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Report onStrategic Tools Analysis for
Pharmaceutical Industry
Submitted to: Submitted By
Mr. Jayant Bose Abhay Duseja ((P301311CMG201)Course In charge Agnel Vas(P301311CMG207)Business Planning, Policy & Strategy AmulpreetSehgal(P301311CMG209)
Ankit Jain (P301311CMG213)Ashish shah(P301311CMG218)Deepesh Agrawal (P301311CMG223)
NIIT University, Neemrana
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ContentsOverview of Indian Pharmaceutical Industry.............................................................. 2
Introduction to Dr Reddys Laboratories .................................................................... 4
Manufacturing facilities and R&D............................................................................. 4
Business profile ........................................................................................................ 4
Market Position ........................................................................................................ 5
Key developments ................................................................................................... 5
PEST Analysis.............................................................................................................. 6
External Factor Analysis Summary (EFAS) ................................................................ 7
Steps for EFAS ......................................................................................................... 7
EFAS for Pharmaceutical Industry ........................................................................... 8
External Factor Analysis Score ................................................................................ 9
Internal Factor Analysis Summary (IFAS) ................................................................. 10
Steps for IFAS ........................................................................................................ 10
IFAS for Dr Reddys Labs....................................................................................... 11
Internal Factors Details .......................................................................................... 12
Internal Factor Analysis Score ............................................................................... 13
Strategic Factor Analysis Summary (SFAS) ............................................................. 14
TWOS Matrix ............................................................................................................. 15
Porter's Competitive strategy Analysis ..................................................................... 16
Recommendations .................................................................................................... 17
References ................................................................................................................. 19
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Overview of Indian Pharmaceutical Industry
The Indian pharmaceutical industry is estimated to be worth $29.9 billion (includingexports) in 2011-12. Of this,the domestic formulations market was valued at $11.6 billion(or Rs 556.6 billion). In value terms, it constituted only 1.2 per cent of the global
pharmaceutical market because of lower drug prices and lower penetration of healthcarevis-a-vis developed markets, such as the US and Europe. India spends just 1.4 per centof its total gross domestic product on healthcare; the country ranks amongst the lowestin this respect. In contrast, the corresponding figure for developed countries is in excessof 6.5-8 per cent of GDP.
Pharmaceutical Value Chain
Pharmaceutical value chain
Source: CRISIL Research
Bulk drugs or active pharmaceutical ingredients ( APIs), are raw materials used tomanufacture formulations, which in turn, are ready-to-use forms of bulk drugs(including capsules, tablets, syrups and injections) administered to patients. Bulkdrugs are manufactured by combining more than two chemicals or intermediaries. Theydirectly affect the diagnosis, cure, mitigation, treatment or prevention of a disease.
Domestic formulation industry highly fragmented
Over 100,000 drugs across various therapeutic categories ar e produced annually inIndia. The domestic formulations industry is highly fragmented in terms of both numberof manufacturers as well as the variety of products. There are 300-400 organized playersand about 15,000 unorganized players (small scale sector) in this industry.However, in terms of sales, the formulations market is dominated by organizedplayers.
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Regimes of Pharmaceutical Industry Pre Patent regime
The Indian pharmaceutical industry has grown rapidly over the last few decades.Prior to 2005, the Indian regulatory system recognized only process patents
Post Patent regimeIn line with its commitments to the WTO, the Indian government passed anordinance to introduce the product patent regime w.e.f. January 2005.
Pharmaceutical Value Chain
Bulk drugs are manufactured by combining more than two chemicals orintermediaries
Bulk drugs or active pharmaceutical ingredients (APIs) are raw materials, used toform formulations, which in turn, are ready-to administered to patients
Chemical /Intermediaries
Active Pharmaceutical Ingredients(API)/Bulk Drugs
Formulations
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Introduction to Dr Reddys Laboratories
Dr Reddy's Laboratories (DRL) was founded by Dr Anji Reddy in 1984. One of India's largest pharmaceutical companies, in terms of revenues. The company has over 190 medications, 60 active pharmaceutical ingredients(APIs) for
drug manufacture, diagnostic kits,critical care, and biotechnology products.
DRL commenced operations as a supplier to Indian drug manufacturers. Subsequently,in the late 1980s, the company started exporting products to semi-regulated markets
and gradually expanded its scale of operations.
By the early 1990s, the company shifted focus towards acquiring approvals for itsformulations and bulk drugs in regulated markets, such as the US and Europe.
Manufacturing facilities and R&D DRL has eight API manufacturing units - six in India, and one each, in Mexico and the
UK. All these facilities are approved by the US FDA.
The company has seven formulation manufacturing facilities in India (of which, 2are approved by the US FDA) and two manufacturing units in the US (both approved
by the US FDA).
Additionally, the company has a biologics facility in Andhra Pradesh, which hasapproval from various regulatory agencies.
Further, DRL has three technology development centers; two in Hyderabad and one inUK. It also has two R&D centres, one each in Bangalore and Hyderabad.
Business profile DRL is present across the pharmaceutical value chain. It produces formulations, active
pharmaceutical ingredients (APIs), diagnostic kits, critical care products, and
biotechnology products.
At present, it also has a handful of molecules or New Chemical Entities (NCEs) inthe discovery and pre-clinical stages.
DRL sells its products in approximately 100 countries worldwide, with the US,Russia and European countries, being the major markets.
The company has strategic alliances with global firms, such as Par Pharmaceuticals,Leiner Health Products, Cobalt Pharmaceuticals, Pharmascience, Merck Sereno etc.
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Market Position DRL is the 15th largest player in the domestic market, with a 2.09 per cent share, as
of March 2012.
Mainly derives revenues through exports and has a strong pipeline of ANDAs (80ANDAs pending with the US FDA, as of March 2012) and drug master files (543 asof March 2012).
Gastro-intestinal, cardio-vascular and pain analgesics are the top therapeuticcategories for DRL.
These segments jointly constitute more than 55 per cent of DRL's total domesticformulation revenues. The companys top brands are Omez (acute gastritis),
Stamlo (chronic) and Nise (acute).
Key developments In June 2012, DRL entered into a partner ship with Merck Serono (a division of
German company, Merck KGaA) to develop and manufacture a portfolio of
biosimilar drugs, primarily in the oncology segment.
Under this deal, Dr. Reddys will lead the early product development stage andcomplete the initial round of trials.
Merck Serono will have exclusive sales rights for these drugs, globally (with certainexceptions), and will pay royalty fees to Dr. Reddy's.
DRL's API plant in Mexico restarted operations from July 2012, a year after itreceived an import alert from the US FDA.
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PEST Analysis
The macro environment tends to have a long term impact and requires extensive
research. These external forces (Political, Economical, Social and Technology) will play a
big part in shaping the final outcome of the ultimate corporate achievement.
PoliticaL
-Drug controllers plan to bring
more drugs unde prcie control
-Pharmaceutical SEZs-Changes in Import and exportduties
-Concers of animal rightsorginations such as PETA andBUAV
-Implementation of productpatents
Economical
-Amount of low level medical
spending (!%)
-Low labour cost-Increasing population
-Healthcares increasingindustry penetration
-Expected hight GDP growthrate
Social
-Poor resources causingillness
-Preference of householdmedicines
-Lack of awareness due to loweduction levels
Technical
-Advancements resulting intodifferentiation and costeffetivenss
-Increased output
-NDDS-Advances capability informulation research
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External Factor Analysis Summary (EFAS)
Opportunity and Threats Gives position of a firm w.r.t. external environment, considering the following
factors
o Politicalo Economicalo Socialo Technologicalo Research and Developmento Environmental
Helps organize the External factors into the generally accepted categories ofopportunity and threats
To analyze how well the industry is responding to external factors in light of theperceived importance of these factors to the company.
Helps to formulate new strategies and policies on the basis of a firm s currentposition
Steps for EFAS
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EFAS for Pharmaceutical IndustryOpportunityExternalFactors Weight Rating WeightedScore CommentsOPPORTUNITY
Significantexportpotential
0.2 5 1 Significant export potential to thedeveloping & developed countries
Licensing dealsandcollaborations
0.15 4 0.6 Licensing deals and collaborations withMNCs for New Chemical Entities andNew Drug Delivery Systems
Contractmanufacturing
0.1 4 0.4 Contract manufacturing arrangementswith MNCs
Awareness and
Spending
0.1 3.5 0.35 Growing awareness and increasing
spending on healthMarketingoperations
0.05 4 0.2 Providing marketing operations to sellMNC products in domestic market
ThreatsExternalFactors Weight Rating WeightedScore Comments
THREATS
Product patentregime
0.15 2 0.3 Product patent regime poses seriouschallenges to domestic industries unless itinvests in R & D.
Ceilings onproduct prices
0.1 2 0.2 DPCO puts unrealistic ceilings on productprices and profitability and preventspharmaceutical companies fromgenerating investible surplus.
Research &Development
0.05 1.5 0.075 R & D efforts of Indian pharmaceuticalcompanies hampered by lack of enabling
regulatory requirement.
Currency
Fluctuations
0.1 1.5 0.15 More than 50 % of revenue is earned from
Exports which posed high risk due to
currency fluctuations
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External Factor Analysis Score
Internal Factor Weights Total Score
Opportunity 0.6 2.55Threats 0.4 .725Total 1.0 3.275 Total weighted score of Pharmaceutical Industry is above average. External factors are above average :
o Significant export potential to the developing & developed countrieso Licensing deals and collaborations with MNCs for New Chemical Entities
and New Drug Delivery Systems
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Internal Factor Analysis Summary (IFAS)
IFAS Table is one way to organize the internal factors into the generally acceptedcategories of Strengths and Weaknesses.
It gives position of a firm w.r.t. internal environment, considering the followingfactorso Financialo Managemento Human Resourceo Research & developmento Legalo Competitive
Helps organize the internal factors into the generally accepted categories ofstrengths and weaknesses
To analyze how well a particular companys management is responding to thesespecific factors in light of the perceived importance of these factors to the
Helps to formulate new strategies and policies on the basis of a firm s currentposition
Steps for IFAS
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IFAS for Dr Reddys Labs
StrengthsInternalFactors
Weight Rating WeightedScore
Comments
STRENGTHS
HumanResourceCompetency
0.08 4 0.32 Best employer in Pharmaceuticalindustry
FinancialPosition
0.15 4.5 0.675 Highest Revenue with highprofitability
CompanyManagement
0.07 4 0.28 Corporate governance & CSR
Alliances andPartnerships
0.1 3.5 0.35 Building Synergies
Approvals andInternationalCertification
0.05 4 0.2 US FDA along with USPcertifications
ExclusiveProducts
0.15 3.5 0.525 Limited competitive generics
Weakness
InternalFactors
Weight Rating WeightedScore
Comments
Weakness
Infrastructure 0.05 2.5 0.125 Limited Production facilities
Diversified
Portfolio
0.1 2 0.2 Higher concentration on Generic
products
Research &Development
0.2 1.5 0.3 Investment lowest among peers
Legal 0.05 1.5 0.075 Patent infringement, Productrecalls
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Internal Factors DetailsHuman Resource Competency
Awardso Best Employer in India 2007o Best company to work with in India 2006,2007o Best Employer in Pharmaceutical Industry in India - 2011
Leadership programs Adoption of role based organization
Key Financials
Expression Units 10-Mar 11-Mar 12-Mar
Operating Income Rs million 73293 78829 97655
Net Income Rs million 3515 9989 13009
Operating Margins Percent 23.8 21.7 25.8
Net Margins Percent 4.8 12.7 13.3
RoCE Percent 14.6 24.5 29.1
Debt/Equity Times 0.5 0.8 0.8
Interest Coverage Times 55.8 46.3 22.1
Net CashAccruals/Total Debt Times 0.4 0.5 0.5
Current Ratio Times 1.6 1.1 1.5
In 2011-12, DRL's revenues grew by 23.9 per cent y -o-y, led byhealthy growth of 68 per cent in the US market.
Growth in the company's US revenues was primarily supported bythe launch of new products, especially generic olanzapine, which waslaunched under a 180-day marketing exclusivity.
The marketing exclusivity also led to an improvement in operatingmargins by 410 bps y-o-y to 25.8 per cent.
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Company Management
Dr K. Anji Reddyo 30 years of experienceo
Has served as a member of Prime Ministers council on Trade & Industryo President of Indian Pharmaceutical allianceo Chairman of Andhra Pradesh Industrial development corporation
Awarded Golden Peacock Award for excellence in corporate governance - 2009 &2010
Awarded Best CSR activity award in Pharmaceutical Industry in 2011o LABSo Schools
Exclusive Products
4 Drugso Tacrolimuso Lansoprazoleo Omeprazoleo Fondaparinux
Contributed 32% of sales in USInternal Factor Analysis ScoreInternal Factor Weights Total ScoreStrengths 0.6 2.35Weaknesses 0.4 0.7Total 1 3.05 Total weighted score of Dr Reddys is above average. Its strategies are effective:
o Company is taking advantage of low cost generic products in emergingmarkets.
o Company is shifting its focus to research on difficult to make generic drugs
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Strategic Factor Analysis Summary (SFAS)
Strategic Factor Analysis Summary(SFAS) matrix, also referred to as Quantitative SWOT
Analysis, which is used widely across organizations globally as a key strategic planning
tool. The framework trifurcates an organizations operating environment into Societal, Task
& Internal environment respectively with the societal & task environments togetherconstituting the firms external environment.
SFAS Analysis
Total weighted score of Strategic factor Analysis summary is 3.25 which is aboveaverage.
SFAS is above average :o High Financial Position of Dr. Reddy Lab due to high revenue and high
profitability
o Significant export potential to the developing as well as developed countries
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TWOS Matrix
TOWS is just another way of saying SWOT illustrates how the external opportunities and
threats facing a particular corporation can be matched with that companys internal
strengths and weaknesses to result in four sets of possible strategic alternatives. It helps in
creating alternative strategies related to growth and retrenchment.The TOWS Matrix is very useful for generating a series of alternatives that the decision
makers of a company or business unit might not otherwise have considered. It can be
used for corporation as a whole or it can be used for a specific business unit within a
corporation.
TWOS Matrix
STRENGTHS WEAKNESS1. Human Resource Competency 1. Infrastructure
2. Financial Position 2. Diversified Portfolio
3. Company Management 3. Research & Development
4. Alliances and Partnerships 4. Legal
5. Approvals and InternationalCertification
6. Exclusive Products
OPPORTUNITY SO Strategies WO Strategies1. Significantexport potential
Strategic alliances/partnershipsignificantly improve export potential(S4)
Exports effort hampered by proceduralhurdles in India as well as non-tariffbarriers imposed abroad (W4)
2. Licensing dealsand collaborations
Licensing deals and collaborationswith MNCs for New Chemical Entitiesand New Drug Delivery Systems (S6)
R & D efforts of Indian pharmaceuticalcompanies hampered by lack ofenabling regulatory requirement.
3. Contract
manufacturing
Contract manufacturing arrangements
with MNCs (S4)4. Awareness andSpending
Growing awareness and increasingspending on health (S2)
5. Marketingoperations
Providing marketing operations to sellMNC products in domestic market(S5)
THREATS ST Strategies WT Strategies1. Product patentregime
Product patent regime poses seriouschallenges to domestic industriesunless it invests in R & D.(S3)
2. Ceilings onproduct prices
DPCO puts unrealistic ceilings onproduct prices and profitability fromgenerating investible surplus.(S2)
3. Research &Development
R & D efforts of Indian pharmaceuticalcompanies hampered by lack ofenabling regulatory requirement.
4. CurrencyFluctuations
of revenue is earned from Exportsgh risk due to currency fluctuations
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Porter's Competitive Strategy Analysis
Scope
Bro
ad Generics, APIs
Cost Leadership
Different Formulations,NCEs
Differentiation
Narrow
CostFocus
DifferentiationFocus
Cost Differentiation
Source of Competitive Advantage
Dr Reddys lab has been focusing on low cost for domestic and export markets.
Companys major purpose is to provide affordable medicines through its branded and
unbranded generics. Company offers low cost alternatives for its highly priced innovative
brands. For eg the company successfully introduced Fluoxetine (generic version of
Prozac), Donepezil hydrochloride tablets (generic version of Aricept). Companies attains
economies of scale through centralized production. Thus the company follows overall cost
leadership business strategy in case of Generic drugs and APIs.
Company is also investing in R&D to bring differentiated formulations and New Chemical
Entities (NCEs) into the market. Its strategy with respect to these products is overall
innovative as it tries to bring new effective drugs into the market.
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Recommendation
Research & DevelopmentDr. Reddys Lab invest approximately 8% of revenue for the R & D , which is
approximately half the amount invested by the global multinational pharmaceuticalcompanies. So Dr. Reddy Lab can be more competitive and can also take the benefit of
the margins if sufficient amount is invested in R & D.
Patent infringement & Product recallsSince the patent infringement and product recalls can adversely affect the brand image
and the customer value, Dr Reddys Lab should ensure high degree of compliance to
the guidelines issued by the regulators of the domestic as well as the exporting country.
In addition violation also results in levy of huge financial penalty as in recent case of
Ranbaxy.
Approvals and International CertificationIt is prerogative for any pharmaceutical company to obtain the approvals and
certifications from the regulator of the country where the medicines are getting sold
and hence Dr. Reddys Lab is recommended to vouch for the same in order foray into
international markets and increase revenue.
Shift Research Focus to Diagnostic-Led StrategyEven with well-established treatments for a condition, there are significant numbers of
patients that are either not diagnosed in a timely manner or not diagnosed at all. Betterdiagnostics and physician education could significantly improve the number of people
getting diagnosed and therefore increase the number of patients getting treated thus
resulting in increased revenues for drug companies. In order to adopt this approach, Dr
Reddy Laboratory would have to: a) Shift marketing resources from promoting specific
products to promoting diagnostic testing; b) Time the development of the diagnostic to
coincide optimally with the development of the therapeutic; and c) Develop business
models that motivate physicians and diagnostic providers to participate
Strategic Alliances & PartnershipsIn an increasingly challenging marketplace, where M&A strategies are failing to deliver
R&D productivity gains, the importance of alliances has increased significantly. In fact,
research suggests that products co-developed by a pharmaceutical and biotech
company are more likely to be commercialized than those that are developed by a
single entity
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Consortium arrangement with Peer CompaniesWhile several models of combining research capabilities among companies can be
conceived (joint ventures, alliances, etc.) and are presented with a variety of
justifications, philosophically it is difficult to distinguish these ventures from the
financial reality of merging firms. Even if the venture is of smaller scope than the entirefirm for example, combining cardiovascular research to jointly-develop a product
these type of arrangements offer little or no value to the shareholders of the
participating companies from a risk-sharing perspective.
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References
o Changing Patterns of Pharmaceutical Innovation: A Research Report. TheNational Institute for Health Care
o Management Research and Educational Foundation. Self-published. May 2002.pp. 15-6.
o Gilbert, J., et al.; Rebuilding Big Pharmas Business Model. In Vivo. November2003.
o www.drreddys.como Henderson, Rebecca. Drug Industry Mergers Wont Necessarily Benefit R&D.
Research Technology
o www.moneycontrol.como Management. Vol. 43. No. 4 (Jul/Aug 2000). pp. 10-11.o Landau, Ralph. Achilladelis, Basil. Scriabine, Alexander. Pharmaceutical
Innovation: Revolutionizing Human
o Health. Chemical Heritage Press, 1999. pg 100-105.o www.capitaline.como Lam, Michael D. Why Alliances Fail. Pharmaceutical Executive. June 2004. Vol.
24. Issue 6. pp. 56.
o www.yahoofinance.como Myshko, Denise. The Secret to Alliance Success. PharmaVOICE. October 2004.
Vol. 4, No. 10, pp. 14-24.
o www.researchandmarkets.com
http://www.drreddys.com/http://www.moneycontrol.com/http://www.capitaline.com/http://www.capitaline.com/http://www.moneycontrol.com/http://www.drreddys.com/