Pharmaceutical Industry

Prepared by:Vipin KumarVishal Joon

Dheeraj Yadav

DELHI SCHOOL OF MANAGEMENT

Contents of the PPT

Introduction• The pharmaceutical industry develops, produces, and markets

drugs licensed for use as medications.• Most of today's major pharmaceutical companies were founded

in the late 19th and early 20th centuries.• Key discoveries of the 1920s and 1930s, such as insulin and

penicillin, became mass-manufactured and distributed.• Switzerland, Germany and Italy had particularly strong industries,

with the UK, US, Belgium and the Netherlands following suit.• The industry got underway in earnest from the 1950s, due to the

development of systematic scientific approaches, understanding of human biology (including DNA) and sophisticated manufacturing techniques.

Introduction Contd…• The pharmaceutical industry develops, produces, and markets

drugs licensed for use as medications.• Most of today's major pharmaceutical companies were founded

in the late 19th and early 20th centuries.• Key discoveries of the 1920s and 1930s, such as insulin and

penicillin, became mass-manufactured and distributed.• Switzerland, Germany and Italy had particularly strong industries,

with the UK, US, Belgium and the Netherlands following suit.• The industry got underway in earnest from the 1950s, due to the

development of systematic scientific approaches, understanding of human biology (including DNA) and sophisticated manufacturing techniques.

Pharmaceutical Industry in India• The Indian Pharmaceutical Industry today is in the front rank of

India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology.

• The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades.

• The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, tablets, capsules etc.

• Indian pharmaceutical companies are vying for the branded generic drug space to register their global presence.

• Several Indian pharmaceutical companies have made their presence felt in USA and others are trying to do the same.

Some Acquisitions by Indian Pharmaceutical Companies

• Acquisitions by Ranbaxy– Romania’s Terepia– Ethimed NV of Belgium– GSK’s generic business Allen SpA in Italy. – Be-Tabs Pharmaceuticals (Pty) Limited ("Be-Tabs“) in South

Africa.• Dr Reddy's acquired German generic

drug maker Betapharm.• Companies like Glenmark Pharma, Lupin, Aurobindo and

Jubilant Organosys are on the lookout for lucrative acquisitions.

Top Pharmaceutical Companies

Rank Company Country Total Revenues (USD millions)

1 Johnson & Johnson United States 63,747.0

2 Pfizer United States 48,296.0

3 GlaxoSmithKline United Kingdom 44,654.0

4 Roche Switzerland 44,267.5

5 Sanofi-Aventis France 42,179.0

6 Novartis Switzerland 41,459.0

7 AstraZeneca United Kingdom 31,601.0

8 Abbott Laboratories United States 29,527.6

9 Merck United States 23,850.3

10 Wyeth United States 22,833.9

Source: Fortune Global 500 July 2009, Top Pharmaceutical Companies by Revenue

Top Pharmaceutical Companies In India

Rank Company Total Revenues (INR Crores)

1 Ranbaxy Laboratories 25,196.48

2 Dr. Reddy’s Laboratories 4,162.25

3 Cipla 3,763.72

4 Sun Pharma Industries 2,463.59

5 Lupin Labs 2,215.52

6 Aurobindo Pharma 2,080.19

7 GlaxoSmithKline Pharma 1,773.41

8 Cadilla Healthcare 1,613.00

9 Aventis Pharma 983.80

10 Ipca Laboraties 980.44

Source: Rediffmail Article On Top Pharmaceutical Companies In Indiahttp://specials.rediff.com/money/2008/jun/11sld01.htm

PESTLE ANALYSIS

• Increasing Political AttentionOver the years the industry has witnessed

increased political attention due to the increased recognition of the economic importance of healthcare as a component of social welfare. Political interested has also been generated because of the increasing social and financial burden of healthcare.

Economic Value Added• In the decade to 2003 the pharmaceutical industry witnessed high

value mergers and acquisitions. With a projected stock value growth rate of 10.5 % (2003-2010) and health care growth rate of 12.5% (2003-2010), the audited value of the global pharmaceutical market is estimated to reach a huge 500 billion dollars by 2004. Only information technology has a higher expected growth rate of 12.6%. Majority of the pharmaceutical sales originate in US, EU and Japanese markets. Nine geographic markets account for over 80% of the global pharmaceutical sales. These are US, Japan, France, Germany, UK, Italy, Canada, Brazil and Spain. Of these markets, the US is the fastest growing market and since 1995 it has accounted for close to 60% of global sales. In 2000 alone, the US market grew by 16% to $133 billion dollars making it a key strategic market for pharmaceuticals.

The Social Dimension

• Good health is an important personal and social requirement and the unique role pharmaceutical firms play in meeting society’s need for popular well being cannot be underestimated. In recent times, the impact of various global epidemics e.g. SARS, AIDS etc has also attracted media attention to the industry. The effect of intense media and political attention has resulted in increasing industry efforts to create and maintain good government industry society communications.

Technological Advances

• Modern scientific and technological advances in science is forcing industry players to adapt ever faster to the evolving environments in which they participate. Scientific advancements have also increased the need for increased spending on research and development in order to encourage innovation.

Legal Environment

• The pharmaceutical industry is a highly regulated and compliance enforcing industry. As a results there are immense legal, regulatory and compliance overheads which the industry has to absorb. This tends to restricts it’s dynamism but in recent years, government have begun to request industry proposals on regulatory overheads to do so as not to discourage innovation in the face of mounting global challenges from external markets.

Structural Industry Analysis (Porter’s Five Forces)

• Threat of New Entrants: LOW– Market of generic drug is huge.– Government policies very supportive but price regulations

exist.– The market is highly competitive and fragmented, with the top

10 players accounting for 36.1% of sales in India in the year 2008.

– Very low fixed cost is required in setting up the plant but high working capital is required .

– The cost associated with years of research and development, government regulatory compliance and risk associated with the industry discourages new entrants from entering the market.

• Bargaining Power of Suppliers: LOW– Volume benefit may occur to locally available

large number of suppliers.– Raw material cost constitute more than 50% of

expenses.– Most of the pharmaceutical companies depend

on the organic chemicals, chemical industry is highly fragmented and competitive.

– Thus supplier’s have low bargaining power as one can shift from one supplier to another very easily.

• Threat of substitutes: MODERATE– There is no substitute for medicines.– But biotechnology is a threat to pharmaceutical

products.– Further, threat of substitutes is low if the

companies acquire patents on some of their products.

• Bargaining power of buyers: LOW– End consumers do not have enough bargaining

power with them.– Brand identity exist but in the hand of doctors.– The power of large bulk buyers such as managed

care organizations and hospitals has had some pressure on manufactures to contain costs.

Strategic Issues Facing The Industry

• Industry Consolidation• Science and Innovation• Increased Competition• Changing Consumer Profile• Ageing Populations• Changing Geo-political Environment• Decreasing Consumer Influence

Ranbaxy Laboratories• Ranbaxy Laboratories Limited is India's largest pharmaceutical company.• Ranbaxy was started by Ranbir Singh and Gurbax Singh in 1937.• It was incorporated in 1961 and went public in 1973.• Ranbaxy exports its products to 125 countries with ground operations in

46 and manufacturing facilities in seven countries.• In 1998, Ranbaxy entered the United States, the world's largest

pharmaceuticals market and now the biggest market for Ranbaxy, accounting for 28% of Ranbaxy's sales in 2005.

• On June 11, 2008, Daiichi-Sankyo acquired a 34.8% stake in Ranbaxy, for a value $2.4 billion. In November 2008, Daiichi-Sankyo completed the takeover of the company from the founding Singh family in a deal worth $4.6 billion by acquiring a 63.92% stake in Ranbaxy.

• It is headquarted in Gurgaon and has manufacturing locations in 11 countries.

SWOT Analysis of Ranbaxy

• Strengths:– Leader in Indian Pharmaceutical Industry– Strong growth in USA.– Large pool of skilled technical manpower.– Large pool of installed capacities and thus cost of

production is low for them.

• Weaknesses:– Lack of experience to exploit efficiently the new

patent regime.

• Opportunities:– Aging of the world population.– Growing incomes.– Growing attention for health.– New therapy approaches.– Easier international trading.– New markets are opening.– Opportunity to apply for patents for the products

of other companies that are likely to get expire in near future.

• Threats:– High entry cost in newer markets.– There is a always a legal threat of running into

problems regarding the patents.– High cost of sales and marketing.– High cost of discovering new products and fewer

discoveries.

Porter’s Five Forces Model

Threat of Substitutes: LOW

• It is low because the demand for pharmaceutical products will always be there.

• Patents are also there to protect certain specialized products.

• Pharmaceutical companies have an infinite future like Ranbaxy.

• The only threat can be the advances in biotechnology which can reduce the use of synthetic pharmaceutical products.

Barriers to Entry: MODERATE

• Quality regulations by the government may put some hindrance for establishing new manufacturing operations.

• The new patent regime has raised the barriers to entry.

• It is very important to create awareness of the brand among doctors for a long term survival.

• But it is unlikely to discourage new entrants, as market for pharmaceuticals will be as huge.

Bargaining Power of Buyers: LOW

• We don’t have any other option but to buy what doctor prescribes to us.

• Also, buyers are scattered and they as such do not wield much power in the pricing of the products.

• But our government with its policies, plays an important role in regulating pricing through the NPPA (national pharmaceutical pricing authority).

Bargaining Power of Suppliers: LOW

• The suppliers have very low bargaining power and the companies in the pharmaceutical industry can switch from their suppliers without incurring a very high cost.

• There are a large number of chemical industries in India and there is a very high competition between them.

• Supplier’s on their part can go for forward integration to become a pharmaceutical company. Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies who turned themselves into pharmaceutical companies.

Industry Competition: HIGH

• Pharmaceutical industry is one of the most competitive industries in the country with as many as 10,000 different players fighting for the same pie.

• Ranbaxy has only about 6% of the market share while being the market leader.

• Entry barriers are also low which further adds to the competition.

Industry Competition Contd.

• Earlier it was easy for Indian pharmaceutical companies to imitate pharmaceutical products discovered by MNCs at a lower cost and make good profit. But today the scene is different with the arrival of the patent regime which has forced Indian companies to rethink its strategies and to invest more on R&D.

• Pharmaceutical is a stable market and thus it attracts a large number of entrepreneurs in this business.

Pfizer

• Pfizer Incorporated is a pharmaceutical company, ranking number one in sales in the world.

• The company is based in New York City, with its research headquarters in Groton, Connecticut.

• Pfizer was founded by cousin Charles Pfizer and Charles Erhardt in 1849.• It has been dedicated to discovery and developing new and better ways to

prevent and treat diseaseand improve health of people.• Pfizer pleaded guilty in 2009 to the largest health care fraud in U.S. history and

received the largest criminal penalty ever levied for illegal marketing of four of its drugs.

• Called a repeat offender, this was Pfizer's fourth such settlement with the U.S. Department of Justice in the previous ten years

• On January 26, 2009, Pfizer agreed to buy pharmaceutical giant Wyeth for US$ 68 billion, a deal financed with cash, shares and loans.

• The deal was completed on October 15, 2009

Pfizer’s Strategy

• Pfizer has done quite well historically.• But as we enter a new era in the pharmaceutical

industry with increased patent risks and lower marginal product returns, pharmaceutical firms like Pfizer must restructure their huge organizational mass to reduce structural inefficiencies, cut costs which is required to enable them compete better in the changing global environment.

• Due to it massive R&D push, Pfizer suffers a relatively high rate of discontinuation in pre-approval products and more focus is required to reduce resource wastage.

Pfizer Strategy Continued…

• Pfizer’s lack of promising products in its early stage pipeline has left its combined pipeline relatively weaker.

• While the numbers of co-marketing and collaborative agreements, which Pfizer has established, are currently proving very favourable, agreements that geographically limit Pfizer’s activities will ultimately reduce its long term potential and must be guarded against.

• Finally, the economic emergence of mass production economies like India and China into the pharmaceutical fray will require new containment strategies.

SWOT Analysis of Pfizer

Strengths

R&D innovation with a broad therapeutic coverage

Marketing strength in major geographical and therapeutic areas

Existing Patent protection for a number of years on key products

Opportunities

• Decreasing development time through favorable R&D collaborations and internal efforts

• • Emergence of integrated global markets and globalisation for new products

• • Co-marketing agreements with companies wishing to capitalize on Pfizer's marketing

• strengths, providing Pfizer with strong products and therefore revenue growth

Weaknesses

• Weaknesses • • Discontinuation of products in the latter

stages of development • • Co-marketing agreements can limit Pfizer's

global presence • • Increased size and operational complexity

makes Pfizer a less agile company

Threats

• Increased competition for core products like Viagra as its high cost encourages use of cheaper alternative treatments.

• An increase in the number of safety issues surrounding Viagra

• • Competition from products similar to Pfizer's in R&D that reach the market close to or before Pfizer's products

• • The new economic potential of emergent China, India and competition in diverse

• regional markets.