PROJECT REPORT ON

Indian Pharmaceutical Industry Overview:

The Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.

Playing a key role in promoting and sustaining development in the vital field of medicines, Indian Pharma Industry boasts of quality producers and many units approved by regulatory authorities in USA and UK. International companies associated with this sector have stimulated, assisted and spearheaded this dynamic development in the past 53 years and helped to put India on the pharmaceutical map of the world.

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

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

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Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the drugs and pharmaceutical products has been done away with. Manufacturers are free to produce any drug duly approved by the Drug Control Authority. Technologically strong and totally self-reliant, the pharmaceutical industry in India has low costs of production, low R&D costs, innovative scientific manpower, strength of national laboratories and an increasing balance of trade. The Pharmaceutical Industry, with its rich scientific talents and research capabilities, supported by Intellectual Property Protection regime is well set to take on the international market.

Environmental Analysis (PEST)

Technological advancements, tighter regulatory-compliance overheads, rafts of patent expiries and volatile investor confidence have made the modern pharmaceutical industry an increasingly tough and competitive environment. Below is an analysis of the structure of the pharmaceutical industry using the PEST (political, economic, social and technological) model.

Increasing Political Attention:Over 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 interest has also been generated because of the increasing social and financial burden of healthcare. Examples are the UK’s National Health Service debate and Medicare in the US..

Economic Value Added:In the decade to 2003 the pharmaceutical industry witnessed high value mergers and acquisitions7. 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 pharmaceutical sales originate in the US, EU and Japanese markets. Nine geographic markets account for over 80% of 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:

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Good health is an important personal and social requirement and the unique role pharmaceutical firms play in meeting society’s need for popular wellbeing cannot be underestimated. In recent times, the impact of various global epidemics e.g. SARS, AIDS etc has also attracted popular and media attention to the industry. The effect of the 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 result there are immense legal, regulatory and compliance overheads which the industry has to absorb. This tends to restrict it’s dynamism but in recent years, government have begun to request industry proposals on regulatory overheads to so as not to discourage innovation in the face of mounting global challenges from external markets.

Company ProfileWe are an international specialty pharma company, with a presence in 30 markets. We also make active pharmaceutical ingredients. In branded markets, our products are prescribed in chronic therapy areas like cardiology, psychiatry, neurology, gastroenterology, diabetology and respiratory.

We have the same drive for growth that marked our early days. Sun Pharma came into existence as a startup with just 5 products in 1983. In the time since, we have crossed several milestones to emerge as an important specialty pharma company with technically complex products in global markets, and a leading pharma company in India.

In India, We have reached leadership in each of the therapy areas that we operate in, and are rated among the leading companies by key customers. Strengthening market share and keeping this customer focus remains a high priority area for the company.

In the post-1996 years, we have used a combination of internal growth and acquisitions to drive growth; important mergers were those of the US, Detroit based Caraco Pharm Labs, ICN

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Hungary (now called Alkaloida Chemical Company Exclusive Group), and that of the internationally approved plants at Halol, India as well as Bryan, Ohio, US and Cranbury, NJ, US.

We have shifted work related to new molecules and drug delivery systems to a company, SPARC, which is listed on the Indian stock exchange.

BACKGROUND

Sun Pharma began in 1983 with just 5 products to treat psychiatry ailments. Sales were initially limited to 2 states - West Bengal and Bihar. Sales were rolled out nationally in 1985. Products that are used in cardiology were introduced in 1987, and Monotrate, one of the first products launched at that time has since become one of our largest selling products. Important products in Cardiology were then added; several of these were introduced for the first time in India.

Realizing the fact that research is a critical growth driver, they established their research center SPARC in 1993 and this created a base of strong product and process development skills.

Sun Pharma was listed on the main stock exchanges in India in 1994; and the Rs. 55 crore issue of a Rs. 10 face value equity share at a premium of Rs. 140/- was oversubscribed 55 times. The minimum 25% that was required under the regulations then for listing was offered to the public, the owner family continues to hold a majority stake in Sun Pharma. We used this money to build a greenfield site for API manufacture, as well as for acquisitions. For the acquisitions, typically companies or assets that could be turned around and brought on track were identified.

Our first API manufacturing plant was built in Panoli in 1995, for access to high quality actives ahead of competition, and to tap the vast international opportunity for speciality APIs.

Another API plant, our Ahmednagar plant, was acquired from the multinational Knoll Pharmaceuticals in 1996, and upgraded for approvals from regulated markets, with substantial capacity addition over the years. This was the first of several sensibly priced acquisitions, each of which would bring important parts to the long-term strategy.

By 1997, our headquarters were shifted to Mumbai, the commercial capital of the country. We began on the first of our international acquisitions with an initial $7.5 million investment in Caraco Pharm Labs, Detroit. By 2000, we had completed 8 acquisitions, each such move adding new therapy areas or offering an entry to important international markets. A new research center was set up in Mumbai for generic product development for the US market. In India, as new therapy areas were entered into post acquisition; customer attention, product selection and focused marketing helped us gain a foothold in areas like orthopedics, gynecology, oncology, etc. From a ranking at 38th in 1994, by 2000 we were ranked 5th with a leadership in 8 of the 11 therapy areas that we are present in. The year 2000 was the year of turnaround at

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the US subsidiary, Caraco, as it began to receive approvals after successful inspection by the USFDA. In December 2004, a research center spread over 16 acres was inaugurated by the President of India, with special lab space for drug discovery and innovation. The post 2005 years have witnessed important acquisitions to strengthen our US business- the purchase of manufacturing assets for controlled substances in Cranbury,NJ; that of a site to make creams and lotions in Bryan, that of Alkaloida, a Hungary based API and dosage form manufacturer , and recently, Chattem Ltd., a Tennessee-based controlled substance API manufacturer.

The tally at the end of 2008:

17 manufacturing plants in 3 continents

8000 employees

2 World class research centers

Brand selling in markets worldwide

A growing presence in the US generic market

Increasing research investments

60% of sales from international markets

COMPANY PHYLOSOPHY

Sun Pharma's philosophy envisages working towards high levels of transparency, accountability, consistent value systems, delegation across all facets of its operations leading to sharply focused and operationally efficient growth. The company tries to work by these principles in all its interactions with stakeholders, including shareholders, employees, customers, suppliers and statutory authorities. Sun Pharma is committed to learn and adopt the best practices of corporate governance.

VISION

The Sun Pharma of tomorrow will have brands registered in major markets of the world, and in most markets, promoted by a high quality field force. With a strong network and established company equity, we would be an excellent partner for a company seeking to license out products across markets.

MISSION

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We are an international specialty pharma company, with a presence in 30 markets. We also make active pharmaceutical ingredients. In branded markets, our products are prescribed in chronic therapy areas like cardiology, psychiatry, neurology, gastroenterology, diabetology and respiratory. In the time since, we have crossed several milestones to emerge as an important specialty pharma company with technically complex products in global markets, and a leading pharma company in India.

We are leader in each of the therapy areas that we operate in, and are rated among the leading companies by key customers. Strengthening market share and keeping this customer focus remains a high priority area for the company.

Control and evaluation

Audit Committee

The Board of the Company has constituted an Audit committee, which comprises of three independent non-executive Directors viz. Keki M. Mistry, S. Mohanchand Dadha and Hasmukh S. Shah. Keki M. Mistry is the Chairman of the committee. The constitution of Audit Committee also meets with the requirements under Section 292 A of the Companies Act, 1956. Kamlesh H. Shah, the Company Secretary of the Company is the Secretary of the Audit Committee.

The terms of reference stipulated by the Board to the Audit Committee cover the matters specified under Clause 49 of the Listing Agreement as well as Section 292 A Companies Act 1956.

Remuneration Committee

The company has not formed any Remuneration Committee of Directors. The Wholetime Directors' remuneration is approved by the Board within the overall limit fixed by the shareholders at their meetings. The payment of remuneration by way of commission to the Participating Non-Executive Directors (NEDs) of the company is within the total overall maximum limit of half percent of net profits as worked under the provisions of Sections 349 & 350 of the Companies Act, 1956. This will be in addition to the sitting fees of Rs. 5,000/- per meeting payable to the Non-Executive Directors. The actual commission payable to the Non-Executive Directors of our company severally and collectively is decided by the Board of Directors of the Company within the overall limit fixed as above by Members of the Company.

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Shareholders / Investors Grievance Committee

The Board of the Company had constituted a Shareholders' / Investors' Grievance Committee comprising of S. Mohanchand Dadha, Dilip S. Shanghvi, Sudhir V. Valia with Hasmukh S. Shah as the Chairman. The Committee inter alia, approves issue of duplicate certificates and oversees and reviews all matters connected with the transfer of securities. The committee looks into shareholders complaints like transfer of shares, non receipt of balance sheet, non receipt of declared dividends, etc. The Committee oversees the performance of the Registrar and Transfer Agents and recommends measures for overall improvement in the quality of investor services. The Board of Directors has delegated the power of approving transfer of securities to M/s. Intime Spectrum Registry Ltd, and /or the Company Secretary of the company.

The Board has designated severally, Kamlesh H. Shah Company Secretary and Ashok I. Bhuta, D.G.M. (Legal & Secretarial) as Compliance Officers

BUSINESS DEVELOPMENT

Sun Pharma is an international speciality pharma company. We have a significant presence in the US through our subsidiary Caraco. In the rest of world markets, we have a strong ground network of 400 committed field force in 30 countries, with over 1000 products registered and marketed. We have 2500-person strong sales team in India distributing through 2000 stockists, We are now at a stage of rapid growth across geographies spanning Russia and CIS countries, China and South east Asia, Africa and Latin America, where we are rapidly emerging as a branded generic company of choice.

In India , we are among the largest pharmaceutical companies and command a 3.5% market share (ORG IMS Stockist Audit, Mar 09). In India , we market over 500 products through 18 speciality marketing divisions that are built around chronic therapy areas. Typically, every year we introduce 25 -30 new products. All of these are developed in- house supported by strong bulk synthesis, formulation development, bioequivalence and regulatory teams. CMARC (A prescription audit agency) has ranked us as no 1 in key chronic therapy areas of Neuropsychiatry, Cardiology, Diabetology, Gastroenterology and Ophthalmology. We also rank among the top 5 companies for Respiratory, Pain, Cancer and Gynecology.

In-Licensing

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We look at partnering and collaborating as an important strategic approach that will complement our growth in India and international markets. Our constant need is to add to our speciality product portfolio for prescription leadership in India . We also seek to strengthen our presence, with a complete basket of speciality products, in Russia and CIS countries, China and South East Asia , Africa , Brazil and Mexico.

We are currently interested in in-licensing products that are already marketed or are in late stage clinical development in our key therapy areas. We seek products that leverage our core strengths and complement our existing product portfolio in the following therapy areas:

o CNS disorders

o Cardiology

o Diabetes and Metabolic disorders

o Gastroenterology

o Ophthalmology

o Oncology

o Pain

o Allergy, Asthma and Inflammation

o Gynecologicals

We also have strategic interest in licensing biosimilar products and new products based on recombinant/humanized monoclonal antibody technology that find use in these therapy areas.

We seek to establish a long term, mutually rewarding relationship based on exclusive marketing rights business model for the above listed geographies, as well as co-marketing or strategic alliances for co-development including clinical trials of products for necessary regulatory approvals.

Out-licensing

Our formulation development expertise enables us to develop complex generic products which are bioequivalent, sustained release oral dosage forms and long acting injectable depot formulations. We offer a range of dosage forms for oral, injectable, topical and transdermal routes developed through non-infringing routes and/or patented routes.

o CVS

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o CNS

o Pain

o Cancer

o Gynecologicals

o Allergy, Asthma other respiratory diseases

Our Organic synthesis team develops highly complex bulk actives like Peptides, Hormones, Steroids, Anticancer drugs and Cephalosporins through non-infringing routes and/or patented routes. We offer over 150 bulk actives manufactured at USFDA/UK MHRA approved sites.

We seek out-licensing opportunities for our speciality generics, super generics, and bulk drugs for global markets.

MANUFACTURING

With worldclass technology and a team of strong professionals, we have built sites and systems that meet the most stringent international manufacturing standards. Expert quality teams ensure that systems and processes remain in compliance with the latest standards. A number of our plants hold approvals from the USFDA and the UK MHRA. APIs and Dosage forms are made in 19 sites across India, US, Hungary and Bangladesh.

Formulation

We make speciality formulations across a range of dosage forms- oral, injectable and delivery system based.

API

We make speciality APIs including peptides, steroids, hormones and anticancers at internationally approved worldclass sites.

Quality Policy

Regularly updated systems, procedures and an expert team support a stringent quality policy.

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Environmental Policy

At Sun Pharma, a concern for safety and the environment is part of our plans.

GROUP COMPANIES

Caraco Pharmaceutical Laboratories

Based in Detroit, Michigan, Caraco develops, manufactures, market and distributes generic and private label pharmaceuticals* and markets them throughout the United States. The corporation's present portfolio consists of a number of products in various strengths and package sizes, across a variety of therapeutic segments, including epilepsy and hypertension. For the most recent year ending March 2008, Caraco had sales of over $350 mill.

Caraco's manufacturing facility and executive offices were constructed in 1991, after a $9.1 million loan from the Economic Development Corporation of the city of Detroit. Since August 1997, capital infusions and loans have primarily come from Sun Pharma.

Sun Pharma's investment in and support of Caraco has resulted in, since the second quarter of 2002, Caraco achieving the sales to support its operations. As on March 2008, Sun Pharma owns approx 76% on a diluted basis of the outstanding common shares of Caraco. Sun Pharma has two R&D centers in Baroda and Mumbai, where development work for generics is done.

Sun Pharmaceutical Industries Inc. (SPI)

Sun Pharmaceutical Industries Inc is a Michigan Corporation and a wholly owned subsidiary of Sun Pharmaceutical Industries Ltd, India.

In the second half of 2004, Sun Pharma acquired the trademarks, manufacturing know-how and other intellectual property of certain pharmaceutical products from Women's First Healthcare, Inc, which was under bankruptcy proceedings. On completion of the acquisition in December 2004, these products were assigned to Sun Pharma Inc.

In December 2005, Sun Pharma Inc completed the purchase of dosage form manufacturing operations of Able Labs in the US for USD 23.15 million from the US Bankruptcy Court of the District of New Jersey, Trenton. A plant spread over 35,000 sq ft, in Bryan, Ohio, manufactures liquids, creams, and ointments. This plant was purchased from Valeant Pharma.

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The Ohio plant is now approved by the USFDA and the Cranbury plant expects to receive approval shortly.

In January 2005, the company entered into a distribution and sale agreement with Caraco. Under the agreement, Caraco distributes and sells SPI’s products using its business organization, management personnel, and distribution set up.

Sun Pharmaceutical (Bangladesh)

Sun Pharmaceutical (Bangladesh) is a private limited company incorporated in March 2001 under the Companies Act 1994. This company was formed jointly with Sun Pharma, City Overseas Ltd, a company incorporated in Bangladesh and Sun Pharma Global Inc, a company incorporated under the laws of the British Virgin Islands. The company began commercial operations in October 2004. The company owns and operates a pharmaceutical factory and makes pharmaceutical products that are sold in the local market. It currently markets 58 products and had reported a turnover of 105 mill Rs with a profit of Rs.22 mill Rs for the year ending March 08.

Alkaloida Chemical Company Exclusive Group Ltd.

ICN Hungary, purchased from Valeant Pharmaceuticals in 2005, is one of the few units worldwide, authorized to make controlled substances. ICN Hungary has now been renamed Alkaloida Chemical Company. This 170 acre site has facilities spread over 1,75,000 sq ft for the manufacture of bulk actives, with 500 KL capacity and designated areas to make controlled substances. It has a 150,000 sq ft facility for different dosage forms such as film coated and effervescent tablets, capsules, etc. A large 65,000 sq ft research center has labs across synthetic chemistry, instrumentation analytical and structural elucidation. The site is operational with 450 people and additional recruitments are planned over time.

MILESTONES-MAJOR STRATEGIC STEPS

1983 Sun Pharma begins operations in Kolkata with 5 psychiatry - based products, first with 2 people and then with a 10 - employee team. Year 1 turnover - Rs. 1 million. Within a year, the marketing effort is expanded to cover all eastern states. A compact manufacturing facility for tablets/capsules is set up at Vapi.

1986 Administrative office is set up in Mumbai. Customer coverage extends to select cities in Western India.

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1987 Marketing operations are rolled out nation-wide.

1988 With the launch of the brands Monotrate and Angizem, the first few cardiology products are launched. We feature for the first time in a market audit by the prescription tracking company, ORG* at rank 107th with 0.1% market share.

1989 The corporate office is shifted to Baroda, in the western state of Gujarat. Products used in gastroenterology are introduced. Exports to neighboring countries begin.

1991 Construction begins at the first research center SPARC (Sun Pharma Advanced Research center), with 46,000 sq ft of research space, and investments of almost the size of that year's profits. The company's turnover is Rs. 9.74 cr, and market rank is 70th.

1993 SPARC, the first research center, is inaugurated by His Excellency Shri K. R. Narayanan, the Vice President of India. An office is begun in Moscow. Products are now registered across 10 markets.

1994 After an IPO in October, we are listed on the major stock exchanges in India. The offering is oversubscribed 55 times. A dosage form plant at Silvassa starts production. Major expansion at the plant in Vapi is completed. For the first time, a brand from the company, Monotrate, features among the top 250 pharma brands in the Indian market. Experimenting with a focused marketing approach, a separate division, Synergy, is carved out to market Psychiatry/ Neurology products.

1995 Our first API plant at Panoli starts production.A new division, Aztec, now renamed Azura, is begun for cardiology products, with a further reallocation of products across divisions. Inca, a new division to market critical care medication to intensive care units begins operations. International marketing is strengthened with offices in Ukraine and Belarus.

1996 An API-manufacturing unit at Ahmednagar, the first of the our acquisitions, is bought from Knoll Pharma. An equity stake is also picked up in Gujarat Lyka Organics Ltd., a manufacturer of

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Cephalexin Active with a USFDA approval for the intermediate, 7ADCA. At the close of the year, we rank 27th with 2 products among the country's top selling 300 pharma brands. Product registrations are now in place across 24 countries.

1997 We begin the first of our international acquisitions. As part of a technology-for-equity agreement, a stake is acquired in a generic dosage form manufacturer; the Detroit-based Caraco Pharm Labs. An equity stake is taken in MJ Pharma, a manufacturer of several dosage form lines with UK MHRA approval for Cephalexin capsules.TDPL, a company with an extensive product offering (oncology, fertility, anesthesiology, pain management) is merged with Sun Pharma. Non profitable/small generic lines and several smaller brands are dropped to rationalize the product mix. TDPL's products offer a ready entry with known brands and customer equity into new high growth therapy areas like oncology and gynecology. Marketing is reorganized once again, this time into 6 speciality-focused divisions. A research and development facility over 6,000 sq ft in Mumbai, our second research site, is established. This center is equipped to make dosage forms and create supporting technical documentation for the generic markets in North America and Europe.

1998 A basket of brands, which include several in the respiratory/asthma area, are acquired from Natco Pharma. Our new formulation plant at Silvassa commences operations.

1999 Rank moves within the top 10 in the domestic market. For a quick entry in ophthalmology, Milmet Labs is merged into Sun Pharma. The Cephalexin API manufacturer Gujarat Lyka Organics is merged with Sun Pharma. 6 brands now feature among the leading 300 prescription pharma brands in India.

2000 Ranked 5th among all companies in the domestic market on a monthly basis. Pradeep Drug company, a Chennai based API manufacturer is merged with Sun Pharma.

Plans are shared to set up a new research campus in Chennai, which is later dropped as a suitable site is found in Baroda where we have an existing base.

2001

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A new formulation plant is built in Dadra. This new plant is spread over a 5-acre site with built up area of 120,000-sq. ft. and has been designed and built to comply with international regulatory requirements, such as the UKMHRA and USFDA. The erstwhile TDPL division is renamed Spectra. A new division, Arian, targeting cardiologists/physicians and diabetologists, is launched.

2002 Forbes Global ranks Sun Pharma in the list of best small 200 companies for 2002 (turnover less than $500 million).Sun Pharma is selected as the best company by Express Pharma Pulse, for overall performance for 2002 (in the category A - market share over 2.5%).

4 manufacturing sites win the prestigious IDMA awards.

Work commences on a new, state-of-the-art drug discovery campus in Baroda; this 16-acre site, with space for 400+ scientists on completion, will be commissioned over the next two years.

Work begins on a new R&D center in Mumbai, with 50,000 sq. ft. floor area for projects aimed at the North American and European markets.

2003 Forbes Global ranks Sun Pharma in the list of the best small 200 companies for 2003 (turnover less than $500million).Sun Pharma is rated amongst the best-managed companies for 2003 across all sectors. (Business Today-AT Kearney study of best-managed companies)

2004 Sun Pharma acquires common stock and options from 2 large shareholders of Caraco, increasing stake to over 60% from 44% at a total outlay of about $42 million. By 2007, this stake has reached 75% on a diluted basis.The formulation site in Halol, India (the erstwhile MJ Pharma site) receives approval from USFDA, UK MHRA, South African MCC, Brazilian ANVISA and Columbian INVIMA.

The BT Stern Stewart survey places Sun Pharma among the top 20 wealth creators in India and among the top 3 wealth creators in the pharma sector.

Construction at a formulation manufacturing site at Jammu is completed.

Our first joint venture manufacturing unit, in Dhaka, Bangladesh is commissioned. This modern site is spread over 25,000 sq. ft.

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Two of Sun Pharma's API factories receive USFDA approval, taking the total number of US FDA approved sites to three.

Sun Pharma acquires a Cephalosporin Actives manufacturer, Phlox Pharma, with European approval for cefuroxime axetil amorphous. By 2007, a formulations facility to make sterile and non sterile formulations have been built, and the API and non-sterile sections have been approved by the USFDA.

Niche brands are bought from the San Diego, US based Women's First Healthcare. (WFHC, not listed). These brands are the gynecological Ortho-Est® (estropipate), and the antimigraine preparation Midrin®.

Forbes Global ranks Sun Pharma in the list of most valuable companies for 2004 (turnover less than $2bill).

2005 Sun Pharma buys a plant in Bryan, Ohio, US and the business of ICN, Hungary from Valeant Pharma.Sun Pharma acquires the intellectual property and assets of Able Labs from the US District Bankruptcy court in New Jersey in December 2005. Dilip Shanghvi, the CMD, receives the E&Y Entrepreneur of the Year award in healthcare and life sciences for 2005.

Sun Pharma is selected by Forbes amongst the best 200 companies (sales less than USD 1 billion) in Asia. This is the fourth time in 5 years that the company has been selected.

2006 Announced the demerger of innovative business with pipelines, people, equipment and funding, into a new company.

2007Completed the demerger of the innovative business, with requisite legal and regulatory approvals. SPARC ltd, the new company, is listed on the stock exchanges in India, the first pure research company to be so listed.In May 2007, we, along with our subsidiaries, signed definitive agreements to acquire Taro Pharmaceutical Industries Ltd., (TAROF, Pink Sheets), a multinational generic manufacturer with established subsidiaries, manufacturing and products across the U.S., Israel, Canada for $454 mill. This all-cash deal is subject to Taro shareholder approval and requisite regulatory clearances

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2008In November 2008, we along with our subsidiaries, acquired 100% ownership of Chattem Chemicals, Inc.,a narcotic raw material importer and manufacturer of controlled substances with a approved facility in Tennessee. This will offer vertical integration for our controlled substance dosage form business in the US. (*ORG - Operations Research Group Audit of Retail Chemist Sales, later renamed the IMS - ORG Retail Store Audit. Both ORG and IMS are the trademarks of their registered owners).

LOOKING AHEAD

Over the last few years, we have been moving towards a profile that is much more international and formulation-driven.

The Sun Pharma of tomorrow will have brands registered in major markets of the world, and in most markets, promoted by a high quality field force. In India, we expect to retain our position of market leadership in our key therapy areas, and reach leadership in newer therapy areas that we entered after 1997. In key international markets across Asia, South East Asia, Russia, China, the Middle East, Latam and Africa we would be a strong speciality company with prescription driven sales. With a strong network and established company equity, we would be an excellent partner for a company seeking to license out products across markets.

In the high value generic markets of the US we expect to become a respected generic company, with a portfolio comprising both of complex and simple-to-file generics, building an edge with technology and the cost advantage of vertical integration. While we have recently completed our fourth acquisition in the US, we believe there are excellent opportunities in the US generic space, where we can affect a turnaround and add value to a business. We have about $400 million earmarked for acquisitions in the US generic/drug discovery space.

ANALYSIS

Swot analysis

Strengths:

Sun Pharma is highly regarded for its ability to launch new products with a great amount of speed and consistency.

The company has only 20% exposure to the DPCO.

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The past growth rate of the company has always been double that of the industry as a whole.

Weaknesses:

Continuous losses of Caraco Pharma is a major concern for Sun Pharma.

The profit margins are declining for the company

Opportunities:

The relaxation of DPCO will be a big boost for the company and this might marginally improve the profit margin.

The company has already made ANDAs (Abbreviated new drug application) in USA and it provides a great opportunity for growth for the company.

The company has entered the US market through its subsidiary Caraco Pharma. This provides a great opportunity for the company to make the most out of the expiring patents in USA.

Expanding the generic drugs market in USA

New venture in animal drug.

Threats:

The entry of foreign players will pose a major threat to the company.

The company is more into acquisition based growth and this might lead to a stage of financial crunch as it has already happened in the case of Caraco pharma. Sun pharma provided debt to Caraco and is facing problems due to the continuous losses made by the latter.

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Five force model in Industry Competition:

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. The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% market share, and the top five players together have about 18% market share. Thus, the concentration ratio for this industry is very low. High growth prospects make it attractive for new players to enter in the industry. Another major factor that adds to the industry rivalry is the fact that the entry barriers to pharmaceutical industry are very low. The fixed cost requirement is low but the need for working capital is high. The fixed asset turnover, which is one of the gauges of fixed cost

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Numerous opportunities for Sun Pharma is (5)

Critical weaknesses for Sun Pharma is (2)

Substantial strength for Sun Pharma (3)

Major threats for Sun Pharma is (2)

Support an aggressive strategy

Support a turn around oriented strategy

Support defensive strategy

Supports diversification strategy

Sun Pharma

Sun Pharma

requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times. For smaller companies, it would be even higher. Many smaller players that are focused on a particular region, have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way. An important fact is that pharmaceutical industry is a stable market and its growth rate generally tracks the economic growth of the country with some multiple (1.2 times average in India). Though volume growth has been consistent over a period of time, value growth has not followed in tandem.The product differentiation is one key factor, which gives competitive advantage to the firms in any industry. However, in pharmaceutical industry product differentiation is not possible since India has followed process patents till date, with laws favoring imitators. Consequently, product differentiation is not the driver, cost competitiveness is. However, companies like Pfizer and Glaxo have created big brands in over the years, which act as product differentiation tools. This will enhance over the long term, as product patents come into play from 2005.

Bargaining Power Of Buyers

The unique feature of pharmaceutical industry is that the end user of the product is different from the influencer (read doctor). The consumer has no choice but to buy what doctor says. However, when we look at the buyer's power, we look at the influence they have on the prices of the product. In pharma industry, the buyers are scattered and they as such does not wield much power in the pricing of the products. However, government with its policies, plays an important role in regulating pricing through the NPPA (National Pharmaceutical Pricing Authority).

Bargaining Power Of Suppliers

The pharmaceutical industry depends upon several organic chemicals. The chemical industry is again very competitive and fragmented. The chemicals used in the pharmaceutical industry are largely a commodity. 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. However, what can happen is that the supplier 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.

Barriers To Entry

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Pharmaceutical industry is one of the most easily accessible industries for an entrepreneur in India. 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. However, creating brand awareness and franchisee amongst doctors is the key for long-term survival. Also, quality regulations by the government may put some hindrance for establishing new manufacturing operations. Going forward, the impending new patent regime will raise the barriers to entry. But it is unlikely to discourage new entrants, as market for generics will be as huge.

Threat Of Substitutes

This is one of the great advantages of the pharmaceutical industry. Whatever happens, demand for pharmaceutical products continues and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an on going concern, pharmaceutical industry seems to have an infinite future. However, in recent times, the advances made in the field of biotechnology, can prove to be a threat to the synthetic pharmaceutical industry.

General interpretation

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1. Strategy and Approach

a. Create sustainable revenue streams

i. Focus : Chronic therapies

ii. Differentiation : Technically complex products

iii. Speed to market

b. Seek cost leadership

i. Vertical integration : Development through Manufacturing (API and Finished Dosage) to Marketing

ii. Optimise operational costs

c. Balance profitability and investments for future

i. Acquisitions yielding high ROI

ii. Development of complex generics

2. Growing Steadily

Revenue doubles and Net profit triples in 4 years; continuing the trend despite increasing size.

1,706

5,435

11,853

42,723

4911,352

3,962

18,177

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09

Net Sales (CAGR 35%) Net Profit (CAGR 42%)

3. Relentless Customer Focus

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1998 Market Share indexed to 100 for all companies

60

100

140

180

220

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Sun Cipla Ranbaxy Nicholas Cadila DRL

Therapy focused marketing by 2500 sales representatives covering 125,000 specialist doctors

Strong increase in prescription and sales market share

4. Successful At Acquisitions

Acquired 14 high potential yet under-performing businesses; successful turnarounds.

5. Research and Development

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Generic R&D spend around 8% of net sales

Strong research teams in generics, finished dosage development, biological support, chemistry

Balancing the risk

o Immediate term : ANDA, DMF, Products for India

o Medium term : Drug delivery systems

2 R&D centers with about 600 scientists.

6. Sustained Profitability

Superior business model

Margins consistently higher than peers

80%

62%

44%

11%

43%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2004-05 2005-06 2006-07 2007-08 2008-09

Gross Margin (Sun) Gross Margin (Other top 10)EBITDA Margin (Sun) EBITDA Margin (Other top 10)Net Margin (Sun) Net Margin (Other top 10)

Gross margin= (Net Sales – Material Cost) / Net Sales * 100

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Other top 10 Indian Pharma companies include Ranbaxy, DRL, Cipla, Piramal Healthcare, Lupin, Wockhardt, Cadila, Aurobindo, Glenmark and Torrent

References

www.timesofindia.com

www.economictimes.com

Magazines-Business Today and Outlook

www.sunpharma.com

http://www.karvy.com/compresearch/company/sunpharma/sun.htm

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