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Investing Drug Delivery Industry

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Indian Pharmaceutical Industry: Strategies, Trends and
Opportunities

Description:    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.

                Kinds of Research

                BASIC R&D
                This involves discovering new molecules from scratch. It is highly capital intensive in nature as it
                relies on a great deal of automation. There are only a handful of Indian players that are able to
                conduct some form of basic research (Ranbaxy & DRL), and the top five have announced plans. In
                the drug development process in any pharmaceutical company a typical product takes 7-10 years,
                and $350-500 million internationally but the statistic varies greatly with the disease type.

                PROCESS RESEARCH OR REVERSE ENGINEERING
                This entails research on the process by which the drug is made and making modifications to the
                process. Here a company typically copies the molecule of another company and develops a highly
                cost effective method of producing that molecule. It is much less expensive to conduct since they
                do not need to conduct any discovery research or clinical trials. Till now this has been the focus of
                most Indian players.

                ANALOGUE OR DISCOVERY RESEARCH
                Companies modify an existing molecule or a new one that has not been commercialized after
                accessing international patent databases, to arrive at a new molecule.

                BIOTECHNOLOGY RESEARCH
                It aims at establishing the link between ones genes and the diseases one has and could one day
                determine the best drug for an individual based on ones genetic makeup. Most of these companies
                are however doing reverse engineering in the biotech area, and there is very little basic biotech
                research in India.

                NDDS RESEARCH
                NDDS (New drug delivery system) entails delivering existing drugs in a novel method. Indian
                companies are looking to research NDDS systems to new drugs being developed. This takes 3
            years, at a cost of between US $ 10 and 20 Million. An NDDS could fetch you a patent if it is a new
            concept, and if it is n improvement it could give you market exclusivity for 3 years in the US.

            R&D In India
            The Indian industry has attained cost advantages in process research used for generic drugs &
            value added generics production, which accounts for 60-80 percent of total sales. This cost
            advantage is in the fact that:

            -Most infrastructure facilities are much cheaper in India than in developed countries.

            -Indian scientists can be attracted at much cheaper rates than their US counterparts.

            The more value added basic research methodologies are being pursued by very few players like
            Ranbaxy, Biocon & Dr. Reddys who are willing to take the risk of investing millions in building
            research capabilities and developing molecules. In the absence of product patents Indian
            companies ignored basic research and concentrated their R&D efforts toward producing drugs
            through alternative processes. Consequently, total expenditure on R&D was low (multinational
            pharmaceutical players spend about 13-16% of total sales on R&D).

            Investments made in R&D by the Indian pharmaceutical companies would yield 3-4 molecules a
            year, which is a very small number. There is very little private initiative to invest in R&D. The
            government continues to bear the burden, with industry chipping in with 10% to 12%. This also
            evident in the data of patent granted in the country where the top firms granted patents are mostly
            MNCs. Indian industry instead mastered the art of reverse engineering to gain competitive
            advantage, as the industry structure did not provide incentives to invest in basic research.
            Indian firms have invested very little in R&D in India due to:

            -Lack of Product Patent protection: The delayed adoption of TRIPS in India is cited as the major
            impediment to the possible investment by international companies in India.

            -Inadequate profit base: The price control has squeezed the profit margins making it difficult for
            Indian and international companies to cull out and invest sizable sums in R&D. The profitability of
            Indian companies is also much lower than international levels. The pre-tax profit margin of
            pharmaceutical companies in India is much less than 6% on sales in sharp contrast to the 18%
            profit margins common to international companies.

            CHANGING SCENARIO OF INDIAN R&D

            The acceptance of provisions of the agreement on TRIPS is expected to change the orientation of
            Indian companies towards R & D. Indian companies have started investing in complex R & D
            activities like novel drug delivery system and new drug discovery. The advantages of conducting R
            & D in India are given below.

            -Lower costs: R&D expenditure in India is far lower than in the developed countries. The cost
            differentials are due to lower costs in machinery and human capital. The cost advantages can only
            be exploited if the necessary funds required can be sourced. Following India’s acceptance of the
            provision of Trade Related Intellectual Property Rights (TRIPS) under the GATT agreement,
            investments are expected to start flowing into the area of basic research.

            -Population advantages: A larger population base would facilitate clinical trials for diseases
            especially prevalent in developing countries. Indian R&D efforts could be directed towards infectious
            diseases that are especially prevalent in Asian countries. Such R&D activities will be targeted
            towards segments such as antibiotics, anti-parasitics and other anti-bacterials.



Contents:   Introduction

            Market Size of Indian Pharmaceutical Industry
            Break-up of the Market
            Key Statistics of the Indian Pharmaceutical Industry
            Historical Background
            Market Overview
            Global Pharmaceutical Sector
GLOBAL EXPENDITURE PATTERNS

PHARMACEUTICAL PRODUCTS AS A PERCENTAGE OF HEALTHCARE SPENDING

R&D EXPENDITURES

MANAGED CARE SPENDS

GENERICS GAINING GROUND

BLOCKBUSTER DRUGS

STRUCTURAL CHANGES IN THE INDUSTRY
Characteristics of Indian Pharmaceutical Industry
Market Overview

PROFITABILITY

PATENT REFORMS

IMPLICATIONS OF INDIAN PATENT (AMENDMENTS) ACT, 2005

COST ADVANTAGES

LOCATION

RISKS

TRADITIONAL MEDICINE
Segmentation of the Indian Pharmaceutical Industry

MAJOR THERAPEUTIC SEGMENTS

STRATEGIC GROUPS
Key Emerging Trends
Organised Sector

MULTINATIONAL PHARMACEUTICAL FIRMS

INDIAN PHARMACEUTICAL FIRMS
Unorganised Sector
Collaboration between Indian Firms and Multinationals
Critical Success Factors in the Industry
Research & Development
Production
Marketing, Sales and Distribution
Alliances
Critical Success Factors- Formulations
Critical Success Factors - Bulk Drugs
Post 2005 Critical Success Factors
Critical Success Factors for Indian Companies
Critical Success Factors for Multinationals
Research and Development
Kinds of Research
Bringing Out a Generic Drug
Pharmaceutical R&D Value Chain

R&D CAPABILITIES
R&D In India

CHANGING SCENARIO OF INDIAN R&D

SIGNIFICANT MILESTONES IN LOCAL R&D
Industry Structure
Investments
Exports
Research and Development
Policies and Regulations

INDIAN PATENTS ACT 1970

DPCO (DRUG PRICE CONTROL ORDER) - 1970

GATT AND WTO
Implications of WTO

ON PRICES OF DRUGS

ON R&D
Intellectual Property Rights (IPR)
Changing Scenario of Product Patent Regime
Critic’s View

PRICE ESCALATION

MNC DOMINANCE

R&D EXPENDITURE

TECHNOLOGY
Conclusion
Marketing & Distribution in Indian Pharmaceutical Industry
The Changing External Environment
Porters Five Forces Model
Threat of New Entrants
Intensity of Competition
Threat of Substitutes
Bargaining Power of Buyers
Bargaining Power of Suppliers
Pharmaceutical Outsourcing in India
Industry Drivers

R&D COSTS

PATENTS EXPIRY

NEW OPPORTUNITIES
Pharmaceutical Outsourcing Models

CONTRACT MANUFACTURING

CONTRACT RESEARCH
Clinical Trials Outsourcing

MARKET SIZE

REGULATIONS

CHALLENGES
Future Directions
Future Outlook for the Indian Pharmaceutical Industry
Strategic Options for Indian Firms
Entering Overseas Markets
Alliance Strategies
Patenting Strategies
Biotechnology
Vaccine Strategies
Implications for MNCs
Product Patents
Industry Profitability
Alternative Medicine
Emerging Trends
Key Growth Barriers for the Industry
Consolidation
Bulk Drug Exports
Imports
Policy Recommendations
Indian Medical Equipments Market
Market for Medical Devices
Industry Trends
Key Market Segments
Indian Healthcare Market
Market Overview
Private Sector
Key Players in the Indian Healthcare Industry

APOLLO GROUP

MAX HEALTHCARE

HINDUJA GROUP
Indian Biotechnology Industry
Market Overview

KEY PLAYERS
Projected Market Size of Indian Biotechnology Industry
Industry Growth

BIOPHARMACEUTICALS
Future Developments
Alliances
Indian Bioinformatics Industry

KEY PLAYERS IN THE INDIAN BIOINFORMATICS INDUSTRY
Key Players in the Indian Pharmaceutical Industry
Key Players in the Indian Pharmaceutical Industry
Key Multi National Corporations
Glaxo Smithkline

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Pfizer

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Novartis

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES
Aventis

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Wyeth
INTRODUCTION
PRODUCTS AND SERVICES
Merck
INTRODUCTION

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Key Indian Firms in the Indian Pharmaceutical Industry
Ranbaxy

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Nicholas Piramal India

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Dr. Reddy’s Labs

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Cipla

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Lupin

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

COMPANY STRATEGY

REVENUE BREAK-UP
Wockhardt

INTRODUCTION

BUSINESS MODEL

PRODUCTS AND SERVICES

REVENUE BREAK-UP
Case of a Leading Pharmaceutial Firm: Ranbaxy Laboratories
History
Ranbaxy’s Successful Report Card
Why Has Ranbaxy Been This Successful?
Evolution of Ranbaxy: Time Line Analysis

1970-EARLY 1980S

EARLY 1980S-1994
1994 – 1997
1997 - 1999
POST 1999
Leveraging Mergers & Alliances

RESEARCH AND DEVELOPMENT

ALLIANCES FOR ENTRY INTO US AND EUROPEAN MARKETS

GROWTH OF MARKET SHARE AND PRODUCT PORTFOLIO
Company Acquisitions
Brand Acquisitions
Creating Value through Functional Strategies

MARKETING

RELATIONSHIP MARKETING

CO-MARKETING

SALES STRENGTH

BRAND RECOGNITION
Ranbaxy’s Product Strategy
Ranbaxy’s R&D Strategy
Ranbaxy’s Human Resources Strategy
Information Technology
Revenue Model for a Pharmaceutical Company
Strategic Options for Pharmaceutical Firms

INVEST IN RESEARCH AND DEVELOPMENT CAPABILITIES

GROW A WIDE PRODUCT PORTFOLIO

GROWTH THROUGH MERGERS AND ACQUISITIONS

GROWTH THROUGH BRAND ACQUISITION

GROWTH THROUGH LICENSING AGREEMENTS

CO MARKETING AGREEMENT WITH COMPETITORS

REMAIN A GENERICS PLAYER
How to Build Sustainable Competitive Advantage

PRODUCT PORTFOLIO MANAGEMENT

INTEGRATED HEALTHCARE COMPANY

DISTRIBUTION

DISEASE MANAGEMENT/ SERVICE PROVIDER

CLINICAL TEST CENTRES

HEALTHCARE FUNDING SYSTEMS

RE-ENGINEERING

OUTSOURCING SERVICES
Case of a Leading Pharmaceutial Firm: Dr Reddys Labs
Company Background
Branded Generics
International Marketing
People Management
Research & Development
Future

RESEARCH & DEVELOPMENT

FUTURE

LIST OF TABLES
TABLE 1: KEY PHARMACEUTICAL COMPANIES IN INDIA
TABLE 2: LEADING THERAPEUTIC SEGMENTS
TABLE 3: MARKET SHARE OF MAJOR THERAPEUTIC SEGMENTS
TABLE 4: LEADING BRANDS IN MAJOR THERAPEUTIC SEGMENTS
TABLE 5: BRAND ACQUISITIONS IN THE INDIAN PHARMACEUTICAL INDUSTRY
TABLE 6: R&D INVESTMENT OF INDIAN PHARMACEUTICAL COMPANIES
TABLE 7: WHERE INDIA STANDS ON PATENTS
TABLE 8: COST OF DRUG DEVELOPMENT
TABLE 9: COMPARISON OF COSTS OF DRUG DEVELOPMENT
TABLE 10: COMPARISON OF COSTS OF DRUG MANUFACTURING
TABLE 11: CLINICAL TRIAL LABORATORIES IN INDIA
TABLE 12: INDIAN MEDICAL EQUIPMENT MARKET SIZE
TABLE 13: INDIAN HEALTHCARE MARKET STATISTICS
            TABLE   14:   LIST OF BIOTECHNOLOGY FIRMS IN INDIA
            TABLE   15:   ALLIANCES BETWEEN INDIAN ENTITIES AND MNC BIOTECHNOLOGY FIRMS
            TABLE   16:   ALLIANCES BETWEEN INDIAN IT AND INDIAN BIOTECHNOLOGY ENTITIES
            TABLE   17:   KEY PLAYERS AND THEIR CHARACTERISTICS
            TABLE   18:   KEY BRANDS OF GLAXO SMITHKLINE IN INDIA
            TABLE   19:   KEY BRANDS OF PFIZER IN INDIA
            TABLE   20:   KEY BRANDS OF NOVARTIS IN INDIA
            TABLE   21:   KEY BRANDS OF AVENTIS IN INDIA
            TABLE   22:   KEY BRANDS OF WYETH IN INDIA
            TABLE   23:   KEY BRANDS OF MERCK IN INDIA
            TABLE   24:   KEY BRANDS OF RANBAXY
            TABLE   25:   KEY BRANDS OF NICHOLAS PIRAMAL
            TABLE   26:   KEY BRANDS OF DR REDDY’S
            TABLE   27:   KEY BRANDS OF CIPLA
            TABLE   28:   KEY BRANDS OF LUPIN
            TABLE   29:   KEY BRANDS OF WOCKHARDT
            TABLE   30:   RANBAXY’S IT INITIATIVES
            TABLE   31:   TYPICAL PRICE DROPS AFTER A DRUG GOES OFF PATENT

            LIST OF FIGURES
            FIGURE 1: MARKET SIZE OF INDIAN PHARMACEUTICAL INDUSTRY
            FIGURE 2: VALUE OF PHARMACEUTICAL EXPORTS
            FIGURE 3: VALUE OF PHARMACEUTICAL IMPORTS
            FIGURE 4: PROJECTED BREAK-UP OF INDIAN PHARMACEUTICAL INDUSTRY
            FIGURE 5: VALUE OF BULK DRUG PRODUCTION IN INDIA
            FIGURE 6: STRATEGIC GROUP MAPPING OF INDIAN PHARMACEUTICAL INDUSTRY
            FIGURE 8: VALUE ADDED BY PHARMACEUTICAL PRODUCTS
            FIGURE 9: EVOLUTION OF KNOWLEDGE BASE OF INDIAN PHARMACEUTICAL INDUSTRY
            FIGURE 10: DISTRIBUTION CHAIN OF PHARMACEUTICAL COMPANIES IN INDIA
            FIGURE 11: PORTER’S 5 FORCES MODEL APPLIED
            FIGURE 12: NEW DRUG APPLICATION REVIEW PROCESS WITH THE U.S. FOOD & DRUG
            ADMINISTRATION
            FIGURE 13: SIZE OF INDIAN CLINICAL TRIALS MARKET
            FIGURE 14: PATENT EXPIRATION BY THERAPEUTIC CATEGORIES
            FIGURE 15: NUMBER OF HOSPITALS IN INDIA
            FIGURE 16: NUMBER OF DISPENSARIES IN INDIA
            FIGURE 17: NUMBER OF PRIMARY HEALTH CENTRES IN INDIA
            FIGURE 18: NUMBER OF HOSPITAL BEDS IN INDIA
            FIGURE 19: NUMBER OF DOCTORS IN INDIA
            FIGURE 20: MARKET SIZE OF INDIAN BIOTECHNOLOGY INDUSTRY
            FIGURE 21: MARKET SIZE OF INDIAN BIOINFORMATICS INDUSTRY
            FIGURE 22: MARKET BREAK-UP OF INDIAN BIOINFORMATICS INDUSTRY
            FIGURE 23: GLAXO SMITHKLINE INDIA PRODUCT PORTFOLIO
            FIGURE 24: PFIZER INDIA PRODUCT PORTFOLIO
            FIGURE 25: WYETH INDIA PRODUCT PORTFOLIO
            FIGURE 26: MERCK INDIA REVENUE BREAK-UP BASED ON BUSINESS SEGMENTS
            FIGURE 27: RANBAXY REVENUE BREAK-UP
            FIGURE 28: NICHOLAS PIRAMAL BREAK-UP OF REVENUE FROM FORMULATIONS
            FIGURE 29: NICHOLAS PIRAMAL REVENUE BREAK-UP
            FIGURE 30: DRL – REVENUE BREAK-UP
            FIGURE 31: LUPIN BUSINESS PROFILE
            FIGURE 32: LUPIN THERAPEUTIC PORTFOLIO
            FIGURE 33: RANBAXY’S FOCUS DURING 1970-EARLY 1980S
            FIGURE 34: RANBAXY’S FOCUS DURING 1980-1994
            FIGURE 35: RANBAXY’S FOCUS DURING 1994-1997
            FIGURE 36: RANBAXY’S FOCUS FROM 1997 ONWARDS
            FIGURE 37: VALUE CHAIN OF RANBAXY
            FIGURE 38: STRATEGIC OPTIONS AVAILABLE FOR PHARMACEUTICAL FIRMS



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Description: Investing Drug Delivery Industry document sample