. Technologically strong and totally self-
reliant, the pharmaceutical industry in India has low costs of production, low R&D costs,
innovative scientific manpower, strength of national laboratories and an increasing balance of
trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities,
supported by Intellectual Property Protection regime is well set to take on the international
market.
Indian pharmaceutical industry is undergoing fast paced changes. The Indian Generics market is
witnessing rapid growth opening up immense opportunities for firms. This is further triggered by
the fact that generics worth over $40 billion are going off patent in the coming few years which
is close to 15% of the total prescription market of the US. The Indian pharmaceutical companies
have been doing extremely well in developed markets such as US and Europe, notable among
these being Ranbaxy, Dr. Reddy’s Labs, Wockhardt, Cipla, Nicholas Piramal and Lupin. The
companies have their strategies in place to leverage opportunities and appropriate values existing
in formulations, bulk drugs, generics, Novel Drug Delivery Systems, New Chemical Entities,
Biotechnology etc. The industry ranks fourth globally in terms of volume and in terms of value,
it is ranked thirteenth. The industry has thrived so far on reverse engineering skills exploiting the
lack of process patent in the country. This has resulted in the Indian pharmaceutical players
offering their products at some of the lowest prices in the world. The quality of the products is
reflected in the fact that India has the highest number of manufacturing plants approved by US
FDA, which is next only to that in the US. Multinational companies have traditionally dominated
the industry, which is another trend seeing a reversal. Currently, it is the Indian companies which
are dominating the marketplace with the local players dominating a number of key therapeutic
segments. The market is also very fragmented with about 30,000 entities and the organized
sector consisting of about 300 entities. Consolidation is increasing in the industry with many
local players building a global outlook and also growing inorganically through mergers and
acquisitions.
The Key to success in this industry is research & development. R&D is the starting of the
industry value chain and is also the most important value creator. Companies that involve in
R&D do so in specific areas. They chose specific therapeutic areas to target based on their
strengths in the market, and the commercial potential.
This led to a revision of Government of India’s (GOI) policy towards this industry in 1972
allowing Indian firms to reverse engineer the patented drugs and produce them using a different
process that was not under patent. The entry of MNC’s was also discouraged by restricting
foreign equity to 40%. The licensing policy was also biased towards indigenous firms and firms
with lesser foreign equity1. All these measures by GOI laid foundations to a strong
manufacturing base for bulk drugs and formulations and accelerated the growth in the Indian
Pharmaceutical Industry (IPI), which today consists of more than 20,000 players1. As a result the
Indian pharmaceutical industry today not only meets the domestic requirement but has started
exporting bulk drugs as well as formulations to the international market.
Currently the main activities of Indian pharmaceutical industry are broadly restricted to
producing
(i) Bulk drugs and (ii) formulations with very few companies risking investing in primary
research aimed at developing and patenting new drugs. The bulk drug business is essentially a
commodity business, where as the formulation business is primarily a market driven and brand
oriented business. Multinational companies which have entered the Indian market have mostly
restricted themselves to formulation segment till date. The domestic pharmaceutical industry
(MNC’s and Domestic) meets about 90% of the country’s bulk drug requirement and almost the
entire demand for formulations2. The economics of bulk drug business and that of formulation
business are quite different. Since a majority of the Indian companies are producing both bulk as
well as formulations, these are considered together for the purpose of the present study.
Market Share of MNCs & Local Companies

The exports constitute almost 40% of the total production of pharmaceuticals in India. India’s
pharmaceutical exports are to the tune of $3.5bn currently, of which formulations contribute
nearly 55% and the rest 45% comes from bulk drugs.
The export revenue now contributes almost half of the total revenue for the top 3 pharma majors:
Dr Reddy’s, Ranbaxy and Cipla. The other major exporters are Wockhardt Limited, Sun
Pharmaceutical Industries Ltd. and Lupin Laboratories. The formulations and exports are largely
to developing nations in CIS, South East Asia, Africa, and Latin America. In the last 3 years
generic exports to developed countries have picked up.
POST 2005 SCENARIO
By issuing the patent ordinance, India met a WTO commitment to recognize foreign product
patents from January 1, 2005, the culmination of a 10-year process. In this new scenario, the
Indian pharmaceutical manufacturers won’t be able to manufacture patented drugs.

To adapt to this new patent regime, the industry is exploring business models, different from the
existing traditional ones.

New Business Models include:

• Contract research (drug discovery and clinical trials)

• Contract manufacturing
• Co-marketing alliances
 ADVANTAGE INDIA
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 wide variety of bulk drugs and exports sophisticated bulk drugs.

Legal & Financial Framework: India has a 53 year old democracyand 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 has a 70 million middle class market, which is continuously growing.
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.
THE GROWTH SCENARIO

India's US$ 3.1 billion pharmaceutical industry is growing at the rate of 14 percent per year. It is
one of the largest and most advanced among the developing countries.

Over 20,000 registered pharmaceutical manufacturers exist in the country. The domestic
pharmaceuticals industry output is expected to exceed Rs260 billion in the financial year 2002,
which accounts for merely 1.3% of the global pharmaceutical sector. Of this, bulk drugs will
account for Rs 54 bn (21%) and formulations, the remaining Rs 210 bn (79%). In financial year
2001, imports were Rs 20 bn while exports were Rs87 bn.

STEPS TO STRENGTHEN THE INDUSTRY

Indian companies need to attain the right product-mix for sustained future growth. Core
competencies will play an important role in determining the future of many Indian
pharmaceutical companies in the post product-patent regime after 2005. Indian companies, in an
effort to consolidate their position, will have to increasingly look at merger and acquisition
options of either companies or products. This would help them to offset loss of new product
options, improve their R&D efforts and improve distribution to penetrate markets.
Research and development has always taken the back seat amongst Indian pharmaceutical
companies. In order to stay competitive in the future, Indian companies will have to refocus and
invest heavily in R&D.
 Sector structure/Market size

The Indian pharmaceutical industry is driving product development and breaking new grounds in
medicine research worldwide.

The Indian domestic pharmaceutical market is estimated to be US$ 10.76 billion in 2008 and is expected
to grow at a high compound annual growth rate (CAGR) of 9.9 per cent till 2010 and thereafter at a
CAGR of 9.5 per cent till 2015.

Currently, the Indian pharmaceutical industry is one of the world's largest and most developed, ranking
4th in volume terms and 13th in value terms. The country accounted for 8 per cent of global production
and 2 per cent of world markets in pharmaceuticals.

The Indian pharmaceutical off shoring industry is slated to become a US$ 2.5 billion opportunity by
2012, thanks to lower R&D costs and a high-talent pool in India.

Exports

India exported drugs worth US$ 7.2 billion in 2007-08 to the US and Europe, followed by Central and
Eastern Europe, Latin America and Africa.

A report by industry research firm, RNCOS forecasts that pharmaceutical exports will grow at a CAGR of
18.5 per cent between 2007-08 and 2011-12. This growth will be fuelled by multi-billion dollar patent
expirations and growth in the global generics market.

Pharmaceuticals exports (valued in US dollar terms) registered an impressive growth rate at 30.7 per cent
during April-October 2008 compared to the corresponding period last year.

Growth

India's pharmaceuticals market is expected to grow by about 12-13 per cent in 2009, says a study by
consulting firm IMS.

During February 2009, India's drug retail industry continued its healthy growth recording 13.3 per cent
higher sales over the same month last year.
A recent study by Yes Bank estimates the domestic formulations market to touch US$ 21.5 billion by
2015.

The Indian vaccine market was worth US$ 665 million in 2007-08 and is growing at over 20 per cent.
Exports contribute over US$ 360 million, while the domestic market for vaccines is US$ 300 million.

Rural Market

According to estimates rural areas account for 21 per cent of the country's pharmaceuticals market. In
2006-07, the rural Indian pharmaceuticals market was estimated at around US$ 1.4 billion, having grown
at about 40 per cent in 2006-07 against 21 per cent in the previous year.

Pharmaceutical Retail

India has 5.5 million chemists and druggists, and the organised retail market accounts for just 2 per cent
of the industry but is posting a year-on-year growth of 30-40 per cent. The country's pharmaceutical retail
market is expected to cross the US$ 10 billion mark in 2010 and be worth an estimated US$ 12 billion-
US$ 13 billion by 2012.

Generics

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 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.

Diagnostics Outsourcing/ Clinical Trials

The Indian diagnostics and pathology laboratory business is presently around US$ 864 million and is
growing at a rate of 20 per cent annually.

Moreover, the US$ 200-million Indian clinical research outsourcing market will reach up to US$ 600
million by 2010, according to a joint study done by KPMG and the Confederation of Indian Industry (CII)
in September 2008.
Research & Development

 In a bid to boost R&D in the pharmaceutical sector, the government will provide US$ 422.96
million for establishing six National Institutes of Pharmaceutical Education and Research over
the next five years.
 Biotechnology major, Biocon, will be investing US$ 20.11 million in the next fiscal in enhancing
its R&D.

Government Initiative

The Government has taken various policy initiatives for the pharmaceutical sector

 Government has offered tax-breaks to the pharmaceutical sector. Units are eligible for weighted
tax deduction at 150 per cent for the R&D expenditure incurred.
 Steps have been taken to streamline procedures covering development of new drug molecules,
clinical research etc.
 Government has launched two new schemes—New Millennium Indian Technology Leadership
Initiative and the Drugs and Pharmaceuticals Research Programme—specially targeted at drugs
and pharmaceutical research.

Investment

 According to Ministry of Commerce, domestic investment in the pharmaceutical sector is

estimated at US$ 6.31 billion.
 The drugs and pharmaceuticals sector has attracted FDI worth US$ 1.43 billion from April 2000
to December 2008.

Road Ahead

The Indian pharmaceutical industry will see tremendous growth in the coming years as consumer
spending on healthcare is increasing in India. Consumer spending on healthcare is expected to increase
from 7 per cent of GDP in 2007 to 13 per cent of GDP by 2015.
 Role of Pharmaceutical Industry in India GDP

 The Pharmaceutical Industry in India is one of the largest in the world

 It ranks 4th in the world, pertaining to the volume of sales
 The estimated worth of the Indian Pharmaceutical Industry is US$ 6 billion
 The growth rate of the industry is 13% per year
 Almost most 70% of the domestic demand for bulk drugs is catered by the Indian
Pharma Industry
 The Pharma Industry in India produces around 20% to 24% of the global generic
drugs
 The Indian Pharmaceutical Industry is one of the biggest producers of the active
pharmaceutical ingredients (API) in the international arena
 The Indian Pharma sector leads the science-based industries in the country
 The pharmaceutical sector has the capacity and technology pertaining to complex
drug manufacturing
 Around 40% of the total pharmaceutical produce is exported
 55% of the total exports constitute of formulations and the other 45% comprises of
bulk drugs
 The Indian Pharma Industry includes small scaled, medium scaled, large scaled
players, which totals nearly 300 different companies
 There are several other small units operating in the domestic sector


 Booming Pharma Sector in India

India, a US$ 8.2 Billion pharmaceutical market, represents one of the most emerging
pharmaceutical markets in the world. According to the RNCOS latest report “Booming Pharma
Sector in India”, in near future, the potential and opportunities within this market will increase
by several folds. The market, presently driven by over a billion population, an expanding GDP,
and rapid epidemiological transitions, is expected to be the major player in the global
pharmaceutical market both in terms of its large domestic market and also as a pharmaceutical
export hub.

The research study contains unique market-based research and provides detailed and objective
analysis on the Indian pharmaceutical market. It presents a thorough statistical and analytical
overview on the Indian pharmaceutical market, and provides past, present and future data on the
entire structure, composition and working of the Indian pharmaceutical market. The research
extensively discusses the opportunities and challenges that are expected to arise within and from
the pharmaceutical market.

Research Highlights

Between 2007-08 and 2011-12, the Indian domestic pharmaceutical market is expected to grow
at a CAGR of nearly 16%. The size of the domestic pharmaceutical market is larger than export
market. However, owing to the growth of global generics market, stringent price controls in the
domestic market, and better margins, the export market is growing much faster than the domestic
market. Traditional branded generics presently dominate the Indian pharmaceutical market but
the future will see strong growth in the specialty branded generics and patented drug segments
.Drugs for diabetes and cardiovascular diseases are expected to see the fastest growth among all
therapy areas during 2007-2011.The retail pharmaceutical market in India is presently highly
unorganized; however, a vast opportunity exists for the organized market. Over the last few
years, Cipla, Ranbaxy and GlaxoSmithKline are controlling the top three positions in the Indian
pharmaceutical market.
 India’s top 10 pharma companies

Rank Company Revenue2004 Revenue2008

(Rs crore) (Rs crore)

1 Ranbaxy Laboratories 4,461 25,196

2 Dr. Reddy's Laboratories 1,933 4,162

3 Cipla 1,842 3,763

4 Sun Pharma Industries 1,110 2,463

5 Lupin Labs 1,180 2,215

6 Aurobindo Pharma 1,260 2,080

7 GlaxoSmithKline Pharma 1,228 1,773

8 Cadila Healthcare 1,091 1,613

9 Aventis Pharma 1,005 1,483

10 Ipca Laboratories 980 1,080

 Major players

Ranbaxy Laboratories
Sri S T Kalairaj, Chairman

Ranbaxy is the leader in the Indian pharmaceutical market, taking in $1.174 billion in revenues
for a net profit of $160 million in 2004. It was the first Indian pharmaceutical to have a
proprietary drug (extended-release ciproflaxin, marketed by Bayer) approved by the U.S. FDA,
and the U.S. market accounts for 36% of its sales. 78% of Ranbaxy’s sales are from overseas
markets; its offices in 44 countries manage manufacturing in 7 countries and distribution in over
100.

IMS Health estimated that Ranbaxy is among the top 100 pharmaceuticals in the world and that
it is the 15th fastest growing company. By 2012, Ranbaxy hopes to be one of the top 5 generics
producers in the world, and it consolidated its position with the purchase of French firm RGP
Aventis in 2003. Ranbaxy also has higher aspirations, however, “to build a proprietary
prescription business in the advanced markets.” To this end, it keeps a dedicated research facility
in Gurgaon staffed with over 1100 scientists. They currently have two molecules in Phase II
trials and 3-5 in pre-clinical testing. It spent $75 million in R&D in 2004, a 43% increase over its
2003 expenditure.

CEO Brian Tempest is the only non-Indian on the senior management team.
 Dr. Reddy's Laboratories
K. Anji Reddy, Chairman

Founded in 1984 with $160,000, Dr. Reddy’s was the first Asia-Pacific pharmaceutical outside
of Japan and the sixth Indian company to be listed on the New York Stock Exchange. It earned
$446 million in fiscal year 2005, deriving 66% of this income from the foreign market. In order
to strengthen its global position, Dr. Reddy acquired UK-based BMS Laboratories and subsidiary
Meridian Healthcare.

Although 58% of Dr. Reddy’s revenues come from generic drugs, the company was committed
to WTO-compliance long before the 2005 bill took effect, and most of these products were
already off patent. Dr. Reddy has long been a research-oriented firm, preceding many of its peers
in setting up a New Drug Development Research (NDDR) in 1993 and out-licensing its first
compound just four years later. Dr. Reddy’s has since outlicensed two more molecules and
currently has three others in clinical trials.

Although Dr. Reddy’s is publicly-traded, the Reddy family (including founder/chairman K. Anji
Reddy, son-in-law/CEO GV Prasad and son/COO Satish Reddy) holds a hefty 26% share in the
company.
 Nicholas Piramal
Asish Mishra, Chairman

Now a company grossing $350 million per year, Nicholas Piramal started its existence with the
1988 acquisition of Nicholas Laboratories and grew through a series of mergers, acquisitions and
alliances. The company has formed a name for itself in the field of custom manufacturing. It
cites its 1700-person global sales force as another core strength; with its acquisition of Rhodia’s
inhalation anaesthetics business, Nicholas Piramal gained a sales and marketing network
spanning 90 countries34.

Nicholas Piramal is well-poised for the challenge of surviving in the aftermath of product patent
protection. The company has respected intellectual property rights since its inception and refused
to "support generic companies seeking first-to-file or early-to-market strategies." Instead, it
decided to make its own intellectual property and opened a research facility last November in
Mumbai with hopes of launching its first drug in 2010 at a cost of $100,000.
 Cipla
Dr. Yusuf K. Hamied,

Chairman and Managing Director

Cipla burst into the international consciousness in 2000 with Triomune, an AIDS treatment
costing between $300 and $800 per year that infringed upon patents held by several companies
who were selling the cocktail for $12,000 per year. Long before this news, Cipla had been
building a strong global presence, and it now distributes its 800-odd products in over 140
countries. Privately-held Cipla holds a prominent spot in its home country as well; it is the leader
in domestic sales, having just unseated GlaxoSmithKline for the first time in 28 years. Revenue
in 2004 totaled $552 million (using Rs 43.472 = $1) about 75% of which was derived in India.
Cipla did not report having a research program.

Biocon
Dr. Kiran Mazumdar-Shaw, Chairman and Managing Director

Originally an extension to an Irish chemicals company seeking to break into the Indian market,
Biocon is now the leading biotech in India, bringing in Rs 646.36 crore (almost $150 million) in
revenue for fiscal year 2004. It initially made its money by producing enzymes, but Biocon
recently decided to become a research-oriented company with the goal of bringing a proprietary
new drug to market.

The company went public in March 2004, and "its shares were oversubscribed by 33 times on
opening day." Eight months later it launched Insugen, a bio-insulin that is its first branded
product. Biocon also has two wholly-owned subsidiaries, Syngene and Clinigene, that perform
custom research and clinical trials.
 Serum Institute of India
Dr. Cyrus Poonawalla, Chairman

The Serum Institute of India can make the enviable claim that 2 out of every 3 children in the
world are immunized with one of their vaccines. It is the world’s largest producer of measles and
DTP vaccines, and its portfolio includes other vaccines, antisera, plasma products and anticancer
compounds. The Serum Institute earned Rs 565 crore ($130 million) in revenue in fiscal year
2005, selling mainly to UN agencies and to the Indian government. The Serum Institute is part of
the Poonawalla Group, whose holdings include a horse stud farm and manufacturers of industrial
equipment and components.
 Key Trends in the Pharmaceutical Industry
Recent breakthroughs in genomics and proteomics may be mind-boggling to most. And,
although news reports remind us regularly of the strides pharmaceutical companies are making in
the fight against disease and pain, little is reported about the increasing struggles pharmaceutical
companies face in this fight.

In fact, the pharmaceutical industry is experiencing unparalleled change and challenges. All of
the usual suspects that impact business today are at play: globalization, treatment and pricing
economics, government controls and technology.1 However, in an era of continuing
consolidation, innovation abounds not only in R&D, but also in business models.

Business Innovation is Restructuring the Value Chain

The value chain is restructuring as business innovations are implemented. For example, nearly
half of the health-insured population in the United States now receives pharmacy care from
pharmaceutical benefits managers (PBMs). As a consequence, the mail order channel has grown
dramatically, with supply chain requirements differing from those of the hospital or retail store
channel.

Additionally, drug manufacturers and health care providers are implementing disease
management programs that provide specialized services for a specific disease.2 These programs
allow drug manufacturers to get much closer to the consumer and to better control inventory
levels and, subsequently, demand planning. Companies that choose to ignore or languish in
optimizing their sales and distribution channel strategies may well miss prime opportunities to
develop consumer loyalty and lower-cost-to-serve channels.
 Market Share and Margins are Declining
Declining market share and margins are being experienced for the first time in many years. The
number one culprit is the increased competition from generics. However, price pressures,
shortened new drug exclusivity periods, mergers, acquisitions, consolidation and escalating R&D
costs also play significant roles.3 Overall drug utilization continues to be a source for growth.
However, as competition increases and companies achieve intended globalization, erosion of
market share and margins will have greater and greater impact on profitability. UPS Consulting
anticipates that as the attempts to preserve market share, margin and growth intensify, those
companies that address cost and efficiency structures within their supply chain will be best
positioned to meet Wall Street expectations. In the coming years, pharmaceutical companies that
do not adapt to optimized cost- and business-effective structures will risk survival.

Consumers have Less Access to New Drugs

While it is helpful that consumers are becoming more knowledgeable – due to mass
communications (including advertising), consumer Websites and consumer demand for
information – knowledge is not turning into power. Managed care use of formularies, HMO use
of therapeutic interchange and step-care therapy prevent many consumers from buying drugs of
their choice.2 once formularies and treatment programs are defined, the power rests primarily
with pharmacists, who choose how they will fill prescriptions.

Shifts in treatment and buying decision power will continue to change, requiring more agile,
tiered marketing and nonrevenue product fulfillment. Mass communications and sales processes
that have traditionally focused on educating and building awareness within the medical provider
community will need to anticipate and accommodate power shifts. More recently, large
pharmaceutical companies have started mass marketing to U.S. consumers. However, the
growing limitations of consumer influence may render such programs profitless in the future. As
the focus of control changes, information needs and the needs of various decision makers will
need to be addressed to successfully and profitably launch new products.
 Sales & Marketing
The increasing use of formularies, therapeutic interchange and step-care therapy by managed
care means that sales and marketing efforts should cater to the root of these programs: cost
management in treatment programs.2 Marketing efforts must address the total cost management
needs of both managed care and providers.

Moreover, the time in which sales and marketing has to generate and influence demand is
shrinking due to increased generics competition and shortening exclusivity periods. These
shrinking timeframes and price pressures require that new product marketing and sales methods
continuously address evolving sales channels. Pharmaceutical companies and their partners must
also be able to quickly build differentiating capability in marketing to such sales channels.

For example, with drug manufacturers now marketing directly to consumers – via television in
the United States and via the Internet worldwide – this new sales and marketing channel may
only be appropriate for certain products. The McKinsey Quarterly, 2002 second quarter, stated
that direct-to-consumer (DTC) advertising produced mixed results, and while DTC budgets have
significantly increased, efficacy has not.4 Identifying and evaluating the efficacy of evolving
sales channels should become integral to the commercialization process.

Lastly, the information needs of the consumer are dramatically different from those of managed
care and provider organizations. We believe that retailer and provider direct channels, along with
additional evolving sales channels, also present a whole new cadre of needs. CRM and customer
support will need to be expanded to meet these new categories of need. Although they generate
extra cost, these direct channels also present new opportunities to build loyalty and get closer to
real-time demand.
 Channel Management
As new channels develop, pharmaceutical companies will need to re-evaluate channel strategies.
These new channel opportunities paired with the increasing role of PBMs and disease
management programs could present a ripe-for-picking time to address channel costs and
performance for both nonrevenue and revenue business streams.2

On the nonrevenue side, pharmaceutical companies can investigate the value of alternative
distribution for samples and literature. For example, distributing direct to disease management
programs or leveraging the role of retail pharmacies may provide opportunities to strengthen
retail relationships and gather more accurate demand information.

On the revenue side, shifting to cost- and performance-based channel management can lead to
cost savings, more reliable distribution and improved demand visibility. Drug makers can now
sell direct to retailers and providers through e-marketplaces such as the Worldwide Retail
Exchange and Global Healthcare Exchange.8 Additionally, as PBMs and disease management
programs continue to evolve and mature, drug makers should anticipate their technology and
information needs in order to seek ways to integrate their fulfillment, customer management and
financial processes.
 New Product Development and Rollout
In new product development, highly specialized niche companies are demonstrating that they can
bring innovation faster. With escalating R&D costs, we believe drug manufacturers that leverage
the intellectual property of such companies, as well as facilitate collaborative efforts through
alliances and partnerships, can better manage risk and portfolio profitability. As more parties
participate in the race for innovation, integrating research, development and design efforts will
become a source for competitive advantage. Technology, information sharing and process
integration will become paramount to lowering costs and optimizing intellectual property.

Additionally, once a new product has been developed, the cycle for commercializing that product
and rolling it out must become tighter. With exclusivity periods shortening and generics gaining
higher market share, the time it takes to get product commercialized and demand generated will
directly affect the profitability and life of that product.5 Forrester Research calculates that the
per-day cost in lost sales for a $1 billion drug is $2.74 million.

Regulations and compliance also affect the transition from development to rollout. The FDA
allows new drugs to be marketed in the United States immediately following approval, but
Europe often experiences delays of up to 12 months between drug approval and market
availability.2 Tighter and more intelligent synchronization between production, fulfillment,
marketing and channel networks will enable faster rollouts. Reverse logistics of information and
feedback will need to be considered along with fulfillment and demand generation processes.

Lastly, formula and indication strategy, along with life-cycle management, will need to take
place as part of – not after – new product development. Organizations that assume profitability
from original patent and license expirations could be severely damaged financially by product
innovations from competitors. Pharmaceuticals can no longer depend on patents to guarantee
future product revenue streams. Instead, organizations must be prepared by anticipating
innovation and competition, by designing alternative and extending formulas, researching
alternative indications and obtaining timely regulatory approval for indications and expansion
into other global regions.
Therapeutic Area wise Total Pharma Market

Category Value Market Share%

Anti-Infective 16.4

Gastrointestinal 10.9

Cardiac 10.3

Respiratory 10.2

Vit./Minerals/Nutrient 9.6

Pain/Analgesics 9.5

Dermatologic 5.4

Gynecology 5.3

Neuropsychiatry 5.3

Antidiabetics 4.4

Opthologicals 1.7

Others 11.0

Total 100.00
 CVS
8% OTHERS
15%
DIABETES
3%
ANTI INF.
24% RESP.
10%

CNS
GI 5%
12%
NUTRA. NSAIDS
14% 9%

year 2010

CVS OTHERS
18% 12% DIABETES
3%
RESP.
7%
ANTI INF. CNS
16% 8%

NSAIDS
11%
GI
13% NUTRA.
12%

Figure 2 presents market share of top therapeutic segment in the year 2001 with projection
made for year 2010
 Business Model and Strategies
One of the repeated mantras of pharmaceutical company strategy over the past decade has
been increasing scale Companies can only afford the considerable costs of drug development
and distribution by growing larger. This is well summarized in the Price Waterhouse Coopers
report Analysis and Opinions on M&A Activity (Price Waterhouse Coopers, 1999). The three
observed business models from this broad strategy are:

1. Blockbuster model involving the discovery and distribution of a small number of

drugs that achieve substantial global sales (usually in excess of $1 billion). The
success of this model depends on achieving large returns from a small number of
drugs in order to pay for the high cost of the drug discovery and development
process for a large number of candidates.

2. Diversification model in which a larger number of drugs are marketed to smaller

niche markets. The success of this model is not dependent on sales of a small
number of drugs. However, the model only works for small markets where
distribution costs are low, particularly without a blockbuster to help pay for the
high development costs.

3. Intermediate model with some combination of (I) and (II).Industry analysts have
recognized the blockbuster model as the dominant model (Mercer Management
Consulting, 2001). However interest in alternative models is growing as
consideration is being given to the marketing of biotech drugs with smaller
markets and higher treatment costs and the expectation of more personalized
medicine.

The primary strategy of the big established pharmaceutical companies has been to
increase scale through mergers and acquisitions. By building scale, the latter stages of
their product pipelines have at least a handful of highly prospective blockbuster drugs.
Scale also offered the capacity to both fund in-house research and draw in external
research through a variety of licensing arrangements and alliances. Since the number of
New Chemical Entities (NCEs) at the latter stage is so small and returns are so
uncertain these solutions may last a very short duration. The gaps in the pipeline,
expiration of existing blockbuster patents, and the failure of the expected blockbusters
are producing another round of Merger & Acquisitions. The expected growth rates by
the financial markets to sustain current valuations require a significant and questionable
expansion in the number of new large selling drugs. Another strategy has been for
pharmaceutical companies to diversify their business activities into lower risk activities.
For example, Merck went into Medco or Johnson & Johnson expanded into household
health products. As Merck recently spun off its Medco unit, it is not clear that the
financial markets have rewarded this strategy.

Another diversification strategy is to focus on a comparatively large number of niche

market drugs rather than blockbusters. A number of European companies have followed
this strategy. While their total sales of Pharmaceuticals place them in the top rank of
pharmaceutical companies they have only one or two blockbuster drugs. This
diversification strategy lessens dependence on the discovery of new blockbusters, but
development and marketing costs need to be minimized for the smaller markets to be
profitable On the other hand, some biotech firms used a discovery breakthrough to
develop a blockbuster of their own, and eventually succeeded in marketing through an
alliance with a global pharmaceutical company. In some instances, biotech firms also
have funded independent drug discovery through direct access to the venture capital
market. In other cases, large pharmaceutical companies through alliances and licensing
have supported their research. Very small number of biotech companies rose to the top
ranks from a single successful blockbuster drug. On the other 3hand, many biotech
companies fail to realize these goals and become contract research organizations or go
out of business. There is a strong need for alternate business models due to the
instability and un sustainability of current pharmaceutical business strategies and
structure. Details of the blockbuster model are presented below.

The Blockbuster Business Model

Due to its complex and uncertain nature of drug development and distribution system,
the industry’s economics call for few high selling drugs to mitigate the risks and
enhance the profitability. Figure 2 presents the 10 largest global Pharmaceutical
companies by sales of pharmaceuticals for 2002 together with total sales of those drugs
with global sales exceeding $US1 billion (‘blockbuster’). There are only 40 blockbusters
highly concentrated with the three largest companies representing on average 41% of
pharmaceutical sales of these comp

GSK
Novartis
Aventis
Eli Lily
Wyeth-Ayerst
Pharmacia
J&J
AstraZeneca
BMS
Merck
Pfizer

0 10,000 20,000 30,000 40,000 50,000 60,000

Figure 2 Blockbuster sales by major pharmaceutical companies (Credit Suisse

First Boston, 2008)

The blockbuster model requires that the later stages of the development pipeline always
contain drugs of blockbuster potential. This also requires a consistent and dedicated
approach to drug R&D with considerable in house research expertise and successfully
utilizing public domain research or using various alliance strategies and licensing
arrangements to bring prospective drugs into the later stage drug development. The risk
involved in this strategy is that there may not be new blockbusters to replace those
losing patent protection since the number of blockbuster drugs at any point in time is
relatively small. Some companies failed to invest adequately in the pipeline resulting in
lack of blockbusters to keep sales growing as in the case (Gambardella, 1995) of
SmithKline, which failed to reinvest the proceeds of its Tag a met success in upstream
research, and it was forced to merge with Beecham in 1989. Some companies have
combined mutually supportive capabilities such as the ability to develop valuable drug
development pipeline and a strong sales and distribution infrastructure as in the case of
the merged company AstraZeneca – Astra with the blockbuster drug Losec and Zeneca
with the financial strength and scale to under write further R&D. The blockbuster model
requires cost improvements in the developmental costs to reduce the uncertainty in the
model. In 1990s, Ely Lilly's efforts to improve in efficiency of its drug development
pipeline for its blockbuster drugs through quality, speed and value (QSV) concept. Lilly
emphasized to improve speed to market, leveraging existing products and establishing
a global and focused therapeutic area presence. Their focused activities and more
disciplined approach of the drug discovery and development process (Burgleman,
Maidique and Wheelwright, 2001)

Resulted in a remarkable performance in share price. Despite these improvements, the

cost of R&D per drug has climbed exponentially over the last 30 years (Grabowski and
Vernon, 1994). Recent estimates put the cost of R&D per drug at $802M whereas the
equivalent study conducted 10 years previously and adjusted to 2000 dollars put the
cost at $318M (Di Masi, 2001). Consolidations in the industry increase the risks in the
blockbuster model and uncertainty of the economics of new drug development. It is
difficult to achieve stable and predictable returns when fewer blockbusters are
replenished in the portfolio while facing the constantly emerging competition from
follower drugs. The industry data shows that the follower drug competition has cut
market exc lucidity from 4 years in the 1980s to less than 1 year in the 1990s
(Pharmaceutical Research and Manufacturers of America, 2001). From the lessons
learned from the other industries such as automotive, chemical, and personal care
industries the pharmaceutical industry need to leverage its value chain to gain
efficiencies in supply chain costs.

2.2 Operational Model and Supply Chain Management

 In the changing pharmaceutical landscape, all the supply chain components need to
gain efficiency in order to sustain the growth and profitability of the past performance.
Recent market withdrawals of products in COX-2inhibitors and regulatory
disappointments of several promising drugs, big pharmaceutical companies that
continue to reply on old investment and commercialization model based on the
blockbuster drugs will face the challenge of shifting the drug development to specialty
products. About 75 of the new chemical entities (NCEs) entering the market are
specialty products and/or biologics produced by the small to medium size biotech
companies. The challenge of being profitable through smaller chemical entities needs to
be managed by developing more niche products either internally or through
partnerships. One element of this new model, as learnt from the other industries such
as the specialty chemicals and personal care is the cost and resource management.
Efficiencies need to be gained in minimizing the costs and resources until these
products have large growth potential. Timing is also an important factor in bringing
these products into the market as quickly as possible

Regulations

Drug Clinical Formulation Marketing Distribution

Discovery Development & Manufacture & Sales
 SUPPLIERS

Figure 3 Pharmaceutical Supply Chain

Figure 3 presents the pharmaceutical supply chain, which integrates the processes from
drug discovery tom distribution to create value for the patents. Drug discovery and
clinical development can be enhanced in this supply chain by leveraging the technology.
Currently, the process is very lengthy, labor-intensive and highly regulated. The legacy
IT systems and multiple, disparate data sources that are resident internally and
externally in many companies is hampering the improvement in this are a .Marketing
and sales is another area where scale delivers clear advantage. Sales per
representative typically rise allocated for marketing, where as less than 20% for R&D.
Any efficiencies gained in this area of supply chain can have a major impact on
company value. A survey of US pharmaceutical companies suggests that marketing and
sales capability accounts for 42% of the variation in financial performance (George and
Perone, 2001 and Blumberg and Perone, 2001). Most of the new blockbuster drugs are
launched with a comprehensive and expensive global marketing campaign that involves
the full range of marketing tools including media advertising, comprehensive information
packs, special events for doctors, conference presentations, dedicated sales forces and
the Internet. Sales and distribution activities in the supply chain is emerging as a major
issue for pharmaceutical companies. Traditionally in the US, clinical settings (hospital,
in-patient facilities) have accounted for about 25% of pharmaceutical sales while the
remainder have been distributed through various wholesale and retail channels.

Typically the manufacturer sold the drugs to a wholesaler which distributed the drug to
retail pharmacies. In this relationship the doctor, who has been the focus of marketing
campaigns, had an unrestricted ability to prescribe drugs as he saw fit. Traditionally
marketing to physicians involves sending more sales reps to the doctors with each new
drug launched. Accordingly, the number of sales reps has been rising rapidly, at 20%,
compared with Drug Discovery Clinical Development

Formulation& Manufacture& Sales Distribution SUPPLIERS REGULATIONS Physicians

at only 3%. Pharmaceutical companies are seeking ways around the doctor channel
such as direct-to customer (DTC) and various forms of the Internet delivery.

3.1 Emerging Business Models and Strategies

In order to prepare for the future, integrated pharmaceuticals companies have a variety
of strategic alternatives to position themselves in the future market. They can leverage
the value chain and recapture the value like the personal care and chemical industries
have done in the 1990’s (Chitra, 1999 and 2000). They can concentrate on individual
slices of the integrated value chain, such as cardiology, urology or CNS. Another option
is to focus on individual functions of the value chain such as lead identification, drug
development, production or marketing &

sales. Finally, integrated firms can continue to follow the current strategy of acquire and
integrate the newly acquired companies into current organizational structures with
elimination of redundancy. The primary strategic alternative is to concentrate on
integrated slices of the value chain. This will require companies to separate their
existing business structures into multiple fully integrated organizations focusing on
specific segments or markets with focus on market orientation from process orientation.
The responsibility lies with individual organizations for research, development,
production and marketing and sales. Resources can be obtained from internal service
providers (e.g., central headquarters) or external service firms based on competitive
pricing. A secondary strategic alternative for large integrated pharmaceutical companies
is to focus on the individual functions of the supply chain or the individual segments of
the value chain, which provide a clear sustainable benefit to profitability. Companies
must decide regarding which functions the firm should retain internally, which functions
the firm should source to outside partners and which technologies the company will
need to retain and grow. In addition the companies develop strategies to select and
orchestrate synergistic partners. As a result of this strategy, value chain segments can
be separated into independent units, which can be divested or maintained as profit
centers. The final strategic alternative, acquire and integrate smaller firms, is the current
strategy followed by the industry. An example of this strategy is the acquisition of
Viceroy Pharmaceuticals by Pfizer recently. However, this strategy becomes
increasingly competitive and difficult as the industry continues to consolidate. Sooner it
will

Become hard to follow this strategy as the few remaining firms will be too large acquire
to maintain the current growth. Just like in the other industries such as oil and chemical
industries, the integrated firms will begin to yield to the specialists of one segment or a
function. Already, the market is beginning to reward the segment and market specialists
as shown in Figure 5. The current blockbuster model is very risky, expensive and time
and resource intensive. The alternative to the blockbuster model is to consider the other
options used by the biotech companies and the generic drug manufacturers. The
approach of some smaller biotech companies is to focus on specialty products and/or
biologics. In 1996, 25% of the NDAs targeted specialty products and 75% targeted the
primary care products. But in 2003, the trend is the reverse with 75% for the specialties
and 25% for the primary care. This approach can reduce the risk compared to the
current blockbuster model, since these NCEs are targeted for very specific target
patient populations. But the drug development cost is very high and time to market
these drugs is still very long.

90
80
70
60
50 Market
Specialists
40 Functional Specialists
30 Integrated
Companies
20 Column1
10
0

Building Supply Chain Capabilities in the Pharmaceutical Industry

SWOT Analysis
Strengths
• Cost Competitiveness
• Well Developed Industry with Strong Manufacturing Base
• Access to pool of highly trained scientists, both in India and abroad.
• Strong marketing and distribution network
• Rich Biodiversity
• Competencies in Chemistry and process development.
Weaknesses

• Low investments in innovative R&D and lack of resources to compete with MNCs
for New Drug Discovery Research and to commercialize molecules on a
worldwide basis.

• Lack of strong linkages between industry and academia.

• Low medical expenditure and healthcare spend in the country

• Production of spurious and low quality drugs tarnishes the image of industry at
Home and abroad.

• Shortage of medicines containing psychotropic substances. There are 4000 such

brands of medicines that fall under the Narcotics Drugs and Psychotropic
Substances (NDPS) Act, 1985.Under a clause of this Act, the retailer has to sign
the consignment note provided by the stockist. The police check this note
regularly to prevent these medicines getting diverted to the drug mafia and they
can arrest the retailer if the signatures are under suspect. To protest against this
clause, the retailers have stopped stocking these medicines, some of which is life
saving.

Opportunities

• Significant export potential.

• Licensing deals with MNCs for NCEs and NDDS.
• Marketing alliances to sell MNC products in domestic market.
• Contract manufacturing arrangements with MNCs
• Potential for developing India as a centre for international clinical trials
• Niche player in global pharmaceutical R&D.
• Supply of generic drugs to developed markets.
Threats
 Product patent regime poses serious challenge to domestic industry unless it
invests in research and development
 R&D efforts of Indian pharmaceutical companies hampered by lack of enabling
regulatory requirement. For instance, restrictions on animal testing outdated
patent office.
 Drug Price Control Order puts unrealistic ceilings on product prices and
profitability and prevents pharmaceutical companies from generating investible
surplus.
 Lowering of tariff protection
 The new MRP based excise duty regime threatens the existence of many small
scale pharma units, especially in the states of Andhra Pradesh and Maharashtra,
that were involved in contract manufacturing for the larger, established players.
These companies are now shifting their manufacturing from these states to states like J&K that
enjoy tax holidays.
 Company profile
Somoter remedies is a pharmaceutical company headquartered in India. The company strong
portfolio of businesses, geographies and products gives us an edge in an increasingly competitive
Indian market and allows us to provide affordable medication to people across the country,
regardless of geographic and socio-economic barriers.

SOMOTER REMEDIES PHARMACEUTICAL PVT. LTD.:

Somoter remedies pharmaceutical pvt. Ltd was founded in the year 2008 with a clear mission to
improve human health by offering quality Pharmaceuticals so much vital to the society today.
We at P.I.L.act as -Catalyst’ in bringing world class products to the companies customers. We
identify market needs & work to achieve competative advantage in the market place for the
companies customers, by offering high quality APls & their formulation at affordable rates.

SRP’s DOMESTIC OPERATION:

Primarily the company range of products is being promoted widely in & around highly
developed & matured market of Delhi city. The company products. Sales are scaling exponential
growth rate solely due to the acceptance at Doctor’s level as well as product quality. Currently
the company’s product basket contains about 15 product & we envisage to’ add additional 40 -
50 products by the end of 2010. The Company’s core strengths are antibiotics & injectables and
this is all due to the company strengths in Antibiotics APIs.

In the very near future the company Product range shall cover practically all the Therapeutic
areas.

MANUFACTURING & QUALITY CONTROL:

At Somoter Remedies we practice W.H.O., CGMP standards of manufacturing procedures

complemented with W.H.O standard procedures for PRODUCT STEVEDORING. This standard
of products stevec’oring ensures ultimate quality standards both for the company range of APls
as well as formulat
 Company product

 SOMOFLOX (TABLET)

 SOMCAL (TABLET)

 OCN-PLUS (TABLET)

 SOMOKOF (COUGH SYRUP)

 SOMOFIX (SUSPENTION)
 RESEARCH METHODOLOGY
Research is defined as human activity based on intellectual application in the investigation of
matter. The primary purpose for applied research is discovering, interpreting, and the
development of methods and systems for the advancement of human knowledge on a wide
variety of scientific matters of our world and the universe.

Research process

Define the research problem and its

objectives

Review concepts and theories

Research design including sample design

Collection of data survey

Analysis of data

Interpretation and report writing

 RESEARCH DESIGN

The objective of the study gives a clear indication about the nature of the study. Market survey is
one of the best examples of descriptive research. This is a one shot research study at a given
point of time, and consists of a sample of the population of interest. Its advantages are that it
gives a good overall picture of the position at a given time. It can cover many variables of
interest, and is not affected by the movements of elements in the sample, because other elements
can be substituted for them.

The research consisted of two stages.

Data Collection
Two types of data were required for the purpose of a descriptive research primary and
secondary. Both primary and secondary data were collected for meeting the objective of the
research using the following methods:-

Primary sources
The basic requirement of the study was to determine the perspective customer and
experience of the respondent. The sample for the research includes different individuals of
various age groups and having different professions and qualifications. Data was collected
through the interview of doctor. The questionnaire was containing questions regarding the
personal details of individuals and then some light questions regarding their knowledge related to
pharma companies.

For the purpose of primary data collection questionnaire is used.

 The primary source of data was interviews conducted as part of the survey.
 The sample size for the survey was 30.
 Data was collected through discussions with the doctor .
Data collection methods

 Questionnaire.

Secondary sources
Secondary data provides a lot of information for understanding the factors underlying the
study. This mainly provided information about the pharma sector. These helped in gaining
knowledge about the industry. For the purpose of collecting secondary data, a perusal of
secondary sources of information had been conducted. The sources of secondary data comprised
of magazines, newspaper, journals, studies conducted in the past, concerned websites etc.

SAMPLE DESIGN

The population for the study was spread over a large geographical area and due to the
time constraint, conducting a census survey was not possible. So a sample of respondent was
selected from the whole population. Sample design consisting of following factors was prepared
for the purpose of the study ---

Population

All the doctor are selected from NCR region.

Sample size

A sample size of 30 respondents was considered appropriate for the purpose of the study.
These respondents are the doctor.

Sampling Procedure

Contact Method: personal meetings

Sampling technique

All the respondents were not willing to share information. So all the respondent who are
easily accessible and willing to share the information were administered the structured
questionnaire to get the desirable information. These respondents were selected randomly on the
basis of convenience of the research. Convenience sampling has been used for collection of data.

Sample composition:
 Government doctor
 Private doctor

Sampling area: Delhi & NCR

Sample survey was done, in which questionnaires were made and filled up by various doctor in
different geographical areas in Delhi & NCR in order to gauge their general opinion about
pharmaceutical companies, Maxycon’s offerings, their views on the visibility of company’s
products & suggestions for the improvement of awareness of Maxycon pharmaceutical.

Then in the last stage all information gathered was analyzed and the areas in which maxycon was
lacking were identified. The recommendations were given as per the findings of the project.