Pharmaceutical Sector

Prepared by:

Rohit Mishra

FMS MBA(MS)
  The top pharma companies in terms of revenue ( March 2010, Forbes) -
1. Johnson and Johnson
2. Pfizer
3.Roche
4. Glaxosmithkline
5. Novartis
6. Sanofi-Aventis
7.AstraZeneca
8. Abbot Laboratories
9.Merck and Co.
10. Bayer Healthcare
11. Eli-Lily
 India's pharmaceutical industry is now the third largest in the world in terms of volume
and stands 14th in terms of value. The pharmaceutical industry is currently growing at the
rate of 12 per cent, but this will accelerate soon.
 The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$
12.6 billion in 2009 ( ‘India Pharma 2020: Propelling access and acceptance, realizing
true potential’ McKinsey & Company)
 The increasing population of the higher-income group in the country, will open a
potential US$ 8 billion market for multinational companies selling costly drugs by 2015
( Ernst & Young study)
 Cipla maintained its leadership position in the domestic market with 5.27 per cent share,
followed by Ranbaxy. The highest growth in the domestic market was for Mankind
Pharma, which grew 37.2 per cent. Leading companies in the domestic market such as
Sun Pharma (25.7 per cent), Abbott (25 per cent), Zydus Cadila (24.1 per cent),
Alkem Laboratories (23.3 per cent), Pfizer (23.6 per cent), GSK India (19 per cent),
Piramal Healthcare (18.6 per cent) and Lupin (18.8 per cent) had impressive growth
during July 2010.

Diagnostics Outsourcing/Clinical Trials:

 Major Indian pharmaceutical firms, including Sun Pharma, Cadilla Healthcare and
Piramal Life Sciences, had applied for conducting clinical trials on at least 12 new drugs
in 2010, indicating a growing interest in new drug discovery research.
 The Indian diagnostic services are projected to grow at a CAGR of more than 20 per cent
during 2010-2012.
Generics:

 India tops the world in exporting generic medicines worth US$ 11 billion and currently,
the Indian pharmaceutical industry is one of the world's largest and most developed.
 Indian generic drug market to grow at a CAGR of around 17 per cent between 2010-13.
 India and Singapore , have signed a 'Special Scheme for Registration of Generic
Medicinal Products from India' in May 2010, which seeks to fast-track the registration
process for Indian generic medicines in Singapore. If Indian generics have already
cleared the regulations of one of the five countries/ regions - US, Canada, the European
Union, UK or Australia - Singapore will take that as 'already cleared' and will import it
(the generic medicines) without any additional clearances.

Government Initiative:

 100 per cent foreign direct investment (FDI) is allowed under the automatic route in the
drugs and pharmaceuticals sector.
 The Government plans to set up a US$ 639.56 million venture capital (VC) fund to give a
boost to drug discovery and strengthen the pharma infrastructure in the country.
 The Drugs and Pharmaceuticals Manufacturers Association has received an in-principle
approval for its proposed special economic zone (SEZ) for pharmaceuticals, bulk drugs,
active pharmaceutical ingredients (APIs) and formulations to be located in
Visakhapatnam district.

The key trends now emerging and their implications for Pharma:

 Domestic pharmaceutical companies will increasingly be looking for consolidation across the
value chain by forming partnerships or mergers with companies of complementary strengths. As
drug discovery becomes more expensive, and the costs of administration and regulatory
compliance continuously rise, these partnerships will become more central to Pharma
companies' business proposition.
 The Bio Pharmaceutical market is seeing a consistent growth trend since 2004, which saw record
vaccine sales of US$ 386.3 Million and Marketing licenses being granted for over 25
recombinant therapeutic protein. The Diagnostics market size stands for US$138.2 Million.
Different Business Models:
 The federated model provides a framework for creating integrated packages of products
and services, and thus diversifying beyond a company’s core offering. It also combines
the benefits of nimbleness and size. It would enable each player to build a specific area of
expertise, establish a competitive advantage as a result of that expertise and sell its
products, knowledge or skills, leaving activities that are better performed by others to its
partners within the federation.
 In the virtual variant of the federated model most or all of a company’s operations are
outsourced and the company itself acts as a management hub, coordinating the activities
of its partners.
 There are very good reasons why pharmaceutical companies should outsource their R&D,
manufacturing and promotional activities where third party alliances can provide a wider
range of opportunities, specialist skills and market access. A pharma company can then
focus on the value adding functions where they can leverage on their relationships, scale
and market knowledge – i.e., project management, business development, regulatory
affairs, intellectual property management and the formation of good relationships with
key opinion leaders.

 The venture variant of the federated model entails investing in a portfolio of companies in
return for a share of the intellectual assets and/or capital growth they generate, rather than
outsourcing specific tasks.
 GlaxoSmithKline has used a version of the venture structure for many years. SR One, its
evergreen fund, was established in 1985 and has now invested more than US$500m in
some 30 private and public biotech companies focusing on drug discovery, development
and delivery.
 The fully diversified model is one in which a company expands from its core business
into the provision of related products and services, such as diagnostics and devices,
generics, nutraceuticals and health management.
 Johnson & Johnson is Pharma’s leading exponent of this approach. It is now the world’s
largest consumer health company, following the US$16.6 billion acquisition of Pfizer’s
over-the-counter business in December 2006.