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COMPETITION AND STRATEGY

PHARMACEUTICALS INDUSTRY
LUPIN PHARMACEUTICALS

PGPEM 2018-20 – GROUP11


Indranil Basu (1816007)

Sareetha Kanchan (1816020)


Vijay Kanna (1816023)

Vikas Kulkarni (1816028)

Hagar Sudha (1816062)

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Our Sincere Thanks To
Prof. Rejie George and Mr. Shooj Bhaskaran
Mr. Joseph Kiran Kumar, Director of IT and HR at Eisai Pharma, India
Siddhartha Mitra, Ex-GM, Wokhardt. India
Mr. Anirudh Deshpande, Senior VP – Head of Emerging Markets, Mylan
for their guidance and those little nudges that kept us going

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Contents
Pharmaceutical Industry – An Introduction ................................................................................................. 7
Context of the Report ............................................................................................................................... 7
Evolution of the Pharma Industry in India ................................................................................................ 7
An Industry Expert’s View ........................................................................................................................ 9
Collaboration Among Players ................................................................................................................... 9
Defining the Industry and Scope of Analysis .............................................................................................. 10
The Generic-Drug Industry ......................................................................................................................... 11
What Makes Generic-Drug Industry Lucrative? ..................................................................................... 11
Participants of the Industry .................................................................................................................... 11
Buyers ................................................................................................................................................. 11
Suppliers ............................................................................................................................................. 12
Competitors ........................................................................................................................................ 12
Substitutes .......................................................................................................................................... 12
Potential Entrants ............................................................................................................................... 13
A Structural Industrial Analysis .................................................................................................................. 13
Rivalry Among Competitors ................................................................................................................... 13
Number of Competitors ..................................................................................................................... 14
Industry Growth ................................................................................................................................. 14
R&D Spend by the top players ........................................................................................................... 15
Therapeutic Areas Addressed ............................................................................................................ 15
Conclusion on Rivalry ......................................................................................................................... 15
Barriers to Exit ........................................................................................................................................ 15
Conclusion on Barriers to Exit ............................................................................................................ 16
Barriers to Entry ..................................................................................................................................... 17
Supply Side Economies of Scale ......................................................................................................... 17
Conclusion on Barriers to Entry .......................................................................................................... 18
Threat from Substitutes ......................................................................................................................... 18
Conclusion on Threat of Substitutes .................................................................................................. 18
Bargaining Power of Buyers ................................................................................................................... 18
Conclusion on Bargaining Power of Buyers ........................................................................................ 19
Bargaining Power of Suppliers ............................................................................................................... 19
Conclusion on the Bargaining Power of Suppliers .............................................................................. 20

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Government Actions .............................................................................................................................. 20
Conclusions on Government Regulations .......................................................................................... 21
An Industry Expert’s Inputs on Government Regulations in Pharma ..................................................... 21
Overall Assessment ................................................................................................................................ 21
PESTEL Analysis .......................................................................................................................................... 22
Political ................................................................................................................................................... 22
Economic ................................................................................................................................................ 23
Social ...................................................................................................................................................... 23
Technological ......................................................................................................................................... 23
Environmental ........................................................................................................................................ 23
Legal ....................................................................................................................................................... 24
Complimentary Industries .......................................................................................................................... 25
Medical Insurance, medical services and managed care ....................................................................... 25
AI and data analytics .............................................................................................................................. 25
Hospitals & Drug stores .......................................................................................................................... 25
Chemical industry ................................................................................................................................... 26
Industry Landscape .................................................................................................................................... 27
R&D ........................................................................................................................................................ 27
ANDA and DMF Filing ............................................................................................................................. 27
New Product Development .................................................................................................................... 28
Manufacturing Capability ....................................................................................................................... 28
Therapeutic Focus .................................................................................................................................. 28
Positioning Analysis ................................................................................................................................ 29
An Industry Expert’s View on the Current Competitive Scenario in Indian Pharma .............................. 29
What are the Comparative advantages that firms have? .................................................................. 29
Do All Pharma firms maximize returns through innovation? ............................................................. 29
Point of Inflection ............................................................................................................................... 30
Industry benchmark ........................................................................................................................... 30
Substitution in the generic drug market ............................................................................................ 30
How much power do the buyers wield .............................................................................................. 30
OTC Focus ................................................................................................................................................... 30
Understanding Lupin’s Strategic Intent and its evolution .......................................................................... 31
Investment Strategy ............................................................................................................................... 31

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Acquisitions ........................................................................................................................................ 31
Partnerships ....................................................................................................................................... 32
Patents ............................................................................................................................................... 32
Target Market ......................................................................................................................................... 32
Assessing Lupin’s Resources & Capabilities: ............................................................................................... 33
Analyzing Resources further ...................................................................................................................... 35
Finance ................................................................................................................................................... 35
Technology ............................................................................................................................................. 36
Plant and Equipment .............................................................................................................................. 36
Location .................................................................................................................................................. 36
Brands .................................................................................................................................................... 37
Distribution Channels ............................................................................................................................. 37
Resource Based View of Lupin ................................................................................................................... 37
Test of Inimitability ................................................................................................................................ 37
Test of Substitutability ........................................................................................................................... 38
Analyzing Capabilities further .................................................................................................................... 38
Product Development ............................................................................................................................ 38
Engineering ............................................................................................................................................ 38
Manufacturing ........................................................................................................................................ 39
Strategic Management ........................................................................................................................... 39
Conclusion .................................................................................................................................................. 39
Recommendations ................................................................................................................................. 40
Appendix A ................................................................................................................................................. 41
Appendix A – Capitaline Data ..................................................................................................................... 41
A1: 10 Year R&D Expenses of Lupin: ...................................................................................................... 41
A2: 10 Year Financial Ratios of Lupin: .................................................................................................... 41
A3: Financial Ratios of Lupin as compared to peers: .............................................................................. 42
A4: Lupin Balance Sheet ......................................................................................................................... 43
Appendix B – Lupin Data ............................................................................................................................ 44
B1: Research Facilities ............................................................................................................................ 44
B2: Patents Granted in 2018 [58] ............................................................................................................. 44
B3: Strategic Partnerships ...................................................................................................................... 44
B4: ANDA Filings ..................................................................................................................................... 44

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B5: Process Innovation ........................................................................................................................... 45
Appendix C ................................................................................................................................................. 45
Appendix D ................................................................................................................................................. 46
Medical Tourism ..................................................................................................................................... 46
Biotech industry ..................................................................................................................................... 47
IOT .......................................................................................................................................................... 47
Supply chain industry ............................................................................................................................. 47
Packaging Industry (Plastic & Paper for bags, containers, moulds) ....................................................... 48
Syringe and Needle industry .................................................................................................................. 48
Glass industry ......................................................................................................................................... 48
Cosmeceutical industry .......................................................................................................................... 49
Waste management industry ................................................................................................................. 49
References .................................................................................................................................................. 50

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The Pharmaceutical Industry Analysis
Pharmaceutical Industry – An Introduction
India has come a long way in the path of healing; from introducing Ayurveda through formal texts of
Charaka Samhita and Shushruta Samhita around 400CE, to adoption of the Unani system of healing which
was brought to India by the Arabs and Persians in the Eighth century, to the introduction of Homeopathy
medicines in the early 19th century and the current adoption of Allopathic treatment system – a journey
where thoughts of bad spirits causing diseases has been replaced by bad diets! And the human quest to
become immortal has only increased the pace of innovation in the field of medicine, but the limitations
of our understanding of the long-term effects of such innovation has left deep questions – the impact of
superbugs is a case in point here [1]. However, the importance of medicine in healing cannot be ignored.
And, for a country to be economically self-reliant and grow it requires its people to be healthy. A strong
pharma industry can provide that support through affordable medicines and a deeper reach. A large
market for the products gives the industry players an opportunity to grow and improve their offerings; a
win-win for both the consumer and the producers.

Context of the Report


We have taken up the task of analyzing the Pharmaceutical industry in India and evaluate where it stands
in terms of growth, product offerings, profitability and future prospects. There are many levers to this
industry and we have set out to analyze them in detail to understand them. What is the key driving force
behind the profitability of the industry? Is the growth sustainable? Can anybody get in and start making
money? If not, how long will it take for a firm to start gaining traction? What are the impediments that
the incumbents face and what are the steps they are taking to surmount them? These are some of the
questions that we try to address in this report. We also try to look at the strategies adopted by firms to
play a long-term game and how those strategies are expected to make the firm gain competitive
advantage over other players.

We use the term Pharma industry to refer to the Allopathic medicinal products industry unless specifically
mentioned otherwise. We have used the {R} symbol at different places in the report to indicate our
recommendation for Lupin (our focal firm) to maintain/improve its competitive positioning.

Evolution of the Pharma Industry in India


A pharma drug creation has two major parts: Bulk Drug and Formulation

Bulk Drug: this is the active chemical substance in powder form that forms the main ingredient. These
chemicals have therapeutic value, used to produce pharmaceutical formulations. Major bulk drugs
include antibiotics, sulpha drugs, vitamins, steroids, and analgesics.

Formulation: this is the process in which different chemical substances, including the active drug (bulk),
are combined to produce a final medicinal product that could be in the form of tablets, ointments,
capsules etc.

The pharma industry has grown in four stages [2].

Stage1: This stage is the period prior to 1956 when the Indian pharma market was dominated by foreign
companies and had very few domestic players. The indigenous drug production could hardly meet the

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total medicinal requirement of the country. The foreign players were engaged in importing bulk drugs
from their home country and processing them into the formulation.

Stage2: This stage is the period post 1956. Based on the findings of Pharmaceutical Enquiry Committee of
1954, the Indian government in its industrial licensing policy of 1956 mandated that the drugs be produced
within the country from the basic stage. This led to creation of many pharma manufacturing industries,
including some home-grown producers.

Stage3: This stage is the period from 1970 up to early 1990’s and can be considered as the turning point
stage in the Indian Pharma industry. Two government policies – the amended Indian Patent Act of 1970
and the New Drug Policy of 1978 set the pace of Industry evolution. NDP also brought in a reservation for
the domestic manufacturers while restricting the MNC’s. This gave an additional boost to the growth of
the Indian Pharma industries.

Stage4: This stage is the period from early 1990’s which ushered in the phase of liberalization and other
regulatory requirements (such as the Drugs and Cosmetic Act of 1995). By this stage Indian manufacturers
had gained sufficient competence in process engineering and had made a mark for quality in drug
production. As a consequence of this dual-sided situation, this period witnessed a phase of consolidation
where good quality drug manufacturers sustained while the producers of poor quality drugs were rooted
out, either by competition from foreign players or through the regulatory framework.

Stage5: This stage is the period from 2005 onwards. A key policy change was the introduction of Product
Patenting through an amendment of the Patent Act. This has led to a further strengthening of research-
oriented drug manufacturers to protect their products from getting copied (creating a barrier for
imitability) and thus become a stronger player in the global pharma market post India joining the WTO.

In 2016 the Government of India unveiled “Pharma Vision 2020”1 towards making India a global leader in
end-to-end drug manufacturing. It is to be seen if this becomes a turning point for the industry and gets
recognized as the Stage 6, as we believe it will based on our analysis presented in this report.

At this stage we see that there are many pharmaceutical manufacturers, but the way the industry has
structured itself leads us to believe that each level, from a basic level of contract drug packaging house to
the highest level of a Blockbuster drug manufacturer, has created its own entry barrier and requires
significant capabilities for a new entrant to scale, while also imposing substantial continuous improvement
requirement on the incumbents.


1
Vision: To enable Indian pharmaceuticals industry to play a leading role in the global market and to ensure abundant availability, at
reasonable prices within the country, of good quality pharmaceuticals of mass consumption [60] [61]

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An Industry Expert’s View


Drug discovery is the first process in bringing drug to the market. Drug discovery is the process by which
new candidate medications are discovered. Historically, drugs were discovered through identifying the
active ingredient from traditional remedies or by unexpected discovery. Modern drug discovery involves
the identification of screening hits, medicinal chemistry and optimization of those hits to increase
the affinity, selectivity (to reduce the potential of side effects), efficacy/potency, metabolic stability (to
increase the half-life), and oral bioavailability.

Drug development is the process of bringing a new pharmaceutical drug to the market once a lead
compound has been identified through the process of drug discovery. It includes pre-clinical research on
microorganisms and animals, filing for regulatory status, such as via the United States Food and Drug
Administration for an investigational new drug to initiate clinical trials on humans, and may include the
step of obtaining regulatory approval with a new drug application to market the drug

It takes roughly around 12-15 years for a molecule from discovery to the shelf (if it is successful at the
regulatory approval) and also it would cost companies few billions.

Collaboration Among Players


This is another facet of the industry evolution and the capability of a firm to engage in such acts has
actually led to creating a competitive advantage in recent times. As highlighted by a study in the
Pharmaceutical Journal (refer to Appendix C for the details), it can take an average of 12.5 years and USD
1.5 Billion to create 1 novel drug. And a failure at any stage of the drug discovery can lead to a loss of time
and investments incurred till that time. This excessive difficulty and risk was rightly categorized as “greater
than, say, landing a man on the moon or designing an atomic bomb . . . because the core challenge of
designing a new drug is the trial-and-error screening of immense number of candidate compounds, which
is not guided by any known equation or formula” [3].

In this scenario a divide-and-conquer strategy is found to work better. While some firms have competency
in manufacturing, others might consider their R&D as the key strength and for some others it could be
their distribution network in a certain region. A collaboration in this context could either be in the form

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of a Joint Venture (JV) or a Licensing deal. While in case of a JV the risk is shared among the partnering
firms, in a licensing deal the licensee earns a royalty for the sale of the drug that is part of the agreement.
This leads to better availability of the drug across a wider geography and thus enhances the profitability.

CRAMS (Contract Research and Marketing Services) is a growing segment and a move in the collaborative
environment where the strengths of individual players are used to bring products faster to the market
while achieving economies of scale and thus lower cost.

Defining the Industry and Scope of Analysis


As mentioned earlier the pharma industry has many branches such as mainstream drugs (Allopathy) and
alternate medicines (Ayurvedic, Homeopathy etc). However, in this report we focus our attention to
Allopathic drugs and its manufacturers. But we ensure not to dismiss the alternative medicine industry as
they form an important component for a substitute analysis.

The mainstream medicine is brought out after extensive research and trials. As shown below, from the
International New Drug Application to a full market availability of such a drug can take up to 8 years [4] [5]
(Note that this is in line with the Appendix C detail – the timeline image shown below starts with new-
drug application which happens after the drug discover).


This has made new drug discovery a highly exclusive area of research requiring heavy investment. And,
this necessitates the creators of such drugs to have exclusive rights through patents to protect their
inventions and to monetize their efforts. So, such drugs are marketed by its creators under special brand
names and they are recognized as such – “Brand-Name Drugs”. These branded drugs are protected
through patents for a period of 20 years. Beyond that, the drug composition becomes available to
everyone for manufacturing. Once a drug reaches this stage it gets recognized as a generic drug, referring
to the fact that it does not belong to a specific brand or a manufacturer but is a common item. This is the
second category of products – “Generic Drugs”. It is this area of drug manufacturing that sees a lot of
intense competition among drug manufacturers trying to capture the market that was exclusive to one
producer (patent holder) until now.

The competitive nature of the Generic Drugs and the potential to grab a significant market share without
the effort and extensive lead time in creating a new drug yet earn handsome profits that the pharma
products can garner makes this industry very lucrative. Using Porter’s way of defining a relevant industry
we see that the Brand-Name drugs and the Generic-Drugs can be segmented as two separate industries

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because of the differences in the effect of five forces on these two major segments of pharmaceutical
manufacturers.

We use Michael Porter’s Five Forces in conjunction with the Template for Structural Analysis of an Industry
created by Prof. Deepak Sinha. We shall loosely use the term generic pharma industry (or sometimes
pharma industry) to indicate generic drugs in this report as that industry segment forms the basis of our
analysis.

The Generic-Drug Industry


A generic drug is a medication created to be the same as an already marketed brand-name drug in dosage
form, safety, strength, route of administration, quality, performance characteristics, and intended use.
Generic medicines work in the same way and provides the same clinical benefit as its brand-name version.
The generic drug manufacturers use a polymorphic molecule similar to the molecular composition of
previously patented drugs to come up with their products. While this may seem an easy route, we will see
in succeeding sections the forces that contribute to making it difficult to penetrate the market.

What Makes Generic-Drug Industry Lucrative?


A look at the sector (Ref. Capitaline) indicates the number of companies that operate in this space – about
200 companies. As indicated in the previous section, generic drugs are those which are no more protected
by patents and thus can be manufactured by anyone2. However, as we will see in the next section, the
participants of the industry play a crucial role in the success of a pharma firm. But it is enlightening to see
the reasons that contribute to the industry lucrativeness as highlighted below:

1. Conducive Government Support


a. 100% FDI
b. Initiatives such as Pharma Vision 2020 to promote local industry development
2. Lower cost of production
a. Lower cost of labor – both in manufacturing and research
b. Easily available talent pool
3. A seemingly ever-growing market
a. With the Central Government Health Scheme more people are able to afford the drugs
b. A large number of hospitals getting added resulting in higher accessibility

Participants of the Industry


Buyers
The pharma industry’s consumers, unlike many other industries, vary with the context of analysis. The
generic drugs are further segmented into prescription drugs and over-the-counter (OTC) drugs. The OTC
drug market is driven to a great extent by the ability of the consumers to self-medicate [6]. We can note
that this will be a major force in future when information flow regarding medical treatments become
more accessible. On the other side of the spectrum are the prescription medicines. Prescription


2
The Hatch-Waxman Act was enacted in USA to support generic drug manufacturing which would help citizens reduce the cost of medicines,
which can be prohibitively high for Brand-name drugs. One of the key aspects of the Act is to provide exclusive access to the market for a
duration of 180 days. This period of exclusivity gives the first entrant to penetrate the market and entrench itself as a strong competitor. On the
[4]
flip side, such deals have been negatively viewed by the anti-trust laws, although no major changes in law have been enacted thus far . Cipla is
a classic case where they successfully created generics of AIDS drugs and sold them at less than $1 a day, which was significantly lower than the
branded drugs at that time
[5]

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medicines, by virtue of their use, are supposed to be used only on a prescription. This makes the Medical
practitioners (Doctors) the chief influencers of medicine usage, while the second most important
influencer is the pharmacist who stores and retails such drugs. The third, but possibly equally influential,
influencer is the Insurance provider who plays a significant role in the approval of drug usage. Finally, the
end consumers should be factored. It is not with surprise that the end consumer is mentioned last in this
context, given the multiple layers of influencing factors that reside above the end consumer and can sway
the decision process of the consumer. Another buyer emerging as a major influence in this segment is the
Government by virtue of setting up what are known as the Jan Aushadhi stores, which have been setup
to provide drugs at lower costs to the commoners. However, as we go through the structural analysis we
shall use the influence of each of the buyer segment and their contribution to the industry’s
attractiveness.

Suppliers
Drug manufacturing involves varied set of raw materials. Indian pharma raw material supply sector has
significantly grown in the last couple of decades. These suppliers provide an exhaustive set of raw
materials including antibiotic and antimicrobial agents, vitamins, amino acids etc.

Competitors
The pharma industry is filled with many players (Ref: Capitaline) who compete fiercely for a share of the
market. The top 10 pharma companies based on their market cap, revenues, profits and assets are shown
through pie-charts below [7].

Substitutes
The pharmaceutical industry ironically banks on illnesses suffered by people (and animals). Substitutes to
pharmaceutical products can be as varied as alternate medicines (Ayurvedic, Homeopathy etc) to
something that makes people prevent illnesses too (example immunity enhancers)! So, the pharma
industry is exposed to many varied types of products as substitutes.

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Potential Entrants
The Pharma industry has been alluring many players because of the potential it holds. While some
entrants are trying their hands for the first time, there are players who are already in some allied industry,
such as health foods and alternate medicines, who can be considered as potential entrants who can
possibly pose a threat to the incumbents. We shall look at the threats from potential new players in
succeeding sections.

With such a diverse yet influential set of industry participants the stakes are very high for the incumbents
and this leads to a lot of competitiveness among players. In the next section we shall do a structural
analysis of the industry to review competition among players, profitability, market penetration and other
parameters to determine what it takes to become a dominant player in this industry.

A Structural Industrial Analysis


Based on the template for Structural Analysis of an Industry by Prof. Deepak Sinha, we have analyzed all
the factors that contribute to industry attractiveness. These ratings have been based on various industry
and environmental and economic causes that we have correspondingly documented. We have used a 7-
point scale to evaluate the parameters in this analysis.

Rivalry Among Competitors


Factor Rating Reasoning
Number of 3 Large number of competitors yet an attractive because of the
Competitors concentration sales among the powerful players as detailed below
Industry 7 Very strong growth of the Industry due to some of the factors mentioned
Growth below
Fixed Cost 6 Pharma industry is capital intensive with incurred manufacturing costs 27-
30% of annual sales. For the generic pharma industry R&D costs though not
astronomical as that of innovator drugs is still high due to significant costs
involved in reverse engineering the existing drugs and discovering the
biosimilar molecules (See details below)
Differentiation 6 Identical or bio-equivalent to innovator drug in dosage form, safety,
strength, route of administration, quality, performance characteristics and
intended use, however the differentiation will be as a result of medical
practitioner prescribing a particular brand of medicine
Switching 5 Though many versions of a particular generic drug are available in the
Costs market from different manufacturers, switching may not be easy because
two pharmaceutically equivalent drugs may not be therapeutically
equivalent. Secondly the importance of the decision makers in promoting
one drug over the other is undeniable
Openness of 4 though formulations are being obtained after patent cliff priced
terms of sales competitively compared to similar innovator drugs, there is some
opaqueness related to the pricing and sales strategies
Excess 3 Though profit achieved via volume production, but demand is also
capacity prevalent to a certain extent, but channel stuffing not possible due to
obsolesce and expiry of drugs after a certain period of time

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Strategic 7 Generic drug business is a focused business, primarily flagship business for
stakes the promoters
Overall 5 On a scale of 7 the score of 5 shows a highly attractive score

Number of Competitors
Large number of competitors (both branded and unbranded), however along with pricing the branding of
medicines also plays a role in purchase decision thereby limiting the potential competitors in specialty
generics. The major players in this industry are: Sun Pharma, Cipla, Dr. Reddy’s, Lupin, Aurobindo.
Based on Capitaline database [8] it is seen that out of total sales in the Bulk Drug and Formulations
segment, the top 13 firms contribute to more than 70% of the sales. Some other medium sized players
include Cadila Healthcare, Glenmark Pharma, Ranbaxy and Torrent.







This shows a clear importance of the branded generics in introducing new products, achieving economies
of scale with larger distribution capabilities and influencing the decision makers through brand recognition
(this will be addressed in more detail later).

Industry Growth
Factors that have contributed to the growth of this industry:
1. Increasing patient pool due to steady rise in population (1.3% per year) and steady rise in
disease prevalence
2. Increased drug affordability due to sustained rise in income, augmented by increasing health
insurance coverage & govt. sponsored health programs for BPL segment of population
3. Increased accessibility of drugs to medical infrastructure improvement, new business models for
tier II & tier III towns and chemist penetration in rural India
4. Rising acceptability of modern medicine, preventive medications and new therapies, increased
patient awareness, propensity to self-medicate
5. Promotion of India as destination of health tourism and increased export potential of low cost
Indian generics to other countries around the world especially Latin America and Africa

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R&D Spend by the top players
We analyzed the R&D spend by the top 5 players and the below graph shows how each stands up
against the others (amount in Million INR).

Therapeutic Areas Addressed


The top 5 firms of the industry have covered the entire spectrum of addressable therapeutic areas as
shown in the below table.

Lupin Aurobindo Cipla Dr. Reddy Sun


Anti-TB Antibiotics Cardiac Gastro Dermatology
Anti-
Respiratory retroviral Respiratory Oncology CNS
Cardiac Cardiac Urology Cardiac Cardiac
Pain Pain
Anti-Diabetic CNS Anti-virals Management Management
CNS Gastro CNS Anti-allergic
Anti-
Infective Anti-diabetic Anti-infective Oncology
Gynecology Anti-allergic Respiratory Metabolism
Gastro Dermatology Antibiotic
Gastro

Conclusion on Rivalry
Based on the parameters used to evaluate rivalry and other factors highlighted below shows that although
there is severe competition among players in some of the therapeutic segments, the scope of addressable
therapies, the size of the market and other factors contributing to increase in drug consumption has
reduced the scope of bitter rivalry among competitors. However, in the coming years, as the ease of
creating new drugs and the markets saturate we are bound to see an increased level of rivalry.

Barriers to Exit
Factor Rating Reasoning
Asset 1 A key requirement for pharma manufacturers is the setting up of a
Specialization manufacturing unit which involves getting the necessary approvals from
DGCI (India), hiring skilled workers, purchase of necessary equipment,
leasing land for the manufacturing unit etc. The entire process is capital
intensive and requires long term commitment towards running the
enterprise [9] [10].
Secondly, the National Pharmaceutical Pricing Authority has taken a stand
that any essential drug whose market share is more than 1% cannot be

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withdrawn [11]. This has a direct bearing on the pharma companies since
they will need to continue producing loss making products. Currently this
list of essential drugs stands at 374 [12] where the government has the
authority to ask the pharma company to continue producing the drug for 1
additional year from the date of request for withdrawal.
However, in the current scenario there are many Indian and multinational
pharma companies who are ready to acquire stakes in low-performing
businesses. As explained above, setting up a new manufacturing unit takes
considerable time and effort which is significantly reduced in the case of an
acquisition. Looking at an Exit possibility from this lens indicates that the
cost of exit may not be very high because a company may be able to find a
potential buyer when it so desires, and the high cost of assets will get a fair
value when sold (JB Chemicals is a good example in this case [13])
Cost of Exit 1 Drug manufacturing is capital intensive involving high sunk costs in terms
of specialized plants, specialized drug manufacturing equipment not easily
adaptable to another industry, specialized workforce not easily adaptable
to another industry in terms of knowledge, skills and mindset, and
government regulations regarding exit.
80% outsourcing.
Sunk cost. - High levels of dedicated fixed costs tend to be an impediment
to leaving.
Government 2 Government can restrict the exit from the business or make it more
Restrictions laborious due to change in market dynamics with the exit [14]
Restricted to an extent to 1 year from the date of request for withdrawal.
Overall 1.33
Conclusion on Barriers to Exit
Based on the above-mentioned factors the Barriers to exit are high once the game is upped to playing in
the branded generics where the higher profitability and brand recognition comes with the responsibility
of supplying essential drugs to the market even when such drugs might not remain profitable. Also the
asset specialization and the difficulty of disposing the products or by-products may carry lot of
restrictions, which make the industry unattractive.

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Barriers to Entry
Supply Side Economies of Scale

A generic drug manufacturer has to get approvals from various drug authorities of its region of operation
before it can start manufacturing and distributing it in the market. The US FDA (mentioned as FDA
henceforth) has generally been considered as the benchmark in drug regulation. FDA requires generic
drug manufacturers to file for an ANDA (Abbreviated New Drug Application) to be able to manufacture
and sell generic drugs. The process of development of a generic drug is shown in the below figure [15].

Factor Rating Reasoning


Economies of 7 Huge capital investment is required for drug manufacture which can only be
scale recovered keeping a reasonable unit drug pricing via economies of scale so
as to spread out the fixed costs.
To achieve high numbers - investment though is low, profitability will be a
challenged without economies of scale.
Product 5 Though formulations of generic drugs for a particular ailment have similar
differentiation efficacy, yet pharmaceutical efficacy may not equate to therapeutic
efficacy. But as barrier to entry it should not be a factor.
Brand identity 3 Brand identity is important for nonprescription drugs, whereas the
prescription drugs are at the discretion of the physician. People recognize
brand name instead of the company.
Switching cost 5 On the higher side because two drugs with similar pharmaceutical efficacy
can have different therapeutically efficacy.
From a doctor's perspective, it is not easy to convenience the doctor to
switch. Consumers perceive switching is not advisable. Our scope to identify
the customer is doctor or end consumer.
Access to 6 Complex distribution channel comprising of manufacturer, wholesaler,
channels of retailer, pharmacy and then end customer. Also involves network of
distribution stockiest and medical representatives and doctors to push the drug into the
market
Capital 7 Drug manufacture is capital intensive with significant investment in
requirement equipment, plan, cleanroom etc. and needs to be certified by the authority.
The MES (Minimum Efficient Scale) for Indian Pharma is Rs. 8 Crore (2013)
of output level and thus it does not pose entry barrier in the pharmaceutical
industry from the production point of view.

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Access to 6 Specialized equipment’s needed for drugs manufacture. Not just
technology formulation but also in delivery. For generic drugs.
Access to new 6 Reliable supply of qualified raw material required. Sometimes may require
material special permits to access the raw materials. Also, global sourcing may
present its own challenges in terms of import duties taxes etc.
Government 3 Providing support towards distribution channels in govt. hospitals due to
protection their low cost
Overall 5.3

Conclusion on Barriers to Entry


The overall score of 5.3 on a scale of 7 indicates that there’s a sufficiently high barrier to entry for a
potential new-entrant making the industry attractive. In the evaluation 3 parameters stand out:
Economies of scale, Distribution channels, Access to technology. With the strength in these 3 key areas
of creating new drugs, producing them at economies of scale and being able to penetrate the market
through a strong distribution channel builds a entry barrier that is hard to scale.

Threat from Substitutes


Factor Rating Reasoning
Availability of 2 for generic drugs there are lot of substitutes
close
substitutes
Switching 2 low cost of switching. No apparent cost
cost
Substitutes’ 3 Much less
price value
Profitability 3 Ayurveda and substitutes are increasing.
of the
producers of
substitutes
Overall 2.5

Conclusion on Threat of Substitutes


The threat from alternate medicines and even other low cost generic drug manufacturers is a real concern
for the top players of the industry. They need to be wary of these substitutes that can change the dynamics
of the industry in a very short span. The major reason for this threat is the external environment of the
end consumers. Situations such as recessions could force people to only look at cost as the parameter,
while giving very less importance to the brand and thereby hurting the viability. Another situation to
consider is the sudden emergence of an alternate therapy for an ailment that has a higher efficacy that
existing drugs. This could lead to a sudden switch by the consumers and thereby rendering the product
worthless. The case of Hormone Replacement Therapy is a good example to consider when its rise in
adoption and a subsequent fall was triggered by different research findings and the way the therapy was
modified over the years [16].

Bargaining Power of Buyers


Factor Rating Reasoning

18

Number of 6 Huge in number. Considering docs, pharmacists
buyers
Availability of 2 Not extreme few because in the whole range of generic there are few who
substitutes are providing the substitutes.
Switching 1 End consumer has an influence on the switching cost. Shelf space. Switching
cost cost is low but there is a cost associated with switching
Buyer’s 7 Pharmacy can rarely go back to manufacturing drugs 3
threat of
backward
integration
Industry’s 1 Pharmacy should to be able to stock other drugs
threat of
forward
integration
Contribution 2 Influenced by margin. Fragmented market
to quality
Contribution 3 Pharmacies switching cost is low and undifferentiated products
to cost
Buyer’s 2 High profit.
profitability
Overall 3

Conclusion on Bargaining Power of Buyers


The end consumers are the buyers like most of the consumer products; however, because of the
specialized knowledge that is necessary in the decision-making process of selecting a product makes the
decision makers crucial and inadvertently the “buyers” of the product. In this context the perception of
the decision makers regarding a firm producing the drugs becomes crucial. Brands convey quality,
compliance and accessibility and enables decision making. Thus, the decision makers – Doctors, Hospitals,
Pharmacies and Pharma Distributors carry significant power in terms of promoting or dumping a product
and this is reflected in the overall score making the industry a little less attractive.

However, a key aspect to note in this context is the increasing access to internet, higher levels of
awareness among the general population, increased competition (high rivalry) among the pharma
distributors and higher penetration of the drugs into tier-2 and tier-3 regions will lead to a dilution of the
power of buyers. We believe that increased levels of online consulting and access to medicines through
e-retailers will inhibit the power of the buyers and thus allow manufacturers to pass the benefit to
customers through better pricing.

Bargaining Power of Suppliers


Factor Rating Reasoning
Number of 6 Large suppliers
suppliers


3
A classic example of a backward integration in this industry is the case of Alkem Pharma, whose founder Mr. Samprada Singh started with a
medical store and went on to found Alkem which created one of the best-selling drugs – Taxim which earns over Rs. 700 crores from sales in 48
countries

19

Availability of 5 Moderately few.
substitutes
Switching 6 Bargaining power of supplier is low.
cost
Supplier’s 3 Threat is there. But viability is a question 4
threat of
forward
integration
Industry’s 6 Industry can make their own API.
threat of
backward
integration
Contribution 2 Quite high
to quality
Contribution 2 Low because they are not the main component in the composition.
to cost
Industry’s 2 Grade of quality of raw material provided by supplier is high.
importance
to supplier
Overall 4

Conclusion on the Bargaining Power of Suppliers


Suppliers are very many in the pharma industry giving a multitude of options to choose from for its raw
material supply. However, aspects such as forward integration by the suppliers, their contribution to
quality and their importance increase their bargaining power. Consider the forward integration aspect
where a highly generic drug could easily be manufactured by a supplier who possesses the know-how
needed to produce it. And, if the supplier can produce it at a lower cost such a product can eat into the
profits of the branded generic products.

Government Actions
Factor Rating Reasoning
Industry 6 Government policies to incentivize the pharma companies
protection
Industry 2 Clinical trial regulation and other drug manufacturing regulations
regulation
(pollution
etc)
Customs and 1 Each country has stringent guidelines on the drug quality and also have their
tariff own policies to support and grow their own local industries
restriction
abroad
Overall 3


4
A case of forward integration can be of Divi’s Lab which is a focused API and Nutraceuticals supplier but could expand into generic drug
manufacturing either through strategic acquisitions or expanding its research or it could also go into OTC market with its know-how [62]

20

The National Health Policy of 2017 [17] envisions better healthcare provision to the 1.1 Billion
people of India through government support to poorer sections of the society, improvement of
the primary healthcare system, building public private partnerships etc. This is expected to be
achieved by targeting a rise in public health expenditure to 2.5% of the GDP. Under the National
Health Program several initiatives help strengthen the pharma industry such as:

1. Universal immunization
2. Control of communicable diseases
3. Population stabilization
4. Emergency Care and Disaster Preparedness
5. Tertiary care services
6. Financing of Health Care
7. Make in India
8. Incentivizing Private sector
9. Drug Regulation (Sec14.4 of the Policy) which aims to promote low cost generic drugs,
and promote R&D in the pharma sector
10. Clinical Trial regulation
Conclusions on Government Regulations
The government regulations are being viewed in a positive light by the Industry and is considered
[18]
as a move towards standardizing and better controlling the output . This will in a way regulate
the new entrants through strict quality, price and other social requirements which will strengthen
the incumbents and thus help them grow.

An Industry Expert’s Inputs on Government Regulations in Pharma


India comes in semi-regulated countries along with Russia, China and Brazil where we follow country
specific guidelines. Africa under non-regulated and US, EU & Japan come under regulated countries
which follow stringent ICH guidelines.

CDSCO is the regulatory authority that approves drugs in India. Therefore, drug companies in India have
to follow the guidelines set by them. If the drugs are to be exported to the US then the companies have
to comply with USFDA regulations and with Japan they have to comply with PMDA and so on.

Overall Assessment
The industry analysis on a 7-point scale has shown some specific indicators on how the industry is
positioned.

Factor Rating Weight Reasoning


Rivalry 5 15% This is markedly low because we see that each major player
among targets a certain category of medicine and aspires to be the major
competitors player. This categorization has led to reduction in rivalry and a

21

head-on competition and a resultant price-war among the major
players and thus attractive for the industry
Barriers to 1.3 5% Significant Government restrictions make the industry less
exit attractive
Barriers to 5.3 25% A relatively high barrier to entry in the branded generic drugs.
entry Although a new entrant may find it hard to crack the break into
established segments the Industry provides a gateway to enter
whenever there are new drug discoveries. This window of
opportunity can be utilized provided the incumbent or the new
entrant puts the needed resources to succeed.
Threat of 2.5 25% This is becoming a marked threat for the industry as consumers
substitutes are opting for alternate medicines
Power of 3.0 15% Buyers have a sizeable influence on the decisions and profitability
buyers of the manufacturers.
Power of 4.0 5% Significantly low because of high number of suppliers and the
suppliers varied kinds of raw materials demanded.
Government 3 10% Recent regulations have made it challenging for the industry to call
action its shots
Overall 3.4 3.7 It stands at a decent score of 3.4 and there are some specific
attractiveness actions that the incumbents can take to make the industry
attractive

While parameters such as high barriers to entry, low rivalry and low threat of suppliers has given a boost
to the industry attractiveness there are other factors such as substitutes, buyers and protectionist actions
of the governments across geographies which are acting as dampeners to the growth of the industry.
However, as mentioned in the Power of Buyers section, there are apparent technological trends that show
an increased access to information and thus better power of choice in the hands of end consumers, which
can lead to a need for the branded generic manufacturers to be able to influence the end consumers and
sensitize them about the importance of quality and improve the brand perception. Thus marketing and
distribution channels will play a major role in deciding the winners and losers of the industry in the coming
years. {R} Lupin should develop extensive Distribution network through medical representatives and
deeper penetration.

PESTEL Analysis
The Pharmaceutical industry is a dynamic environment influenced by social trends, consumer spending
behavior, government decisions, increasing regulatory framework for environmental factors,
technological changes, and an evolving legal system.

Political
Government policies and governance system plays a huge role in nature and objectives of the policies.
Pharmaceutical companies have to manage diverse regulations for market entry and operating in the local
market. The taxation policy is usually relaxed resulting in higher profits and increased R&D spending. In
spite of the new government policies giving this industry an advantage, the timescale of execution will be

22

longer than the mandated term of the present India Government and a new Government will always bring
in its own changes. Non-government agencies, protest & activist groups play a critical role in policy making
in India.

Economic
Economic factors include inflation rate, economic performance, consumer disposable income, labour
market conditions, exchange rate, taxation rate and interest rate. The growth in last two decades is built
upon increasing globalization and leveraging skilled local resources to cater to global markets. The Indian
Government has increased investment in developing core infrastructure to improve the ease of doing
business. Easy liquidity in the equity market of India will also help to expand globally.

Social
Social factors can help in understanding the customer preferences based on cultural norms. Social factors
include societal roles and norms, demographics, gender roles, traditions, culture, health & safety
attitudes. As India is a young country & growing hence various segments of the population need to be
catered to. The attitude towards getting Foreign nationals to manage high positions is not very positive in
India hence best to get Indian Managers to manage operations in the country. It is important that income
inequality and gender roles be addressed.

Technological
Technological factors such as rate of technology driven change, innovation in product & processes, supply
chain disruption, digital disruption, access to technology etc. heavily impacts the Pharmaceutical industry.
Innovations is key as it enables higher market share. Pharmaceutical companies are reluctant to transfer
technology & licenses due to the fear of losing out on competitors and hence tend to protect their
Intellectual property rights and patents. The latest technology is fast lowering production and servicing
cost and restructuring the supply chain is essential to bring in more flexibility to meet customer needs and
cost structures.

Environmental
Sustainability and environmental factors are becoming critical for businesses. Government and pressure
groups are forcing organizations to adhere to environmental standards. Some of the environmental
factors are safe water treatment, increasing focus on sustainability, safe disposal of hazardous material,
laws regulating pollution, safe waste management, limiting carbon footprints, insurance policies, climate
change etc. Environmental norms are altering the priorities of product innovation. Regular scrutiny by
environmental agencies is also adding to the cost of operations. The pressure on the Pharmaceutical

23

companies is high over synchronization between environmental needs. Both government and the
community are pressing the industry to invest more in environmental concerns.

Legal
Legal pressures are one of the biggest challenges before the pharmaceutical industry. Legal factors such
as time taken to deliver justice, intellectual property rights protection, data protection laws, biasedness
toward home players, copyrights law, system of justice, discrimination laws etc. needs to be considered.
The level of legal scrutiny and oversight has increased. Companies need to identify their risks and
opportunities proactively and develop policies that can mitigate these risks.

24

Complimentary Industries
In this section we review some of the complimentary industries and the impact they can have on the
pharma sector.

Medical Insurance, medical services and managed care


Healthcare industry (including medical insurance) in India is expected to reach $280Billion by 2020, driven
by increasing awareness, innovative products and more distribution channels. Indian government’s
contribution to insurance stands at roughly 32% and 76%of the Indians do not have insurance and
penetration rate of health insurance in India is about 4% only. According to Frost and Sullivan, healthcare
Industry in India is expecting to mark a CAGR of 16.5% by 2020.

AI and data analytics


In addition to streamlining the process of drug discovery, the application of AI in pharma offers additional
advantages such as identification of both tangible and intangible enhanced value proposition, enhanced
competitor differentiation, optimal resource allocation for maximum market share gain, revenue and
profit, ability to maximize growth, customizing sales and marketing messaging for greater customer
engagement, and automation of sales and marketing messages and channels.

Hospitals & Drug stores


The hospital can easily get 40 per cent ROI on its medicines sold at its retail counter and to the indoor
patients from having in-house pharmacies and some even have third party pharmacies that are
outsourced that give a substantial percentage on revenue/profit/sales. Hospital pharmacies currently
contribute around 20-25 per cent to the hospital revenue.

25

Chemical industry
The chemical industry is 6th largest in the world and 3rd largest in Asia and is expected to reach $200Billion
by 2020. There are more than 350bulk medicines i.e., chemicals having therapeutic worth and used in
production of pharmaceutical formulations. In comparison with other industries pharmaceutical industry
is the major consumer of chemical industry.

There are other complementary industries (see Appendix D) that can have a direct or an indirect impact
on the pharma sector, but their impact is not as pronounced as the ones mentioned above.

26

Firm Analysis of Lupin
Industry Landscape
In one of the earlier sections (Rivalry among competitors) we have looked at the top 13 players who
contribute to more than 70% of the total pharma industry revenues. There are many parameters which
are used as metrics to evaluate the competitiveness of a firm in the pharma industry. We shall look at
them here using the top 5 firms of the industry as a comparison basis – Lupin, Aurobindo, Cipla, Dr.
Reddy’s and Sun Pharma.

R&D
The focus of Indian Pharma companies has been in the generics space. In the recent years the focus of the
top pharma companies has shifted towards complex generics, specialty and differentiated products and
biosimilars. This decision on the R&D strategy is based on their future outlook and priorities5. Some of the
metrics used to assess the R&D capability of a pharma firm are explored here.

Company Scientists R&D as a % of Patents filed in Number of


Total Revenue 2018 Research facilities
Lupin 1700 12% 208 6
Aurobindo 1500 4% Not available 4
Cipla 1500 7.1% 35 5
Dr. Reddy’s NA 12.9% Not available 6
Sun Pharma 2000 12.4 83 6

ANDA and DMF Filing


An ANDA filing is considered an important metric because it directly relates to the development of a
generic drug product. Once approved it paves the way for the manufacture and marketing of the product.
While this is an approval process specifically for the US market it is still an important parameter since the
top 5 generic companies derive their lion share of revenues from the US. A second reason is that the ANDA
filing could also indicate the therapeutic areas and products that a company expects to launch in future.
Year Lupin Oral Derma Opthal Inhalation Others Injectables Sun Cipla Dr. Reddy'sAurobindo
2014 19 33 12 78
2015 18 19 13 40
2016 36 20 10 2 1 3 22 7 13 22
2017 37 31 5 1 1 27 32 26 31
2018 36 26 2 2 2 4 32 24 19 47
Here’s a look at the DMF filings in 2018 by the top 5 players, which details complete information about
API or finished drug dosage form and is used to protect its IP from its partners while complying with
regulatory requirements. DMF may be used to support an Investigational New Drug Application (IND), a


5
Because of an extremely long lead time to revenue that biosimilar research demands Cipla has moved its investments in biosimilars to its
more traditional therapeutic areas – respiratory and specialty

27

New Drug Application (NDA), an Abbreviated New Drug Application (ANDA), another DMF, an Export
Application, or related documents [19].

Company DMF Filing in 2018


Lupin 11 – 6 in US, 2 in EU, 3 in Japan
Aurobindo 43 – 7 in US – other countries not available
Cipla 40 – country specific data not available
Dr. Reddy’s 73 – 12 in US – other countries not available
Sun Pharma 19 – country specific data not available

New Product Development


Company New Products
Lupin 16
Aurobindo Not available
Cipla 22
Dr. Reddy’s 20
Sun Pharma Not available

Manufacturing Capability
Company Manufacturing
Lupin 18
Aurobindo 25
Cipla 44
Dr. Reddy’s 25
Sun Pharma 42

Therapeutic Focus
Top 3 therapeutic focus areas

Company Manufacturing
Lupin CVS, Anti-diabetic, Respiratory
Aurobindo CNS, CVS, Antiretroviral
Cipla Respiratory, Antiretroviral, CNS
Dr. Reddy’s Gastro, CVS, CNS
Sun Pharma Derma, CNS, CVS
Based on the above comparison we infer that there is scope for wide addressable areas that each of the
firm is targeting. Being a specialized player has advantages compared to competing against a firm in a
specific product. A view of the Annual Reports of all the 5 companies showed a pronounced intent of
targeting complex generics6 and the specialty products market.


6
A complex generic is a generic that could have a complex ingredient, complex formulation, complex route of delivery, or complex drug device
combination. It is challenging, time consuming and expensive to develop complex generics and demonstrate the equivalence, safety and
efficacy of the therapy [63]. A similar definition holds for the specialty products too.

28

Positioning Analysis

On the competitive positioning we see that the top generic pharma firms try to be in the broad
differentiation category by addressing multiple therapeutic areas. However, not all companies have been
successful with diversification which has led them to back out and refocus on their core competencies. A
case in point is Cipla – as mentioned in the 2017 Annual Report, they repositioned their Biotech business
to an in-licensing model to de-risk future investments.

On the other hand, firms such as Divi’s labs have stuck to their core competence (API development in their
case) instead of developing their own products, and companies such as Amrutanjan have stuck to their
core products such as Pain Management and avoided diversification.

An Industry Expert’s View on the Current Competitive Scenario in Indian Pharma


There are different therapeutic areas and segments based on the application of the drug in which the
companies operate. The most common ones include Oncology, Central nervous system (CNS),
Cardiovascular, Gastroenterology, Dermatology, Nephrology etc. There are many approaches to treat a
disease (Chemistry varies) and companies operate according to various approaches. Some products are
sold in only in Tier1 cities such as life style disease related drugs.

What are the Comparative advantages that firms have?


Skilled chemists, Tax holidays (SEZs), Availability of economical raw material etc.

Do All Pharma firms maximize returns through innovation?


Every company tries to protect their process and products from imitations as the amount of time and
money spent on them is huge. It could be both product innovation and process innovation. Joint ventures
and alliances are good as it the combined strength of the partners that wins at the market place. Such as
a research-oriented company ties up with the company that has strong foot hold in the market. Most
companies also try to outsource some functions including manufacturing to CMOs (Custom manufacturing
organizations), clinical trials, process development etc. Innovation can take place in different areas, such

29

as manufacturing, packaging, new drugs. But in general Pharma is conservative and firms generally try to
emulate others.

Point of Inflection
Policy changes impact the industry. Policies such as bringing certain drugs under price control or the
standard code for marketing in the form of UCPMP have effects on the industry.

Industry benchmark
It is CoGS if sales is evaluated and CoGM for a cost leader. Volume production is general metric for all the
firms

Substitution in the generic drug market


While there is no way to protect oneself in the generic drug market, the only thing that seems important
to me is to maintain high quality. But can one maintain high quality at low cost is the question!

How much power do the buyers wield


The pharmacies have traditionally been very powerful in dictating pricing, shelf access and product
promotion. In recent years this power is expanding to hospitals as the number of hospitals is increasing
and they maintain their pharmacies and restrict access to their shelf space.

OTC Focus
There is an increasing focus on OTC (over the counter or non-prescription) products – one of the prime
reason for this is the increasing health aware population and the general knowledge about self-
medication among people in Tier-1 cities. Some of the key medicines with high OTC potential are [20]:

1. Vitamins and minerals


2. Cough and cold
3. Gastrointestinal Analgesics
4. Dermatological
5. Anti-obesity

Some of the reasons that have contributed to the growth of the OTC markets are:

1. Purchasing power parity


2. Wider distribution channels
3. Direct to consumer advertisements
4. Low price controls

As our analysis of the top 5 firms showed a strong inclination of all these firms to penetrate the OTC
market. While companies such as Aurobindo and Cipla have dedicated their efforts in developing OTC
products in their primary markets – US and South Africa respectively, Lupin has debuted with two of its
OTC products in India – Softoval and Corcal. {R} Lupin should strengthen its brand recognition and image
building through advertisements and deeper distribution penetration to reach out to the end consumers
directly.

30

Understanding Lupin’s Strategic Intent and its evolution
Lupin Limited is a transnational pharmaceutical company based in Mumbai. It is the 12th largest
company by market capitalization and the 8th largest generic pharmaceutical company by
revenue globally7. The company’s key focus areas include pediatrics, cardiovascular, anti-
infectives, diabetology, asthma and anti-tuberculosis.
Lupin’s Organizational statements – Purpose, Values and Vision [21] bring out 3 clear focus areas:
1. Industry: Over the recent years, the pharma industry is severely challenged by alternate
medicines. This is because of the side-effects of drugs, while also possibly creating what
are known as “super-bugs”8. These issues with the drugs are leading to a general loss of
faith. Pharma industry may eventually lead to a collation of both allopathic and alternate
ways of cure and Lupin needs to warm itself up towards growing itself as a company that
provides products for “well-being” of the population in general.
2. Innovation: {R} Innovation is key to Pharma companies to be able to come up with new
drugs, drug delivery systems and cures. Referring to the R&D expenditures made at Lupin
(Refer Appendix A1), we see a reduction in the percentage numbers in investment
compared to earlier years.
3. Region: Lupin has been investing significantly towards a wider global expansion and thus
become a bigger player. Although Lupin has been a significant player in India, US and
Japan, its footprint is comparatively smaller in other parts of the world. And, efforts
towards gaining wider reach have been implemented. The company has focused on
expansion in terms of its production [22] [23] and global penetration through its existing
drugs into regions where its presence is lower [24].

Investment Strategy
Lupin has used different investment strategies to expand its offerings. We look at acquisitions,
partnerships and patents to understand the path taken.
Acquisitions
As mentioned by Founder and CEO of Lupin, Mr. Desh Bandhu Gupta, during the acquisition of
Kyowa in Japan, “This (the acquisition) is a very significant part of our strategy to tap leading
global markets [. . .].” Lupin has used the inorganic route of acquiring strategic interests in pharma
companies in various parts of the world to establish its presence and also to ease its local market
penetration by utilizing the resources of the acquired firm. Some of the acquisitions have also
helped strengthen its research strength in its fields of interest (Refer Appendix B1 for Lupin’s
Research facilities). {R} This strategy is an important way of accessing new markets or to be able
to create new products where Lupin might not have existent capabilities to achieve faster time-
to-market.


7
India sales contribute 26% to Lupin’s global revenues and is the 5th largest pharmaceutical company in the country
8
Sciencedaily reported on 27/Jan/2019 that within 3 years of finding blaNDM-1, which conditionally provides multidrug resistance in
microorganisms, it was found in Kongsfjorden region of Svalbard – 8000miles away from where the gene was originally found!

31

Partnerships
Lupin has undertaken key partnerships to get into some key areas. Appendix B3 lists some of the
recent partnerships and the area of medication it attempts to address. This is an important
strategy in view of the need for faster time-to-market. The partnerships could provide various
benefits including access to technology, markets, manufacturing, supplier etc. A good partnership
can yield benefits through collaborated development and revenue sharing while also giving
access to key knowledge base that can be leveraged to build in-house capabilities for the long
term.
Patents
Appendix B2 indicates the list of patents granted to Lupin in the year 2018. The list is diverse yet
suggestive of certain areas of focus that include Digestive, Cancer, Arthritis etc. The patenting
approach has a dual view – the past and the future. Since the patents are filed some time before
the actual grant happens it gives us the view of the strategic area of focus that was adopted in
such past. Secondly, the patent grants indicate the area that will fetch revenues for the company
based on the market potential of such an invention. For example, usable inventions in the field
of cancer can give significant returns to the company given the need for such drugs.

Target Market
Lupin started in 1968 and chose to combat Tuberculosis [25]. From being a focused player in a
specific ailment, Lupin is moving towards a broad range target market by focusing on specific
areas which include Cardiovascular, Diabetology, Asthma, Pediatric, CNS (Central Nervous
System), GI (Gastrointestinal), Anti-infective and NSAID (Non-Steroidal Anti-Inflammatory Drug).
It has its research facilities, set up independently or through acquisition, in 8 different locations
worldwide.
To summarize: Lupin’s emphasis on higher quality drugs catering to the “complex generics”9 and
their clear intent to increase their market coverage over wider therapies shows that Lupin’s focus
is heading towards achieving a broad differentiation strategy competitive position. Moreover,
their pricing is higher than average and the market demand for products under the Lupin brand
is relatively inelastic.


9
A complex generic is a generic that could have a complex active ingredient, complex formulation, complex route of delivery, or complex drug
device combinations

32


Lupin’s Competitive Position (Moving from Focused Differentiation to Broad Differentiation Strategy)

Assessing Lupin’s Resources & Capabilities:


IMPORTANCE LUPIN’S COMMENTS
RELATIVE
STRENGTH
RESOURCES
R1: Finance 8 6 Managing Cost, Opportunity cost, right investment decisions,
generating debt financing are the reasons why Finance is
strategically important.
Lupins short term credit rating is ICRA A1+ and long term &
NCDs as ICRA AAA, which is the stable rating as compared to
the industry. Lupin can acquire debt & can service these debts
easily.
R2: Technology 8 5 It is strategically important for firms to leverage technology as
a resource to identify opportunities, monitor commercial
activities and pivot, as necessary [26]
{R} Other opportunities to Leverage technology – chatbots,
visual analytics for better decision making.
R3: Plant & 8 4 It is strategically important for firms to have manufacturing
equipment Units in multiple places, comply to stringent quality, US issued
compliance checks.
Lupin had drug safety problems and stocks slipped [27]
R4: Location 4 7 Logistics needs to be good, hence location not important.
Lupin operates across geographies – US, JAPAN, INDIA and
has manufacturing units in various locations across India.
R5: Brands 9 6 Brand as it is important with regards to doctors, pharmacist;
while end consumers least care.
{R} Wider portfolio will require direct-to-consumer
advertisements
Lupin is amongst the top brands – Sun, Cipla, Lupin.

33

Lupin’s plants have not been able to maintain quality
standards
R6: 9 4 {R} Robust distribution network is necessary to push product
Distribution in the market.
MR networks, therapy focus promotion, channel
management, hospital task force, specialty driven task model,
is an area of improvement for Lupin.
CAPABILITIES
C1: Product 7 8 Firms need to be ahead in newer medicines, patents, ANDA
Development filing, Drug delivery mechanisms to gain early mover
advantage is strategically important.
Lupin has no competition in the space and are already a
leader. There even get royalty on some of their patents.
Some companies are very good in their existing supply chain;
Lupins is capable to acquire and diversify to take advantage of
foreign products & market.
C2: 7 8 Engineering in terms of Ingenuity & innovation forms an
Engineering important competitive strategy.
Lupin has sizable number of patents under process
innovation.
Processes – some processes can be adopted from others.
Capabilities are more frequently acquired via acquisitions and
partnerships. In 2019 – Lupin has won the innovation award.
[28]

C3: 7 8 Manufacturing from a Process & quality standpoint is
Manufacturing important for Pharma.
Criteria for hospitals to screen a potential pharmaceutical
product is that the company should have its own
manufacturing unit.
Sites can be FDA approved and therefore the manufacturing
operation can be outsourced to optimize cost.
Lupin has 12 manufacturing sites in India.
C4: Financial 9 5 {R} It is vital for firms to perform financial management in
Management terms of use of Debt, consideration of cost of capital and
choice of investments.
It has been noted that at Lupin salaries for R&D personnel has
been on the rise (above average as per Industry standard)
while R&D investments are on the rise but new product roll
outs have plateaued.
Moreover, acquisition of Gavis has been acknowledged as a
failure by the firm [29]
C5: R&D 6 7 During FY2018, the Company invested Rs. 18,510 million,
11.9% of sales, while industry average is 8.5 % sales. Lupin has
been investing in R&D ahead of the curve to operationalize its

34

vision to become an innovation focused pharmaceutical
company. Industry average is at 8%
Growth is via acquisitions predominantly and not organically
via investments.
C6: Marketing 9 3 Marketing & awareness campaign to pharmacies, doctors.
and Sales Market share is 3%
MR network – build relationship with doctor network, Lupin is
2nd, Sun Pharma is 1st.
C7: 8 5 The industry is Highly Regulated, and compliance is
Government imperative. DPCO sets the price ceiling. [30]
Relations Lupin has been in the industry for 50 years and build a fairly
strong network both market and non-market.
C8: Strategic 8 6 Elaborated in section below.
Management
Both scales range from 1 to 10 (1 = very low, 10 = very high)

Lupin’s resources and capabilities are compared against those of Sun Pharma, Cipla, Torrent Pharma and
Cadila Healthcare

Analyzing Resources further


Finance
A debt-to-equity ratio of 0.4:1 (Auro 0.3, Sun 0.34, Reddy 0.4, Cipla 0.14) [31] [32] [33] [34] [35] while considered
healthy, compared to its peers, Lupin has a higher leverage. This could be beneficial in a growing market
where Lupin’s strategy is of acquiring strategic interests in overseas firms giving enhanced research
capabilities and market access. However, a recent bitter experience with respect to Gavis acquisition
which resulted in a large chunk of Rs. 7.83 Billion losses due to one-time impairment [36]. As Mr. Nilesh
Gupta, MD, acknowledged “We did not get certain approvals that we expected and there were certain

35

expansions in the company that took longer. We also overestimated the process involved to access
controlled substances” [37].

Technology
One of the major ingredients for strategic decision making in the pharma industry is Information – about
patients, availability of medicines, demand for specific cures in certain regions etc. Today’s connected
world and the scope of its access to the remotest parts of the world has helped pharmaceutical companies
to understand critical needs and take decisions that help pharma products reach the last mile, while also
expanding their scope for profitability. Emerging technology trends such as context-based services, Big
Data have provided the right platforms to understand the needs of the end consumers [38].

Lupin has been making efforts through the use of chatbots10 and visual analytics, but there is scope for
improvement.

Plant and Equipment


Pharmaceutical companies are inclined to own their manufacturing facilities and research equipment.
However, this aspect also imposes on the company the need to maintain their standards as mandated by
regulatory authorities from time to time. The second factor is the possibility of such assets becoming
obsolete [39].

Lupin has been steadily investing in various Plant and Equipment assets to facilitate its research interests.
Some of the asset increase have also happened through the acquisitions made. The investments made in
this area in the past 3 years is shown below (Amount in Million Rupees):

Added
2016 6616.8
2017 9004.4
2018 5985.6

Location
In the current scenario the location of a manufacturing plant plays limited role; to the extent of access to
good road network, provision of electricity and water supply and tax exemptions by setting up
manufacturing plants in SEZ [40]. Lupin has two plants in SEZ11 areas: one in Dhar, Madhya Pradesh and
another in Nagpur, Maharashtra.

However, it should be noted that these decisions are very long-term decisions and once a manufacturing
plant has been setup it may not be possible to move it based on attractiveness of the newer locations. At
best, such opportunities could be used when a newer manufacturing facility needs to be established. But
another critical factor to consider in the decision process is the availability of skilled resources at such
locations.


10
HealthTap is an interactive health company that has developed a Facebook Messenger chatbot, allowing patients to quickly find out what
[39]
they may be suffering from and how to treat it. People can also submit questions to doctors and get answers and request live consultation
11
SEZ units are provided conditional tax holiday’s for up to 15 years, customs and excise duty exemptions, taxes such as VAT and service tax
[40]
exemption and other deductions based on the activities carried out

36

Brands
Pharmaceuticals are increasingly competing to deliver safe, efficacious and cost-effective drugs. This has
led to an increasing need for clarity in identification and brands play a major role. While performing the
Industrial analysis we had mentioned the importance of the paradigm shift happening in the information
age where the most important influencers – Doctors, do not have complete autonomy in choosing the
drug for the patients/end-consumers. With the information age consumers have access to various options
for the same composition drug available in the market – both in terms of their pricing and possibly a
consumer review in terms of side-effects experienced. As this database becomes increasingly available,
consumers may look for the quality of the drugs as an important factor in deciding their choice. It is
obvious in this context that Pharmaceutical companies are bound to put efforts in creating brand
awareness not just among doctors and pharmacies but also among the end consumers. Brand recognition
can become a major asset to be able to penetrate markets [41] [42].

Lupin has been investing in repositioning of its brands in products which were acquired – Methergine®
and Methylphenidate. Also, the branded business has been restructured to separate Pharma and Specialty
areas to better leverage each of the markets. While awards such as “Most Promising Brands of 2018” have
contributed to brand image enhancement [43], {R} quality audit of the manufacturing plants by government
regulators have brought out certain issues that need to be addressed to avoid a dent in the quality
perception [44] [45] [46].

Distribution Channels
Unlike many other industries Pharma is bottlenecked by a specific entity when it comes to marketing and
product distribution of its products – the Medical Representatives network. As seen in the Ernst & Young
report on the Potential of the pharma distribution channel [47], there are serious implications to the lack
of visibility of stock and its movements beyond the CFA (Carry and Forward Agent) stage. This leads to
limitations in the efficiency of drug distribution and consequently loss of sales. The information flow from
the manufacturing facility right up to the pharmacy is an essential aspect that pharma companies need to
look into, but if often neglected.

Lupin has to come up with innovative ways in penetrating the market and be able to directly influence the
decision makers and buyers. A stand out example was when Lupin took a completely new strategy of
direct-marketing to physicians for one of its product in the US and was able to garner tremendous success
[48]
. With many low-cost generic manufacturers entering the market it is extremely important to have a
strong distribution network that understands the importance of the brand (as also emphasized in an
earlier section) and to sensitize the quality aspects of Branded Generics.

Resource Based View of Lupin


Test of Inimitability
Lupin has achieved specific advantages in inimitable resources:

1. Physical Uniqueness: Lupin has a number of patents and ANDA filings (Refer Appendix B2 and
B4) to protect its resources (processes and molecular compositions) from being copied
2. Path Dependency: Lupin has established a brand perception of quality and trust over the last 50
years. As far as Tuberculosis treatment is concerned, Lupin is a market leader with years of
dedicated research on the treatment

37

3. Causal Ambiguity: Lupin continues to ride on the legacy established by the late founder
chairman Desh Bandhu Gupta, who was a celebrated philanthropist, entrepreneur and the
poster boy of Indian pharmaceutical success. The purpose, ethics and culture established by him
will be difficult to reproduce by competitors
4. Economic Deterrence: Tuberculosis drugs are a classic example where the time and money
invested by Lupin has ensured a complete market dominance and deters competitors from
entering since the economic viability of entering this segment is not attractive anymore. Lupin
should try to emulate this in other therapeutic segments too

Test of Substitutability
Indian pharma is currently challenged by a number of substitution threats from non-allopathic
medicines and treatments. To gain competitive advantage, Lupin has ventured into manufacturing
Ayurvedic drugs too. This could become a critical resource as alternate medicines are proven for efficacy
in future.

Analyzing Capabilities further


Product Development
One of the key performance metrics of product development in the Pharma sector is the ANDA filings in
the US. Most of the generic pharma companies have US as their primary market and these ANDA filings
show the capability of the companies in introducing new drugs to the market. The graph shown below
indicates ANDA filings by Lupin and its competitors.

Chart Title
100

50

0
2014 2015 2016 2017 2018

Lupin Sun Cipla Dr. Reddy's Aurobindo



In some of the therapeutic areas such as TB Lupin has been able to maintain its leadership position, but
other emerging chronic ailment areas such as respiratory and diabetes require added attention to be able
to maintain a strong position. Appendix B4 shows the focus areas where ANDA filings have been made by
Lupin.

Engineering
There are different strategies used by pharma companies in the Engineering area. Further, in certain
therapeutic areas which are considered strategic interests pharma companies invest significantly in
achieving engineering innovation (such as process innovation) while in other areas which may not be a
strength for the company a partnership approach could be taken to circumvent the lack of skill. Core
engineering skills can be used to license the technology or product for royalties and avoid the efforts in
marketing. This decision is generally based on the strengths of the company.

38

We see a mixed strategy adopted by Lupin in this case. Lupin has been innovating in the area of Oncology
and has partnered with AbbVie to commercialize its drug to treat hematological cancers and in return
getting an upfront fee in the form of licensing and a continuous stream of royalty based on the sales [49].
Similarly, it has also partnered with Mylan to commercialize its Etanercept biosimilar in European markets
[50]
.

On the other hand, Lupin has used its strength in Indian distribution network to partner with Eli Lilly to
distribute its diabetes injection Aplevant in India. Appendix B3 shows the recent partnerships undertaken.
{R} It is important to explore opportunities in Engineering and strategic partnerships to exploit the market
opportunities.

Lupin has been investing in process engineering in different areas to keep itself relevant in the upcoming
areas of therapy and Appendix B5 shows some of its process innovation in 2018.

Manufacturing
Manufacturing is an essential component from a Quality control perspective. Lupin has 12 manufacturing
sites in India and some more outside the country. One of the key difficulties faced in manufacturing is the
regulatory approvals needed by each regional drug authority to be able to manufacture and market a
drug. It is important to control the quality and regulatory compliance levels at each of these facilities as
this affects both sales and brand reputation.

Recent review comments on some of the manufacturing sites as mentioned under the Brands subsection
have had a negative impact and Lupin needs to improve its standards to build its global image.

Strategic Management
Lupin has been adept at adapting its strategy over the years to the market demands. From being a single
product single market stage to the current position where Lupin has a global presence and is a well-
recognized brand, the strategic management of the firm has been handled well. However, there have
been instances such as the Gavis acquisition where the due-diligence needed for the investment should
have been more thorough. By being the first to enter the Japanese market through the Kyowa12
partnership Lupin was able to make an early dent and has been a well-recognized brand [51].

Conclusion
Lupin is in a challenging industry which requires the firm to be up for the challenges which are both
external and internal. The external challenges include changing global business scenario, regulatory
conditions and changing customer needs, while the internal challenges include streamlining research
capabilities towards new therapeutic areas, improving manufacturing capabilities to stay competitive in a
price and quality sensitive environment, while maintaining frugal yet strategic financial management
while acquiring assets. As recommended in different parts of the document Lupin needs to keep tabs on
different aspects of the business to maintain its competitive position.


12
The vice-chairman of Kyowa was carrying a magnifying glass while visiting the Lupin Goa plant and stressed that the tablets manufactured by
Lupin had rough surfaces which was disliked by Japanese consumers. This led to minor changes in the punches to ensure the tablets had a
smooth feel!

39

Recommendations
1. Lupin should develop extensive Distribution network through medical representatives and
deeper penetration
2. Lupin should strengthen its brand recognition and image building through advertisements and
deeper distribution penetration to reach out to the end consumers directly
3. Innovation is key to Pharma companies to be able to come up with new drugs, drug delivery
systems and cures
4. This strategy is an important way of accessing new markets or to be able to create new products
where Lupin might not have existent capabilities to achieve faster time-to-market
5. Other opportunities to Leverage technology – chatbots, visual analytics for better decision
making
6. Wider portfolio will require direct-to-consumer advertisements
7. Robust distribution network is necessary to push product in the market
8. It is vital for firms to perform financial management in terms of use of Debt, consideration of
cost of capital and choice of investments
9. Quality audit of the manufacturing plants by government regulators have brought out certain
issues that need to be addressed to avoid a dent in the quality perception
10. It is important to explore opportunities in Engineering and strategic partnerships to exploit the
market opportunities

40

Appendix A

Appendix A – Capitaline Data


A1: 10 Year R&D Expenses of Lupin:
Lupin Ltd
Industry : Pharmaceuticals - Indian - Bulk Drugs
Year Mar 18 Mar 17 Mar 16 Mar 15 Mar 14 Mar 13 Mar 12 Mar 11 Mar 09 Mar 08
Capital Expenditure 135.5 614.37 210.73 97.41 63.51 88.99 93.33 64.14 44.16 44.1
Recurring Expenditure 1,707.57 2,180.20 1,521.08 1,021.13 894.77 681.86 500.64 465.95 222.75 149.27
Total Expenditure 1,843.07 2,794.57 1,731.81 1,118.54 958.28 770.85 593.97 530.09 266.91 193.37
Total R&D expenditure as percentage of net turnover(%)
0 0 0 0 8.6 8.1 8.5 9.3 7.1 7.6

A2: 10 Year Financial Ratios of Lupin:


Lupin Ltd
Industry : Pharmaceuticals - Indian - Bulk Drugs

Year Mar 18 Mar 17 Mar 16 Mar 15 Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 Mar 09
Key Ratios
Debt-Equity Ratio 0.02 0.04 0.02 0.01 0.07 0.21 0.3 0.33 0.47 0.71
Long Term Debt-Equity Ratio 0 0 0 0 0 0.02 0.05 0.07 0.15 0.29
Current Ratio 2.79 2.83 2.96 2.66 2.23 1.56 1.36 1.38 1.26 1.24

Turnover Ratios
Fixed Assets 2.51 4.04 3.81 3.08 3.07 2.79 2.56 2.59 2.49 2.37
Inventory 4.69 6.31 6.21 6.33 6.67 5.85 5.52 5.83 5.13 4.39
Debtors 2.28 3.02 3.21 3.66 3.81 4.27 3.98 4.21 4.51 4.39
Interest Cover Ratio 54.97 143.05 160.44 656.55 150.55 52.8 36.03 31.6 25.97 12.35
PBIDTM (%) 21.98 35.87 36.79 36.09 36.89 26.55 21.47 21.53 22.33 19.69
PBITM (%) 18.11 33 34.1 32.67 35.03 24.46 19.04 19.23 20.1 17.43
PBDTM (%) 21.65 35.64 36.58 36.04 36.66 26.08 20.95 20.93 21.56 18.28
CPM (%) 17.19 27.5 27.65 27.77 27.63 19.63 17.25 20.18 19.93 16.43
APATM (%) 13.33 24.63 24.96 24.35 25.77 17.54 14.82 17.88 17.7 14.17
ROCE (%) 11.51 29.86 35.62 39.25 49.36 33.47 22.7 22.82 25.6 22.29
RONW (%) 8.8 23.54 27.04 29.95 39.31 29.38 23.36 28.5 33.23 30.97
PBIDT/Sales(%) 21.98 35.87 36.79 36.09 36.89 26.55 21.47 21.53 22.33 19.69
Sales/Net Assets 0.63 0.81 0.91 1.07 1.25 1.28 1.11 1.08 1.07 1.27
PBDIT/Net Assets 0.14 0.29 0.33 0.39 0.46 0.34 0.24 0.23 0.24 0.25
PAT/PBIDT(%) 60.65 68.67 67.82 67.46 69.84 66.09 69.02 83.03 79.27 71.98
Net Assets/Net Worth 1.02 1.06 1.05 1.02 1.03 1.15 1.31 1.33 1.36 1.69
ROE(%) 8.8 23.54 27.04 29.95 39.31 29.38 23.36 28.5 33.23 30.97

41

A3: Financial Ratios of Lupin as compared to peers:

Industry : Pharmaceuticals - Indian - Bulk Drugs & Formln Lrg (2018 March)
Torren Aurobi
Aggre Dr t Sun ndo Natco
YRC
gate Reddy' Pharm Pharm Pharm Pharm Cadila Auro Divi's
Cipla s Labs a. a.Inds. a a Health. Lupin Labs. Lab.
Debt-Equity Ratio 0.62 0.02 0.21 0.92 0.32 0.37 0.08 0.4 0.02 0.5 0.01

Long Term Debt-Equity Ratio 0.62 0 0.04 0.7 0.06 0.01 0 0.18 0 0.5 0

C urrent Ratio 2.17 2.18 1.61 1.4 0.63 1.52 2.52 0.94 2.79 1.89 3.06
Turnover Ratios
Fixed Assets 1.84 2.1 1.05 0.63 1.46 2.56 1.65 1.38 2.51 2.03 1.84
Inventory 4.91 4.02 5.11 3.64 3.58 3.53 5.53 5.17 4.69 29.18 3.02
Debtors 3.79 5.35 2.17 4 2.86 2.5 3.92 5.33 2.28 5.12 3.63
Interest C over Ratio 4.75 161.62 12.1 2.91 1.76 45.3 61.38 24.43 54.97 4.91 528.86
Profitability Ratios
PBIDTM (%) 20.01 21.43 16.39 29.18 14.03 26.7 45.9 31.84 21.98 16.7 35.55
PBITM (%) 15.51 16.8 8.12 20.15 8.59 23.25 42.79 26.81 18.11 14.43 31.84
PBDTM (%) 16.74 21.33 15.72 22.27 9.14 26.18 45.2 30.75 21.65 13.75 35.49
C PM (%) 13.56 17.46 14.33 20.38 9.42 21.04 36.22 23.77 17.19 10.84 26.37
APATM (%) 9.07 12.83 6.06 11.35 3.99 17.59 33.11 18.73 13.33 8.58 22.66
ROC E (%) 10.62 13.78 5.32 9.73 2.47 18.98 34.21 15.36 11.51 28.65 21.25
RONW (%) 10.14 10.91 4.84 10.7 1.55 19.68 28.94 15.19 8.8 31.53 15.3

42

A4: Lupin Balance Sheet
Company : Lupin Ltd
Industry : Pharmaceuticals - Indian - Bulk Drugs
Company >> Finance >> Balance Sheet (Rs in Crs.)
Year Mar 18 Mar 17 Mar 16 Mar 15 Mar 14 Mar 13 Mar 12 Mar 11 Mar 10 Mar 09
SOURCES OF FUNDS :
Share Capital + 90.42 90.32 90.12 89.9 89.68 89.51 89.33 89.24 88.94 82.82
Reserves Total + 15,694.54 14,689.92 11,822.95 8,937.84 6,889.36 4,757.20 3,645.08 3,063.42 2,441.61 1,292.48
Equity Share Warrants 0 0 0 0 0 0 0 0 0 0
Equity Application Money 0 0 0 0 0 0 0 0 0 0
Total Shareholders Funds 15,784.96 14,780.24 11,913.07 9,027.74 6,979.04 4,846.71 3,734.41 3,152.66 2,530.55 1,375.30
Secured Loans + 8.21 97 220.57 20.95 50 411.3 580.82 637.46 704 565.12
Unsecured Loans + 8.89 496.48 171.32 24.26 94.47 257.38 518.2 345.83 202.81 379.79
Total Debt 17.1 593.48 391.89 45.21 144.47 668.68 1,099.02 983.29 906.81 944.91
Other Liabilities+ 297.42 283.29 227.14 111.62 86.43 79.75 72.22 63.72 0 0
Total Liabilities 16,099.48 15,657.01 12,532.10 9,184.57 7,209.94 5,595.14 4,905.65 4,199.67 3,437.36 2,320.21
APPLICATION OF FUNDS :
Gross Block + 4,373.05 3,669.02 2,649.29 3,310.45 3,089.22 2,788.57 2,355.45 1,884.34 1,616.52 1,331.37
Less : Accumulated Depreciation + 1,032.39 656.5 304.36 1,274.85 909.76 774.92 647.97 529.71 425.13 355.75
Less:Impairment of Assets 0 0 0 0 0 0 0 0 0 0
Net Block + 3,340.66 3,012.52 2,344.93 2,035.60 2,179.46 2,013.65 1,707.48 1,354.63 1,191.39 975.62
Lease Adjustment 0 0 0 0 0 0 0 0 0 0
Capital Work in Progress+ 1,171.04 480.76 624.25 489.96 267.05 240.12 357.33 442.09 140.83 116.31
Producing Properties 0 0 0 0 0 0 0 0 0 0
Investments + 5,362.85 6,913.92 3,740.82 3,444.23 1,163.66 688.04 687.29 680.88 724.07 473.87
Current Assets, Loans & Advances
Inventories + 2,180.02 2,125.66 1,913.96 1,739.51 1,372.24 1,330.83 1,123.56 841.11 713.7 715.88
Sundry Debtors + 4,946.31 3,902.45 4,545.15 2,515.21 2,859.92 1,874.27 1,490.80 1,234.28 916.59 709.06
Cash and Bank+ 110.96 172.84 34.96 59.3 146.28 20.12 19.2 37.46 37.42 12.13
Loans and Advances + 1,247.57 937.82 762.41 484.13 490.65 516.67 389.49 309.75 646.6 366.64
Total Current Assets 8,484.86 7,138.77 7,256.48 4,798.15 4,869.09 3,741.89 3,023.05 2,422.60 2,314.31 1,803.71
Less : Current Liabilities and Provisions
Current Liabilities + 2,149.38 1,798.62 1,405.16 1,138.40 1,105.29 974.96 842.33 662.1 608.18 772.18
Provisions + 173.81 182.4 171.91 495.52 235.8 242.71 220.23 171.43 166.81 142.39
Total Current Liabilities 2,323.19 1,981.02 1,577.07 1,633.92 1,341.09 1,217.67 1,062.56 833.53 774.99 914.57
Net Current Assets 6,161.67 5,157.75 5,679.41 3,164.23 3,528.00 2,524.22 1,960.49 1,589.07 1,539.32 889.14
Miscellaneous Expenses not written off + 0 0 0 0 0 0 0 0 0 0
Deferred Tax Assets 146.95 204.23 137.98 66.57 59.15 49.25 47.33 23.98 19.19 16.67
Deferred Tax Liability 405.28 414.44 264.95 255.79 307.08 282.17 237.83 202.55 177.44 151.4
Net Deferred Tax -258.33 -210.21 -126.97 -189.22 -247.93 -232.92 -190.5 -178.57 -158.25 -134.73
Other Assets+ 321.59 302.27 269.66 239.77 319.7 362.03 383.56 311.57 0 0
Total Assets 16,099.48 15,657.01 12,532.10 9,184.57 7,209.94 5,595.14 4,905.65 4,199.67 3,437.36 2,320.21
Contingent Liabilities+ 6,861.76 6,841.89 6,395.69 362.4 351.78 361.98 405.46 107.87 113.72 88.26
https://www.capitaline.com

43

Appendix B – Lupin Data
B1: Research Facilities
Region Focus Inception
Brazil Dermatology Through acquisition of Medquimica [52]
Mexico Ophthalmology Through acquisition of Laboratorios Grin
[53]

Florida (USA) Respiratory Through setting up of a research facility [54]
New Jersey Dermatology and Controller Substances Through setting up of a research facility [55]
(USA) and acquisition of GAVIS [56]
Sanda Psychiatry, Neurological, Cardiovascular, Through acquisition of Kyowa [57]
(Japan) Respiratory, Allergies and Digestive
Pune (India) API, Pediatrics, Cardiovascular Organic growth

B2: Patents Granted in 2018 [58]


Patent Number Area of Use
10137114 Digestive system
10130624 Antihypertensive
10058589 Rheumatoid arthritis
10058569 Digestive system (Kidney)
9987249 Modulation of CaSR
9981927 Digestive
9969731 Anticancer
9969691 Cardiovascular
9944639 Anticancer
9932295 Thyroid
9884022 Pain Relief
D816208 Drug Delivery

B3: Strategic Partnerships


Partnering Company Area of Focus
AbbVie Hematological Cancer
Mylan Rheumatoid arthritis
Nichi-Iko Rheumatoid arthritis
Eli Lilly Diabetes

B4: ANDA Filings


Year Lupin Oral Derma Opthal InhalationOthers InjectablesSun Cipla Dr. Reddy'sAurobindo
2014 19 33 12 78
2015 18 19 13 40
2016 36 20 10 2 1 3 22 7 13 22
2017 37 31 5 1 1 27 32 26 31
2018 36 26 2 2 2 4 32 24 19 47

44

B5: Process Innovation
Publication/Patent Area
(2018)
20180273481 Publication: Process for preparation of Pitavastatin sodium (Cardio)
10137114 Patent: Process for preparing a stable, taste-masked, ready-to-use suspension
of rifaximin (Anti-infectives)
20180230097 Publication: Process for preparation of Apremilast and novel polymorphs
thereof (Psoriasis and psoriatic arthritis)
9987249 Patent: Process for preparation of the substituted chroman compounds
(Cancer)
9981927 Patent: Process for preparation of polymorphic form of Mirabegron (Gastro-
intestinal)
9969731 Patent: Process for preparation of Heterocyclyl compounds as MEK inhibitors
(Cancer)
9969691 Patent: Process for preparation of polymorphic forms of pitavastatin sodium
(Cardio)
9932295 Patent: Process for preparation of Levothyroxine and salts thereof (Thyroid)
9737534 Patent: Process for preparation of Oxazoline and isooxazoline derivatives as
CRAC modulators (Cancer?)

Appendix C
A novel drug creation process defined [59] (Adopted directly from the publication)

Parameter – Drug Discovery Stage Measure


select a ‘target’, such as a gene or protein, then select a molecule or
compound that may act on the ’target’ to alter the disease
Average number of years taken to develop a successful medicine 4 to 5 years
Average cost to research and develop a successful medicine USD 572 Million
Number of medicinal candidates tested to achieve one approved medicine 5000 to 10000
Parameter – Pre-clinical Testing Measure
Early safety and efficacy tests are undertaken in computational models, cells
and animals
Average number of years taken to develop a successful medicine 5.5 years
Average cost to research and develop a successful medicine USD 700 Million
Number of medicinal candidates tested to achieve one approved medicine 10 – 20 candidates
Parameter – Phase 1 clinical trial Measure
The candidate medicine is tested in people for the first time. Studies are
conducted with about 20 to 100 healthy volunteers
Average number of years taken to develop successful medicine 7 years
Average cost to research and develop successful medicine USD 932 Million
Number of medicinal candidates tested to achieve one approved medicine 5 – 10 candidates

45

Parameter – Phase 2 clinical trial Measure
Average number of years taken to develop successful medicine 8.5 years
Average cost to research and develop successful medicine USD 1.2 Billion
Number of medicinal candidates tested to achieve one approved medicine 2 – 5 candidates
Parameter – Phase 3 clinical trial Measure
Researchers study the candidate medicine in about 1000 to 5000 patients to
generate data about safety, efficacy, and the overall benefit-risk relationship
of the medicine
Average number of years taken to develop successful medicine 11 years
Average cost to research and develop successful medicine USD 1.45 Billion
Number of medicinal candidates tested to achieve one approved medicine 1 -2 candidates
Parameter – Licensing Approval Measure
Information and results from all the studies is compiled and submitted to the
regulatory agencies
Average number of years taken to develop successful medicine 12.5 years
Average cost to research and develop successful medicine USD 1.5 Billion
Number of medicinal candidates tested to achieve one approved medicine 1 medicine

Appendix D
Other Complimentary Industries

Medical Tourism
Tourism industry that makes it easier for patients to get affordable and reliable treatment possible at any
location be it. The year 2015 witnessed 140 per cent growth in arrival of foreign tourists on medical visa
as compared to 2013, where more than 50,000 people visited India on medical visa. This number rose to
about 1,34,000 in 2015. In fact, the number of foreign tourist arrivals on a medical attendant visa doubled
from 2013 to 2015, increasing from 42,000-odd to more than 99,000, said the report. The study revealed
that in the first 6 months of 2016 alone, close to a lakh foreign tourists arrived on a medical visa, making
it a very lucrative market. The top most countries availing medical visa were Bangladesh, Afghanistan,
Maldives, Republic of Korea and Nigeria.

The majority of the patients coming to India for treatment are from West Asia, Africa, Bangladesh,
Afghanistan, Maldives, Pakistan, Bhutan and Sri Lanka due to its expertise in cardiac and orthopaedic
procedures, in addition to other specialised areas like neuro-surgeries, cancer treatment and organ
transplantation.

The Government has recognised the potential of medical tourism and has come up with supporting
policies. The Indian Ministry of Tourism is actively promoting medical tourism through overseas road
shows where market development assistance (MDA) is provided to medical and wellness tourism service
providers to encourage overseas promotion.

Pharmaceutical industry is showing a positive trend of growth from $33Billion industry in 2017 to reach a
$55Billion by 2020 by help of such major growth drivers such as medical tourism.

46

Biotech industry
The biotech industry comprises of five major segments: BioPharma, BioAgriculture, BioServices,
BioIndustrial, and BioInformatics. Biopharma is the largest sector contributing about 64% of the total
revenue followed by Bioservices (18%), Bioagri (14%), Bioindustrial (3%), and Bioinformatics contributing
(1 %).


IOT
The global IoT market will exceed US$ 300 billion by 2020. According to a NASSCOM study, the Indian IoT
market is poised to reach US$ 15 billion by that year, accounting for 5 per cent of the global market. India’s
IoT market is expected to grow exponentially over the next couple of years. According to 6Wresearch, the
Indian IoT market is projected to grow at a CAGR of 28.2 per cent during 2016-22.

Shown below is the Growth of the IOT industry within the main application sectors in India with
Medical/Healthcare contributing to 77% and wearables at 25% that contribute directly and directly to
pharmaceuticals.

Supply chain industry


Indian pharma growth is seen to be muted in 2018 and for 2019 the industry will focus on supply-chain
competency. Going forward, better growth in domestic sales would also depend on the ability of
companies to align their product portfolio towards chronic therapies for diseases such as cardiovascular,
anti-diabetes, anti-depressants and anti-cancers.

In India the market for supply chain distributors for healthcare(pharmaceutical) is highly fragmented with
no count of distributors crossing Rs.200 crore revenues of a total of 16000 crores revenue of supply
chain(logistics) revenue.

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Packaging Industry (Plastic & Paper for bags, containers, moulds)


The packaging industry in India is very dynamic and influences all other industries directly or indirectly.
The packaging industry, which stood at $32 billion in 2015, had grown at a compound annualized growth
rate (CAGR) of 15 percent for the last five years, and is expected to continue growing at a CAGR of 13 to
15 percent in the coming years.

Manufacturers of packaging machinery and materials in India find demand for their products mostly in
the food processing and pharmaceuticals sectors. About 25 percent of the packaging machinery and
materials produced is absorbed by the pharmaceuticals.

The organized segment, which caters to the major food and pharmaceutical companies, and is conscious
of quality and the ability to produce various packaging products, thereby enabling them to tap a larger
market.

Huge investments in the Indian food processing, personal care and pharmaceuticals industries create
significant scope for expansion and development of the Indian packaging industry.

Syringe and Needle industry


Indian syringes and needle market is expected to grow at a CAGR of 15% by 2020. This growth is mainly
because of India’s large pool of patients, increase in healthcare expenditure and health awareness. But
60% of the syringes manufactured are exported.

Reusable syringes is expected to growth at a CAGR of of 5% till 2020. Indian syringes are expected to grow
at a CAGR of 9% till 2020.

Glass industry
Pharmaceutical industry contributes to about 10% of container glass industry which consists of bottles
for medicines.

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Cosmeceutical industry
The country’s cosmetics and cosmeceutical market is expected to register annual growth of 25 per cent
touching USD 20 billion by 2025, according to industry experts here. The Indian cosmeceutical and
cosmetics industry has an overall market standing of USD 6.5 billion from a global market of USD 274
billion. It has grown from USD 20 billion in 2015 at a compounded rate of 25 per cent.


Waste management industry
By 2025, India’s waste management sector is expected to be worth US$13.62 billion with an annual
growth rate of 7.17 percent. Bio-medical waste (BM) includes all refuse used in the healthcare industry
such as syringes and biological materials. The total bio-medical waste generated in India is approximately
484 tons per day (TPD) from over 160,000 healthcare facilities (HCF). An estimated 447 tons of this
biomedical waste is treated in India daily. BM waste is regulated through the Bio-medical Waste
(Management and Handling) Rules, 2016, which ensure that BM waste is properly treated by the
healthcare provider itself or else processed at a common treatment facility.

49

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