GP Report

A

Grand ProjectOn

A Study of Indian Pharmaceutical Industry:

With Emphasis on the Generics Market

SUBMITTED TO:

GUJARAT UNIVERSITY

SUBMITTED BY:

Project Guides:

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Chapter 1

The Indian Pharmaceuticals Industry

1.1 Current Scenario

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. From simple headache pills to sophisticated antibiotics and complex cardiac

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compounds, almost every type of medicine is now made indigenously.

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 6% of the market

share. As per ORG-IMS data base, the estimated size of the domestic market for FY

2006-07 was Rs. 27,902 crores. It is an extremely fragmented market with severe price

competition and government price control.

1.2 Key Characteristics of the Industry

Self-reliance displayed by the production of 70% of bulk drugs and almost the

entire requirement of formulations within the country.

Low cost of production.

Low R&D costs.

Innovative Scientific Manpower.

Excellent and world-class national laboratories specializing in process

development and development of cost effective technologies.

Increasing balance of trade in pharma sector.

An efficient and cost effective source for procuring generic drugs especially the

drugs going off patent in the next few years.

An excellent centre for clinical trials in view of the diversity in population.

1.3 Growth Drivers of the Industry

The rise in disposable income has a positive impact on healthcare spend. In 2005,

6.2 percent of disposable income was spent on healthcare as compared to 2.8

percent in 1995. This augurs well for the pharma industry, as the strong economic

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momentum is likely to continue with the Indian economy expected to grow by 89

percent in the next few years.

On the international front, Indian generic drug makers are playing an important

role in the global consolidation process and are augmenting their market presence

across regulated as well as semi regulated markets through their organic as well as

inorganic initiatives. In spite of increasing competitive intensity on account of

continued pricing pressure, several significant opportunities are being leveraged

by Indian generic players.

Contract Research and Manufacturing Services (CRAMS), is becoming one of the

most promising opportunities for the IPI. India, with its intrinsic competitive

advantages, remains as one of the most preferred outsourcing destinations and is

now playing a vital role in manufacturing as well as drug development value

chain of various innovator pharma companies.

MNC pharma companies are increasingly focusing on realigning their

manufacturing activities in order to concentrate on core activities such as R&D

and brand building - thereby reinforcing the potential for cost savings through

contract manufacturing. At the same time, existing global CRAMS players are

facing adverse business conditions, on account of increasing regulatory

compliances on environmental issues and competition from low cost countries.

Pharma Multinationals are also increasingly using India as a base for exports not

only to the immediate neighboring markets, but also to other markets around the

world such as Japan, South Africa, Latin America and Europe. Pharma

multinationals are also exploiting India’s competencies in the field of Information

Technology and its strong and low cost IT skill sets; by setting up centers for their

global clinical data management functions in India.

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The following are the growth drivers for CRAMS:

Clinical Research:

At present, a majority of clinical trials conducted in India are for Phase II and Phase III.

The government is in the process of considering the recommendation of the Drug

Technical Advisory Board (DTAB) to allow Phase I clinical trials for the drugs

discovered abroad. If this happens, then it will enable the Indian CRAMS industry to

provide a wide range of drug discovery services

Government Support:

On the regulatory front, the government is also trying to promote the growth of this

industry by providing a tax exemption on all services carried out by the contract research

and clinical trials industry. This step is likely to further boost clinical trial outsourcing to

India.

Following the patent product regime, many Indian pharma companies have embarked on

Research and Development (R&D) to achieve sustainable long term advantage. These

companies are now adopting innovative funding models to advance their R&D activities.

Currently, as many as 10-12 companies have molecules under various stages of

development. R&D investments by Indian companies have also increased significantly

and now account for as much as 7-9 percent of sales for leading pharma companies.

New drug discovery is a costly and lengthy process. It takes anywhere between

(approximately) 10-12 years, for a new drug to reach the market from the laboratory and

costs approximately USD 800 million to 1.2 billion. The government and other regulatory

bodies can play a significant role in determining the success of drug discovery research in

India.

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Growth through collaborations:

Various JVs have been formed between Indian and MNC pharma players for

strengthening their manufacturing capabilities, technology-sharing and leveraging on the

partners experience in product filings, regulatory compliance, etc. Recently, many Indian

pharma companies have formed JVs for expanding into semi-regulated markets.

Generics:

Over the last few years, Indian pharma companies have been scaling up their presence in

the non-traditional business segments such as drug discovery and development, contract

research and manufacturing, etc., and are focusing on building their competencies in

every area of the pharma value chain. However generics continue to remain the mainstay

of the industry. Globally, the generics industry is expected to grow at a Compound

Annual Growth Rate (CAGR) of 11 percent between 2006 and 2010 and touch USD 94

billion by 2010. At present, India has only 10 percent market share in this industry.

1.4 Patents

The signing of the Trade Related Intellectual Property Rights (TRIPS) agreement in

1995, which committed India to honour the WTO mandated product patent regime from

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2005, marked the beginning of a fresh chapter in the industry’s evolution and India has

finally transited into product patent regime from process patent.

Process patent is the form of protection under which the process by which the drug is

manufactured is given protection. As there were many loopholes in this system,

companies very conveniently made minor changes in the process and sold patented drugs

at lower prices. Because of this MNCs like Pfizer, Eli lily were reluctant to launch their

new molecules in Indian markets. But under product patent, the molecule gets the

protection and others can not develop the similar molecule till the patent is valid.

1.5 Drug Price Control

Drug price control is a mechanism or a policy, which ensures that essential and life-

saving medicines are available at reasonable prices. Control over the price of drugs to the

consumer exists in most countries. In India, the issuance of the Drug Price Control Order

(DPCO) in 1970 was the first structured price control mechanism. Later the government,

under Section 3 of the Essential Commodities Act, issued the DPCO of 1995, which

provides the list of price-controlled drugs, procedures for fixation of drug prices, method

of implementation of prices fixed by the government and penalties for contravention of

provisions.

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Conditions under which Drugs come under Price Control:

The basic parameters by which a drug is liable to invite price control are its mass

consumption nature and absence of sufficient competition.

Under DPCO 1995, any bulk drug and its formulations would invite price control, if:

It has an annual turnover of Rs 4 crore or more

If there are less than five bulk drug producers or less than 10 formulators,

If a single formulator has a market share of 40 per cent or more.

As per the Pharmaceutical Policy of 2002, any bulk drug (and its formulations) will be

under price control if the moving annual total (MAT) value of the bulk drug as on 31st

March 2001, was more than Rs 25 crore and the market share of any single formulator

was 50 per cent or more. A bulk drug with an MAT value Rs 10-25 crore will invite

control if a single formulator commands a market share of 90 per cent or more.

Thus, the IPI is characterized by the issue of Drug Price Control.

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1.6 Leading Companies

India’s Top Pharma Companies (Jan ’08)

Table 1.1

India's Top 7 Pharma Companies

Rank Company

1 Cipla

2 Ranbaxy

3 GlaxoSmithKline

4 Zydus Cadila

5 Alkem Laboratories

6 Sun Pharma

7 Nicholas Piramal

Source: www.financialexpress.com

Cipla Laboratories continues to be the largest pharmaceutical company in the

domestic market. Cipla has topped the ORG-IMS rankings for the month of

November 2007 with a market share of 5.42 per cent and sales of Rs 146.32 crore

(Rs 1.463 million), edging out Ranbaxy which stood at second position with 5.09

per cent market share and Rs 137.49 crore (Rs 1.374 million) sales.

Cipla overtook Ranbaxy and GlaxoSmithKline India to become the largest

pharmaceutical company in the domestic market for the first time in May 2007.

While GSK has maintained its number three position in November, Zydus Cadila

(fourth), Alkem Laboratories (fifth) and Sun Pharma (sixth) have moved one rank

up from October.

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Nicholas Piramal, which faced raw material shortages for its largest selling

codiene based formulations, like Phensydyl, in recent months, slipped three

positions to number seven in November.

ORG-IMS, the largest market intelligence company in India focusing on the healthcare

sector, tracks sales of Indian pharmas on a monthly basis, through over 3,000 stockists

and 6,000 doctors.

Ranbaxy's growth has been largely driven by new introductions such as Volix, an anti-

diabetes drug launched in January, Oframax-Forte and anti-asthmatic drug Synasma,

which it in-licensed from Eurodrug Laboratories.

Ranbaxy's antibiotic Mox (amoxyllin), which was not among the top ten brands a year

ago, has grown to become the fourth largest brand in the domestic market with monthly

sales at Rs 9.8 crore (Rs 98 million) in November, sources said.

Cipla's growth was powered by positive growth in their existing portfolio, especially its

respiratory products.

However, GSK has lost market share mainly in its main portfolios such as anti-

infectives, dermatologicals and pain management drugs which grew slower than the

market for these products, ORG-IMS said.

ORG-IMS named Alkem Laboratories as the only company among the top ten for which

both older products (10 per cent) and new introductions (12 per cent) have contributed

significantly to value growth.

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1.7 Government provisions

1.7.1

Budget 2008-09 measures

Increase in allocation to the health sector by 15% over 2007-08.

Allocation to the National Rural Health Mission (NRHM) increased to Rs 12,050

crore.

Provision of Rs 993 crore to the National Aids Control Programme and allocation

of Rs 1,042 crore for the eradication of polio with focus on high risk districts in

Uttar Pradesh and Bihar.

Customs duty to be reduced from 10% to 5% on certain specified life saving

drugs and on bulk drugs used for their manufacture. These drugs are also

exempted from excise duty or countervailing duty.

Excise duty on all goods produced in the pharmaceutical sector reduced from 16%

to 8%.

Anti-AIDS drug, ‘Atazanavir’, as well as bulk drugs for its manufacture to be

exempted from excise duty.

In order to promote outsourcing of research, weighted deduction of 125% on any

payment made to companies engaged in R&D.

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1.7.2 Budget impact

Increase in allocation to the healthcare sector is a positive given the need to ramp

up the healthcare infrastructure in the country and improve the accessibility of

quality healthcare to a larger section of the population.

Reduction of excise duty from 16% to 8% is a positive for all pharma companies

enabling them to boost profitability going forward given that the excise duty is

being paid on MRP.

Increased allocation of funds for eradication of HIV/AIDS and polio and

reduction in customs duty on certain life saving drugs from 10% to 5% is a

positive for companies having product pipeline catering to these segments.

Weighted deduction of 125% on payments made for outsourcing research services

is a positive for the sector as a whole given that the emphasis on R&D has

increased.

1.7.3 Company Impact

Reduction of excise duty from 16% to 8% is a positive for all pharma companies namely

domestic companies such as Cipla, Ranbaxy and the likes and MNC pharma companies

such as GSK Pharma, Pfizer and Aventis.

Emphasis on allocating funds for the eradication of HIV/AIDS and polio is a positive for

Cipla (which has a strong presence in the manufacture of anti-AIDS drugs) and Panacea

Biotec (which largely manufactures oral polio vaccines).

Weighted deduction of 125% on payments made for outsourcing research services is a

positive for R&D focused companies such as Ranbaxy and Nicholas Piramal.

1.8 SWOT Analysis

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The following factors are the SWOT factors for Indian Pharmaceuticals Industry.

Strengths:

Cost Competitiveness

Well Developed Industry with Strong Manufacturing Base

Access to pool of highly trained scientists, both in India and abroad

Strong marketing and distribution network

Rich Biodiversity

Competencies in Chemistry and process development

Weaknesses:

Low investments in innovative R&D and lack of resources to compete with

MNCs for New Drug Discovery Research and to commercialize molecules on a

worldwide basis

Lack of strong linkages between industry and academia

Production of spurious and low quality drugs tarnishes the image of industry at

home and abroad

Opportunities:

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Significant export potential

Licensing deals with MNCs for NCEs and NDDS

Marketing alliances to sell MNC products in domestic market

Contract manufacturing arrangements with MNCs

Potential for developing India as a centre for international clinical trials

Niche player in global pharmaceutical R&D

Supply of generic drugs to developed markets

Threats:

Product patent regime poses serious challenge to domestic industry unless it

invests in research and development

Drug Price Control Order puts unrealistic ceilings on product prices and

profitability and prevents pharmaceutical companies from generating investible

surplus

Lowering of tariff protection

The new MRP based excise duty regime threatens the existence of many small

scale pharma units, especially in the states of Andhra Pradesh and Maharashtra,

that were involved in contract manufacturing for the larger, established players

1.9 Emerging Trends

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1.9.1 Contract Manufacturing

The cost of setting up an FDA approved plant in India is almost half of that in the USA.

With the government now allowing 100% FDI, many foreign companies are planning to

outsource the manufacture of their off patent drugs to Indian companies and concentrate

more in the development of new products. For Indian companies, this is an area of large

potential. Indian companies have already started capitalizing on this opportunity.

Nicholas Piramal Ltd. has recently entered into an agreement to manufacture various

Allergen Inc products.

Many global pharmaceutical majors are looking to outsource manufacturing from Indian

companies, which enjoy much lower costs (both capital and recurring) than their western

counterparts.

Indian companies are proving to be better at developing APIs than their competitors from

target markets and that too with non-infringing processes. Indian drugs are either entering

in to strategic alliances with large generic companies in the world of off-patent molecules

or entering in to contract manufacturing agreements with innovator companies for

supplying complex under-patent molecules.

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Indian Companies

Some of the companies like Dishman Pharma, Divis Labs and Matrix Labs have been

undertaking contract jobs for MNCs in the US and Europe. Even Shasun Chemicals,

Strides Arcolabs, Jubilant Organosys, Orchid Pharmaceuticals and many other large

Indian companies started undertaking contract manufacturing of APIs as part of their

additional revenue stream. Top MNCs like Pfizer, Merck, GSK, Sanofi Aventis,

Novartis, Teva etc. are largely depending on Indian companies for many of their APIs

and intermediates.

The Boston Consulting Group estimated that the contract manufacturing market for

global companies in India would touch $900 million by 2010.

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India’s Contract Manufacturing Service Providers

Table 1.2

Contract Manufacturing Service Providers Indian Service Provider Activity

Dishman Pharma Contract Manufacturing for:

Divi's Labs Patented Drugs

Custom Synthesis and Scale Ups

Nicholas Piramal Contract Manufacturing for:

Shasun Drugs & Chem

Ltd. Specialized Generics

Matrix Laboratories Ltd.

IPCA Labs

Shasun Drugs & Chem

Ltd. Contract Manufacturing for:

Jubilant Organosys Old Generics/Old Molecules

Torrent Pharma

Morepen Labratories

Source: www.pharmaexpress.com

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Select Contract Manufacturing Deals in India

Table 1.3

Select Manufacturing Deals in India

Indian Company Multinational Product

Lupin LaboratoriesFujisawa Cefixime

Apotex Lisinopril

Nicholas Piramal Allergen Bulk & Formulations

Advanced Medical

OpticsEye Products

Wockhardt Ivax Nizatidine

Dishman

PharmaceuticalsSolvay Pharmaceuticals Eprosartan Mesylate

IPCA LabsMerck Bulk Drugs

Tillomed Atenolol

Orchid Apotex Cephalosporin and

other injectibles

Sun PharmaEli Lilly CVS Products

Insulin

Cadila Healthcare

Altana Pharma Intermediates for Pentoprazole

Boehringer Ingelheim

Gastrointestinal and CVS

Products

Biocon Bristol Myers Squibb Bulk Drugs

Source: www.pharmaexpress.com

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1.9.2 Contract Research

The market of Contract Research is growing at a rate of 20% per annum. According to

experts, it will be an industry worth anywhere between $500 million to $1.5 billion by

2010. The global R&D spend is to the tune of $60 billion, of which the non-clinical

segment accounts for $21bn and the clinical segment accounts for $39bn. In terms of

Indian prices, this translates into $7bn (at 1/3 rd of US/EU costs) and $7.8bn (at 1/5th of

US/EU costs) respectively. This constitutes a total potential of $14.8bn for the Indian

pharma companies.

1.10 Success Factors for India

Competent workforce:

India has a pool of personnel with high managerial and technical competence as also

skilled workforce. It has an educated work force and English is commonly used. Besides,

the Professional services are easily available which gives an added advantage.

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. Indian pharmaceutical

industry provides a wide variety of bulk drugs and exports sophisticated bulk drugs.

Legal & Financial Framework:

India has a 57 year old democracy and hence has a solid legal framework and strong

financial markets. There is already an established international industry and business

community.

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Information & Technology:

It has a good network of world-class educational institutions which provide a huge pool

of talented workforce and has established strengths in Information Technology.

Globalization:

The country is committed to a free market economy and globalization. Above all, it has a

70 million middle class market, which is continuously growing.

Consolidation:

The IPI is finding great opportunities in India. Consolidation, a generalized phenomenon

in the world pharmaceutical industry, has started taking place in India.

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Chapter 2

Generics

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2.1 Meaning of Generics

A generic drug is a drug which is produced and distributed without patent protection (The

generic drug may still have a patent on the formulation but not on the active ingredient).

A generic must contain the same active ingredients as the original formulation. In most

cases, it is considered bioequivalent to the brand name counterpart with respect to

pharmacokinetic and pharmacodynamic properties.

By extension, therefore, generics are assumed to be identical in dose, strength, route of

administration, safety, efficacy, and intended use. Generics also go through a rigorous

scientific review to ensure both safety and effectiveness In most cases, generic products

are not available until the patent protections afforded to the original developer have

expired. When generic products become available, the market competition often leads to

substantially lower prices for both the original brand name product and the generic forms.

The time it takes a generic drug to appear on the market varies. Drug patents give twenty

years of protection, but they are applied for before clinical trials begin, so the effective

life of a drug patent tends to be between seven and twelve years.

Drug companies attempt to counter cheaper, bioequivalent generic competition with

direct-to-physician advertising that insinuates pharmacist substitution of a cheaper

product is usurping physician's authority. DAW is an acronym for ‘Dispense as Written’,

ensuring that pharmacists fill a Valium prescription for brand-name Valium instead of

equivalent and cheaper generic diazepam.

Commodity generics have low barriers of entry and low margins of profits due to

competitive pricing, while specialty and supergeneric drugs are reformulations of off-

patent drugs and have higher margins.

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2.2 Characteristics of Generics

2.2.1 Low price

Competition:

The principal reason for the relatively low price of generic medicines is that competition

increases among producers when drugs no longer are protected by patents. Companies

also incur fewer costs in creating the generic drug, and are therefore able to maintain

profitability while offering the drug at a lower cost to consumers. The costs of these

generic drugs are so low that many developing countries can easily afford.

For example, Thailand is going to import millions of generic version pills of Plavix, a

blood-thinning treatment to prevent heart attacks, costs just 3 US cents per pill from

India, the leading manufacturer of generic drugs.

Reverse-engineering:

Generic manufacturers do not incur the cost of drug discovery, and instead are able to

reverse-engineer known drug compounds to allow them to manufacture bioequivalent

versions.

No clinical trials:

Generic manufacturers also do not bear the burden of proving the safety and efficacy of

the drugs through clinical trials, since these trials have already been conducted by the

brand name company. It has been estimated that the average cost to brand-name drug

companies of discovering and testing a new innovative drug (with a new chemical entity)

may be as much as $800 million.

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Established Awareness:

Generic drug companies may also receive the benefit of the previous marketing efforts of

the brand-name drug company, including media advertising, presentations by drug

representatives, and distribution of free samples. Many of the drugs introduced by generic

manufacturers have already been on the market for a decade or more, and may already be

well-known to patients and providers (although often under their branded name).

2.2.2 No Monopoly

Prior to the expiration of a drug patent, a brand name company enjoys a period of

"market exclusivity" or monopoly, in which the company is able to set the price of the

drug at the level which maximizes profitability. This price often greatly exceeds the

production costs of the drug, which can enable the drug company to make a significant

profit on their investment in research and development. The advantage of generic drugs

to consumers comes in the introduction of competition, which prevents any single

company from dictating the overall market price of the drug. With multiple firms, the

profit-maximizing price generally reflects the ongoing cost of producing the drug, which

is usually much lower than the monopoly price.

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Fig. 2.1 Patented Drug and Generic Drug at a Glance

2.3 Patent issues

When can a generic drug be produced?

When a pharmaceutical company first markets a drug, it is usually under a patent

that allows only the pharmaceutical company that developed the drug to sell it.

Generic drugs can be legally produced for drugs where:

The patent has expired

The generic company certifies the brand company's patents are either invalid,

unenforceable or will not be infringed

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The expiration of a patent removes the monopoly of the patent holder on drug sales

licensing. Patent lifetime differs from country to country, and typically there is no way to

renew a patent after it expires. A new version of the drug with significant changes to the

compound could be patented, but this requires new clinical trials and does not prevent the

generic versions of the original drug.

This allows the company to recoup the cost of developing that particular drug. After the

patent on a drug expires, any pharmaceutical company can manufacture and sell that

drug. Since the drug has already been tested and approved, the cost of simply

manufacturing the drug will be a fraction of the original cost of testing and developing

that particular drug.

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2.4 Challenging Patents

Brand-name drug companies have used a number of strategies to extend the period of

market exclusivity on their drugs, and prevent generic competition. This may involve

aggressive litigation to preserve or extend patent protection on their medicines, a process

referred to by critics as "evergreening." Patents are typically issued on novel

pharmacological compounds quite early in the drug development process, at which time

the 'clock' to patent expiration begins ticking.

Later in the process, drug companies may seek new patents on the production of specific

forms of these compounds, such as single enantiomers of drugs which can exist in both

"left-handed" and "right-handed" forms, different inactive components in a drug salt, or a

specific hydrate form of the drug salt. If granted, these patents 'reset the clock' on patent

expiration. These sorts of patents may later be targeted for invalidation by generic drug

manufacturers.

2.5 Generic Drug Exclusivity

The U.S. Food and Drug Administration offers a 180 day exclusivity period to generic

drug manufacturers in specific cases. During this period only one (or sometimes a few)

generic manufacturers can produce the generic version of a drug. This exclusivity period

is only used when a generic manufacturer argues that a patent is invalid or is not violated

in the generic production of a drug, and the period acts as a reward for the generic

manufacturer who is willing to risk liability in court and the cost of patent court litigation.

There is often contention around these 180 day exclusivity periods because a generic

producer does not have to produce the drug during this period and can file an application

first to prevent other generic producers from selling the drug.

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Large pharmaceutical companies often spend thousands of dollars protecting their patents

from generic competition. Apart from litigation, companies use other methods such as

reformulation or licensing a subsidiary (or another company) to sell generics under the

original patent. Generics sold under license from the patent holder are known as

authorized generics. They are not affected by the 180 day exclusivity period as they fall

under the patent holder's original drug application.

A prime example of how this works is simvastatin (Zocor), a popular drug created and

manufactured by U.S. based pharmaceutical Merck & Co., which lost its US patent

protection on June 23, 2006. India-based Ranbaxy Laboratories (at the 80-mg strength)

and Israel-based Teva Pharmaceutical Industries (at all other strengths) received 180 day

exclusivity periods for simvastatin; due to Zocor's popularity, both companies began

marketing their products immediately after the patent expired.

2.6 Ensuring Bioequivalence

Most nations require generic drug manufacturers to prove that their formulation exhibits

bioequivalence to the innovator product. Generic drugs are always less expensive and can

save patients and insurance companies thousands of dollars supposedly without

compromising the quality of care. Bioequivalence, however, does not mean that generic

drugs are exactly the same as their innovator product counterparts, as chemical

differences do exist.

As an interesting case study in the use of generic equivalents of name-brand agents,

warfarin has been only available under the trade name Coumadin in North America until

recently. Warfarin (either under the trade name or the generic equivalent) has a narrow

therapeutic window and requires frequent blood tests to make sure patients do not have a

subtherapeutic or a toxic level. A study performed in the Canadian province of Ontario

showed that replacing Coumadin with generic warfarin was considered safe. In spite of

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the study, many physicians are not comfortable in allowing their patients to take the

branded generic equivalent agents.

2.7 Approval Process for Generic Drugs

ANDA

An Abbreviated New Drug Application (ANDA), is an application for a US generic drug

approval for an existing licensed medication or approved drug. The ANDA contains data

which when submitted to FDA's Center for Drug Evaluation and Research, Office of

Generic Drugs, provides for the review and ultimate approval of a generic drug product.

Once approved, an applicant may manufacture and market the generic drug product to

provide a safe, effective, low cost alternative to the American public.

Generic drug applications are termed "abbreviated" because they are generally not

required to include preclinical (animal) and clinical (human) data to establish safety and

effectiveness. Instead, generic applicants must scientifically demonstrate that their

product is bioequivalent (i.e., performs in the same manner as the innovator drug). The

generic version must deliver the same amount of active ingredients into a patient's

bloodstream in the same amount of time as the innovator drug.

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Chapter 3

The World Generics Market

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3.1 Latin American market

In 2006, the generic sector in Latin America was valued at US$2.7 billion, which

represented a 51% increase over the 2004 figure of US$1.3 billion. Regional generic

expenditure per capita stood at US$3.8. Venezuela had the highest expenditure per capita

at US$8.0, followed by Argentina at US$5.8.

Throughout the region, pharmaceutical patenting remains a relatively new concept and an

on-going issue. Many countries have local industries geared to producing branded

versions of drugs still under patent in their country of origin. These copycats tend to be

priced cheaper than branded originals, and this diminishes 'pure' generic penetration.

The traditional proliferation of non-bioequivalent, branded generic or copycat products is

slowly being replaced by the steady introduction of bioequivalent generics in Latin

America. In an effort to increase local demand, raise awareness and increase export

opportunities, bioequivalence standards are slowly being implemented.

3.1.1 Brazil

Brazil, one of the major emerging powers of the world, is marking its presence in almost

every dimension of the world economy, including the generic drugs industry. Brazil is

currently the largest market for generic drugs in Latin America.

The generic drugs market in Brazil witnessed an explosive growth of 38.8% and was

valued in excess of US$ 1 Billion in 2006. The market was driven by several factors such

as a supporting political environment, lower cost and patent expirations of several

blockbuster drugs. The market is presently being dominated by domestic generic

manufacturers; however, the presence of foreign firms in the market is increasing rapidly.

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The growth of the market is expected to remain strong with generics expected to occupy

22.8% of the total market by 2011, enabling Brazil to become one of the largest generic

markets in the world. However, despite the strong growth, several challenges still remain

to be tackled, including the prevalence of cheaper non-bioequivalent “similar drugs”, low

prescriptions from the private sector, and low penetration levels in the private sector.

Facts about the Brazilian generics market:

Generics in Brazil occupy nearly 9.5% of the overall pharmaceutical market in

terms of sales value.

The domestic generic firms of Brazil are over-dependent on the domestic market

and have less participation in foreign markets.

The Brazilian government has made it a norm to prescribe generics in the public

sector.

Strengthening of the Brazilian Real has increased the margins of domestic players

who import raw materials to manufacture generic drugs. Currently, the domestic

industry mainly focuses on finishing generic pharmaceuticals.

One of the biggest opportunities in the generic sector lies in the Antiretroviral

segment.

Non-bioequivalent “similar drugs”, which are considerably cheaper than generics,

are prevalent in the pharmaceutical market.

Cardiovascular diseases are the biggest death cause in Brazil.

Medley and EMS Sigma are the biggest generic manufacturers in Brazil.

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3.1.2 Argentina

The generic sector was valued at US$235 million in 2006, compared to US$201 million

in 2005. Around 78.2% of generic sales take place in the hospital sector. Pharmacy

penetration is very low; generic pharmacy sales stood at US$26.4 million in 2006, equal

to 1.4% of the total.

The international industry argues that most of the 'generics' available in Argentina are

copy products rather than true generics because they do not have to demonstrate

bioequivalence with the originator products.

3.1.3 Chile

Due to low prices, generic penetration is very high in volume terms. In 2006, there were

86.2 million generics units sold, equal to 39.6% of the pharmacy sector. The average

price of a generic medicine stood at US$0.9 in 2006, compared to US$4.4 for a branded

generic and US$7.6 for an original drug.

TRIPS-related patent enforcement and the new health reform will increase

pharmaceutical spending in the long term. Domestic manufacturing is expected to shift

from copycats to originals and generics under license from multinationals, a trend that

could see many smaller manufacturers merge or be acquired by larger groups.

33

3.1.4 Mexico

Mexico has a small generic sector in comparison to its pharmaceutical market size. Local

producers are SMEs but only a few are equipped to demonstrate bioequivalence. But this

has to change, as new rules were enforced in 2005. Bioequivalent generics are expected

to penetrate the market of similar drugs and explore new markets. There is a new wave of

generic producers looking for business opportunities in Mexico.

3.1.5 Peru

The Peruvian generic sector is expected to increase by 6% annually in the next five years,

reaching US$179 million by 2010. Pharmacy sales of generics represented 21% of the

total in 2005, equal to US$28 million. They are expected to increase by 7% annually in

the next five years, reaching US$39 million by 2010.

According to Espicom estimates, the generic sector represented 19.6% of the

pharmaceutical market as a whole in 2005. Pharmacy sales of generics represented 4.1%

of the pharmaceutical market as a whole or 7.2% of the overall pharmacy sector in 2005,

which is a relatively high percentage.

3.1.6 Venezuela

Generics (branded & unbranded) are between 20% and 70% cheaper than original drugs

in Venezuela. Price continues to be their distinctive advantage. Price competition

between generic producers, however, has put the average price of generics at US$2.3 in

2005, compared to US$3.3 in 2001. As a result, growth in generic sales fell to 10.7% in

2005, reaching US$221 million. There are 1,934 generic presentations in the Venezuelan

pharmaceutical market, which represent 20.7% of the total. The generic sector comprises

around 87 companies, but four leading producers concentrate around 75% of the sector

by volume.

34

3.2 The US Market

The US represents the world’s largest market for generic drugs with unbranded generics

accounting for more than 50% prescriptions and 10% sales out of the total

pharmaceutical market in 2006. The market is driven by several factors, including lower

costs, a favorable political environment, and rapidly increasing ageing population.

The top 10 players in the US presently occupy more than 70% of the generic market, with

Teva, Sandoz (Novartis) and Mylan leading the market. However, the huge potential and

growth of this market also attracts several Asian and Eastern European players. Thus,

competition in this market is expected to heat up in the future, making the market price

sensitive.

Although several challenges, such as price erosion and litigations from branded

manufacturers, may hamper growth, the overall growth prospects of the market are good.

The market is expected to get a strong boost with the patent expiry of several blockbuster

drugs in the next five years and also with the launch of biogenerics which is expected in

around 2010).

Overall, the unbranded generic market is expected to continue its double-digit growth

rate between 2007 and 2011 and generate revenues worth more than US$ 69 Billion by

2011.

Facts about the US Generics Market:

Unbranded generics grew faster than branded drugs, biotech drugs and branded

generics between 2004 and 2006.

The sales volume of drugs in the pharmaceutical market is being driven strongly

by the sale of generics.

35

The Hatchman-Waxman Act was a major boost to the generic business in the US.

The patent expiry of key biotech drugs is creating opportunities for biogenerics.

Generic substitution of branded drugs resulted in estimated savings of US$ 10.2

Billion in the US in 2006.

Unbranded generics are expected to occupy more than 19% of the US

pharmaceutical market by 2011.

36

3.3 Europe

European generic pharmaceuticals markets have experienced dramatic changes in recent

years. The business environment has become significantly more complex, and generic

pharmaceutical companies are becoming increasingly international.

Given the importance of generic medicines in the European healthcare equation, it is ever

more important to have a firm understanding of the various European pricing and

reimbursement systems and the ways in which these systems can be improved to develop

a viable and competitive generic medicines industry in Europe.

The French market has witnessed increasing generic penetration, as the French Health

Authorities are more supportive to generic players compared to most of their European

counterparts for keeping rising public pharmaceutical expenditure under control.

Countries are generally clustered in three groups according to their market shares:

1. Less than 10 per cent market share by value:

Austria, Belgium, Finland, France, Ireland, Italy, Portugal, Spain

2. Between 10 and 40 per cent market share by value:

Denmark, Estonia, Netherlands, Slovak Republic, Slovenia, Sweden, Turkey, the United

Kingdom

3. Greater than 40 per cent market share by value:

Croatia, Czech Republic, Germany, Latvia, Lithuania, Hungary, Poland

37

A range of factors can affect generics markets within Europe. For example, in an effort to

simplify the market, businesses are seeking to harmonize pharmaceutical registration

processes as well as product packaging, marketing strategies and branding.

Hence, these are the major characteristics of the Europe generics market.

3.4 World’s Leading Generics Companies

Table 3.1

World's Leading Generics CompaniesRank Company

1 Teva Pharmaceutical Industries

2 Novartis Sandoz

3 Merck KGaA

4 Schwarz Pharma

5 Watson Pharmaceuticals

6 Pliva

7 Mylan

8 Alpharma/Actavis

9 Barr Pharmaceuticals Inc

10 Ivax (Now Part of Teva) Source: www.pharmabiz.com

38

Chapter 4

The Indian Generics Market

39

4.1 Introduction

One-time US product upsides could propel sector earnings growth to 31% in fiscal 2009

and 25% in fiscal 2010. Compared with this, the world generics market, according to

IMS Health report, is expected to grow at 9% CAGR (CY07-12E) to $123 billion.

The Indian players will address at least $24 billion or 60% of the US generic product

opportunity for the next two years through first to file (FTF) settlements and Para IV

launches alone, according to this report.

Further, while base business pricing remains stable, a congenial US political and

regulatory climate for generics in 2008 adds the fizz to patent expirations worth over $40

billion in these two years.

The sector’s current generic tally of 298 abbreviated new drug approvals (ANDAs) could

increase 58% in fiscal 2009 to 475 over the next 12 months while mainline companies

like Ranbaxy, Sun Pharma and Dr Reddy’s rank among the top five international generic

players in Para IV and FTF pipeline.

Opportunities in the International Markets:

Apart from US market, the European and emerging markets, too, indicate good numbers

for the Indian industry. There is a strong growth potential for domestic players in

emerging markets like India, Brazil, China and some African countries, driven by

increasing per capita spend, improvement in primary care and due to the shift in focus

from infectious disease to chronic illnesses.

Predictions:

Merrill Lynch predicts a 15% growth outlook for the BRICS and other emerging markets,

which account for 61% of the revenues, while mainline companies like Ranbaxy, Sun,

Glenmark and Dr Reddy’s will post a robust 20% growth. Generics revenue growth in the

EU is predicted to grow at 12% CAGR between 2008 and 2010.

40

4.2 Growth drivers

Expiring patents:

Some of the largest selling drugs in the US, are going off patent this year. About 11

leading drugs, including four blockbuster drugs worth $20 billion are going off-patent the

year 2008 in the US.

Increasing Per Capita Income:

The 9.4 per cent GDP growth during 2006-07, has translated into a per capita income of

Rs 29,382 a year or Rs 2,448.5 a month. Per capita income rose by 14.3 per cent in 2006-

07 against Rs 25,716 in the previous fiscal year, according to figures released by Central

Statistical Organisation. This has a potential to lead to increase in healthcare products.

Shift from Infectious disease to Chronic Illness:

The product innovations have led to increasing efficacy of the drugs, thereby minimizing

the extent of infectious diseases. However, the problem of Chronic diseases such as

Diabetes, etc. remain unsolved. Due to this, a patient has to remain on a prescribed

medication almost for a lifetime. In such cases, one option for the patients is generic

drugs, which are bioequivalent to the branded drugs but become economically viable for

the patients.

41

Indian Healthcare Sector:

India's high population makes it as an important player in the Healthcare Industry.

In India, 80% of the healthcare expenditure is borne by the patients and that borne by the

state is 12%. The expenditure covered by insurance claims is 3%. As a result, the price

sensitivity is quite high and the high-level healthcare facilities are not in the reach of

patients.

Among the top five therapeutic segments, gastro-intestinal and cardiac therapies are

experiencing both high volume and value growth. Opthologicals, cardiovascular, anti-

diabetic and neurological drugs continue to top the growth list.

The anti-infective, neurology, cardiovascular and anti-diabetic segments have witnessed a

high number of new product launches in the recent years from the top pharma companies.

With increasing number of non-insured population in western countries and increasing

healthcare expenditure, resulting in people to opt for treatment options out side their

country. Medical Tourism in India will be one of the major sources for foreign exchange.

Hence, this has been a major growth driver.

42

4.3 Major Indian Companies in the Generics Market

The Indian companies are growing steadily in the generics market. Organic as well as

inorganic growth has helped the Indian companies to consolidate their position. More and

more companies are now looking for inorganic growth through acquisitions and joint

ventures with foreign companies in order to gain access to emerging international

markets.

The following table lists some of the leading Indian companies in the generics market.

(Note that this list does not indicate the ranking of these pharma companies.)

Table 4.1

Indian Companies

Sr.No Company

1 Ranbaxy

2 Cipla

3 Dr. Reddy

4 Zydus Cadila

5 Torrent Pharma

6 Cadila Pharma

7 Aurobindo Pharma

8 Wockhardt

43

Chapter 5

Research and Analysis

44

5.1 Research Methodology

5.1.1 Objectives of the study

To study the Indian Pharmaceuticals industry, with emphasis on the generics

market.

To identify the SWOT factors for the companies under study.

To identify the opportunities for the Indian players in the generics business for

exploring the international market.

To identify the market expansion strategies that the Indian companies under

study, use to enter International generics markets.

To understand the effects of the generics market on branded products.

5.1.2 Scope of the Project

The basic purpose of the project is to study the Generics market in the Indian

pharmaceuticals industry. The report covers major pharma companies in Ahmedabad and

Ranbaxy Ltd. only.

45

5.1.3 Research Design

An exploratory research design has been used for the study.

Sampling Procedure:

The sampling procedure used for the survey is convenience sampling.

5.1.4 Methods of Data Collection

Primary Data:

The primary data was collected through a semi structured questionnaire

administered on Middle Level Managers of various pharmaceutical companies.

Secondary Data:

The sources of secondary data were books, journals, internet, articles, etc.

5.1.5 Limitations of the Study

Geographical coverage of this study is limited to Ahmedabad city.

Lack of response due to the confidentiality of data for the target samples was a

major constraint, making the sample size small. Hence, the results cannot be

generalized.

46

5.2 Company Profiles

5.2.1 Cadila Pharmaceuticals

5.2.1.1 Introduction

Cadila Pharmaceuticals (CPL) Ahmedabad, India, exemplifies a spirited Indian

Enterprise. Its phenomenal growth is a corporate epic, an epoch in time nurtured by fifty-

two years of rich, caring heritage. With a trail of creditable milestones, CPL today has

evolved to become the undisputed leader in the Indian Pharmaceutical sector, with the

largest therapeutic groups, it's operations spanning 45 countries. CPL is multi-locational,

with its global offices and infrastructure.

It is considered to be one of India’s most reputed, Research based, Tech savvy

pharmaceutical companies focusing on areas – Formulations (Human & Veterinary),

New Drug Discovery, Novel Drug Delivery, Active Pharmaceutical Ingredients,

Analytical Research, Phytochemistry, Biotechnology, Plant Tissue Culture, Biosynthesis,

Genetic Engineering, Vaccines, Immunoglobulins.

Diversified operations encompass Hospital Disposables & Instrumentation, Diagnostics,

Specialty Chemicals, Softgel, Pharma Machinery, Telecommunications, Travel &

Leisure.

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http://www.opalinfotech.com/

5.2.1.2 The Generics SBU:

Pursuing the philosophy of making available quality products at affordable prices for the

mass of people, is Cadila Pharmaceuticals, Generic SBU. Launched with the slogan,

"your faith is our strength", the Generic SBU today is the market leader in the country.

What began as a small activity a couple of years ago, is now a full-fledged division worth

Rs. 800 million, all set to reach the Rs.8 billion mark by 2008, through novel marketing

strategies.

Pursuing the trail of success in Generic business, this division has further

diversified its activities into newer therapy areas by promoting another marketing arm –

Genvista.

The product basket contains more than a hundred products

from 15 therapeutic segments, including Analgesics,

Antipyretics, Anthelmintics, Anti-hypertensives, Anti-

inflammatory preparations, Anti-bacterials, Cardiovascular

drugs, Vitamins, Iron and protein tonics, etc.

A slew of high-value, branded generic products are being

augmented to the product basket from time to time.

With more products in the pipeline, this division is poised to

further consolidate its position as a leading player in

Generics in India.

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5.2.1.3 Analysis:

Core Strategy:

The company follows strategy of cost leadership. Innovation in process improvisation,

coupled with the improving technology in production drives down the overall costs.

Footprints:

CPL is predominantly present in the domestic market of generics. It has got international

presence in certain African countries and supplies bulk-drugs to US.

Business Focus:

CPL wants to focus on the generics segment more as compared to branded products. This

is due because already CPL is one of the bigger players in the domestic generics market.

Further concentrating on this business and tapping the international markets can give

them a competitive advantage.

Competitors in the Domestic Market:

Cipla, Ranbaxy, Zydus Cadila, Wockhardt, Intas Pharmaceuticals, Dr. Reddy’s, Alembic

Pharma are the major competitors.

Competitors in the International Market:

Ranbaxy, Glenmark pharmaceuticals, Dr. Reddy’s are the major competitors in the

international market.

49

Market Expansion Strategy:

CPL takes the route of M&A for market expansion. They are likely to follow other

Inorganic growth strategies to enter various international markets. This gives a

readymade market entrance and avoids marketing costs.

Major Therapy Segments:

Cardiovascular, CNS, Gastrointestinal and Anti-infectives are the major therapy

segments of CPL.

Apart from these, Analgesics, Antipyretics, Anthelmintics, Anti-hypertensives, Anti-

inflammatory preparations, Anti-bacterials and Vitamins are the various therapeutic

segments catered to by the Generics division of the company.

Core Areas of Business:

CPL is likely to focus on generics business which is its core competency.

50

Threat on Branded Products:

Market shrinking is likely to take place due to increase in the generics market. Price

erosion is the other obvious factor that will result due to the generics competition.

Costs on marketing and other activities may go up for sustaining the competition.

Probable Counter Strategies:

“Rate and Range” has to be a strategy for companies producing branded products. This

means that in order to compete the generic drugs manufacturing companies, it will be

important that these companies opt for line extension. It is a substitution market in India

and so how many products you are able to produce will hold the key.

With huge market opportunity predictions, the outlook for the Indian Generics players

looks very attractive. However, the companies that will make the most of this predicted

opportunity will be those that innovate in technology and products said the Cadila

Pharmaceuticals official.

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SWOT Analysis

Strengths:

Large number of formulations in different therapeutic segments

Low cost production capabilities

Access to latest technology

Quality products

Weaknesses:

Setting up R&D in the direction of other therapeutic segments which are not

produced by the company

Opportunities:

The entire international market of generics

India’s share in the global generics market is just 2 % which suggests a huge

potential for the company.

Threats:

Government policies

Low margin

Competition

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5.2.2 Ranbaxy


Ranbaxy Laboratories Limited, India's largest pharmaceutical company, headquartered in

India, is an integrated, research based, international pharmaceutical company, producing

a wide range of quality, affordable generic medicines, trusted by healthcare professionals

and patients across geographies. It is one of the leading pharma Companies in India

commanding a market share of 5.07%. (Source: ORG-IMS, March, 2007). The Company

has clocked sales of USD 286 Mn (2006) registering a growth of over 17%. The

Company is driven by its ambition to achieve US $5 Bn Sales by 2012 and be amongst

the top five generic players worldwide.

Ranbaxy views its R&D capabilities as a vital component of its business strategy that will

provide the company with a sustainable, long-term competitive advantage. The company

today has a pool of 1,200 scientists who are engaged in path-breaking research.

The robust R&D environment within the company for both drug discovery &

development and for generics is designed to bring into sharper focus, the unique needs of

both equally.

To translate these objectives into reality and to optimize value creation, the Company has

adopted a multi-pronged strategy. Acquisition of generic brands overseas, strong

emphasis on brand marketing in the US and Europe, entering high potential new markets

with value added product offerings, are the major thrust areas.

Successful business development transactions form a key component of its business

strategy. In each of their partnerships, they strive to build enduring, mutually beneficial

relationships that can produce positive results for both parties. Ranbaxy is interested in

sales and marketing partnerships and product acquisition opportunities in all the markets

53

where they operate. They are exploring opportunities through Licensing and Alliances to

draw maximum value from such arrangements.

They continue to evaluate opportunities to add to their product basket, enhance their

therapeutic presence and also expand their distribution network and the overall reach.

In addition, Ranbaxy has active R&D programs in oral controlled release drug delivery

systems. The company is also actively evaluating options for acquiring new technology

platforms to develop differentiated high margin products.

5.2.2.2 Key Facts about Ranbaxy

In the NDDS segment, Ranbaxy is the market leader with 7.9% market share and

its NDDS product portfolio contributes to about 9% of its total turnover.

Its product portfolio spans across Acute & Chronic Business covering Anti-

infectives, Nutritionals, Gastro-intestinals, Pain Management ( Acute)

Cardiovasculars, Dermatologicals, Central Nervous Systems (Chronic)segments.

Company’s India operations are a dominant force in a number of participating

therapeutic segments, for example Anti-infectives, Statins, Dermatology and Pain

Management Operations are structured into 9 Strategic Business Units.

A publicly listed company, Ranbaxy India is also a member of IPA (Indian

Pharmaceutical Alliance) & OPPI (Organization of Pharmaceutical Producers of

India).

Amongst the pharmaceutical companies in India, Ranbaxy has the largest R&D

budget with an R&D spend of over US $ 100Mn.

54

It is ranked amongst the top ten generic companies worldwide.

The Company has manufacturing operations in 11 countries with a ground

presence in 49 countries and its products are available in over 125 countries.

55

5.2.2.3 Analysis

Core Strategy:

The core strategy of the company is hybrid. The cost leadership strategy is a common

focus amongst the pharmaceutical companies, Ranbaxy also has got the advantage of

being a leader in NDDS products which offers a value added differentiation.

Moreover, the company is also actively evaluating options for acquiring new technology

platforms to develop differentiated high margin products.

Footprints:

It has presence in both, the domestic as well as the international markets for generic

drugs.

They have presence in Regulated markets as well as Semi Regulated markets such as US,

Eastern Europe, Russia, Africa and South East Asia. Overall, they have presence in 49

countries across the globe.

Business Focus:

Their key business focus is Generics. They are the leaders in the domestic generics

market. Also, they gave importance to development of new chemical entities.


Dr. Reddy, Cipla, Zydus Cadila, Aurobindo Pharma

56


Glaxosmithkline, Hisun (China), Pfizer, Bristol-Myers Squibb, Dr. Reddy, Imugene, etc.


Their main market expansion strategy is through strategic acquisitions. In the financial

year 2005-06, Ranbaxy concluded nine M&A deals, amounting to a value close to US

$450 Mn. This has enabled Ranbaxy to significantly expand their presence in emerging

and profitable markets like Romania and South Africa.

Major Therapy Areas:

Cardiovascular Central Nervous System, Respiratory, Dermatology, Orthopedics,

Nutritionals and Urology segments are the major therapy areas for Ranbaxy.


Generic drugs unit is their core area of focus. Ranbaxy's endeavour is to be a leader in the

generics space and also to build a strong proprietary prescriptions business based on the

Company's NDDS and NCE (New Chemical Entity) research outcomes.

57

SWOT Analysis

Strengths:

Leadership in Novel Drug Delivery System (NDDS) products, which offer value-

added differentiation over conventional products.

Strong brand building capabilities, reflected in the fact that 20 brands feature in

the “Top-300 brands of the Industry” list. The leading 5 brands are Sporidex

(Cephalexin), Cifran (Ciprofloxacin), Mox (Amoxycillin), Zanocin (Ofloxacin) &

Volini (Diclofenac)

A well-built customer interface, with one of the highest customer coverage across

India, and an excellent franchise with both Generalists & Specialists.

Robust internal control systems in the company and subsidiaries.

Emphasis on Knowledge Management and Medico-marketing initiatives such as

Advisory Board Meetings, Post Marketing Surveillance Studies and Continuous

Medical Education programs. These have resulted in an excellent customer

relationship with the medical fraternity.

With a futuristic approach, the India operations attempts to capitalize on the fast-

emerging, high-growth segments with innovative products and services:

Biological formulations such as Verorab (Rabies Vaccine) and Vaxigrip

(Flu Vaccine), which require competencies to propagate the newer

concepts in the market place.

High end anti-infectives such as Cilanem & Faronem have been launched

for the first time in India.

58

Dry Power & Metered Dose Inhalers have been launched in the

Respiratory segment. All Metered Dose Inhalers are HFA based

formulations, environment friendly inhalers. It is for the first time in India,

that a company has launched its entire HFA propellant based MDI range.

The world’s first novel product, Osovair (Formoterol + Ciclesonide)

inhalation capsules has been introduced in the Indian market.

Anti-diabetic franchise has been further consolidated with launch

of Insucare Insulin) with an innovative delivery mechanism - “Controlled Insulin

Logistics” This ensures that the cold chain, vital for product efficacy, is

maintained.

Strong R&D capabilities

Strong vertical Integration

Global Presence, amongst the top 10 global generic companies

Strong Marketing and Distribution Network

Weakness:

Low attention given to Biogenerics

59

Opportunities:

197 ANDAs filed with the US FDA, of which 121 have been approved.

Under penetrated generics markets of Spain and Italy

Expiry of patents on a large number of products in developed countries.

Government support for generics opens up a large market opportunity suitable to

Company’s current competency.

Threats:

Entry of newer players from the emerging economies

Inherent risks of generic segment such as patent litigation, product liability,

increasing regulations and compliance related issues, particularly in the developed

markets

60

5.2.3 Torrent Pharmaceuticals


Torrent Pharmaceuticals Ltd. is one of the leading companies in the Indian

Pharmaceutical market. The Company’s revenues are mainly from manufacture and sale

of branded as well as unbranded generic pharmaceutical products. A further break down

of pharmaceutical sales can be done as Domestic formulations (comprising branded

pharmaceutical formulations sold in the domestic market), Contract manufacturing

(mainly comprising of sourcing, manufacturing and supplying insulin formulations nder

the third-party brand name) and International operations (comprising sales outside India

of branded and unbranded-generic pharmaceutical formulations).

Table 5.1

Therapeutic Area vise salesTherapeutic Area

FY 2006-07 FY 2005-06

Cardiovascular 33% 33%

CNS 22% 19%

Gastro Intestinal 19% 21%

Anti Infectives 13% 16%

Pain Management 5% 4%

Oral Anti Diabetics 4% 4%

Others 5% 3%

Total 100% 100%

Source: Torrent Pharma Annual Report 2006-07

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5.2.3.2 Key Facts about Torrent Pharmaceuticals Ltd

Approximately 10% (previous year 15%) of the domestic formulations sales of the

Company were subject to price control under the Drug Price Control Order, 1995. The

Company introduced 49 new products (including line extensions) during FY 2006-07 as

compared to 43 in FY 2005-06.

International sales (sales outside India) comprised branded-generic and unbranded-

generic formulations. For the year international sales constituted 47% (previous year

45%) of consolidated sales and grew by 43% (previous year 222%). The growth was

driven by Brazil, Europe and Russia.

The Company is ranked 15th by turnover in the domestic market, has 6 brands in top 300

brands and has 27 brands in leadership positions in their respective molecule segments.

Region-wise international sales are given below:

Table 5.2 (Rs. In Crore)

Region-vise international sales Regions FY 2006—07 FY 2005-06 Growth

Sales % Sales % %

Brazil 166.8 28% 115.68 0.28 44%

Russia/CIS 57.35 10% 37.66 0.9 52%

Europe 38.86 60% 47.58 0.11 -18%

Heumann # 268.07 45% 168.84 0.4 59%

R.O.W. 67.68 11% 49.19 0.12 38%

Total 598.76 100% 418.95 1 43%

Source: Torrent Pharma Annual Report 2006-07

62

# Heumann Pharma GmbH & Co Generica KG (Heumann) a wholly owned subsidiary

operating in Germany was acquired in July 2005. The sales for 2005-06 are for the post-

acquisition period.

The company’s international sales comprise of branded generics as well as unbranded –

generic formulations.

The table below sets forth the growth rates in therapeutic segments in which the

Company has presence:

Table 5.3

Therapeutic Segment Growth Rates

Therapeutic Segment Company's Growth Overall Segment Growth

Cardiovascular 10.3% 11.2%

Gastrointestinal 5.3% 13.1%

CNS 25.0% 12.8%

Anti-Infectives 6.3% 15.1%

Pain Management 25.3% 22.2%

Anti-Diabetics 48.1% 17.6%

Source: ORG-IMS March 2007 MAT

63

5.2.3.3 Analysis

Core Strategy:

The core strategy of the company is hybrid. There main strategy is cost leadership. This

is more or less focused in the case of domestic market. The company follows

differentiation strategy for regulated markets like US. The reason is that as such the

market regulations prevalent in these markets mean that low cost is an inherent

requirement for all the companies. Hence, in order to gain a competitive advantage,

Torrent Pharma focuses on differentiation attributes such as quality, packaging, etc.

Footprints:

The company has presence in domestic as well as international markets for generics

products.

International Markets:

Presence in Regulated markets in US and Europe. Also, presence in Semi regulated

markets such as Brazil, Mexico etc.

Torrent is also present in Japan, Australia.

Moreover, its wholly-owned subsidiaries in Russia and Germany are the principal sources

of revenue.

It further plans to enter the semi regulated markets which are emerging.

64

Business Focus:

Their business focus is in both- the generics segment as well as branded products. The

emphasis is laid on branded products because in the domestic market, the foreign brands

are still sold due to brand equity. Hence, they want to capitalize on that opportunity as

well.


Dr. Reddy’s, Cipla, Zydus Cadila, Ranbaxy, Cadila Pharma


Ranbaxy, Novartis, Dr. Reddy’s, Novartis


The company is focusing on organic as well as inorganic growth. M&A and JVs with

companies in semi regulated markets is their current focus right now as most of these

markets are branded generics markets, thus, resulting in better margins.


Cardiovascular, Anti-infectives, CNS and gastrointestinal are the major therapy areas for

Torrent Pharma.

Core Area of Business:

65

In the short term future, when the generics market is likely to grab the headlines, Torrent

Pharma would like to simultaneously concentrate on NDDS and NCE business areas.

Threat on the Branded Products:

Torrent Pharma believes that as far as the domestic market is concerned, the doctors

prescribe branded products for their patients. This is a fact, specifically in the case of the

‘super specialties’ therapeutic segments of Torrent Pharma such as CNS, CVS etc.


According to Torrent Pharma, a probable counter strategy against the competition from

generic drugs can be strong brand building. Marketing strategies will also come into

focus, with more focus laid on building brand equity with the doctors.

66

SWOT Analysis

Strengths:

Stable system for internal control

Strong Information Technology infrastructure

Strong marketing and distribution network.

Competitive cost advantage

Latest technologies for the research process.

During the year, the Company received the USFDA approval for its API and

formulations manufacturing facilities located at Chatral. This will start a

potentially important revenue stream in the coming years.

Weaknesses:

Attrition rates – “We face high attrition levels, particularly in sales force, R&D

technical staff and production technical staff. This leads to disruption and delays

in projects, problems like loss of customers and sales, and it also increases the

cost of recruitment and training. “

“To counter this, we pro-actively manages this manage this problem

through various measures including aggressive and timely recruitments,

67

industry compatible remuneration / incentive system and strengthening of

the HR function.”

Opportunities:

Domestic:

Growth from emerging market segments like organized buyer groups, pharmacy

chains and corporate hospitals.

Product and assets acquisition opportunities.

Use of information technology for efficient customer servicing and improved

sales productivity.

Opportunity to increase growth through increasing doctor coverage, product

exposure to new medical specialties, increased product focus, territorial

expansion, new therapeutic areas and building strong sales operations systems.

International:

Expiry of patents on a large number of products in developed countries coupled

with government support for generics opens up a large market opportunity

suitable to Company’s current competency.

Potential expansion in doctor and territorial coverage

Higher healthcare funding promised by the Governments to increase the current

per-capita spends on healthcare is expected to drive the growth in these markets.

68

Unexploited opportunities in the rest of the world markets by extending the

domestic market product portfolio in semi regulated markets and by extending the

EU and US market product portfolio in regulated markets of Asia & Africa.

Research & Development:

Collaborative research

Development of New Drug Delivery Systems (NDDS) to create differentiated

products and market exclusivity in commodity generics market

Selective New Chemical Entity (NCE) research, primarily with respect to

metabolic complications.

Threats:

Discovery Research

Price Control

Failure to tap the opportunities in the overseas markets in a timely manner

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5.2.4 Zydus Cadila


Zydus Cadila is a global healthcare provider and one of the top five pharma companies in

India. The company was founded by Late Mr. Ramanbhai B. Patel in 1952 and went on

to become the second largest pharma company in the early 1990’s.

In 1995, the group restructured its operations and now operates as Cadila Healthcare Ltd.,

under the aegis of the Zydus group. The company spearheaded by Mr. Pankaj R. Patel,

Chairman and Managing Director posted a turnover of Rs. 1900 crores in 2006-07.

One of the most reputed pharma companies globally, Zydus Cadila aims to be a leading

global healthcare provider with a robust product pipeline and sales of over $1 billion by

2010. It plans to achieve sales of over $3 billion by 2015 and be a global research-driven

company by 2020.

5.2.4.2 Key Facts about Zydus Cadila

Proven expertise in manufacturing and marketing different dosage forms such as

solid dosage forms, injectables, metered dose inhalers, dry powder inhalers,

transdermal patches, suppositories and oncology formulations.

Wide therapy coverage through three multi-therapy divisions and eight speciality

divisions.

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A dedicated field force of 3000 reaches out to super specialists, specialists,

surgeons, physicians and the rural markets.

The group is a leader in cardiovascular, gastrointestinal and women’s healthcare

segments.

Strong presence in the respiratory, pain management, CNS, anti-infectives,

oncology, neurosciences, dermatology and nephrology segments.

The group was the first to launch Nucoxia (Etoricoxib), Nupatch (Diclofenac

Patch), Pantodac (Pantoprazole), Mifegest (Mifepristone), Penegra (Sildenafil

Citrate), Providac Techsules, Betaferon, Fludara, Slimona (Rimonabant) and

Novolizer in India.

The group has several brands that feature amongst the top 300 pharmaceutical

brands in India.

The group has a globally compliant manufacturing infrastructure comprising eight

state-of-the-art facilities which support product launches not just in India but also

in the regulated markets of U.S., Europe and Latin America.

Three of the group’s facilities including the formulation manufacturing plant at

Moraiya, and API plants at Ankleshwar and Dabhasa near Vadodara are approved

by the USFDA.

More than 500 professionals spearhead the group’s research programme.

Over 230 scientists are working on new molecular entity research at the Zydus

Research Centre.

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Zydus Cadila is a partner of choice for several global pharma majors such as

Boehringer Ingelheim, Schering AG, Madaus AG, Nycomed, Hospira, Zambon of

Italy, Bio Sidus of Argentina, Mallinckrodt of USA, to name a few.

The product range in Consumer Products Division comprises of Sugar Free

Gold– India’s No.1 sweetener with a market share of over 70%, Sugar Free

Natura – a zero calorie sucralose based sugar substitute, Sugar Free D’lite– a low

calorie healthy drink and Nutralite– a premium cholesterol-free table spread.

The division also caters to the skincare segment with its Everyuth and Dermacare

brands, which occupy a unique distinction of being a ‘skincare brand from a

healthcare company’. EverYuth has a strong presence in advanced skincare

segments like soap-free, face washes, face masks, scrubs etc.

Zydus Cadila has strong global operations to market both formulations and APIs.

With operations in U.S.A., Europe, Latin America, Japan and over 40 emerging

markets across the world, Zydus Cadila is a global healthcare provider. The group

also manufactures and markets a wide range of intermediates and APIs.

Highlights of domestic formulations 2006-07:

39 new products were launched in India during the year, of which 8 were 1st in

India

17 of our formulation brands now feature in the top 300 brands of India as per

ORG IMS (MAT Dec-07)

With acquisition of Liva Healthcare, we entered Rs. 1500 Cr dermatology market

Maintained leadership positions in the CVS, Gastro intestinal and WHC

segments.

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5.2.4.3 Analysis

Core Strategy:

The core strategy of Zydus is Hybrid. It not only pursues cost leadership similar to its

peers, but also differentiates itself by novel product innovations. This is typical for their

consumer products division which has given block-buster products in the Indian domestic

market.

Footprints:

Zydus Cadila has got domestic as well as international presence.


Zydus is present in regulated markets such as U.S., France and Japan. Moreover, it has

already entered semi-regulated markets of Brazil, South Africa and Taiwan. Apart from

these markets, it has got presence in Srilanka, Myanmar, Uganda, CIS, Philippines,

Vietnam, Sudan and Kenya.

Their presence in semi regulated markets can further enable them to have easy access to

the upcoming opportunities in the growing generics market. This will enable Zydus as

these markets are very lucrative for branded generics. Hence, the margins that they get

will also be high.

Zydus further wants to penetrate the French market. The French market has witnessed

increasing generic penetration, as the French Health Authorities are more supportive to

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generic players compared to most of their European counterparts for keeping rising

public pharmaceutical expenditure under control. Apart from France, Zydus also plans to

enter Italy, Portugal and Belgium markets.

Business Focus:

Their business focus will be in branded as well as generic products. Zydus wants to focus

on their strong capabilities of formulating new chemical entities and patenting them, at

the same time, leverage their competencies and tap the opportunity of the generics

market.

Zydus has been very dominant with its healthcare products and it would want to increase

their product portfolio in this SBU.


Cipla, Ranbaxy, Sun Pharma, Nicholas, Dr.Reddy's, Lupin, Unichem, Torrent, and Intas

are its domestic competitors.


Ranbaxy, Dr.Reddy's, Sun Pharma, Wockhardt are its main competitors for the

international market.


Joint ventures and Mergers & Acquisitions are there main modes of entering international

markets. The reasons quoted are:

- Reduced lead time

- Ready market

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- Ready marketing infrastructure

- Local knowledge base

- Better chances of success


Zydus Cadila has many therapy segments such as Cardiovascular, Oncology,

Gastrointestinal, Intestinal, CNS, Renal.

Apart from these, Gynecology, Respiratory, Pain management and steroids are some of

the other main therapy segments of Zydus.


The core areas for business for Zydus Cadila during the booming generics market are in

the following order:

1. New Chemical Entities

2. Biotech Drugs

3. New Drug Development

4. Generics

The rationale behind this choice can be attributed to the possibility that the company can

leverage resources in NCE as well as Biotech drugs, whereas simultaneously the

emerging markets for generics can be tapped

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Threat on Branded Products:

The threat on the branded drugs is that the revenues of the company will be eroded due to

generic competition.

Moreover, to sustain in market, companies may have to resort to price reductions. This

reduces the margins and hence decreases the overall profitability.


To avoid or mitigate the risks posed by generics, companies producing branded

(patented) drugs may choose the following courses of action:

- Launching authorized generics

- Improvement in product characteristics

- Launching combinations

- Launching stereo-isomers of existing molecules

- Extending legal battles with generic companies

- Faster turn-around of new and better products with the help of intensive

R&D.

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SWOT Analysis

Strengths:

Low cost

World Class Manufacturing

High Quality Products

Strong Product Development

Strong R&D capabilities

Weaknesses:

Not very strong in injectibles, anti-retrovirals, liquids and biogenerics

Opportunities:

Unexplored territories

Major drugs going off-patent in the very near future

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Threats:

Forex risk- This is due to the current depreciating US Dollar. A significant portion

of the company’s revenue comes from the international market. Weak dollar

means that exports are affected and this has an adverse effect on the company’s

profitability.

Risks associated with generics

The increasing Manpower costs

Price erosion

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5.3 Findings

The core strategy that most of the pharmaceutical companies follow is that of cost

leadership. Achieving a low cost production is enabled by technology and

innovative manufacturing capabilities. But low cost production and overall cost

leadership has become necessity now for the pharma companies in order to

sustain competition.

Hence, most of the companies under study follow a Hybrid strategy. They not

only follow a low cost strategy, but also try to differentiate in product quality,

packaging, etc.

Most of the companies have already established a strong presence in the

international markets. US, Europe and Brazil seem to be the common markets

where Indian companies have got access and are ready to tap the opportunity of

the boom in the generics market. Moreover, companies that have not got a strong

presence in the regulated markets are likely to focus more on the emerging

markets. These are the markets of the branded version of generic drugs and hence,

the margins they will get are higher.

These companies have a common outlook for business priority. Their business

focus is in the generics segment as well as that of the branded drugs. The

emphasis is laid on branded products because in the domestic market, the foreign

brands are still sold due to brand equity. Hence, they want to capitalize on that

opportunity as well.

Apart from the option to take the organic growth, the pharma industry, being so

highly fragmented, is taking the route of inorganic growth as well. M&A and

Joint Ventures seem to be the unanimous choices of these companies.

The lack of (R&D) productivity, expiring patents, and stiff generic competition

are driving the mergers and acquisition activity in the sector.

Further, according to Mr. Alok Garg of Zydus Cadila, the primary reasons that the

companies opt for acquisitive growth are “reduced lead time, a ready market,

ready marketing infrastructure, local knowledge base, and hence better chances of

successfully tapping international markets.”

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Most of the companies studied have presence in various therapeutic segments

such as Cardiovascular, Oncology, Gastrointestinal, Intestinal, CNS, Renal,

Gynecology, Respiratory, Pain management and steroids.

The business focus of most of these companies during the booming generics

market is New Chemical Entities, Biotech Drugs, New Drug Development, and

Generics. The rationale behind this choice is that the companies can leverage

resources in New Chemical Entities as well as Biotech drugs, whereas

simultaneously the emerging markets for generics can be tapped.

The common threat to the companies is Government policies, low margin of

generics, competition from companies in the emerging markets, etc.

The main threat to these companies is the fluctuations in the foreign exchange and

the recent depreciating US dollar. Because of current phenomenon, the exports of

these companies have suffered and this poses a considerable threat for the future

also.

Also, the high level of attrition rates is a problem. This is particularly in the case

of sales force, R&D technical staff and production technical staff. This leads to

disruption and delays in projects, substantiates problems like loss of customers

and sales, and it also increases the cost of recruitment and training.

The obvious threat on the companies producing branded drugs is that price

erosion will result due to the generics competition. Costs on marketing activities

may go up for sustaining the competition.

The possible counter strategies that can be used against the generics competition

are that the product portfolio be increased, emphasis on strong brand building

which builds a favorable brand equity etc.

Also, strategies such as launching authorized generics, improvement in product

characteristics, extending legal battles with generic companies and faster turn-

around of new and better products with the help of intensive R&D can be

fruitfully used.

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Chapter 6

Outlook for the Indian Generics Industry

6.1 Mergers & Acquisitions

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6.1.1 The Rationale

Most of the pharma companies studied in this report, prefer to opt for acquisitive growth

to enter the international markets. Although very beneficial, this doesn’t necessarily mean

that the companies should pursue it under any and all circumstances.

Acquisitive growth makes sense only if these acquisitions create sustainable competitive

advantage.

Advantages:

1. Reducing Cost Relative to Competitors

An acquisition-based growth strategy can be implemented in effective especially in

fragmented industries such as pharmaceuticals, where companies can use M&A to

consolidate the industry and achieve scale and cost advantage.

2. Acquiring Necessary Capabilities

Some companies can use acquisitions to fill in gaps in their capabilities, rather than wait

to develop those capabilities internally. This can help them save time and costs.

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M&A Outlook:

As pressures on the pharmaceutical industry increase, global consolidation will continue.

The consolidation is likely to lead to the creation of new ‘big biotech’ companies in the

Asia-Pacific region. The lack of research and development (R&D) productivity, expiring

patents, generic competition and high profile product recalls are driving the mergers and

acquisition (M&A) activity in the sector.

In India, a number of companies have made M&As in global markets. In India, it will be

driven in the medium term by implementation of the new patent regime and generic

companies looking to establish a low-cost base out of the country. Moreover, it appears

Indian companies will continue to look at acquisition opportunities in the regulated

market, especially Europe.

Opportunities:

India’s strong manufacturing base is likely to stand some global companies in good stead.

The domestic pharma companies have forayed into mergers and acquisitions in order to

gain access to global markets.

The Indian pharma industry is known for generics, cost-effectiveness and

competitiveness that give it an edge.

The Indian market is huge and the varied nature of diseases in India interests international

companies.

The US Food and Drug Administration (USFDA) has already approved 60 manufacturing

sites in India. All domestic producers were obliged to comply with Good Manufacturing

Practices by January 2005, under Schedule M of the Drugs and Cosmetics Act, 1940. The

costs are very competitive too.

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M&A trend likely to grow:

The key feature of M&A activity in Asia-Pacific has been consolidation of indigenous

drug manufacturers, particularly in China and India. There were entry barriers for

companies from the developing countries and acquisitions make it easy to find a foothold

in those markets. For instance, there was a cultural and language barrier in Europe. The

US is a huge market and will always interest the Indian pharma companies for its sheer

size.

The domestic industry is fragmented, and in such a scenario, consolidation seems to be

the only answer to survive in the post patent regime.

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6.1.2 Recent Acquisitions

The number of mergers and acquisitions in the past 2 years shows that the Indian pharma

industry is all set to take on the global markets.

Nicholas Piramal acquired 17 per cent in Biosyntech, a Canadian pharma packaging

company in July 2005.

During the same period, Torrent acquired Heumann Pharma, a generic drug company that

was earlier a part of Pfizer.

Matrix’s acquisition of the Belgian firm Docpharma is one of the largest acquisition

deals.

Ranbaxy has completed nine M&A deals in the last two years, amounting to a value close

to US $450 Mn. These acquisitions have significantly expanded its presence in emerging

and profitable markets, such as Romania and South Africa.

Zydus Cadila recently acquired Nippon Universal Pharmaceuticals Ltd., which has got a

country wide reach to more than 4000 hospitals and clinics in Japan. This gives them a

critical access to a ready manufacturing and marketing base as well as a strongly

established distribution network in Japan.

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6.2 Steps Taken in the Direction of Growth

India’s US DMF SubmissionsFigure6.1

The X axis indicates the respective year.

The values on Y Axis indicate the number of DMFs submitted.

Source: USFDA / Newport Strategies Horizon Global ™

The above graph represents the number of Drug Master Files submitted by Indian pharma

companies in the US.

There is consistent rise in the number of DMFs submitted.

# A DMF is a master file that provides a full set of data of an API. It is a document

prepared by the manufacturer in the pharma industry and submitted at his own discretion

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to the Food & Drug Administration. There is no requirement by law or FDA regulation to

present DMF.

However, filing DMF supports other drug applications.

This can help drug application process simpler and faster.

DMFs are used more in Contract Manufacturing.

Indian US DMFs: 2006

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Figure 6.2


The X axis indicates the number of Indian DMFs in 2006

The Y axis indicates the four quarters of 2006

Source: USFDA / JP Morgan Jan 2007

Inference:

This graph indicates India’s contribution to the total DMFs filed in the year 2006. The

four quarters of a financial year are taken into consideration and we can see that

India’s contribution is atleast 1/4th of the total DMFs filed. In Q3 of 2006, Indi’s share

is close to 30% whereas in Q4, it goes as high as 40%.

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6.3 Opportunities & Challenges

The generics industry is going through a period of unprecedented growth, with $82

billion worth of global blockbusters facing US patent expiry by 2008. The changing

dynamics of the generics market are driving strategic evolution of leading players, with

portfolio management, geographic expansion and alliance networks determining success

and failure. With cost-containment a focus for all healthcare players, the growth of the

generics market is outpacing the branded sector by a considerable margin.

However, the operating environment for generics is becoming increasingly competitive

pushing existing players further up the pharmaceutical value chain. Brand and generics

companies alike must be prepared for this new competition. With 79.7% of 2003

blockbuster sales potentially exposed to generic competition by 2010, equating to $103.7

billion worth of products at 2003 sales value, the growth opportunities in the generics

sector are significant. However, understanding how different country dynamics shape the

competitive landscape is critical to evaluating risk and return.


The US, UK and Germany are mature generics markets experiencing substantial price

competition. This is reflected by the fact that, while generics make up 55% of all global

prescriptions, generic market sales equate to only 17% of total sales. However, less

mature markets also exist, including France, Spain, Italy and Portugal. These markets

offer better growth opportunities as generics' current market share is comparatively small.

Crucial to generics companies' strategies in the US is the use of Paragraph IV patent

challenges to gain lucrative market exclusivity periods. Being the first to market a new

generic drug makes for exceptionally attractive market share and profit margins.

However, these profits are short-lived, due to rival launches coming at the end of the

exclusivity period. This means generic companies must continually launch new products

to maintain their margins.

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Effective portfolio management is critical to future success in the generics market.

Maintaining breadth of portfolio and low cost supply is critical for commodity generics

players, forcing many players to evaluate higher value generic sectors, thus generating

new competitors to brand pharma. In the US, the generic Injectables sector retains high

barriers to entry, but in Europe, competitive analysis suggests that the market place is

more crowded. As such, injectable products may represent a less valuable proposition to

European generics players than US analysis would suggest.

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6.3.1 Threat from China

China is becoming a major competitor to India, especially in exports of active

pharmaceutical ingredients (APIs). China’s pharmaceutical industry ranks no.7 in the

world and is expected to become the world’s 5th largest by 2010. China’s domestic drug

sales have been estimated at about US$8 billion in 2003 and the exports are growing at

the rate of about 20% per annum.

The reasons for Chinese competitive advantage are:

The electricity costs are lower in China as compared to India. The power costs

range from Rs.1.50 to 2.50 per KWH as against Indian cost of Rs.4.5 to 6.0 per

KWH.

Labour charges are 40% lower in China than India.

China is more cost competitive in manufacturing sector

China has already implemented clear intellectual property laws and data

exclusivity rules that take it one step ahead of India in attracting foreign players.

In 1992, a pact was signed with US, which heralded the Product patent regime

coming in force in China.

China has established a large number of profit oriented research and development

institutions, which are today independent of government funding in contrast to

institutions in India, which are mostly dependent on government funding.

The Chinese government provides an income tax holiday of 100 per cent for the

first two winning years (profit making years) and 50 per cent for the next three

years

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They have better fermentation process systems in place

The companies are also allowed duty free import of capital equipment.

Low turnaround time for ships at Chinese ports make it conducive as a base for

exports.

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India and China DMF Submission ComparisonFigure 6.3

The X axis indicates the respective year.

The values on Y Axis indicate the number of DMFs submitted.


The above graph compares India and China’s DMFs submission. India is

comprehensively beating the other countries in terms of number of DMFs.

Since last couple of years, all the DMFs submitted by India are dominated by Aurobindo

Pharma, Ranbaxy and Cipla. The DMFs submitted have been for active compounds

lately.

China is far behind India in absolute terms. But the threat of Chinese players such as

Zhejiang Hisun poses a tough challenge to the Indian companies.

It has got a strong API presence in statins and anti-cancers.

Comparison of Top Level Companies: India/China

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Table 6.1

Particulars Ranbaxy Hisun

US Dose Marketing Presence Yes

EU Dose Marketing Presence Yes

US API Presence Yes Yes

EU API Presence Yes Yes

Local Dose Marketing Presence Yes Yes

Other Country Marketing Yes Yes

Drug Discovery Yes

DMFs Yes Yes

ANDAs/Para IV Yes


CONCLUSION

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The Indian Pharmaceutical Industry today is in the front rank of India’s science-based

industries. This highly fragmented industry is very competitive. The companies are

compelled to focus on R&D and innovative methods to improve their manufacturing

capabilities.

The industry is characterized by low cost of production. More and more companies are

now striving to achieve competitive advantage by investments in excellent and world-

class national laboratories specializing in process development and development of cost

effective technologies. With top pharma companies venturing into emerging trends such

as contract manufacturing and contract research, the business horizon of pharmaceutical

industry is expanding rapidly.

IPI is well positioned for sustainable growth and expansion. The industry has grown at a

CAGR of 13 percent from 2002-2007 and is expected to grow at a CAGR of 16 percent

over 2007-2011.

Currently, the generics market is the centre of attraction for the pharmaceutical industry.

Many patented blockbuster drugs are nearing their patent expiry, which is set to open up

a huge market. The current world market which is valued at US $55 Bn is expected to

touch the US $90 Bn mark by 2010.

Apart from the regulated markets of USA and Europe, the Latin American markets are

also playing a major role in this development. Particularly, markets of Brazil and

Argentina are growing at a very rapid rate. The US and Europe markets are also booming

and opportunities galore for the pharma companies to tap these markets.

However, due to the regulatory control issues which characterize these regulated markets,

the pricing pressure increases. Due to this, many pharma companies are targeting to tap

the semi-regulated markets which offer branded generics. Due to this, these companies

can reap higher margins as compared to the other generics.

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The generics market in India is also on the upswing. Apart from the US market, the

European and the emerging markets also indicate a favorable opportunity for the Indian

companies. With price-competition getting stiffer and wholesalers and distributors

becoming increasingly demanding in the traditional generics markets of US and Western

Europe, most global generics players have been forced to expand geographically and

focus on backward integration, which has resulted into a large mergers in global generics

industry. There is a strong growth potential for domestic players in emerging markets like

India, Brazil, China and some African countries. These markets are driven by increasing

per capita spend, improvement in primary care and shift in focus from infectious disease

to chronic illnesses.

In the Indian pharma sector, leading companies like Ranbaxy, Cipla, etc. are tapping into

the international markets to grab the opportunities in the generics business.

Most of the pharma companies, as determined by the industry characteristics, are

focusing on cost leadership as their main strategy. But at the same time, they are also

focusing on creating value through differentiation in their offerings. This is more

applicable in the specialty therapeutic areas such as CVS and CNS.

Mergers and Acquisitions is a unanimous choice for the pharma companies to gain access

in the domestic as well as in the international markets around the world. The rationale of

acquisitions is to have an easy access to international markets with already established

marketing and distribution networks.

But, the booming generics sector also poses a few challenges and issues. The branded

drugs in the market are likely to face sufficient price erosion, which will reduce the

margin, and hence the profitability of the companies.

Moreover, though there are a number of drugs going off-patent in 2008 including a few

blockbusters, it would be interesting to observe how Indian companies consolidate this

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generic opportunity, particularly when dollar depreciation is likely to hit their profit

margins, which may further erode by intense generic competition in the US.

Further, China might pose a threat to the Indian companies in terms of stiff competition.

With skilled manpower, access to required capital and a dominant manufacturing sector,

the competitive advantage of China cannot be underestimated.

But, with the tide relatively firmly in favor of generics, the Indian pharmaceutical

companies with their robust product pipeline and ability to provide products at cost-

competitive prices will definitely hold an edge. The company which has got a strong

R&D support and access to contemporary technologies will make the most of the

opportunities that lie ahead.

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GP Report

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