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12/20/2011

INDUSTRY

PHARMACEUTICAL INDUSTRY

Presented by | Krishna Prasad. Obili

Contents
Acknowledgement PREFACE An Introduction Current Scenario Major Players in the Pharmaceuticals Industry Share market The end of an era Changes that have takes place during ten years (2000-2011) Exports Merger & Acquisition activity Alternatives to M&A ANALYSIS Summary conclusion REFERENCES

Acknowledgement
Apart from the efforts of our group, the success of any assignment depends largely on the encouragement and guidelines of many others. I take this opportunity to express my gratitude to the people who have been instrumental in the successful completion of this assignment.

I would like to show my greatest appreciation to Dr. T. Dayakara Rao. I cant say thank you enough for his tremendous support and help. I feel motivated and encouraged every time I attend his meeting. Without his encouragement and guidance this assignment would not have materialized.

The guidance and support received from all the members who contributed and who are contributing to this project, was vital for the success of the assignment. I am grateful for their constant support and help.

PREFACE

The

assignment

gives

an

insight

of

the

pharmaceutical

industries in India. It basically helps understanding the relationship &


merger of great companies of pharma industry The assignment will help to learn about the growing pharmaceutical industry in India. The research will

also bring to light what all factors a people considers at the time of choosing of work place for betterment of life.

An Introduction
The Indian pharmaceutical industry currently tops the chart amongst India's science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian pharmaceutical industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high amongst all the third world countries, in terms of technology, quality and the vast range of medicines that are manufactured. It ranges from simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made in the Indian pharmaceutical industry.The Indian pharmaceutical sector is highly fragmented with more than 20,000 registered units. It has expanded drastically in the last two decades. The Pharmaceutical and Chemical industry in India is an extremely fragmented market with severe price competition and government price control. The Pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. There are approximately 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units).The Government has also played a vital role in the development of the India Software Industry. In 1986, the Indian government announced a new software policy which was designed to serve as a catalyst for the software industry. This was followed in 1988 with the World Market Policy and the establishment of the Software Technology Parks of India (STP) scheme. In addition, to attract foreign direct investment, the Indian Government permitted foreign equity of up to 100 percent and duty free import on all inputs and products.

Current Scenario
India's pharmaceutical industry is now the third largest in the world in terms of volume andstands 14th in terms of value. According to data published by the Department ofPharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of India'spharmaceuticals industry between September 2008 and September 2009 was US$ 21.04 billion.Of this the domestic market was worth US$ 12.26 billion.The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$ 12.6billion in 2009. The market has the further potential to reach US$ 70 billion by 2020 in anaggressive growth scenario.Moreover, the increasing population of the higher-income group in the country, will open apotential US$ 8 billion market for multinational companies selling costly drugs by 2015. Besides,the domestic pharma market is estimated to touch US$ 20 billion by 2015, making India alucrative destination for clinical trials for global giants.Further estimates the healthcare market in India to reach US$ 31.59 billion by 2020.

Major Players in the Pharmaceuticals Industry


Ranbaxy Dr. Reddys Laboratories Cipla Sun Pharma Industries Lupin Labs Aurobindo Pharma GlaxoSmithKline Pharma Cadila Healthcare Aventis Pharma IPCA Laboratories

Share market
Company name Ranbaxy Lab Dr Reddy's Labs Sun Pharma Cipla LupinLtd Aurobindo Pharma Piramal Health Cadila Health Matrix Labs Wockhardt Sales in US$ million 951.03 866.44 805.51 1,033.46 603.99 582.27 483.10 354.02 310.06 309.68 Year End December 2008 March 2009 March 2009 March 2009 March 2009 March 2009 March 2009 March 2009 March 2009 December 2009

the end of an era


Changes that have takes place during ten years (2000-2011)

There has been much focus in recent years on how Pharma pipelines are drying up and the era of the blockbuster product coming to an end. Over the last 10 years, industry productivity has been declining with both time taken to market and R & D costs rising. With a number of major blockbusters about to lose the protection that intellectual property rights convey, several of the largest manufacturers in the industry, faced with potential significant reductions in revenue streams, have undergone a major effort reduce costs (Fig. 1). Site closures, restructuring and consolidation have become all too familiar terms in the industry in recent years.

exports
Indian Pharmaceutical Sector Shifting from a defensive to a growth sector
The Pharmaceutical sector in India is highly fragmented with more than 10,000 listed and unlisted companies. India is one of the fastest-growing pharmaceutical markets in the world, and its market size has nearly doubled since 2005. The total turnover of the Indian Pharma sector is estimated to be close to US$ 21 bn of which around US$ 9 bn comes from exports while the rest comes from domestic sales. US is the topmost destination for Indian Pharma exports followed by Russia, Germany and Austria. A region-wise segregation of Indian exports has been shown below.

The domestic pharma market is currently US $ 10 bn in size and is expected to reach ~US$ 20 billion by 2015 and establish its presence amongst the worlds leading 10 markets. Currently, India is the 4th largest market in the world in terms of volume and 12th in terms of value.

Merger & Acquisition activity


The acquisition of Ranbaxy Laboratories Ltd in June 2008 by Daiichi Sankyo company for approximately $ 4,538.6 million, represents a 31 per cent premium which has changed the landscape of merger and acquisition (M&A) activity in the Indian pharma sector. The transaction demonstrated global companies thirst to enter into the emerging markets. On a financial front, he further elaborates, The transaction has triggered the inbound M&A activity into the Indian pharma industry. Following this transaction, many global companies have increased their share in the Indian market by acquiring additional stakes in their Indian subsidiaries M&A Top deals (2007 - YTD 2011) Date Target Piramal Healthcare May Limited 2010 Domestic formulations business Jun Ranbaxy 2008 Laboratories Target Acquirer Country Deal Acquirer value Country ($m)

India

Abbott United Laboratories States

3,720.0

India

Daiichi Sankyo Co Limited Reckitt Benckiser

Japan

4,538.6

Dec Paras India 2010 Pharmaceuticals Orchid Chemicals & Pharmaceuticals, Generic Dec Injectable India 2009 Finished-Dosage Form Pharmaceuticals Business Apr DRAXIS Health Canada 2008 Inc. Apr Dabur Pharma 2008 India

United 720.9 Kingdom

Hospira, Inc.

United States

400.0

Jubilant Organosys Ltd Fresenius Kabi AG

India

255.0

Germany 220.0

Apr Pfizer, Ltd. 2009 Mar Matrix 2009 Laboratories Apr Hollister-Stier 2007 Laboratories (Source: Datamonitor)

India India United States

Pfizer, Inc. Mylan, Inc. Jubilant Organosys Ltd

United States United States India

169.5 133.0 122.0

Similarly, there are many such global companies who are gearing up to invest in M&As and hence, the Indian industry is likely to witness many such deals in the near future. Also, with the increasing spate of acquisitions, target valuations have substantially increased thereby making it harder for Indian companies to fund the acquisition. Joint ventures, licensing and brand acquisition agreements trend analysis (2007 - YTD 2011) Version Deal volume 2007 71 2008 62 2009 53 2010 58 YTD 2011 44

(Source: Datamonitor)

Alternatives to M&A
Global pharma companies are considering collaborations and alliances as an alternative to M&As. Many companies are also entering into JVs, licensing and brand acquisition agreements to enhance their capabilities, strengthening product portfolios, distribution networks and establishing foothold in the emerging markets.

The global pharma industry, in the last few years, has shown keen interest in the Indian pharma industry because of its sustained economic growth, healthcare reforms and patent-related legislation. 67 million Indians are expected to live an average age of 67 years by the end of 2011. People of this age group spend around three to four times more on drugs than people in the younger age groups. This indicates substantial growth of Indian pharma industry. These factors are contributing to a high growth

of India's rural pharmaceutical market. The positive approach towards product patents has encouraged the Indian pharma companies to invest more in R&D. Successful Case-Studies of M&As Abbott: It has believed in inorganic growth since the last decade and today with the advent of the Solvay and Piramal deals, it has acquired the position of being the topmost Indian domestic pharma company with almost seven per cent market share. Zydus: It has always looked at growing in various geographies by collaborating and partnering with local subsidiaries in order to create its brand strength. Hence, this strategy of M&A would depend on what product cycle stage is the company on or what is the focus of the company in the next decade. These things will will fuel their future growth plans. Wockhardt: Wockhardt is a global, pharmaceutical and biotechnology company that has grown by leveraging two powerful trends in the world healthcare market globalisation and biotechnology. The company has a market capitalisation of $ 1.3 billion and an annual turnover of $ 285 million (Rs 12.39 billion). Wockhardt has a strong and growing presence in the worlds leading markets, with half of its revenue coming from Europe and the US. Wockhardts market presence covers formulations, biopharmaceuticals, nutrition products, vaccines and active pharmaceutical ingredients (APIs).

The consolidation trend will continue with Indian pharma players playing a major role. Indian pharma companies have spent close to $ 1.4 billion in acquiring companies globally in the past 18 months. With access to capital, higher staying power because of low costs, and managements willing to globalise, this trend is poised to carry on.

ANALYSIS
Pharmaceutical, India's emerging industry, has appeared as the world leader in the fabrication of standard generic drugs, ever since the Patent Act 1970 permitted India to seriously approach and contribute in the pharmaceutical market worldwide.

world's forth largest industry by volume. India is the preferred nation for pharmaceutical generation, with low charges for research and development as well as production of drugs. And the pharmaceutical companies in India have made full use of the favorable environment offered by the country to make it big. The workforce and technological proficiency of pharmaceutical companies in India ensures the growth of the industry on a global scale as well as within India.

STRENGTHS ;
1) Increasing incomes & healthcare spends to spur domestic growth
The domestic pharma market will thus continue to grow rapidly (~15% sales CAGR over 2009-13) buoyed further by stronger penetration of semi-urban/rural areas and rising share of chronic therapies. McKinsey estimates the domestic pharmaceutical market will more than double to achieve sales worth US$ 20bn by 2015.

2)Significant patent expiries in developed markets present good growth opportunities for Indian generic companies:
A slew of patents will expire in the US and EU over 2011-15, including top-selling brands Lipitor, Nexium, Zyprexa and Plavix. Over this period, products with estimated annual sales of ~US$ 80 bn in the US alone will lose patent exclusivity, and this will translate into an estimated incremental generic sales opportunity of US$ 18 billion (~60% of current US generic drug market3) Emerging markets to become the next destinations for pharma companies

4) M&A a potential catalyst


With higher growth prospects in emerging markets, many multinational branded drug companies are trying to expand their presence in generic pharmaceuticals. This has increased their interest in generic companies with an established product portfolio and sales/distribution network in emerging countries

including India. The acquisitions of Ranbaxy (by Daiichi Sankyo) and Piramal (by Abbott) are a case in point. This is expected to continue.

5) Biosimilars potentially a big long-term driver


Biosimilars are reproductions of biotechnologically manufactured biopharmaceuticals that partially mimic proteins naturally present in the body.

WEAKNESS :
1) Product pipeline drying up
Innovative drugs by Big Pharma companies which is the lifeblood of generic drug makers, has been on the decline for the past several years. Some branded drug companies are also cutting R&D budgets.

2) Patent expiries could cannibalise other generic molecules in India


There is a risk that some of the growth from new generic drugs will come at the expense of lower sales from existing generic products. As some of the largest brands in the industry come off patent in coming years, their generic uptake will be at the expense of other generic molecules in similar therapeutic categories.

3) Big Pharma moving into generics


Recent deals in emerging markets and an increasing number of tie-ups with generic firms indicate that branded pharma companies are moving into the generic space. Companies like Pfizer, GSK, Sanofi, AstraZeneca and Abbott have already made moves in this direction and this could result in increased pricing pressure.

Opportunities ;
Strong local industry
Growing expertise with international regulatory compliance High quality manufacturing with abundant capacities

Speed
Very strong entrepreneurial spirit Hungry for growth and recognition Quick learners and fast movers

Availability of capital
Stock market has seen unprecedented growth in the last decade Continues to be bullish on the pharma industry

Geographic Convergence
Established and growing destination for Generic product development and manufacturing Leading Indian companies seeking overseas markets and global scale

Generic Innovator Convergence


Leading Indian companies trying to climb the value chain into innovative research India developing into a Drug Discovery services outsourcing destination

Threats
2005 IPR regime implies drying up of product pipeline forIndian companies Internal fragmentation Non tariff barriers China

Summary
India's pharmaceutical industry has been growing at record levels in recent years but now has unprecedented opportunities to expand in a number of fields. The domestic industry's long-established position as a world leader in the production of high-quality generic medicines is set to reap significant new benefits as the patents on a number of blockbusterdrugs are scheduled to expire over the next few years. In addition, more and more governments worldwide are seeking to curb their soaring prescription drug costs through greater use of generics. These opportunities are presenting themselves not only in India's traditional wealthy client markets such as the U.S. and European Union nations but also in emerging economies with vast populations such as Africa, South America, Asia, andEastern and Central Europe. here are, however, a number of uncertainties, particularly the effects of India's new product patent system, which was introduced on January 1, 2005. Previously, only process patents were granted, a situation that led to India's current role as a world leader in the production of high quality, affordable generics. The new regime may spell the end for the domestic sector's smaller players, while for others it could represent unprecedented opportunities.

conclusion

OPPORTUNITIES ALWAYS AHEAD.

REFERENCES

www.in.kpmg.com/pdf/indian%20pharma%20outlook.pdf www.pharmaceutical-drug-manufacturers.com www.cci.in/pdf/surveys_reports/indias_pharmaceutical_industry.pdf www.cygnusindia.com/... www.oneblogs.in/303093/23/1/showblog.php www.cci.in/pdf/surveys_reports/indian-pharmaceuticals-industry.pdf www.sharetermpapers.com ... Management | MBA Industry Analysis 204.15.35.137/images/uploads/Presentation_Akshay_Lal.ppt www.in.kpmg.com/pdf/indian%20pharma%20outlook.pdf

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