Strategic Management Project on Pharmaceutical Industry

STRATEGIC MANAGEMENT PROJECT

ON

PHARMACEUTICAL INDUSTRY

Management Development Institute

Gurgaon

Submitted to

Prof. Amit Kapoor

Submitted By:

Anish Agarwal 06P071

Arvinder Kaur 06P080

Dhruv Taneja 06P086

Gagan Jain 06P087

Nitin Agarwal 06P102

Rishikesh P Joshi 06P108

(GROUP NO. B3)

Table of Contents

Introduction...........................................................................................................3

Porter's Five Forces Analysis...............................................................................8

1. Threat of New Entrants..............................................................................8

2. Bargaining Power of Buyers.......................................................................9

3. Bargaining power of suppliers..................................................................10

4. Threat of Substitutes................................................................................10

5. Intensity of Rivalry....................................................................................10

SWOT ANALYSIS OF THE INDIAN PHARMACEUTICAL INDUSTRY..............12

Strengths:........................................................................................................12

Weaknesses:...................................................................................................13

Opportunities:..................................................................................................14

Threats:...........................................................................................................15

VALUE CHAIN ANALYSIS.................................................................................18

New Business Models.....................................................................................22

R& D Outsourcing and Contract Research..................................................22

ANALYSIS OF KEY PLAYERS OF THE SECTOR:............................................24

RANBAXY LABORATORIES LIMITED...........................................................24

CIPLA..............................................................................................................24

DR. REDDY'S LABORATORIES.....................................................................24

FUTURE OUTLOOK...........................................................................................26

References.........................................................................................................28

2

Introduction

The Indian Pharmaceutical Industry is currently at only $8 billion out of the $602 billion global pharmaceutical industry. But its share is increasing at the rate of 10% which is high compared to the global growth rate of 7%.

Traditionally, Indian pharma companies had relied on reverse engineering skills to make copies of international drugs. But increasingly, the larger pharmaceutical companies are realizing that to tap the huge US/EU markets, it is necessary to develop relevant research and development skills. This increasing reliance on R&D had lead to the exports of major pharmaceutical companies to continuously rise. The sales of Indian pharmaceutical companies on domestic sales has reduced from as much as 80-90 percent of total sales in the early 1990's to around 51% in 2005-2006.

The opportunities for the Indian players lies in both manufacturing and research and development (R&D) services. The manufacturing opportunities include both bulk drug and formulations manufacturing. Also, the R&D opportunities have started to include high end services like new drug discoveries, clinical trials and research and out-licensing of molecules.

The demand for the Indian pharmaceutical players can be shown in the form of the following table:

Evolution of the Indian Pharmaceutical Industry

The evolution of the Indian pharmaceutical industry can be divided into 3 parts:

3

Ð'* The pre-1970 Era.

In 1970, the Indian pharmaceutical industry was approximately Rs. 4 billion in size. The per-capita spending was low due to low levels of per-capita income. Inspite of the fact that there was nearly 2000 local players in the market (fuelled

largely by the relaxed government's relaxed entry criterion) the dependence on imported drugs was high. Amongst the public sector undertakings operating in the pharma sector, the major ones are as follows:

o Indian Drugs and Pharmaceuticals

o Hindustan Antibiotics Ltd

o Bengal Chemicals and Pharmaceuticals Ltd

o Bengal Immunity Ltd

o Smith Stanistreet Pharmaceuticals Ltd.

These companies mainly produced drugs that were considered to be essential (vitamins B1 and B2, folic acid, tetracycline and oxytetracycline) at prices affordable to the Indian public.

Ð'* 1970-2005:

Till 1970, the MNCs continued to dominate the Indian Pharmaceutical scene. To make the country self-reliant and to increase indigenization, the government introduced two landmark judgments that changed the structure of the Indian Pharma industry.

o The Indian Patent Act, 1970. The rationale behind this