eic analysis of pharma industry

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A PROJECT REPORT ON ECONOMIC, INDUSRTITAL AND COMPANY ANALYSIS OF RANBAXY LABORATORY WITHIN PHARMA INDUSTRY

PREPARED BY: SATISH J JAPADIYA (MBA 3RD SEM)

SUBMITTED TO: MS. FALGUNI PANDYA

CENTER FOR MANAGEMENT STUDIES DHARMSINGH DESAI UNIVERSITY NADIAD.

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TABLE OF CONTENT:

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CONTENT INDIAN ECONOMY 1.1 OVERALL ECONOMIC SCENARIO 1.2 Brief sect oral update 1.3 GDP growth rate 1.4 Inflation Rate 1.5 Stock market 1.6 Interest rate 1.7 Industrial production 1.8 GDP 1.9 GDP annual growth rate 1.10 Imports 1.11 Exports 1.12 Current account 1.13 Exchange rates 1.14 Important highlights

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6 8 12 14 14 15 15 16 17 18 18 19 21 21

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INDUSTRY ANALYSIS: PHARMA 2.1 Top Pharma companies 2.2 General introduction 2.3 Swot analysis 2.4 PEST analysis 2.5 Porters five forces model 2.6 Policy initiative and advantages in 24 29 34 40 47 50

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india 2.8 Future outlook 3 Company analysis : Ranbaxy 3.1 Introduction 3.2 Ratio analysis 3.3 Swot anlysis 55 61 64 52

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India is an emerging economy which has witnessed unprecedented levels of economic expansion, alongside China, Russia, Mexico and Brazil. India is a cost effective and labor intensive economy, and has benefited immensely from outsourcing of work from developed countries, and has a strong manufacturing and export oriented industrial framework.

Indian Economy
The Indian economy is expanding at a rapid clip. While the initial growth was led by IT and outsourcing sectors, in recent years the growth is more widespread. Service sectors like Telecom, Banking and Insurance and industries like Pharmaceuticals, Airlines, Hospitality & Real Estate have been contributing significantly to the overall growth. India is a challenge never seen before • • • • • • • Population- Over a billion people Number of mother tongues – 1652 Languages spoken by at least a million people – 24 Adult Literacy rate60% People below poverty line – 230 Million Per capita income of $720 GDP of ~ $775B

India is also an opportunity never seen before • • • GDP Growth rate ~ 8% for last three years Mobile Subscribers – 250 million today, projected 350 million by 2010 Credit uptake growth of 37%

With a rapid expansion of theeconomy & its integration with global business, interest in the Indian economy is at a peak. This is reflected in growing business travel to India . Numerous student groups and trade delegations have visited or are planning to visit in the near future. Indian industry and academia have taken the lead in giving these groups an

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understanding of local practices, challenges, risks and opportunities. The overall growth of gross domestic product (GDP) at factor cost at constant prices, as per Advance Estimates was 8.5 per cent in 2010-11, representing an increase from the revised growth of 8 per cent during 2009-10, according to the monthly economic report released for the month of July 2011 by the Ministry of Finance. The index of industrial production (IIP) rose to 8.8 per cent in June 2011, year-on-year (y-o-y), on back of manufacturing and within that, the capital goods sub-segment. During April-June 2011-12, the IIP growth was registered at 6.8 per cent as compared to 9.6 per cent during 2010-11. The eight core infrastructure industries grew by 5.2 per cent in June 2011 as compared to the growth of 4.4 per cent in June 2010. In addition, exports in terms of US dollar, increased by 46.4 per cent during June 2011. On the back of such facts, India’s GDP is projected to continue to grow at a brisk pace of 8.8 per cent in 2011-12. In addition, India has entered the club of top 20 exporters of goods and reclaimed its position among top 10 services exporters in 2010. India's goods exports rose by 31 per cent in 2010, helping it to improve its world ranking moving up two places to 20 from 22 in 2009. Furthermore, the number of millionaire households in India will grow from 2,86,000 to 6,94,000 between 2011-2020, at a growth rate of 143 per cent, as per a study by the Deloitte Center for Financial Services. Among emerging markets, India is likely to have the highest per capita wealth among millionaires with US$ 4.25 million — placing it ahead of the US. In comparison to other BRIC (Brazil, Russia, India and China) nations, India is likely to experience the largest growth at 405 per cent in total wealth held by the millionaires.

1.1 The Economic Scenario
India has been ranked at the second place in global foreign direct investments (FDI) in 2010 and is expected to remain among the top five attractive destinations for international investors during 2010-12, according to a report on world investment prospects titled, 'World Investment Prospects Survey 2009-2012' by the United Nations Conference on Trade and Development (UNCTAD). India's FDI gathered momentum with the inflows growing by 310 per cent in June 2011 to touch US$ 5.65 billion. It is the highest monthly inflow during the last 11 years. The total

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FDI stood at US$ 16.83 billion during January-June 2011, nearly 57 per cent higher than the US$ 10.74 billion received during the same period last year. Non-resident Indian (NRI) inflows in the first quarter of 2011-12 has witnessed a rise of 38 per cent as compared to the same period in 2010-11. NRIs invested US$ 1.54 billion in various NRI deposit schemes during April-June 2011. Private equity (PE) investments in India stood at US$ 6.14 billion in value terms, while the number of deals increased by 33 per cent to 195, during January-June 2011, according to data compiled by Chennai-based Venture Intelligence. The rise in the value of the deals so far (June 2011) recorded a growth of 52 per cent, as compared to US$ 4.04 billion raised during 2010. India's foreign exchange (Forex) reserves have increased by US$ 1.6 billion to register US$ 318 billion during the week ended August 19, 2011, according to data released by the Reserve Bank of India (RBI). The increase in Forex is largely attributed due to valuation changes. The Government has approved fund raising worth Rs 60,950 crore (US$ 13.24 billion) by companies through external commercial borrowings (ECB) or foreign currency convertible bonds (FCCB) for infrastructure projects in the financial years 2009-2011. India's merchandise exports have registered an increase of nearly 82 per cent during July 2011 from a year ago to touch US$ 29.3 billion, according to a release by the Ministry of Commerce and Industry. Exports during April-July 2011 reached US$ 108.3 billion, up 54 per cent over the same period a year ago, according to Mr Rahul Khullar, Commerce Secretary. Exports in the referred period increased on back of demand for engineering and petroleum products, gems and jewellery and readymade garments.

1.2 Brief Sectoral Update
The Indian metals and minerals sector has received PE investments worth US$ 650 million in the first half of 2011, according to estimates by VC Edge. The metal making industry has attracted PE players in addition the mining assets are also a major draw due to the sharp demand for ownership of raw materials.

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India currently holds the 12th position in Asia and 68th position in the list of overall in the list of the world's most attractive tourist destinations, as per the Travel and Tourism Competitiveness Report 2011 by the World Economic Forum (WEF).Foreign tourist arrivals (FTAs) during the period January-June 2011 were 2.91 million with a growth of 10.9 per cent. Moreover, India's domestic air traffic has been registered as the second highest rate after Brazil, according to global figures for June 2011, compiled by the International Air Transport Association. India's domestic traffic grew by 14 per cent in the same period as against Brazil's 15.1 per cent. Furthermore, the Indian Railways has recorded earnings worth Rs 24,756.18 crore (US$ 5.37 billion) in the first quarter of 2011-12, as compared to Rs 22,074.92 crore (US$ 4.79 billion) during the same period last fiscal, registering an increase of 12.15 per cent. An increase of 12.61 percent in the total goods earnings and 10.52 per cent in the total passenger revenue earnings have been recorded during April-June 2011. The Indian automobile industry, the seventh largest in the world, has currently estimated to have a turnover of US$ 73 billion, accounting for 6 per cent of its GDP, and is expected to record a turnover of US$ 145 billion by 2016. India's automobile industry is expected to grow by 11 to 13 per cent in the fiscal year ending March 2012, according to Pawan Goenka, President, SIAM. The Indian automakers sold 143,370 cars in June 2011, added SIAM. Demand for two-wheelers has increased by 16 per cent in June 2011 to over 880,000 units, as compared to 761,000 units in June 2010, according to data released by six of the eight domestic two-wheelers manufacturers. The growth of Indian agriculture and allied sector was a top agenda in Budget 2011-12 presented by Mr Pranab Mukherjee, the Union Finance Minister. He has estimated that the agriculture and allied sector would grow by 6 per cent in 2011-12. In addition, sales of tractors continue to post sturdy growth numbers on the back of favourable monsoons and increased use of farm equipment for construction work. As many as 482, 256 tractors were sold in the domestic market in 2010-11. The sales are expected to increase by 15 per cent to 554,594 in 2011-12.

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The number of subscribers using their mobile phones to access Internet is estimated to touch 46 million in September 2011, according to a report published by the Internet and Mobile Association of India (IAMAI) and market research firm IMRB, representing a 15 per cent growth quarter to quarter. There are about 40 million mobile Internet users as of June 2011 of which about 30 million are termed as active users. Software as a Service (SaaS) is estimated to grow by 20.7 per cent in 2011 amounting close to Rs 538 crore (US$ 116.85 million) as compared to 2010 where it was close to Rs 445 crore (US$ 966.60 million), according to IT advisory firm Gartner Inc.Approximately 75 per cent of SaaS delivery can be regarded as cloud services as per Gartner, which is on its way to exceed 90 per cent by 2015. Customer relationship management (CRM) is the largest market for SaaS, which is expected to reach Rs168.83 crore (US$ 36.67 million) in 2011 to represent 32 per cent of the total CRM market. Growth Potential Story India's consumption growth story is expected to maintain its course of about 14 per cent growth over the next three years driven by three factors-inclusiveness, mix changes and specific consumption categories, as per senior analysts Vijay Chugh, Ashvin Shetty and Shariq Merchant in the report 'The Indian Consumer: a robust operator in an uncertain world'. India will emerge as the second largest steel producer by 2013 with an installed capacity of 120 million tonnes (MT), riding on high levels of growth, construction, housing, real estate, automobiles and agriculture, according to Mr Beni Prasad Verma, Steel Minister. The demand for steel in the country is growing at an average of 10 per cent, which may even exceed to 12 per cent in the near future. In addition, the Indian banking sector is poised to become the world's third-largest in terms of assets over the next 14 years—with its assets poised to touch US$ 28,500 billion by 2025 —according to a report titled ‘Being five-star in productivity — Roadmap for excellence in Indian banking’, prepared for the Indian Banks’ Association (IBA) by The Boston Consultancy Group (BCG), IBA and an industry body. Investment in logistics sector in India is projected to grow annually at 10 per cent. India's logistics market achieved revenues of US$ 82.1 billion in 2010 and is expected to reach revenue worth US$ 90 billion in 2011. The logistics industry forecasts to generate revenues

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worth US$ 200 billion by 2020, as per Eredene Capital PLC's 2010-11 annual report. India's engineering research and development (ER&D) providers is estimated to capture about 40 per cent share of global offshore revenues in 11 key verticals by 2020, according to a new report titled 'The Futures Report 2011', by Global Futures and Foresight (GFF). India's power sector will generate revenue of Rs 13 lakh crore (US$ 282.36 billion) during the Twelfth Five Year Plan (2012-17), as per Mr P Uma Shankar, Secretary, Ministry of Power. The plan is to generate 17,000 mega watt (MW) power during the referred period. The beauty business in India is set for a remarkable growth. The roughly Rs 7,000 crore (US$ 1.52 billion) organized and unorganized hair and beauty industry is growing at a compound annual growth rate (CAGR) of 35 per cent, on back of an increase in the number of households upgrading to a lifestyle involving higher consumption. At this rate, the industry has the potential to become Rs 30,000 crore (US$ 6.52 billion) business by 2015. The Indian media and entertainment sector will grow to Rs 1.2 lakh crore (US$ 26.06 billion) by 2015, according to a report, 'Indian Entertainment and Media Outlook' by PricewaterhouseCoopers (PwC). From a size of Rs 30,650 crore (US$ 6.66 billion) in 2010, the television industry is expected to rise at a CAGR of 14.5 per cent to reach Rs 60,250 crore (US$ 13.08 billion) and will continue to hold the largest share of revenues within the sector in the next five years. The BMI India Retail Report for the second-quarter of 2011 forecasts that total retail sales will grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015. India ranks first in the Nielsen Global Consumer Confidence survey released in January 2011. “India is one of the fastest growing markets in the world and the current consumer belief that recession would soon be a thing of the past has filled Indians with confidence,” said PiyushMathur, Managing Director, South Asia, The Nielsen Co. With 131 index points, India ranked number one in the recent round of the survey, followed by Philippines (120) and Norway (119). Road Ahead The Twelfth Five Year Plan (2012-17) is going to maintain its target growth rate at 9 per cent. The planning commission is due to firm up its approach to the Twelfth Plan on August 20, 2011, in a meeting chaired by Prime Minister Dr Manmohan Singh. The priority for

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resource allocation will continue to be the social sector and infrastructure. The Government of India has set ambitious targets for more than US$ 1 trillion to be invested in infrastructure over the Twelfth Five-Year period (2012-2017)—more than double the amount invested in the previous five-year period, according to Eredene Capital PLC's 2010-11 annual report. Eredene is a specialist investor in Indian infrastructure with a focus on ports, logistics and transportation. Significantly, the Government has set an export target of US$ 292 billion for 2011-12, up 19 per cent from US$ 246 billion in 2010-11. Moreover, the Government of India has been ranked fifth in wielding economic clout globally after the US, China, Japan and Germany, and ahead of European powers France and the UK, according to a study authored by Kaushik Basu, Chief Economist Advisor. Major players in India's fast-moving consumer goods (FMCG) industry will continue to pursue acquisitions over the medium term, given the scope for expansion in underpenetrated product segments and geographies, as per a report by credit rating agency Crisil. For the global FMCG majors, India remains an attractive market, with its growing economy, large population that offers considerable scope for additional geographic penetration, particularly in the rural areas, and low per-capita consumption. Exchange rate used: 1 USD = 46.04 INR (as on August 29, 2011) References: United Nations Conference on Trade and Development (UNCTAD), Ministry of Finance, Press Information Bureau (PIB), Media Report, Consolidated FDI Policy

Government of India today released its much awaited Economic Outlook for 2011-12 that pegs the India’s GDP growth rate for 2011-12 at 8.2% as compared to 8.5% registered last year. Given the current adverse global circumstances and high Inflation to boot, expected growth rate of 8.2% looks quite good!

1.3 India GDP Growth Rate
The Gross Domestic Product (GDP) in India expanded 7.7 percent in the second quarter of

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2011 over the previous quarter. Historically, from 2000 until 2011, India's average quarterly GDP Growth was 7.45 percent reaching an historical high of 11.80 percent in December of 2003 and a record low of 1.60 percent in December of 2002. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points. This page includes: India GDP Growth Rate chart, historical data, forecasts and news. Data is also available for India GDP Annual Growth Rate, which measures growth over a full economic year.

1.4 India Inflation Rate
The inflation rate in India was last reported at 10.1 percent in September of 2011. From 1969 until 2010, the average inflation rate in India was 7.99 percent reaching an historical high of 34.68 percent in September of 1974 and a record low of -11.31 percent in May of 1976. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the

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domestic economy.

1.5 India Stock Market
India's main stock market index, the SENSEX, rallied 3442 points or 16.39 percent during the last 12 months. From 1979 until 2011 the SENSEX market value averaged 5000.29 points reaching an historical high of 21004.96 points in November of 2010 and a record low of 113.28 points in December of 1979.

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1.6 India Interest Rate
The benchmark interest rate (reverse repo) in India was last reported at 7.5 percent. In India, interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors. The official interest rate is the benchmark repurchase rate. From 2000 until 2010, India's average interest rate was 5.82 percent reaching an historical high of 14.50 percent in August of 2000 and a record low of 3.25 percent in April of 2009.

1.7 India Industrial Production
Industrial Production in India expanded 4.1 percent in August of 2011. Industrial production measures changes in output for the industrial sector of the economy which includes manufacturing, mining, and utilities. Industrial Production is an important indicator for economic forecasting and is often used to measure inflation pressures as high levels of industrial production can lead to sudden changes in prices. From 1994 until 2010, India's industrial production averaged 7.49 percent reaching an historical high of 17.70 percent in December of 2009 and a record low of -0.20 percent in December of 2008.

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1.8 India GDP
India Gross Domestic Product is worth 1729 billion dollars or 2.79% of the world economy, according to the World Bank. Historically, from 1960 until 2010, India's average Gross Domestic Product was 339.84 billion dollars reaching an historical high of 1729.01 billion dollars in December of 2010 and a record low of 36.61 billion dollars in December of 1960. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points.

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1.9 India GDP Annual Growth Rate
The Gross Domestic Product (GDP) in India expanded 7.70 percent in the second quarter of 2011 over the same quarter, previous year. Unlike the commonly used quarterly GDP growth rate the annual GDP growth rate takes into account a full year of economic activity, thus avoiding the need to make any type of seasonal adjustment. Historically, from 2004 until 2011, India's average annual GDP Growth was 8.45 percent reaching an historical high of 10.10 percent in September of 2006 and a record low of 5.50 percent in December of 2004.

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1.10 India Imports
India imports were worth 34589 Millions USD in September of 2011. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main import partners are European Union, Saudi Arabia and United States.

1.11 India Exports
India exports were worth 24821 Millions USD in September of 2011. Exports amount to 22% of India’s GDP. Gems and jewelry constitute the single largest export item, accounting for 16 percent of exports. India is also leading exporter of textile goods, engineering goods, chemicals, leather manufactures and services. India’s main export partners are European Union, United States, United Arab Emirates and China.

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1.12 India Current Account
India reported a current account deficit equivalent to 14.1 Billion USD in the second quarter of 2011. India is leading exporter of gems and jewelry, textiles, engineering goods, chemicals, leather manufactures and services. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main trading partners are European Union, The United States, China and UAE.

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USDINR - Indian Rupee Exchange rate
The Indian Rupee exchange rate depreciated 10.20 percent against the US Dollar during the last 12 months. Historically, from 1973 until 2011 the USDINR exchange averaged 30.25 reaching an historical high of 51.97 in March of 2009 and a record low of 7.19 in March of 1973. The Indian Rupee spot exchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the INR. While the Indian Rupee spot exchange rate is quoted and exchanged in the same day, the Indian Rupee forward rate is quoted today but for delivery and payment on a specific future date.

1.14 Important highlights of Economic Outlook 2011-12
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Agriculture grew at 6.6% in 2010-11. This year’s monsoon is projected to be in the range of 90 to 96 per cent, based on which Agriculture sector is pegged to grow at 3.0% in 2011-12! Industry grew at 7.9% in 2010-11. Projected to grow at 7.1% in 2011-12 Services grew at 9.4% in 2009-10. Projected to grow at 10.0% in 2011-12 Investment rate projected at 36.4% in 2010-11 and 36.7% in 2011-12 Domestic savings rate as ratio of GDP projected at 33.8% in 2010-11 & 34.0% in 2011-12 Current Account deficit is $44.3 billion (2.6% of GDP) in 2010-11 and projected at $54.0 billion (2.7% of GDP) in 2011-12

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Merchandise trade deficit is $ 130.5 billion or 7.59% of the GDP in 2010-11 and projected at $154.0 billion or 7.7% of GDP in 2011-12 Invisibles trade surplus is $ 86.2 billion or 5.0% of the GDP in 2010-11 and projected at $100.0 billion or 5.0% in 2011-12 Capital flows at $61.9 billion in 2010-11 and projected at $72.0 billion in 2011-12 FDI inflows projected at $35 billion in 2011/12 against the level of $23.4 billion in 2010-11 FII inflows projected to be $14 billion which is less than half that of the last year i.e $30.3 billion Accretion to reserves was $15.2 billion in 2010-11. Projected at $18.0 billion in 2011-12 Inflation rate would continue to be at 9 per cent in the month of July-October 2011. There will be some relief starting from November and will decline to 6.5% in March 2012.

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INDUSTRY ANALYSIS OF THE PHARMACEUTICAL

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Chapter 2 OVER VIEW OF THE GLOBAL PHARMACEUTICAL
INDUSTRY

2.1 Top Pharmaceutical Companies in India:
Pharmaceutical Companies in India are developing at a faster pace and this industry holds the pride of being the second largest growing industry in India and this sector is offering a lion’s share toward the economic development of the country. It has been predicted that by the year 2015, the Indian Pharmaceutical Sector would be the third largest industry all over the globe with an output of 20 billion US dollars.

Above all, Government of India has also many schemes for the development of pharmaceutical industry like tax breaks, proper clinical procedures and new procedures for manufacturing of drugs. The names of leaders in Pharmaceutical sector in India are given below: Top 10 Pharmaceutical Companies in India: • Ranbaxy • Dr. Reddy’s Laboratories • Cipla • Sun Pharma Industries • Lupin Labs • Aurobindo Pharma • GlaxoSmithKline Pharma • Cadila Healthcare • Aventis Pharma • IPCA Laboratories A short description about these companies is given below:

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Ranbaxy: Ranbaxy was established in the year 1961 and it is a research based pharma organization, which was converted as a public limited company in the year 1973. The company has earned this position among the pharmaceutical companies in India due to their large portfolio and costeffective medicines that are relied by medical professionals all over the globe. Dr. Reddy’s Laboratories: Dr. Reddy’s Laboratories has its headquarters in India and manufacturing units in different parts of the world. The subsidiaries of this company are located in countries like Brazil, Russia, the United Kingdom, Germany and the United States. This company stands out of the crowd of competitors in pharmaceutical industry due to its following qualities: • Innovation and continuous learning • Teamwork and collaboration • Respect for individual • Social responsibility and harmony • Quality Cipla: Cipla came into existence in the year 1935 and the company began its journey with an authorized capital of Rs. 6 lakhs. However, now the revenue of the company is Rs. 37.637 billion and they are engaged in manufacture of over-the-counter drugs, prescription drugs and bulk drugs. Different regulatory bodies have approved this company and the name of these regulatory bodies is given below: • National Institute of Pharmacy, Hungary • Pharmaceutical Inspection Convention, Germany • Therapeutic Goods Administration, Australia, • Food and Drug Administration, USA • World Health Organization Sun Pharma Industries:

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Sun Pharmaceuticals popularly called as Sun Pharma came into existence in the year 1983 and during its initial stages the company was engaged in the production of five medicinal products meant for psychiatric illness. Now, the company is popular all over the world as the manufacturer of specialty active pharmaceutical formulations and ingredients. This company has group companies in Bangladesh and Michigan. This company is engaged in manufacturing of three different forms of medicines, they are injectable, oral, and delivery based drugs. Lupin Labs: Lupin Labs has its headquarters at Mumbai and they are acting as an innovation led transnational pharmaceutical company producing a wide range of medicines with branded formulations, affordable cost and quality. They have manufacturing units at different parts of India like Indore, Jammu, Goa, Aurangabad, Mandideep, Tarapur, Ankleshwar and in Japan as well. Aurobindo Pharma: Aurobindo Pharma came into existence in the year 1986 and they began their operations in the year 1988 in Pondicherry. At present, the headquarters of the company is located in the city of Hyderabad. They are one of the leading API manufacturing company in India and they are dealing with a vide category of medicine manufacturing like gastro-enterologicals, medicines for central nervous system, medicines for cardio vascular diseases, anti-infective, anti-allergic and Antibiotics. GlaxoSmithKline Pharma: Glaxosmithkline shortly called as GSK are leading players not only in pharmaceutical industry in India, but also in biotechnology industry as well. The company came into existence in the year 1924 with the objective of improving the quality of life of the people by manufacturing life saving drugs. They are manufacturing prescription medicines for different diseases like diabetics, gastrointestinal disorders, respiratory disorders, etc… Cadila Healthcare: Cadila Healthcare Limited was established in the year 1995 under the aegis of Zydus Group and they have operations not only in India, but also in other parts of the world like Brazil, France, USA and they are exporting their branded products to more than 43 countries all over the globe. They are engaged in the manufacturing of the following category of drugs: • Skin Care

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• Active Pharmaceutical Ingredients • Animal health care • Formulations • Diagnostics Aventis Pharma: Aventis Pharma is a company formed out of the merger of two pharmaceutical companies namely Aventis and Sanofi. The parent company of Aventis Pharma being Sanofi Aventis has its presence in more than 95 countries all over the globe and they are having state-of-the-art manufacturing facilities. The company is dealing with the manufacture the following category of medicines: • Vaccines • Bone & Joint • Anti-infective • Analgesics • Dermatology • Central nervous system • Respiratory system • Oncology • Metabolic • Cardiovascular diseases IPCA Laboratories: This company came into existence in the year 1949 and it was actually formed by a group of medical professional and businessmen. The present management took over the company in the year 1975 and their main activities include production and marketing of drugs and other pharmaceutical products. The categories of products dealt by them are drug intermediates, active pharmaceutical ingredients and formulations.

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Pharmaceutical industry is a fast-growing industry in India contributing towards the economic development of the nation. The industry also offers a wide range of employment opportunities to pharma and chemical engineering graduates and several other non-technical personnel as well.

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2.2 GENEREL INTRODUCTION OF THEINDIAN PHARMACEUTICAL INDUSTRY
The pharmaceutical industry in India is valued at US$ 12 billion with an annual compound annual growth rate (CAGR) of 10-11 per cent. The industry spends around 18 per cent of its revenue on research and development (R&D). In India, the clinical research industry is estimated to be a US$ 2.2 billion with a healthy CAGR of 23 per cent. India is ranked as the third largest emerging market and is growing fastest in conducting number of trials. Moreover, India is expected to join the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with the total value reaching US$ 50 billion, according to a report by PricewaterhouseCoopers (PwC). Sector Structure/ Market Size The Indian pharmaceutical market is poised to grow to US$ 55 billion by 2020 from the 2009 levels of US$ 12.6 billion, as per a McKinsey & Company report titled “ India Pharma 2020: Propelling access and acceptance realising true potential”. The industry further holds potential to reach US$ 70 billion, at a CAGR of 17 per cent. The pharma industry constitutes around 8 per cent of the world’s pharmaceutical production. Over the last couple of years, Indian pharma companies have been increasingly targeted by multinationals for both collaborative agreements and acquisition, as per an Espicom report titled, “The Pharmaceutical Market: India Opportunities and Challenges”. The report further echoes the sentiments and the trends of the industry in totality. Exports India’s exports of drugs, pharmaceutical & fine chemicals stood at US$ 9.26 billion during April 2010–Feb 2011, up 16.15 per cent as compared to US$ 7.97 billion in the same period during the previous year. India’s exports has recorded a growth rate of over 20.07 per cent, during the period of the two financial years in the study and the exports to rest of the world has grown by 9 per cent, according to DGCIS data from Pharmexcil Research. Growth

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The drugs and pharmaceuticals sector attracted foreign direct investments (FDI) worth US$ 4.84 billion between April 2000 and May 2011, according to data published by Department of Industrial Policy and Promotion (DIPP) upto May 2011. Indian pharmaceutical market is predicted to grow to US$ 55 billion by 2020 from US$ 12.6 billion in 2009, as per a McKinsey report. The Indian pharma industry is estimated to grow manifolds, on back of a high middle-class population base, improvements in medical infrastructure and the establishment of intellectual property rights. The Indian pharmaceutical sector has registered an outstanding growth during the last few years and has become the hub of pharmaceutical companies owing to low cost manufacturing, large population, and high demand, as per a research report - Global Contract Manufacturing Market Analysis. Generics India tops the world in exporting generic medicines worth US$ 11 billion and currently, the Indian pharmaceutical industry is one of the world's largest and most developed, according to Mr Srikant Kumar Jena, Union Minister of State for Chemicals and Fertilisers. The Indian generic drug market is expected to grow at a CAGR of around 17 per cent between 2010-11 and 2012-13. Generics will continue to dominate the market while patent-protected products are likely to constitute 10 per cent of the pie till 2015, according to McKinsey report ‘India Pharma 2015 Unlocking the potential of Indian Pharmaceuticals market’. Moreover, as per a press release by research firm RNCOS, the report titled ‘Booming Generics Drug Market in India' projects the Indian generic drug market to grow at a CAGR of around 17 per cent between 2010-11 and 2012-13. Diagnostics Outsourcing/ Clinical Trials The Indian diagnostic market is projected to grow at a CAGR of more than 22 per cent between 2010 and 2012, as per a research report “Indian Diagnostic Market Analysis.” Investments

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Dr Reddy's Laboratories Ltd has entered into a memorandum of understanding (MoU) with a Tokyo-based Fujifilm Corporation to form a joint venture (JV) in Japan. The venture would develop, manufacture and promote generic drugs in Japan

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Cadila Healthcare Ltd has entered into a share purchase agreement with ICICI Venture to acquire 100 per cent shareholding of Finest Procuring Solutions Ltd. The deal, signed through Cadila's 100 per cent subsidiary, Zydus Animal Health Ltd, includes the transfer of all key assets, people, brands and export contracts of Bremer

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Daiichi Sankyo Company Ltd and Ranbaxy Laboratories Ltd have announced expansion of their business in Mexico, to maximise their hybrid business model. As part of the plan, the two companies will launch Olmesartan Medoxomil, used to treat high blood pressure, in Mexico before the year-end

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Information technology (IT) major HCL Technologies Ltd has announced the opening of a co-innovation laboratory in Singapore with American pharmaceutical firm Eli Lilly and Company, to develop new technologies and solutions specifically for the drug-maker

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Drug-majors Ranbaxy Laboratories Ltd and Pfizer Inc have formalised an alliance with fast moving consumer goods (FMCG) company ITC Ltd to tap the rural markets for their over-the-counter (OTC) products. The distribution reach of an FMCG company into rural areas in India is much wider than that of a pharmaceutical company, observed Ranjit Shahani, President of the Organisation of Pharmaceutical Producers of India (OPPI), a platform of largely multinational drug-makers, and Head of Novartis (India)

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Jubilant Discovery Services Inc, the US-based subsidiary of Jubilant Life Sciences Company, has entered into a drug discovery alliance with Janssen Pharmaceutica NV. The alliance will span an initial period of three years and will mainly focus on multiple targets in the area of neuroscience

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Manappuram Health Care Ltd, a venture of the Manappuram Group of companies, has forayed into the healthcare sector and plans to invest US$ 222.25 million over the next five years to set up a chain of medical, dental clinics and diagnostics centres across South India. The Group has set a target to expand to over a 100 outlets by 2015

•

Zydus Cadila has signed an asset purchase agreement with a US-based pharma company for a cash deal of US$ 60 million. The deal also includes purchase of two generic drugs Micro-K and Potassium Chloride ER capsule products

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•

Elder Pharmaceuticals Ltd will invest about US$ 29.02 million in its research facility over the next two-three years, according to Alok Saxena, the firm’s Director

Indian firms in the pharmaceuticals ingredients space are targeting the Japanese market. Active Pharmaceutical Ingredient (API) manufacturers are set to join hands with Japanese generics producers to supply APIs and intermediates in the world's second biggest pharmaceutical market. "Indian drug intermediates or APIs are made with high regulatory compliance, and are the cheapest as well. That is why Japanese players opt for joining hands with Indian makers for generic drugs. Also, the free trade agreement will have a good impact over the alliances," added Venkat Jasti, former President of the Bulk Drug Manufacturers Association (BDMA) and Managing Director of Suven Life Sciences. Government Initiative Marking a new trend of investments from foreign players in the Indian pharma sector, the need for overseas investors to get a no-objection from their JV partner before venturing out on their own or roping in another local firm has been removed by the Pharmaceuticals Export Promotion Council. It is expected that this measure will promote the competitiveness of India as an investment destination and be instrumental in attracting higher levels of FDI and technology inflows into the country. 100 per cent FDI is allowed under the automatic route in the drugs and pharmaceuticals sector including those involving use of recombinant technology. The Union Minister of Commerce and Industry and Minister of Trade and Industry, Singapore, have signed a ‘Special Scheme for Registration of Generic Medicinal Products from India’, which seeks to fast-track the registration process for Indian Generic medicines in Singapore. The Department of Pharmaceuticals has prepared a "Pharma Vision 2020" for making India one of the leading destinations for end-to-end drug discovery and innovation and for that purpose provides requisite support by way of world class infrastructure, internationally competitive scientific manpower for pharma research and development (R&D), venture fund for research in the public and private domain and such other measures. Road Ahead

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On back of aggressive marketing initiatives, the pharma companies witnessed rural market sales doubling. India's rural drug market grew by 18.8 per cent in the 12 months period ended April 2011 as compared with 10.9 per cent in the previous year. Interestingly, in order to increase their share in the globally important market - in India, the international drug-makers have introduced generic or low-priced version of popular medicines and have also decreased prices of their existing products. Global firms who traditionally banked on sales of their original high-priced medicines have now come into direct competition with Indian drug-makers. The Indian-makers business model is built around selling large volume of cheap generic medicines at lower margins in the country, to add to twin purpose of affordability and popularity. "The industry posting healthy growth consecutively for the second year reflects the inherent strengths of the industry and improving healthcare standards in the country... demand for drugs and pharmaceuticals is on the rise, and is likely to continue next year as well. The nutraceutical segment will continue to have better-than-average growth with people getting more conscious of their general health and well-being," as per Ganesh Nayak, Executive Director, Zydus Cadila. References: Consolidated FDI Policy, Department of Industrial Policy & Promotion (DIPP), Press Information Bureau (PIB), Media Reports, McKinsey Report, Pharmaceuticals Export Promotion Council.

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2.3 INDUSTRY STRUCTURE AND GROWTH:
The structure of the Indian Pharmaceutical Industry is characterized by fragmentation, with over 20,000 players – a large number of them in the small scale sector, only 260 in the organized sector. As a result, no individual market share in Indian retail formulations market exceeds 7%. However a trend of consolidation is visible at the top. In 2001, the top five players accounted for 22% while in 2006, they account for 28% of the market share. Also the top ten in 2001 accounted for 36%, and in 2006 they accounted for 42%. The pharmaceutical industry can be divided on the basis of form and therapeutic application. On the basis of form, the industry can be divided into bulk drugs and formulations, while on the basis of application; it can be divided into various therapeutic segments. Formulations occupy most of the market share. The antiinfective segment remains the largest in the Indian retail formulations market at around 25%. The Indian pharmaceutical industry is the world's second-largest by volume and is likely to lead the manufacturing sector of India. India's bio-tech industry clocked a 17 percent growth with revenues of Rs.137 billion ($3 billion) in the 2009-10 financial year over the previous fiscal. Bio-pharmaceutical was the biggest contributor generating 60 percent of the industry's growth at Rs.8,829 crore, followed by bio-services at Rs.2,639 crore and bio-agriculture at Rs.1,936 crore. The first pharmaceutical company are Bengal Chemicals and Pharmaceutical Works, which still exists today as one of 5 government-owned drug manufacturers, appeared in Calcutta in 1930. For the next 60 years, most of the drugs in India were imported by multinationals either in fullyformulated or bulk form. The government started to encourage the growth of drug manufacturing by Indian companies in the early 1960s, and with the Patents Act in 1970, enabled the industry to become what it is today. 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 that had dominated the market, and while they streamed out, Indian companies started to take their places. They carved a niche in both the Indian and world markets with their expertise in reverseengineering new processes for manufacturing drugs at low costs. Although some of the larger

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companies have taken baby steps towards drug innovation, the industry as a whole has been following this business model until the present. The Indian Pharmaceutical industry, now a $ 4 billion industry has shown tremendous progress in terms of infrastructure development, technology base and wide range of products. The industry produces bulk drugs belonging to all major therapeutic groups requiring complicated manufacturing process and has also developed excellent Good Manufacturing Practices (GMP) compliant facilities for the production of different dosage forms. The strength of the industry is developing cost effective technologies in the shortest possible time for drug intermediates and bulk actives without compromising on quality. This is realized through country’s strengths in organic synthesis and process engineering. The country's fame as a low cost producer of Antiretrovirals and supplier of the same to international organisations and more important by the needy African markets is now part of history. Many Indian companies maintain highest standards in Purity, Stability and International SHE requirements, namely, Safety, Health and Environmental protection in production and supply bulk drugs to even innovator companies. This speaks of the high quality standards maintained by large number of Indian companies as these bulk actives are used by the buyer companies in the dosage forms which are again subject to stringent assessment by various regulatory authorities in the importing countries. More Indian Companies are now seeking regulatory approvals in USA in specialized segments like Antiinfectives, Cardiovasculars, Central Nervous System. Stimulants (CNS group). Along with Brazil and PR China, India has carved a niche for itself by being a top generic pharmaceutical player. Considering that the pharmaceutical industry is an industry involving sophisticated technology and stringent GMP requirements, major share of Indian pharmaceutical exports itself going to highly developed western countries speaks not only about excellent quality of Indian pharmaceuticals but also about the reasonableness of the prices. More of Indian companies, in addition to having WHO GMP, have also been getting plant approvals from International regulatory agencies like United States Food & Drugs Administration (USFDA), MCA UK, TGA Australia, MCC South Africa. The value growth of Indian pharmaceutical market as per secondary sales for the month of Mar 2009 was higher at 18.4%, as compared to 13.3% growth in the month of Feb 2009, according the latest data from ORG IMS, a business intelligence firm. The value growth as per Mar 2009

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MAT once again touched the double-digit mark of 10.1%, with marginally higher growth, as compared to 9.8% as per Feb 2009 MAT. The value growth in the month of Mar 2009 was higher at 16.8%, as compared to 12.5% in the month of Feb 2009. The value growth as per Mar 2009 MAT (14.1%) was marginally higher as compared to Feb 2009 MAT (13.6%). In October 2008, sales in the Rs 35,000-crore drug retail market had dipped by 1.2%, the first time in many years, due to consumers shifting to cheaper brands and stockists facing a financial crunch. However, retail sales has gradually strengthened and in February, it rose 13.3%. ORG IMS tracks the sales figures of stockists and not the actual sales of drugs sold by over five lakh chemists across the country. During March, drugs worth Rs 2,908 crore were sold to stockists. Despite the brief slowdown in growth in 2008, ORG projects the Indian pharmaceutical industry to grow at 15-20% over the next few years. The industry has been growing at 14-15% over the last few years. Due to economic prosperity, a lot more customers are entering organised healthcare, antibiotics and acute therapies are normally the first line of defence, say analysts. While India’s metros and class I cities drive the growth tier II cities and rural market add to the growth momentum. Rising disposable income, improving health infrastructure such as the government’s incentives to set up 100-bed hospitals in non-metro towns, and the general increase in health awareness due to deep penetration of the electronic media are the corner stones of sales expansion. Even though export and overseas trade remains key for most of the domestic companies, many of them derive nearly 40% of their sales from the domestic market. As far as MNCs in India are concerned most of the sales are generated in urban or semi-urban areas. However, multinationals like GSK, Sanofi-Aventis, MSD India (Merck) etc., have started tapping the rural sector too, of late, realizing their growing potential. A highly organized sector, the Indian pharmaceutical industry is estimated to be worth $4.5 billion, growing at about 8% to 9% every year. The pharmaceutical industry in India ranks very high in Third World countries, in terms of technology, quality and range of medicines manufactured. Globally the Indian pharmaceutical industry ranks fourth in terms of volume (with an 8% share in global sales), 13th in terms of value (with a share of 1% in global sales) and produces 20% to 24% of the world’s generic drugs (in terms of value). The Indian pharmaceutical sector is highly fragmented. It has more than 20,000 registered units and faces severe price competition along with government price control. The pharma industry

34

has grown exponentially in the last two decades. As many as 250 leading pharmaceutical companies control over 70% of the market, with the market leader holding nearly 7% of the market share. India is emerging as the global hub for contract research and manufacturing services due to a combination of low-cost and world-class quality standards. According to a study by Ernst & Young, the total market for clinical research activities in India is expected to touch $1.5 billion - $ 2 billion by 2010. With pharmaceutical majors facing increased pressure on profit margins, spiraling R&D costs and rising overheads, outsourcing of clinical research processes to third parties in developing countries seems a viable option. By contracting such work to India, they save 40% to 60% in new drug development. Consumer spending on healthcare went up from 4% of GDP in 1995 to 7% in 2007. That number is expected to rise to 13% of GDP by 2015.

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2.4: SWOT ANALYSIS OF INDIAN PHARMACEUTICAL INDUSTRY
Strengths 1. Low cost of production. 2. Large pool of installed capacities 3. Efficient technologies for large number of Generics. 4. Large pool of skilled technical manpower. 5. Increasing liberalization of government policies. Opportunities 1. Aging of the world population. 2. Growing incomes. 3. Growing attention for health. 4. New diagnoses and new social diseases. 5. Spreading prophylactic approaches. 6. Saturation point of market is far away. 7. New therapy approaches. 8. New delivery systems. 9. Spreading attitude for soft medication (OTC drugs). 10. Spreading use of Generic Drugs. 11. Globalization 12. Easier international trading. 13. New markets are opening. Weakness 1. Fragmentation of installed capacities. 2. Low technology level of Capital Goods of this section. 3. Non-availability of major intermediaries for bulk drugs. 4. Lack of experience to exploit efficiently the new patent regime. 5. Very low key R&D.

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6. Low share of India in World Pharmaceutical Production (1.2% of world production but having 16.1% of world''s population). 7. Very low level of Biotechnology in India and also for New Drug Discovery Systems. 8. Lack of experience in International Trade. 9. Low level of strategic planning for future and also for technology forecasting. Threats 1. Containment of rising health-care cost. 2. High Cost of discovering new products and fewer discoveries. 3. Stricter registration procedures. 4. High entry cost in newer markets. 5. High cost of sales and marketing. 6. Competition, particularly from generic products. 7. More potential new drugs and more efficient therapies. 8. Switching over form process patent to product patent.

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2.5 PEST ANALYSIS
To understand the implications of the environment on any industry it is imperative to study the four cardinal influencers on the industry namely Political, Economic, Social and Technological factors. It is rather unfortunate that in India these factors have a rather disproportionate influence on the functioning of a commercial organization. From the days of independence the business environment has been overly regulated by a handful of bureaucrats, middlemen, businessmen and politicians. Its only a decade since the country has seen an emergence of a political thought that encourages free enterprise. A welcome change indeed!

Political Factors

1.

Today there is political uncertainty in the air. A combination of diverse political thought have got together to cobble together a rag-tag coalition, that is riddle with ideological contradictions. Therefore, any consistent political or economic policy can not be expected. This muddies the investment field.

2.

The Minister in charge of the industry has been threatening to impose even more stringent Price Control on the industry than before. This is throwing many an investment plan into the doldrums.

3.

DPCO which is the bible for the industry has in effect worked contrary to the stated objectives. DPCO nullifies the market forces from encouraging competitive pricing of goods dictated by the market. Now the pricing is determined by the Government based on the approved costs irrespective of the real costs.

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4.

Effective January, 2005 the country goes in for the IPR (Intellectual Property Rights) regime, popularly known as the Patent Act. This Act will impact the Pharmaceutical Industry the most. Thus far an Indian company could escape paying a patent fee to the inventor of a drug by manufacturing it using a different chemical route. Indian companies exploited this law and used the reverse-engineering route to invent a lot of alternate manufacturing methods. A lot of money was saved this way. This also encouraged competing company to market their versions of the same drug. That meant that the impurities and trace elements found in different brands of the same substance were different both in qualification as well as in quantum.

Therefore different brands of the same medicine were truly different. Here Branding actually meant quality and a purer brand actually had purer active ingredient and lesser or less toxic impurities.

Product patent regime will eliminate all this. Now, a patented drug would be manufactured using the same chemical route and would be manufactured by the inventor or his licentiates using the chemicals with same specifications. Therefore, all the brands of the same active ingredient would not have any difference in purity and impurities. The different brands would have to compete on the basis of non input-related innovations such as packaging, color, flavors, Excipients etc.

This is the biggest change the environment is going to impose on the industry. The marketing effort would be now focused on logistics, communications, economy of operation, extra-ingredient innovations and of course pricing.

5.

In Pharma industry there is a huge PSU segment which is chronically sick and highly inefficient. The Government puts the surpluses generated by efficient units into the price

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equalization account of inefficient units thereby unduly subsidizing them. On a long term basis this has made practically everybody inefficient.

6.

Effective the January, 2005 the Government has shifted from charging the Excise Duty on the cost of manufacturing to the MRP thereby making the finished products more costly. Just for a few extra bucks the current government has made many a life saving drugs unaffordable to the poor.

7.

The Government provides extra drawbacks to some units located in specified area, providing them with subsidies that are unfair to the rest of the industry, bringing in a skewed development of the industry. As a results Pharma units have come up at place unsuitable for a best cost manufacturing activity.

Economic Factors

1.

India spends a very small proportion of its GDP on healthcare ( A mere 1% ). This has stunted the demand and therefore the growth of the industry.

2.

Per capita income of an average Indian is low ( Rs. 12,890 ), therefore, spending on the healthcare takes a low priority. An Indian would visit a doctor only when there is an emergency. This has led to a mushrooming of unqualified doctors and spread of nonstandardized medication.

3.

The incidence of Taxes are very high. There is Excise Duty ( State & Central), Custom Duty, Service Tax, Profession Tax, License Fees, Royalty, Pollution Clearance Tax, Hazardous substance (Storage & Handling) license, income tax, Stamp Duty and a host

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of other levies and charges to be paid. On an average it amounts to no less than 40-45% of the costs.

4.

The number of Registered Medical practitioners is low. As a result the reach of Pharmaceuticals is affected adversely.

5.

There are only 50,00,000 Medical shops. Again this affects adversely the distribution of medicines and also adds to the distribution costs.

6.

India is a high interest rate regime. Therefore the cost of funds is double that in America. This adds to the cost of goods.

7.

Adequate storage and transportation facilities for special drugs is lacking. A study had indicated that nearly 60% of the Retail Chemists do not have adequate refrigeration facilities and store drugs under sub-optimal conditions. This affects the quality of the drugs administered and of course adds to the costs.

8.

India has poor roads and rail network. Therefore, the transportation time is higher. This calls for higher inventory carrying costs and longer delivery time. All this adds to the invisible costs. Its only during the last couple of years that good quality highways have been constructed.

Socio-cultural Factors

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1.

Poverty and associated malnutrition dramatically exacerbate the incidence of Malaria and TB, preventable diseases that continue to play havoc in India decades after they were eradicated in other countries.

2.

Poor Sanitation and polluted water sources prematurely end the life of about 1 million children under the age of five every year.

3.

In India people prefer using household treatments handed down for generations for common ailments.

4.

The use of magic/tantrics/ozhas/hakims is prevalent in India.

5.

Increasing pollution is adding to the healthcare problem.

6.

Smoking, gutka, drinking and poor oral hygiene is adding to the healthcare problem.

7.

Large joint families transmit communicable diseases amongst the members.

8.

Cattle-rearing encourage diseases communicated by animals.

9.

Early child bearing affects the health standards of women and children.

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10.

Ignorance of inoculation and vaccination has prevented the eradication of diseases like polio, chicken-pox, small-pox, mumps and measles.

11.

People don’t go in for vaccination due superstitious beliefs and any sort of ailment is considered as a curse from God for sins committed.

Technological Factors

1.

Advanced automated machines have increased the output and reduced the cost.

2.

Computerization has increased the efficiency of the Pharma Industry.

3.

Newer medication, molecules and active ingredients are being discovered. As of January 2005, the Government of India has more than 10,000 substances for patenting.

4.

Ayurveda is a well recognized science and it is providing the industry with a cutting edge.

5.

Advances in Bio-technology, Stem-cell research have given India a step forward.

6.

Humano-Insulin, Hepatitis B vaccines, AIDS drugs and many such molecules have given the industry a pioneering status.

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7.

Newer drug delivery systems are the innovations of the day.

8.

The huge unemployment in India prevents industries from going fully automatic as the Government as well as the Labor Unions voice complains against such establishments.

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2.6 PORTER’S FIVE FORCES ANALYSIS
1. THREAT OF NEW ENTRANT: has low entry barrier for new entrants. The major barriers to entry are: (i) The presence of economies of scale in manufacturing, R&D, marketing, sales etc & capital requirement & financial requirements. The exsisting companies have advantage in terms of costs involved in launching new drugs & formulations. The new companies would find it difficult to achieve this. (ii) Differentiation of products from the existing products in the market & creating brand awareness in the minds of doctors & pharmacists. New entrants will face difficulties in gaining trust of doctors/patients & they also need time to develop efficient distribution channels & preferred arrangements with doctors/ pharmacists. (iii) Regulatory policies including patents, regulatory standards. The Indian Patent Act, 1970 recognized process but not product patents. The introduction of TRIPS part of WTO agreement has led to huge barriers for potential entrants. (iv) The capital requirement for the industry is very low; creating a regional distribution network is easy, since the point of sales is restricted in this industry in India. 2. BARGAINING POWER OF BUYERS: the buyer does not have much power over the manufacturers because of the presence of influencing element i.e. the doctors. Due to the extremely fragmented nature of industry & government policies like DPCO (Drug Price Order Control), 1970 under which the power to control prices is with the NPPA (National Pharmaceutical Pricing Authority) the low power of buyers does not have much effect on the manufacturers. Except in generic & OTC medicines, the buyer does not normally switch medicines.

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3. BARGAINING POWER OF SUPPLIERS: the main suppliers are the organic chemical industry & labor forces. The fragmented nature of the organic chemicals industry prevents it from having much bargaining power over the manufacturers as the switching cost is low for the manufacturers. 4. THREAT OF SUBSTITUTES: the main substitutes to the synthetic pharmaceutical industry are mainly the emerging biotechnology chemical industry. Also in developing countries like India, the traditional medicines also play a major substituting role.
5. INTENSITY OF RIVALRY: the Indian Pharmaceutical industry is highly fragmented with

around 250-300 manufacturing & formulation units in the organized sector which contribute to only 70% of the market share of the total sales in the country. The concentration ratio (proportion of total industry output by the largest firm in the industry) for the industry is very low. Also government subsidies have led to the proliferation of many small players. Since the product patents were not valid in the country till 2005, the differentiation in the product is very low. The key driver in this industry is the cost-competitiveness. After 2005, major MNCs like Pfizer & GSK started introducing newer products in the market thereby increasing competition in the industry.

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2.7 POLICY INITIATIVE AND ADVANTAGES IN INDIA
Policy Initiative
1.

The Indian pharmaceutical policy stipulates abolition of industrial licensing and FDI up to 100 per cent through the automatic route except for the drugs kept under industrial licensing.

2. A centralized system of registration has been introduced from 1.1.2003 for the imports of

drugs and pharmaceuticals.
3.

Automatic approval for Foreign Technology Agreements will be adopted and a centralized system of registration will be introduced for the imports of drugs and pharmaceuticals.

4.

India presently follows the process-patent regime. However, in accordance with WTO stipulations, 2005 onwards India will grant product patent recognition to all New Chemical Entities (NCEs) i.e. bulk drugs developed.

5. The government has announced that the foreign pharmaceutical units setting up their

manufacturing units in SEZs will be exempt from import licenses and also from registering with the Indian drug control authorities. Advantages in India 1. Competent workforce: India has a pool of personnel with high managerial & technical competence as also skilled workforce. It has an educated workforce & English is commonly used. Professional services are easily available. 2. 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 & exports sophisticated bulk drugs.

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3.

Legal & Financial framework: India has a 53 year old democracy & hence has a solid legal framework & strong financial markets. There is already an established international industry & business community.

4. Information & Technology: it has a good network of world class educational institutions & established strengths in IT. 5. Globalization: The country is committed to a free market economy & globalization. Above all, it has a 70 million middle class market, which is continuously growing. 6. 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.

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2.8 FUTURE OUTLOOK
1. Better growth is expected in the domestic market & the players’ initiatives to focus on contract research & manufacturing services & generics in advanced markets can sustain expansion in the international markets. 2. The pharmaceutical industry is one of the fastest growing sectors in Indian economy. Visiongain predicts that market for pharmaceuticals in India has strong potential for increased growth from 2008 right through to 2023. India has had a strong domestic pharmaceutical industry and a rapidly expanding market with a population of over a billion and a rapidly expanding economy. 3. Prevalence values of many diseases are likely to increase with expansion of population, urbanization and with higher identification rates in the coming decade. 4. India's pharmaceutical market is increasingly important in global pharma, with both domestic and foreign companies benefiting. Healthcare provision – both public and private – is improving, leading to fast-expanding markets for healthcare products, especially modern pharmaceuticals. 5. As the demand for medicines would never lessen, on the other hand this would increase owing to new disease discovery & the discovery of drugs to counter these diseases. So in this situation it is evident that the Indian Pharma Industry has a huge growth prospects. 6. India is an interesting geography for several global drug majors who are attracted by huge talent pool, scientific skills & cheap labour that has enabled Indian companies manufacture drugs at about a third of the cost in the west. There can be an increase in the nuber of global players entering the Indian market despite of the current economic conditions.

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7. Future state (2015): at least 200 NCEs in various stages of development; Contract Research: High end drug discovery services; Clinical Research: At least 10 % of global trials. Global Distribution: Top 15-20 Indian players to have direct presence.

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3: PHARMACEUTICAL COMPANY ANALYSIS: RANBAXY LABORATORIES

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Ranbaxy Laboratory Limited Ranbaxy Laboratories Ltd. is the largest pharmaceutical company in India, and one of the world's top 100 pharmaceutical companies. Long a specialist in the preparation of generic drugs, Ranbaxy is also one of the world's top 10 in that pharmaceutical category as well. Yet, with India's agreement to apply international patent law at the beginning of 2005, Ranbaxy has begun converting itself into a full-fledged research-based pharmaceutical company. A major part of this effort has been the establishment of the company's own research and development center, which has enabled the company to begin to enter the new chemical entities (NCE) and novel drug delivery systems (NDDS) markets. In the mid-2000s, the company had a number of NCEs in progress, and had already launched its first NDDS product, a single daily dosage formulation of ciprofloxacin. Ranbaxy is a truly global operation, producing its pharmaceutical preparations in manufacturing facilities in seven countries, supported by sales and marketing subsidiaries in 44 countries, reaching more than 100 countries throughout the world. The United States, which alone accounts for nearly half of all pharmaceutical sales in the world, is the company's largest international market, representing more than 40 percent of group sales. In Europe, the company's purchase of RPG (Aventis) S.A. makes it the largest generics producer in that market. The company is also a leading generics producer in the United Kingdom and Germany and elsewhere in Europe. European sales added 16 percent to the company's sales in 2004. Ranbaxy's other major markets include Brazil, Russia, and China, as well as India, which together added 26 percent to the group's sales. Ranbaxy posted revenues of $1.18 billion in 2004. The company, which remains controlled and led by the founding Singh family, is listed on the National Stock Exchange of India in Mumbai. Moneylending Luck in the 1960s Ranbaxy Laboratories had its origins in the early 1960s when Ranjit Singh and Gurbux Singh, two employees of a Japanese pharmaceutical company operating in India, formed their own pharmaceutical preparations company in Amritsar, in Punjab state. The two merged their names to form the name for their company, Ranbaxy. Through the 1960s, India's pharmaceutical market remained dominated by foreign drug makers. The domestic pharmaceutical manufacturing industry was limited in large part to the dosage preparation, packaging, and distribution of existing formulations. Like many Indian drug

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companies of this period, Ranbaxy linked up with a European pharmaceutical company, and began production in 1962. Ranbaxy's owners sought additional financing and turned to a local moneylender, Bhai Mohan Singh. By 1966, the pair had built up debts to Singh of more than the equivalent of $100,000. When Singh, a native of Pakistan who had arrived in India at the beginning of that decade, came to collect, the Ranbaxy partners offered to turn over their company to him instead. Singh agreed to the deal and launched the Ranbaxy family on the path toward building one of India's largest business empires. Under Bhai Mohan Singh, Ranbaxy initially maintained its course of preparing and packing existing branded pharmaceutical products for the Indian market. The entry of Singh's eldest son, Parvinder, into the company in 1967, however, set the company on a new course to become a fully independent pharmaceutical company. Parvinder Singh had just graduated with a PhD in chemistry from the University of Michigan. The younger Singh's background in chemistry complemented his father's business flair. Yet Parvinder Singh himself quickly displayed a talent for business and was credited, in large part, with guiding the company into the ranks of the global pharmaceutical leaders. Ranbaxy's good fortune came in 1970, when the Indian government passed legislation that effectively ended patent protection in the pharmaceutical industry. Indian pharmaceutical manufacturers were now able to produce low-cost, generic versions of popular, yet expensive drugs, revolutionizing the drug industry in India and in much of the world. The Singhs quickly took advantage of India's large, highly trained, yet inexpensive workforce, building up a strong staff of chemists and chemical engineers. The company struck pay dirt early on, when it launched Calmpose, a generic formulation of the hugely popular Roche discovery, Valium. Released in 1969, Calmpose immediately placed Ranbaxy on India's pharmaceutical map. The company expanded quickly, and by 1973, Ranbaxy opened a new factory, in Mohali, for the production of active principal ingredients (APIs). This facility enabled the company to expand its range of generic medications and ingredients. To finance its growth, the company listed on the Indian Stock Exchange that year. Ranbaxy's ability to produce generic medications at far lower cost than its branded competitors placed the company in a strong position for international expansion, especially in less developed markets. The company began its internationalization early on, launching a joint venture in Nigeria. That operation opened a production facility in Lagos in 1977.

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Developing Research Expertise in the 1980s Ranbaxy expanded its production at home as well, opening a new state-of-the-art dosage plant in Dewas in 1983. In 1987, the company became India's leading antibiotic and antibacterial producer when it completed a new API plant in Toansa, in Punjab, that year. The Toansa facility backed up Ranbaxy's plans to enter the U.S. market, and in 1988, the Toansa plant received Food and Drug Administration (FDA) approval. Ranbaxy formulated a new strategy, that of becoming a full-fledged pharmaceutical company. The driving force behind the company's new direction was Parvinder Singh, who was named the company's managing director in 1982. Nonetheless, Bhai Mohan Singh remained in control of the company. As part of its new strategy, Ranbaxy launched its own research and development center in 1985. The company also stepped up its marketing efforts, launching a new dedicated marketing subsidiary, Stancare, that year. By 1990, the company had a new product to sell, when Ranbaxy was granted a U.S. patent for its doxycycline antibiotic preparation. The following year, the company was granted a U.S. patent for its cephalosporin preparations, and the company built a new state-of-the-art facility for their production in Mohali. A major milestone for the company came in 1992, when it reached a marketing agreement with Eli Lilly & Co. The companies set up a joint venture in India to produce and market Lilly's branded pharmaceuticals for the domestic market. At the same time, Lilly agreed to begin marketing Ranbaxy's generic medications in the United States. In this way, Ranbaxy gained widescale access, backed by the highly respected Lilly, into the world's single largest drugs market. Parvinder Singh took over as head of the company--ousting his father in what was described as a family feud--in 1992. By then, Ranbaxy had grown into one of India's largest pharmaceutical companies on the basis of its generics production. Yet as pressure grew on India to begin enforcing international drug patents, the company itself appeared to have reached a crossroads-whether to remain focused on copying generic molecules, or to begin developing new drugs inhouse. The company chose the latter, and in 1993 adopted a new corporate mission to announce its reformulated ambitions: "To become a research-based international company." Global Branding for the New Century

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Ranbaxy made good on its mission--by the middle of the next decade, nearly 80 percent of its sales came from outside of India. As a first step, the company launched a new joint venture, in China, backing its entry into that market with a production facility in Guangzhou. The following year, the company established subsidiaries in London, England, and in Raleigh, North Carolina. In 1995, the company stepped up its U.S. presence with the purchase of Ohm Laboratories Inc., which gave the company its first manufacturing plant in that market. Ranbaxy then launched construction of a new and state-of-the-art manufacturing wing, which, completed that year, gained FDA approval. This new facility enabled Ranbaxy to step up its presence in the United States, and in 1998 the company began marketing its generic products under its own brand name. That year, in addition, the company filed an application to begin Phase I clinical testing on its first in-house developed NCE. The following year, the company's NDDS efforts paid off as well, when Bayer acquired the rights to market Ranbaxy's single daily-dosage ciprofloxacin formulation. Ranbaxy's international expansion continued as well, with the launch of marketing operations in Brazil. As the largest pharmaceuticals market in Latin America, that country was the cornerstone of the company's plans to expand throughout the region. Ranbaxy also expanded in Europe, with the agreement in 2000 to acquire Bayer's Germany-based generics business, Basics. The company also added production plants in Malaysia and Thailand. Parvinder Singh died in 1999 and longtime righthand man D.S. Brar took over as company leader, naming family outsider Brian Tempest as company president. The new management team continued Singh's expansion strategy, opening a new manufacturing plant in Vietnam in 2001. Ranbaxy also sought new alliances, and in 2003 the company reached a global drug discovery and development partnership with GlaxoSmithKline. That agreement called for Glaxo to handle the later-stage development process for Ranbaxy created molecules. The company's international expansion also took a major step forward at the end of 2002, when it agreed to acquire RPG (Aventis) in France, that country's leading generic drugs producer. Ranbaxy's sales had by then topped the $1 billion mark, placing the company not only as the leader in India's pharmaceuticals industry, but also among the ranks of the world's top 100 pharmaceuticals companies. Ranbaxy also boasted a place among the world's top ten generic drugs producers. In addition, the company had advanced a growing number of its own NCE and NDDS molecules into clinical testing. The company's transition into research-based product

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development was seen as crucial as India announced its intention to enforce international drug patents at the beginning of 2005. Ranbaxy appeared prepared to meet this challenge, however, and confidently set its sights on boosting its annual sales past $2 billion by 2007 and to more than $5 billion by the beginning of the next decade. International growth remained an essential part of that strategy. The company began negotiations for a major acquisition in Germany at the end of 2004, which was expected to be completed in 2005. The company also launched construction of a new $100 million production facility in Brazil. Meanwhile, Ranbaxy continued to increase its research and development budget, with the goal of generating as much as 40 percent of its revenues from its in-house innovations by the 2010s. Ranbaxy expected to remain India's drug leader into the new century. Principal Subsidiaries: Basics GmbH (Germany); Gufic Pharma Ltd. (98%); Ohm Laboratories Inc. (United States); Ranbaxy (Hong Kong) Ltd.; Ranbaxy (Malaysia) Sdn. Bhd. (56.25%); Ranbaxy (Netherlands) B.V.; Ranbaxy (S.A.) Proprietary Ltd.; Ranbaxy (UK) Ltd.; Ranbaxy Do Brasil Ltda.; Ranbaxy Drugs and Chemicals Company; Ranbaxy Drugs Ltd.; Ranbaxy Egypt Ltd.; Ranbaxy Europe Ltd. (United Kingdom); Ranbaxy Farmaceutica Ltda. (Brazil; 70%); Ranbaxy Fine Chemicals Ltd.; Ranbaxy France SAS; Ranbaxy Ireland Ltd.; Ranbaxy Nigeria Ltd. (84.89%); Ranbaxy Panama, S.A.; Ranbaxy Pharmaceuticals Inc. (United States); Ranbaxy Poland Sp. z.o.o.; Ranbaxy PRP (Peru) S.A.C.; Ranbaxy Unichem Company Ltd. (Thailand; 88.56%); Ranbaxy USA, Inc.; Ranbaxy Vietnam Company Ltd.; Ranbaxy (Guangzhou China; 83%); Ranbaxy, Inc. (United States); Ranchem Inc. (United States); Ranlab Inc. (United States); RanPharm Inc. (United States); Rexcel Pharmaceuticals Ltd.; Solus Pharmaceuticals Ltd.; Unichem Distributors (Thailand; 99.96%); Vidyut Investments Ltd.; Vidyut Travel Services Ltd.

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3.2 RATIO ANALYSIS OF RANBAXY LAB:

PROFITABILITY RATIO:

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LIQUIDITY RATIO:

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3.3 SWOT Analysis
1. Strengths 1. Strategic Alliances – GSK and Merck. 2. Differentiated Product Offering – Generics, Branded Gx, Branded, OTC. Broad product portfolio imparting revenue stability. 3. Patents. 4. Strong presence in diverse geographies insulating business risks. 5. Aggressive Marketing. 6. Manufacturing Efficiencies – Labour, Infrastructure and Global Quality Standards. 7. R&D capabilities – skilled scientist pool, research across Generics as well as Innovative Research (NCE, NDDS, Niche FTF), and Process Chemistry Expertise. 8. Low cost innovation and high quality product flow. 9. Strong CSR programs contributing to a positive reputation in the industry. 2. Weaknesses 1. High Cost structure related to manufacturing, R&D and distribution. 2. Lack of ethical culture, proven when Ranbaxy submitted improper and falsified documents to USFDA. 3. Legal and Compliance issues with its manufacturing facilities at Dewas and Paonta Sahib in India. 4. Tarnishing reputation in the industry because of the above two issues. 5. Nepotism in the organization – high degree of family interference and control. 3. Opportunities 1. Untapped high-growth emerging markets. 2. Ageing world population can act as a fundamental growth driver by providing increase in demand for medicines. 3. Possible leverage on Daiichi Sankhyo’s strengths. 4. Threats 1. High entry barriers – technology and resource intensive. 2. Productivity under pressure – saturated developed markets.

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3. Disruptive Technologies challenging established portfolios. 4. Increased regulations on Generic Drugs in developed countries like USA. 5. Unpredictable dollar rate fluctuation.



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