Pallavi Vinodkumar JadhavPGDBM 2010-12

Pharmaceutical Industry Analysis

Indian Pharmaceutical Industry : Analysis

“The Indian pharmaceutical industry is a success story providing employment for millions and ensuring that essential drugs at affordable prices are available to the vast population of this sub-continent.”

Richard GersterDevelopment economist and activist

Director of Gerster Consulting

ACKNOWLEDGEMENT

During the perseverance of this project, I was supported by different people,

whose names if not mentioned would be inconsiderate on my part.

I would like to extend my sincere gratitude and appreciation to my colleagues,

for extending valuable guidance and encouragement from time to time, without which

it would not have been possible to undertake and complete this project. I would also

like to extend my gratitude to all at SIMSREE, for being an excellent mentor and

helping me whenever I approached them. I would also like to thank my family for

their support and patience throughout the completion of the project. I am grateful to

all the above mentioned individuals for putting their faith in me to conceptualize

project and for giving us opportunity to get hands-on Experience in the selected topic.

INDEX

SR.

NO.NAME OF THE TOPIC

1. Overview & scope of Pharma Industry

2. Transition of Indian Pharma Companies

3. Current Scenario

Market overview

Segments

Key players

4. SWOT Analysis

5. Porter’s Five Forces

6. Growth Drivers

7. Key Economic Indicators

8. Challenges faced by the industry

9. Opportunities

10. Company Profile: Cipla

Scope & Overview of Indian Pharma Sector

The Indian Pharmaceutical industry has been witnessing phenomenal growth in recent years, driven by rising consumption levels in the country and strong demand from export markets. The pharmaceutical industry in India is estimated to be worth about US$ 10 bn, growing at an annual rate of 9%. In world rankings, the domestic industry stands fourth in terms of volume and 13th in value terms. The ranking in value terms may also be a reflection of the low prices at which medicines are sold in the country.

The industry has seen tremendous progress in terms of infrastructure development, technology base and the wide range of products manufactured. Demand from the exports market has been growing rapidly due to the capability of Indian players to produce cost-effective drugs with world class manufacturing facilities. Bulk drugs of all major therapeutic groups, requiring complicated manufacturing processes are now being produced in India. Pharma companies have developed Good Manufacturing Practices (GMP) compliant facilities for the production of different dosage forms.

In addition to having GMP, WHO, several Indian companies have also been getting plant approvals from international regulatory agencies like US FDA, MCA (UK), TGA (Australia), MCC (South Africa). India possesses the highest number of US FDA approved manufacturing facilities outside the USA and currently tops in filing the drug master files (DMF) with the US FDA. This has also facilitated the domestic industry to attract contract manufacturing opportunities in the rapidly growing generics market.

Currently values about  Rs 1,00,611 crore (Economic Survey 2009-10) Directly employs around 500,000 people Consists of 270 large R&D based pharmaceutical companies in India,

including multinationals, government-owned and private companies Around 5,600 smaller licensed generics manufacturers

Highlights:

Phenomenal Growth The pharmaceutical industry in India has leap-frogged from Rs. 1500 crore in 1980 to approximately Rs.1,00,611 crore in 2009-10

Ranks 3rd in terms of volume of production with 10% share of the global pharmaceutical market

Occupies 14th position by value accounting for 1.5% of the total pharmaceutical production by value across the world

Expanded its share in global generic medicines market as much as 8% Indian pharma companies export their products to more than 200 countries

around the globe including highly regulated markets of USA, West Europe, Japan and Australia.

Despite the brief slowdown in growth in 2008 the industry has been growing at 14-15% over the last few years.

The indigenous industry supplies around 70% of the country’s pharmaceuticals

Transition of Indian Pharma Companies : Generic to Innovative

Not many people recall that India remained a net importer of pharmaceutical products until 1987-88 (Table 1). The 1990s witnessed a marked departure and saw India emerging as a major supplier of generics to the world. The situation changed rapidly thereafter. By 1994-95 India’s exports grew ten-fold to US$ 504 million as against imports of US$ 219 million, generating a trade surplus of US$ 285 million.

The foundation for the emerging trend was laid by the years of strangulating controls:

the Government policy that forced local manufacture of Active Pharmaceutical Ingredients (APIs)

the cost-based price control system that forced the companies to improve their efficiency

the presence of the foreign companies and the government support to the Public Sector Units (PSUs) helped in the development of the pharmaceutical industry

The absence of product patent provided both an opportunity and a challenge for the Indian companies.

The milieu played a key role in the emergence of the pharmaceutical industry in India and thereafter in its transformation from manufacturing generics to developing innovative drugs. The need for being competitive laid the foundation for a very cost-effective industry in the country. The opportunity of earning premiums pushed the companies to concentrate on innovation: innovation in plant design, layout, chemistry, and drug delivery system. The combination of innovation and competitive edge is very potent and that is what the transformation of the Indian pharmaceutical industry brings to the world today!

1995 – A landmark year

The year 1995 is a significant landmark for the pharmaceutical industry in India. That is the year when Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement came into force obliging India to re-introduce product patent. India had abolished product patent in 1971, while retaining process patents for pharmaceuticals, agrochemicals and food products.

The key factors contributing to this change are government policies regulating pharmaceutical industry, presence of government owned PSUs, policy of

encouragement to Small Scale Industrial Units (SSIUs) and the potential of Indian market to foreign pharmaceutical companies that remained invested in India.

Thus, by 1995, when India signed the TRIPS Agreement, the foundation blocks were already in place. The industry had demonstrated its ability not only for technology absorption but also to develop alternate processes independently and improve upon existing know-how. The time period for “reverse engineering” a product was reduced from 36-48 months to 12 months. Formulation development, use of conventional technology, plant design, etc. had all been in place. This is what differentiated Indian pharmaceutical industry from the domestic industry in many developing countries which also did not have product patent regime.

Moving up the value chain of R&D

The TRIPS Agreement therefore triggered a strategic shift in the business. The companies, having excelled in synthetic chemistry and process development decided to focus on innovation. The spending on R&D recorded a marked increase in the 10-year period from 1995 to 2005. The Indian companies not only increased their spending on R&D, but also changed the quality of R&D. Until 1995, almost the entire effort was on “reverse engineering”, but by 2000 the industry showed signs of moving up the value chain.

By 2005, it was very evident that two-third of its effort were on R&D that generated some sort of intellectual property. The evidence of this shift is incidentally also taken note of by the Government of India-appointed Technical Expert Group (TEG) on

Patent Law Issues. Its report lists 215 PCT applications for drugs and pharmaceuticals (not 339 as shown) in Annexure IV.

Territorial expansion

The second major shift triggered by the TRIPS agreement relates to territorial expansion of markets. As the data on Drug Master File (DMF) filing and Abbreviated New Drug Application (ANDA) submissions up to 1995 indicate, Indian companies did not have any significant presence in the USA. The situation in Europe was no different. The Indian companies had focussed on the markets in Africa, Russia and Asia for exports. However, all this changed with the emergence of the product patents that deprived Indian companies of their ability to bring in new products. Their response to the TRIPS Agreement was to invade the largest and most lucrative pharmaceutical markets of the world. It is now reflected in the export data.

After TRIPS agreement the North America and the Western Europe accounted for 40 percent of India’s exports of US$ 3,697 million in 2004-05.

Aggressive M&As

The Indian companies, encouraged by initial success in the regulated markets, acquired confidence to move aggressively. They started looking at acquisition opportunities to cut short entry and gestation periods. They began with small acquisitions ranging from US$ 2 million to US$ 10 million and soon found out that they can do it. Having tested the waters, their appetite grew bigger. They looked for larger companies and the budget for acquisition rose from US$ 100 million to US$ 500 million.

The mergers and acquisitions were not confined to a few front runners only. Many mid-size and smaller companies also took the plunge. Thus, territorial expansion received a greater boost and became deep-rooted.

The entry of the Indian pharmaceutical companies in the regulated markets had some unintended and indirect benefits. The globally innovative and generic companies started taking note of the quality of their products, management capability and competitive strength, opening up new opportunities for strategic alliances. The Indian pharmaceutical companies discovered to their surprise that the very companies they were overawed by were looking to form alliances with them for Contract Research and Manufacturing (CRAM). Most technocrats in the industry had grown in stature by “learning while earning”. The CRAM provided yet another opportunity to do what they were good at. They did not waste any time to seize the opportunity. Some, sensing the need of alliance partners, took time to carve out better deals. Thus, many major Indian generics companies started working closely with the leading global pharma companies. The proximity and ongoing interactions provided rare learning opportunities in the fields of patent challenge and discovery research.

The Ranbaxy-GlaxoSmithKline, Dr. Reddy’s Laboratories-Novartis, Torrent-AstraZeneca and a host of other such alliances in the field of R&D are examples of this nature. They not only provided valuable experience and learning but also built the confidence of the Indian companies to commit more funds to R&D.

Journey to innovation

The journey from generic to innovation has just begun for the Indian pharmaceutical companies. The spirit of enterprise drives the journey. The willingness and capacity to take risks fuels its growth. The technical education, access to skilled manpower and their exposure to global multinationals are acting as catalysts.

The enabling policy framework provided the building blocks and facilitated the journey. The Indian pharmaceutical industry is still three years away from the first major land mark, the launch of an original research molecule, that will herald its entry into the big league. That is the day when people will refrain from calling the Indian pharmaceutical companies “pirates” and “copycats”.

Increasing R&D spend by Indian companies: Indian companies have been increasing their R&D spend in the last few years with 25-30% of its being spent on NCE/NDDS research. Further, in order to tap the requisite expertise and de-risk the business model, Indian companies have entered into collaborative research agreements with global innovator companies.

Initial success for Indian companies: Glenmark is among the prominent Indiancompanies to have been able to generate Revenue of more than US $100mn fromits R&D arm, while Lupin has been able to generate US $25mn from the same.

However, in the meantime, generics will continue to be the driver of growth and territorial expansion. The current momentum and acceptance of safety and quality standards of the Indian pharmaceutical companies will raise its share of the world generic market from about 18 percent in 2006 to over 28 percent by 2010. The major challenges in this path are

India being forced to amend its patent law (either under new accord on Substantive Patent Law Treaty at the World Intellectual Property Organisation or under dispute settlement mechanism of the WTO) to dilute flexibilities.

The Indian policy makers succumbing to the pressure of providing data protection beyond its obligation under Article 39.3 of the TRIPS Agreement.

The Indian pharmaceutical industry is aware of both these challenges and is working closely with the government to pre-empt them.

Current Scenario

Market overview

India is among the fastest growing pharmaceutical markets in the world, with its growth rate having nearly doubled between 2001 and 2006

The Indian Domestic Formulation industry registered a CAGR of 14% during FY2003-08 from around US $3.9bn in FY2003 to US $7.7bn in FY2008 outpacing the Global Pharma Industry growth rate of 7%.

Going ahead, the Indian Domestic Formulation market is expected to register robust CAGR of 12.2% over FY2008-13E to US $13.7bn.

By CY2015, India is expected to rank among the Top-10 global Pharmaceutical markets.

The domestic pharma industry has been typically growing at around 1.5-1.6x the country's GDP growth.

Market Segments

Key Players in the Sector : Statistical Data

Pharmaceuticals

Contract Research and

Manufacturing Services

(CRAMS)

Formulations

Active Pharmaceutical

Ingredients (APIs)

SWOT Analysis of Indian Pharmaceutical Sector

Strengths

Cost effective technology Strong and well-developed manufacturing base Clinical research and trials Knowledge based, low- cost manpower in science & technology Proficiency in path-breaking research High-quality formulations and drugs High standards of purity Non-infringing processes of Active Pharmaceutical Ingredients (APIs) Future growth driver World-class process development labs Excellent clinical trial centers Chemical and process development competencies

Weakness

Fragmentation of installed capacities Low technology level of Capital Goods of this section Non-availability of major intermediaries for bulk drugs Lack of experience to exploit efficiently the new patent regime Very low key R&D Low share of India in World Pharmaceutical Production (1.2% of world

production but having 16.1% of world’s population) Very low level of Biotechnology in India and also for New Drug Discovery

Systems Lack of experience in International Trade Low level of strategic planning for future and also for technology forecasting

Opportunities

Aging of the world population. Growing incomes. Growing attention for health. New diagnoses and new social diseases Spreading prophylactic approaches Saturation point of market is far away New therapy approaches New delivery systems Spreading attitude for soft medication (OTC drugs). Spreading use of Generic Drugs. Globalization

Easier international trading. New markets are opening.

Threats

Containment of rising health-care cost High Cost of discovering new products and fewer discoveries Stricter registration procedures High entry cost in newer markets High cost of sales and marketing Competition, particularly from generic products More potential new drugs and more efficient therapies Switching over form process patent to product patent.

PORTER’S FIVE FORCES MODEL

The five forces model represents help the company determine the competitive intensity and therefore the profitability of the market. The model for the pharmaceutical industry can be represented as follows:

Today's business environment is extremely competitive and in economics parlance where perfect competition exists, the profits of the firms operating in that industry will become zero in long run. However, this is not possible because, firstly there is no perfect competition and no company is a passive price taker (i.e. no company will operate where profits are zero). Secondly, they strive to create a competitive advantage to thrive in the competitive scenario. Michael Porter, considered to be one of the foremost gurus’ of management, developed the famous five-force model, which influences an industry. In this article, we apply this model for the Indian pharma industry.

Industry competitionPharma industry is one of the most competitive industries in the country with as many

as 10,000 different players fighting for the same pie. The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% market share, and the top five players together have about 18% market share. Thus, the concentration ratio for this industry is very low. High growth prospects make it attractive for new players to enter in the industry.

Another major factor that adds to the industry rivalry is the fact that the entry barriers to pharma industry are very low. The fixed cost requirement is low but the need for working capital is high. The fixed asset turnover, which is one of the gauges of fixed cost requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times. For smaller companies, it would be even higher.

Many smaller players that are focused on a particular region, have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way. An important fact is that pharma is a stable market and its growth rate generally tracks the economic growth of the country with some multiple (1.2 times average in India). Though volume growth has been consistent over a period of time, value growth has not followed in tandem.

Differentiation

The product differentiation is one key factor, which gives competitive advantage to the firms in any industry. However, in pharma industry product differentiation is not possible since India has followed process patents till date, with laws favoring imitators. Consequently, product differentiation is not the driver, cost competitiveness is. However, companies like Pfizer and Glaxo have created big brands in over the

years, which act as product differentiation tools. This will enhance over the long term, as product patents come into play from 2005.

Bargaining power of buyersthe unique feature of pharma industry is that the end user of the product is different from the influencer (read Doctor). The consumer has no choice but to buy what doctor says. However, when we look at the buyer's power, we look at the influence they have on the prices of the product. In pharma industry, the buyers are scattered and they as such does not wield much power in the pricing of the products. However, government with its policies, plays an important role in regulating pricing through the NPPA (National Pharmaceutical Pricing Authority).

Bargaining power of suppliersThe pharma industry depends upon several organic chemicals. The chemical industry is again very competitive and fragmented. The chemicals used in the pharma industry are largely a commodity. The suppliers have very low bargaining power and the companies in the pharma industry can switch from their suppliers without incurring a very high cost.

However, what can happen is that the supplier can go for forward integration to become a pharma company. Companies like Orchid Chemicals and Sashun Chemicals were basically chemical companies, who turned themselves into pharmaceutical companies.

Barriers to entryPharma industry is one of the most easily accessible industries for an entrepreneur in India. The capital requirement for the industry is very low, creating a regional distribution network is easy, since the point of sales is restricted in this industry in India. However, creating brand awareness and franchisee amongst doctors is the key for long-term survival. Also, quality regulations by the government may put some hindrance for establishing new manufacturing operations. Going forward, the impending new patent regime will raise the barriers to entry. But it is unlikely to discourage new entrants, as market for generics will be as huge.

Threat of substitutesThis is one of the great advantages of the pharma industry. Whatever happens, demand for pharma products continues and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an ongoing concern, pharma industry seems to have an infinite future. However, in recent times, the advances

made in the field of biotechnology, can prove to be a threat to the synthetic pharma industry.

ConclusionThis model gives a fair idea about the industry in which a company operates and the various external forces that influence it. However, it must be noted that any industry is not static in nature. It's dynamic and over a period of time the model, which have used to analyse the pharma industry may itself evolve.

Going forward, we foresee increasing competition in the industry but the form of competition will be different. It will be between large players (with economies of scale) and it may be possible that some kind of oligopoly or cartels come into play. This is owing to the fact that the industry will move towards consolidation. The larger players in the industry will survive with their proprietary products and strong franchisee. In the Indian context, companies like Cipla, Ranbaxy and Glaxo are likely to be key players. Though consolidation within the current big names is not ruled out. Smaller fringe players, who have no differentiating strengths, are likely to either be acquired or cease to exist.

The barriers to entry will increase going forward. The change in the patent regime, will see new proprietary products coming up, making imitation difficult. The players with huge capacity will be able to influence substantial power on the fringe players by their aggressive pricing which will create hindrance for the smaller players. Economies of scale will play an important part too. Last but not the least, in a vast country of India’s size, government too will have bigger role to play.

Growth drivers

I. Cost Efficiency

India rates higher on cost efficiency as compared to other countries.

The Indian market is highly fragmented with about 8,000 manufacturers. This high competition has driven Indian companies to reduce costs across the life cycle of a product.

This is visibly reflected in the manufacturing costs of USFDA plants in India, wherein the costs are 65 per cent lower than the US and 50 per cent lower than that in Europe.

II. Technical capability

India has 119 USFDA-approved plants in addition to 84 UK MHRA-approved plants.

Many of these plants also have approvals from countries such as Canada, Australia, Germany and South Africa.

These approved sites aptly demonstrate the ability of Indian companies to deliver quality products worldwide and act as a platform for CRAM players.

III. Government Support

OBJECTIVES KEY INITIATIVES UNDERTAKENPromote Indian drug discovery platforms

The Government of India is embarking on a major multi-billion dollar initiative with 50 per cent public funding through a public-private partnership model to harness India’s innovation capability. The vision is to catapult India into one of the top five pharma innovation hubs by 2020, targeting to achieve a global niche with one out of every five to ten drugs discovered worldwide by 2020 originating from India.

Collaborations between industry, academia and the government

The government is promoting collaboration among industry, academia and government through various programmes such as New Millennium Indian Technology Leadership (NMITLI) and Drugs and Pharmaceuticals Research Program (DPRP).

Focus on specialisedpharmaceuticaleducation

The government has set up seven National Institutes of Pharmaceutical Education and Research (NIPERs) as institutes of ‘national importance’ to achieve excellence in pharmaceutical sciences and technologies, education and training.

IV. Increasing Expenditure on Health

Healthcare expenditure in India is expected to contribute 6.1 per cent of GDP in 2012.

With the healthcare expenditure in the country expected to increase by 15 per cent per annum, the sector is poised to employ around nine million people.

V. Growing Global Demand for Generics

o Globally, the generics segment is expected to grow to about US$ 140 billion by 2015.

o Healthcare reforms and cost-saving initiatives, along with US$150 billion worth of brands going off-patent in the next five years, would continue to drive this growth.

VI. Launch of Patented Molecules

o The advent of the product

patent regime in 2005 has instilled confidence in the intellectual property regime with many patented drug launches over the last two to three years.

o Global innovators have secured 302 drug patents from the Indian patent office until October 2008, and the number of patents is expected to grow in the next few years.

o While pharmaceutical MNCs already present in India are further consolidating their presence through acquisitions, many MNCs have staged a re-entry post 2005. The share of pharmaceutical MNCs in the domestic pharmaceutical market is estimated to increase to 35 per cent by 2015 from 25 per cent in 2008.

VII. Rural Market Opportunities

o The robust consumption in the rural economy is expected to be the key growth driver for the Indian market.

o The untapped Indian rural market accounts for 45 per cent of India’s total GDP.

o Rural India accounts for more than 70 per cent of all Indian households and close to two-fifth of the total consumption pie.

o A large number of companies are organising their efforts to derive a major portion of their overall sales from this untapped market.

Key economic Indicators

The main drug regulatory body in India is the Central Drug Standard Control Organisation (CDSCO) under the Ministry of Health and Family Welfare.

CDSCO is presided over by the Drug Controller-General of India (DCGI), who is incharge of approval of licences for drugs at both the central and state levels.

India introduced the product patent regime, in accordance with the Trade-Related Aspects of the Intellectual Property Rights (TRIPS) agreement, in January 2005, with an amendment to the Patent Act.

FDI, up to 100 per cent is permitted through the automatic route in drugs and pharmaceuticals

FDI in licensable drugs and pharmaceuticals manufactured by recombinant DNA technology and specific cell/tissue targeted formulations, FDI requires prior government approval.

The National Pharmaceutical Pricing Authority (NPPA) is responsible for fixing and controlling the prices of 74 bulk drugs and formulations under the Essential Commodities Act.

The Department of Pharmaceuticals was formed on July 2, 2008, under the Ministry of Chemicals and Fertilisers with the objective to give a heightened focus and thrust on the development of the pharmaceutical sector in the country and to regulate various complex issues related to the pricing and availability of medicines at affordable prices, R&D, protection of intellectual property rights and international commitments related to the pharmaceutical sector.

Government Policies and Norms

The government of India has undertaken several including policy initiatives and tax breaks for the growth of the pharmaceutical business in India. Some of the measures adopted are:

Pharmaceutical units are eligible for weighted tax reduction at 150% for the research and development expenditure obtained.

Two new schemes namely, New Millennium Indian Technology Leadership Initiative and the Drugs and Pharmaceuticals Research Program have been launched by the Government.

The Government is contemplating the creation of SRV or special purpose vehicles with an insurance cover to be used for funding new drug research

The Department of Pharmaceuticals is mulling the creation of drug research facilities which can be used by private companies for research work on rent

For small and medium pharmaceutical companies

The steps taken or proposed to be taken by the Central Government to enable the small and medium pharmaceutical companies to face the stiff challenges posed by big pharmaceutical companies include:

availability of financial assistance up to Rs.1 crore with 15% capital subsidy to small scale drug and pharma units for technology up-gradation

proposal of Department of Chemicals and Petrochemicals to extend 5% interest subsidy to pharma small scale units for technology up-gradation

support to high-risk pre-proof-of-concept research and late stage development in small and medium companies in the areas of agriculture, human and animal health, environment, diagnostics, immuno-biologicals and various industrial products like antibiotics, industrial enzymes, vitamins etc

to face challenges of stiff challenges posed by big pharmaceutical companies, a “major promotional package” has been announced to provide full support to the SMEs in the areas of credit, technological up-gradation, marketing and up-gradation of industrial infrastructure

Budget 2009-10

Allocation under National Rural Health Mission (NRHM) increased by Rs.2, 057 crore over Interim B.E. 2009-10 of Rs.12, 070 crore.

Reduction of customs duty on 10 specified life saving drugs/ vaccines and their bulk drugs from 10% to 5% with Nil CVD. Also, customs duty on specified heart devices, namely artificial heart and PDA/ASD occlusion de-vice be reduced from7.5% to 5% with Nil CVD.

Exemption of excise duty rate of 4% to 8% on Drugs and pharmaceutical products

There has been an increase in weighted reduction from 150 to 200 per cent on expenditure incurred on in-house R&D activities and from 125 to 175 per cent on activities outsourced to specific institutions.

Key issues facing the Pharmaceutical Industry

Some of the issues the domestic industry is facing are as under:

Increasing span of price control

The draft National Pharmaceuticals Policy, 2006, currently underway and awaiting approval from the Parliament, intends to bring 354 drugs under price control, which is in addition to the 74 bulk drugs already notified under price control. The price control as proposed in the Policy is likely to cover at least 50-60% of the domestic market under price control. The proposed control on prices is set to impact the industry margin significantly, especially those players having only local operations. However, to secure the profitability, firms will have to increase their scale of production.

The number of drugs under price control had come down from nearly 400 in the 1970s to 72 in 1995, and further reduced to 29 in 2002. This decision was however stalled by the Supreme Court, asking the Department of Fertilizers and Chemicals, Goo, to identify the essential and life saving drugs that need to continue remaining under price control. The Department listed 354 items that it purchases for its hospitals called the National List of Essential Medicines (NLEM). The new draft policy consists of these 354 drugs that are likely to be under the cost based price control.

Price erosion in generics

Indian generics market is witnessing a margin pressure in most of the product categories due to two main reasons: the proposed price control likely to be imposed by the Government and the stiff competition among domestic players. In fact, India has witnessed a fast rise in the number of players over a period of time. Moreover, the expansion of capacities by certain leading players has also fuelled competition in certain product categories, which restricts margins of the smaller players.

The fall in prices of generic drugs are not limited to India only. The US, which is the world’s largest pharmaceutical market, is also experiencing a sharp reduction in prices of generic drugs due to stiff competition. Some other developed countries like the UK and Germany have also witnessed the same scenario. The erosion in prices is to the extent of 90% in some cases. Indian players, which have been operating in these markets, have also witnessed erosion in margins in certain therapeutic segments.

Low R&D productivity

Despite the increasing expenditure on R&D, the introduction of new molecules by Indian players has been limited. It is, in fact, a hit-and-miss situation in the field of discovery and developments of new chemical entity (NCEs), where misses are more

than hits. Very few discoveries reach the final stages of approvals, and in most of the cases, the claim for patent gets stuck in legal battles.

In spite of the rising expenditure in R&D, the level of investment in R&D is still low, at average 4% as compared to the global practice of spending 12-16% of sales on R&D.

The changing global pharmaceutical industry has transformed prospects of Indian pharmaceutical companies. The leading pharma companies in India have been actively extending the frontiers of scientific knowledge and going global through mergers and acquisitions. In 2005, acquisitions by the Indian pharmaceutical companies were the highest, with 20 buyouts abroad. A similar trend was observed during 2006, which include Dr Reddy’s buyout of Germany’s Betapharm and Ranbaxy’s purchase of Romania’s Terapia. Europe has emerged as the most preferred destination for acquisitions by Indian companies.

The European generics market has emerged as a major attraction for acquisitions by Indian companies. According to reports, margin erosion in Europe is much less compared to the US when a drug or formulation becomes generic.

Consolidation is inevitable and is expected to bring in economies of scale and provide access to newer geographies to regional players. The Government has estimated that by year 2010, the industry has the potential to achieve a size of US$ 28 bn.

Other problems

Price wars between local pharma companies and MNCs are driving down prices, exerting pressure on margins Price has become key indicator of how the market truly values the product discovered. The companies have to ensure the cost is minimized keeping in mind following factors

o No compromise on qualityo Shortened product development timeo Introduction of innovative products

Domestic bulk drugs industry is facing intense competition due to cheap imports. Dearth of qualified molecular biologists which has resulted due to

o Lack of proper infrastructureo Lack of academic collaborationo Divide between the industry and study curriculum

Comparison of the sector with other major economies:

The following table represents the brief data on the major differences between the Pharmaceutical sectors in the major economies:

PARAMETERS INDIAN ECONOMY

CHINESE ECONOMY

US ECONOMY

Base of Industry Standard GenericDrugs

Non-brandedGenericDrugs

BrandedPrescription

Drugs

Value of Market

USD 8Billion(2009)

USD 10 Billion(2009)

USD 315Billion(2009)

Research&

Development

Nascent stage,Promotional

Stage

R&D Fast growing

Most powerful network of Research

BiotechnologicalGrowth

Gradual advancementApprox. 350 companies presently

Advanced.More than 1200

Companies.

Highly advancedApprox 3200Companies

Patents Status

Patents in India – 246(2000-2004)

Patents in China – 94(2000-2004)

Patents in USA – 1199(2000-2004/Indian companies)

Recent Developments

US Healthcare Bill approved: The US Senate has approved the Healthcare Bill, which entails expanding the insurance coverage to citizens either employed with smaller companies or unemployed. It is estimated that around 3.2cr US citizens would

now receive additional healthcare access. This would further increase the generic penetration and in turn benefit the Indian companies. The Bill also provides the road map on data exclusivity protection for biologic drugs. The Bill grants 12 years of data protection, while allowing the first biogeneric company 18 months of exclusivity. Though the period of data protection is longer than expected, setting up of the regulatory pathway is important as biologic drugs are facing patent expiries.

Ranbaxy fails to launch Flomax: The US FDA rejected Ranbaxy's ANDA to sell the generic version of Flomax, which is used to treat enlarged prostate glands. Ranbaxy was to launch the generic version of Flomax on March 2, 2010 in the US, eight weeks before the drug's patent expires following an out-of-court settlement in 2007. Flomax recorded sales of around $2 bn in the US last year. However, the company has partly monetised the opportunity by entering into an agreement with Impax allowing the latter to launch the drug.Further, during the quarter, parent Daiichi announced its second mid-term plan. Regards Ranbaxy, Daiichi expects the US FDA issue pertaining to import alert and AIP to get resolved by CY2012. It aims to increase Ranbaxy's Total Revenues from US $1.65bn to US $3bn in CY2012, implying a Revenue CAGR of 23% over CY2009-12E. However, excluding the one-off, the company's base business is expected to register 11% growth, which is in line with our estimates.

Sun Pharma launches Eloxatin in US: Sun Pharma launched the generic version of Eloxatin in the US market post the settlement with the Innovator in October 2009. Eloxatin, one of the leading products of Sanofi-Aventis, is used to treat colon cancer and recorded Sales of US $1.4bn in CY2008 in the US. Launch of the generic version of Eloxatin is a positive and likely to provide a boost to the company's US Sales in the near term as only three players (Teva, Hospira and Sandoz) are present in the market with one or two more players likely to enter in the next 2-3 years. We expect the company's Revenue potential to be US $21mn, US $63mn and US $52.5mn in FY2010E, FY2011E and FY2012E respectively, thereby contributing Rs3.2, Rs9.8 and Rs7.4 to the EPS of the respective years.

DRL gets USFDA approval for Allegra-24: DRL received the US FDA approval for the generic version of Allegra-D24, which is in line with our expectation. Allegra D-24 is used to treat seasonal allergy symptoms, and has a market size of US $200mn in the US. DRL is the exclusive FTF holder of the drug and could either launch at risk or settle with the Innovator, Sanofi-Aventis. We expect the product to be limited competition opportunity for DRL for the next two-three years, contributing an NPV of Rs20/share (EPS of Rs9.5 in FY2011E, Rs9.2 in FY2012E and Rs1.5 in FY2013E) if the company launches at-risk.

Lupin launches Lotrel: Lupin launched the generic version of Lotrel in the US market. Lotrel is used to treat hypertension and has market size of US $1.1bn. The current approval is for four dosage strengths, which command 70% of the total

product sales. We expect the product to be a limited competition opportunity for Lupin in the near term and contribute around US $11mn in 4QFY2010 as only two players, viz. Teva and Sandoz along with Lupin are present in the market. DRL and Cobalt are expected to launch the generic version in the next 3-6 months. 

Piramal Healthcare buys i-pill from Cipla: PHL acquired the 'i-pill' brand in the Emergency Contraceptive Segment (ECP) from Cipla for a consideration of Rs95cr (valuing it at 3x LTM sales). The acquisition strengthens PHL's OTC portfolio, which contributed 6% to 9MFY2010 Sales comprising strong brands such as Lacto Calamine, Supractive Complete, Saridon and Polycrol antacid. The ECP Segment has a market size of Rs100cr and has more than doubled in the last one year. The 'i-pill' recorded Sales of Rs30.9cr in the last twelve months, registering a strong growth of 35%. However, we do not expect the 'i-pill' acquisition to have a material impact on our estimates as it is likely to contribute only around 1% to the consolidated Sales and marginally to the EPS in FY2011E and FY2012E estimates.

Indoco Remedies enters into contract with Watson and Aspen Pharma: During the quarter, Indoco Remedies entered into contracts with Watson and Aspen for supply of Ophthalmic products to the US and Emerging markets respectively. Under the terms of contract, Indoco will offer products for registration and would commence supply of the products post the regulatory approvals. Overall, the deals are positive as it would result in milestone payments from 1QFY2011E onwards and steady Revenue flow from FY2012-13E onwards. We expect the contracts to result in Revenue flow to the tune of US$30-40mn (35-47% of FY2010 Revenue) from FY2013 onwards.

 4QFY2010 - Product launches and OPM expansion to drive growth

The Indian Pharmaceutical Sector is expected to post strong growth on the Sales front. We expect our coverage universe to register 11.3% yoy growth in Top-line even though the Rupee has appreciated by 8% yoy against the US Dollar, on an average, during the quarter. Sun Pharma and Lupin are expected to post a strong growth on the Top-line front mainly driven by limited competition product launches in the US. Cadila Healthcare will post strong performance owing to the robust show in the US and the Contract Manufacturing Segment. PHL will post strong numbers on a robust Domestic business. We expect most companies in our coverage to witness expansion in OPM, while Net Profit will witness strong growth on low base. We expect 4QFY2010 to be one of the good quarters for the Pharma companies under our coverage on both the Top-line and Bottom-line front given the product launches in the US and OPM expansions.

 

 

 

Future Scenario : Probable Solutions

India’s reputation as a cheap generic drug producer is passing. While generics continue to play a major part in the industry’s success, many companies have started

down the long road of drug discovery, novel product development and pharma services.

The huge domestic market with a billion plus population presents a tremendous opportunity to the Indian pharma industry though the growth is still in single digits. A roadmap for growth can be the following.

1. Indian CROs (Clinical Research Organizations) have an opportunity to access the $16 billion (Rs.72,000 crore) global market for clinical trials which is expected to grow to over $50 billion by 2010.

2. Indian pharma companies can focus on new drugs for neglected diseases like malaria, kala azar and tuberculosis, which are big killers in many developing countries.

3. Indian pharma companies should reduce their dependence on the US market and explore promising markets like Europe and Japan. At $65 billion, Japan is the world’s second largest pharmaceutical market after the US.

4. Indian phama companies can profitably tap the huge under-penetrated Chinese markets. By 2012, China will emerge as the fifth largest pharmaceutical market in the world with revenues of over $24 billion – three times its current size.

5. The global herbal market is expected to grow to Rs.25,000 crore by 2012. India’s share in this market currently is a dismal 5%. The country with its traditional base has to grab a larger share of the market.

6. The R & D outsourcing market has grown from $5.4 billion in 1997 to $9.3 billion. Indian firms like Dr.Reddy’s, Shasun, Suven & the Hyderabad based Divi’s laboratories have already undertaken contract research for foreign majors.

7. In-licensing global brands and selling them in the domestic market commands higher price margins of 15 to 18%.

8. The US generics market is definitely a high-risk high-reward game. To succeed, companies should identify products long before their patent expiry and complete regulatory work.

9. With the advent of the product patent regime, Indian drug makers should diversify their process re-engineering skills towards advanced Novel Drug Delivery Systems (NDDS) and further into New Drug Discovery (NDD).

CIPLACipla is 2nd largest pharmaceutical company in India in terms of retail sales. Cipla manufactures an extensive range of pharmaceutical & personal care products and has

presence in over 180 countries across the world. Cipla's product range includes Pharmaceuticals, Animal Health Care Products, OTC, Bulk Drugs, Flavors & Fragrances, and Agrochemicals. Cipla also provides a host of consulting services such as preparation of product and material specifications, evaluation of existing production facilities to meet GMP, definition of appropriate plant size and technologies etc.

Background

The origins of Cipla can be traced back to 1935, when Dr Khwaja Abdul Hamied set up "The Chemical, Industrial and Pharmaceutical Laboratories Ltd", popularly known by the acronym Cipla, in a rented bungalow, at Bombay Central. Cipla was registered as a public limited company on August 17, 1935. Cipla's first product was launched into the market in 1937. In 1940, during the Second World War when the drug supplies were cut off, Cipla started producing fine chemicals. In 1944, Cipla bought the premises at Bombay Central to build a modern pharmaceutical laboratory. In 1946, Cipla's product for hypertension, Serpinoid, was exported to the American Roland Corporation. In 1952, Cipla set up first research division for attaining self-sufficiency in technological development. In 1960, Cipla started operations at second plant at Vikhroli, Mumbai. In 1968, Cipla manufactured ampicillin for the first time in India. In 1976, Cipla launched medicinal aerosols for asthma. In 1982, Cipla's fourth factory became operational at Patalganga, Maharashtra. In 1984, Cipla developed anti-cancer drugs, vinblastine and vincristine in collaboration with the National Chemical Laboratory, Pune. In 1991, Cipla pioneered the manufacture of the antiretroviral drug, zidovudine. In 1994, Cipla's fifth factory began commercial production at Kurkumbh, Maharashtra. In 1997, Cipla launched transparent Rotahaler, the world's first such dry powder inhaler device. In 2000, Cipla became the first company, outside the USA and Europe to launch CFC-free inhalers. In 2002, Cipla set up four state-of-the-art manufacturing facilities set up in Goa. In 2003, Cipla launched TIOVA (Tiotropium bromide), a novel inhaled, long-acting anticholinergic bronchodilator. In 2005, Cipla set up a state-of-the-art facility for manufacture of formulations at Baddi, Himachal Pradesh.

Major Achievements of Cipla:

Manufactured ampicillin for the first time in India Lauched etoposide, a breakthrough in cancer chemotherapy, in association

with Indian Institute of Chemical Technology Launches transparent Rotahaler, the world's first such dry powder inhaler

device Launches transparent Rotahaler, the world's first such dry powder inhaler

device Became the first company, outside the USA and Europe to launch CFC-free

inhalers

Global Presence         

Major ProductsGeneral Categories

Pharmaceuticals: Cipla manufactures anabolic steroids, analgesics/antipyretics, antacids, anthelmintics, anti-arthritis, anti-inflammatory drugs, anti-TB drugs, antiallergic drugs, anticancer drugs, antifungal, antimalarials, antispasmodics, antiulcerants, immunosuppressants etc,

Animal Health Care Products:

Exports for the financial year ended March 31, 2009 amounted to more than Rs. 27,500 million. Cipla exports raw materials, intermediates, prescription drugs, OTC products and veterinary products. Cipla also offers technology for products and processes. Technical know-how/fees received during the year 2008-09 amounted to about Rs. 2200 million Cipla's manufacturing facilities have been approved by the following regulatory authorities:

Food and Drug Administration (FDA), USA Medicines and Healthcare products Regulatory Agency (MHRA), UK Therapeutic Goods Administration (TGA), Australia Medicines Control Council (MCC), South Africa National Institute of Pharmacy (NIP), Hungary Pharmaceutical Inspection Convention (PIC), Germany World Health Organization (WHO) Department of Health, Canada State Institute for the Control of Drugs, Slovak Republic ANVISA,

Brazil

Cipla products are bought by over 180 countries located in the following regions:

 

These include: aqua products, equine products, poultry products, products for companion animals, and products for livestock animals.

OTC: These include: child care products, eye care products, food supplements, health drinks, life style products, nutraceuticals & tonics, skin care products, and oral hygiene products.

Flavor & Fragrance: Cipla manufactures a wide range of flavors, which are used in foods and beverages, fruit juices, baked goods, and oral hygiene products. Cipla fragrances have wide ranging applications such as in personal care products, laundry detergents and room fresheners.

Agrochemicals It includes fungicides, pesticides, insecticides, plant growth regulators, rodenticides

Specific Drugs

Antiretroviral drugs (ARVs)

By 2007, Cipla became the world’s largest manufacturer of antiretroviral drugs (ARVs) to fight HIV/AIDS, as measured by units produced and distributed (multinational brand-name drugs are much more expensive, so in money terms Cipla medicines are probably somewhere down the list). Roughly 40% of HIV/AIDS patients undergoing antiretroviral therapy worldwide take Cipla drugs. The company is ranked third in Generic market share statistics in South African Private Sector.

Antiflu and VirenzaIn December 2008, Cipla won a court case in India allowing it to manufacture a cheaper generic version of oseltamivir, marketed by Hoffmann-La Roche (Roche) under the trade name Tamiflu, under the Cipla trade name Antiflu. In May 2009, Cipla won approval from the World Health Organization certifying that its drug Antiflu was as effective as Tamiflu, and Antiflu is included in the World Health Organization list of prequalified medicinal productsCipla announced that Oseltamivir 75 mg capsules marketed as `Antiflu` by the company has been included in the World Health Organization (WHO) list of prequalified medicinal products (PMP).Oseltamivir is indicated for use in the treatment of influenza A (H1N1) infection commonly known as swine flu.Cipla also produces a generic version of zanamivir, marketed by Glaxo under the trade name Relenza, under the Cipla tradename Virenza.The Saudi government has recently purchased stockpiles of Antiflu in preparation for the upcoming Hajj.The firm announced the launch of the drug under brand name: "antiflu" on November 11, 2009 to be sold as a category X drug, strictly under prescription. The firm has already sold 2 lakh (200,000) doses to the Indian Government.

Other drugs

Cipla has a product range comprising antibiotics, anti-bacterials, anti-asthmatics, anthelmintics, anti-ulcerants, oncology, corticosteroids, nutritional supplements and cardiovascular drugs. The company has at least nine different prescription drugs registered with the US FDA. Cipla is into anti-bacterial and anti-asthmatic segments and is the first player in Asia to launch non-CFC metered dose inhaler.

Current Market Share

Cipla maintained its top position in the domestic market for the 12 months ended December, 2009, with a market share of 5.38 per cent — up 18 per cent over the year and ahead of Ranbaxy Laboratories and GlaxoSmithKline (GSK).

The total domestic drug market is valued at Rs 40,051.74 crore, an increase of 17 per cent over the previous year, according to data from drug sales tracking agency, ORG-IMS. The agency tracks drug sales among more than 500,000 traders in the country, through stockist data.

Cipla’s domestic market share grew 18 per cent during the year, thanks to its product basket of 924 products, which is way ahead of Ranbaxy’s 565 and GSK’s 177 products.

Ranbaxy got a market share of 4.91 per cent and GSK had a market share of 4.35 per cent, with a growth of 13.7 per cent and 18 per cent, respectively, in 2009.

During the period, Cipla had sales of Rs 2,155.29 crore in the domestic market, ahead of Ranbaxy’s Rs 1,968.24 crore and GSK’s Rs 1,743.15 crore.

Cipla had overtaken Ranbaxy and GSK India to become the largest pharmaceutical company in the domestic market for the first time in May, 2007, according to sources.

CIPLA Products on BCG Matrix

HIGH I-PILL ARV

STAR QUESTION

MARK

CASH DOG

BUSINESS

GROWTH

RATE

LOW

HIGH LOW

RELATIVE POSITION (MARKET SHARE)

STP strategies used by Cipla

Growth for domestic segment remains capped for some time and gains from international markets are likely to accrue only in FY12E.

Cipla Ltd saw export revenues boost topline even as domestic remained sluggish during the April – June 2010 quarter. Net sales at Rs 1427 crore grew 7.7% y-o-y. With adverse product mix, lower technical know-how fee and subdued domestic growth, earnings before interest, tax, depreciation and amortization remained flat at Rs 364.6 crore. However, margins declined 214 bps to 24.64%. Net profit at Rs 257.42 crore came in 6.5% higher as compared to the previous corresponding quarter.

I-PILL ARV

STAR QUESTION

MARK

CASH DOG

Export formulation sales grew good 14.4% y-o-y to Rs 626 crore led by anti-asthma and anti-retroviral (ARV) segments. Salbutamol inhalers did the trick with shipments growing 9% as HIV related ARV shipments grew 19%. API revenues of Rs 140.16 crore were, however, flat on a y-o-y basis.

While Salbutamol (shorter acting broncho-dilators) did well in UK, launch of Salmeterol (Longer acting) are planned in Europe for tapping the $150 million market. Approvals from Germany for Budesonide inhalers and Portugal for Beclamethasone have also been achieved. Out of Eight CFC free Inhalers developed for Europe, six approvals have been filed targeting $3 billion market. Approvals for combination inhalers to be launched by FY12E too have been filed. South Africa ($15-20mn market) may also see launch of combination product Seroflo (Salbutamol & Fluticazone) soon. The export segment will be a strong long-term growth driver having already contributed 54% to FY10 revenues. Long-term supply arrangements are being sought with multinationals. In the US, Cipla has 57 approved ANDAs, of which 35 have been launched.

On the other hand, domestic sales (Rs 675 crore) saw a muted growth of 3.6%. This was on the back of lower generic sales that contribute 15-20% to domestic revenues as well as sale of brand “i-pill&"(a Rs 30 crore brand) to Piramal Healthcare.

Matured products (Norflox, Ciplox, Novamox etc) being promoted through franchisee comprise 35% of domestic revenues have limited growth. Generic products (15%) being pushed through stockists and retailers are barely growing. Thus, the balance 50% of domestic revenues that are growing 18-20% being actively promoted, can only lead to 10-12% growth in overall domestic revenues, analysts say.

Cipla is planning higher penetration through expansions in field force (employee costs increased 45% y-o-y to Rs 137.6 crore with addition of 600 employees in the June-end quarter). The company plans expanding product portfolio by launching biosimilars, particularly relating to the oncology, anti-asthmatic and anti-arthritis categories.

In the recently concluded quarter, Cipla received technical know-how fees of Rs 16 crore (vs Rs 26 crore in Q1FY10). However, the management has guided for Rs 100 – 150 crore fees for FY11E.

Looking at above factors, the growth for Cipla's domestic segment remains capped for

some time and gains from the international markets are likely to accrue only in FY12E. Analysts at Angel Broking expect net sales to post a 12.2% CAGR to Rs 6,744 crore and EPS to post a 12.7% CAGR to Rs 17.1 over FY2010 –12E. At Rs 308 levels, Cipla trades 20.5xFY11E and 17xFY12E earnings as per analysts’ estimate.

STP for Anti-Retroviral Drug

Segmentation : cipla is targeting developing countries and countries where proportion of HIV positive population is significant

Targeting: Cipla is targeting middle class people as low cost is the most appealing factor for them.

Positioning : cipla is using low price as USP for product selling

Cipla's offer to sell anti- aids drugs at one-third the price to developing countries like South Africa or any other country is an excellent marketing strategy

Therefore, the issue is whether Cipla is selling its products below its costs or is it able to sell cheaply because it has not incurred any research and development ( r&d ) expenses like multinationals incur in developing drugs.

Cipla's offer is not violative of the trips agreement in any manner as product patents will take effect only after 2005. However, after 2005, when India and other member countries of wto would have amended their patent laws, it would no longer be possible to sell patented drugs at such low prices. It is therefore imperative that Cipla and other Indian pharmaceutical companies who have made their fortune by reverse engineering, should review their future plans and evolve a strategy to survive the product patent regime in 2005 and beyond. It is expected that India will progress into a nation of pioneers instead of reverse-engineers. They will perish if they do not follow global standards of innovation, management and good business practice. Prices of essential drugs will not increase between 2005 and 2010. Due to the product patent regime most of the new drugs developed up to 2005 would be beyond the product patent regime. Assuming that a new drug takes 5-7 years to reach the market, all new drugs developed up to 2004 would trickle into the Indian market without any hindrance and benefit the Indian public till about 2010.

Indian pharmaceutical companies must utilise this breathing time to develop their own technological potential in research and development of new drugs and reorganise management styles and thought processes, to prepare for survival.

Cipla is entitled to "make hay while the sun shines', in other words, capitalise on a sympathetic patent law in India, but keeping in mind that after 2010, the world (and Indian) pharmaceutical industry will become a "jungle', where only the "fittest' will survive.

Major Stock Movements in Last 6 Months

The stock price of Cipla has been fairly stable in the last 6 months with highest price being Rs 354.5 and lowest being Rs

The increase in the price on was due to selling of its star product i-pill to Piramal healthcare which caused increase of 2.5% to cipla and 3.4% to Piramal.

Cipla shares were up 3.37 per cent on NSE. urged on 6 May after ET Now broke source based story that the company is in talks with Pfizer for a strategic partnership. The partnership is said to be for outsourcing and marketing drugs in Africa and emerging markets.

Recent capacity expansion through new plants in Indore and Sikkim will contribute to volume growth. Industry reports indicate the return of growth momentum in the domestic pharma market, where Cipla has one of the strongest franchises, especially in respiratory medicine. Cipla’s unique business model of registering products in other countries and partnering with other companies to market them makes it the best counter-cyclical play in the Indian pharma space.

Stock Price Comparison with other Companies

Basic Financial Data for last 5 years

Latest happenings

Cipla Q1 PAT up by 6.49%

Cipla to partner Chinese co in selling Roche, Amgen drug clone

17 Jun -Cipla, the Indian drugmaker that built a $1-billion business making generic HIV treatments, aims to sell copies of Roche Holding’s and Amgen’s best-selling biotechnology medicines with a partner in China.

Cipla chairman Yusuf Hamied plans to invest in companies in India and Hong Kong that make so-called monoclonal antibodies. The technology will enable Mumbai-based Cipla to gain access to products modelled on Roche’s Avastin and Herceptin cancer drugs and Amgen’s rheumatoid arthritis treatment Enbrel, Mr Hamied said.

Cipla in talks with Centre to share cancer drug know-how

Jun 29- Pharma powerhouse Cipla has started talks with the government to share knowledge on making cancer drugs, which, if successful, could radically lower the prices of a class of medicines that remain largely unaffordable. “The initial discussions are related to 10 off-patented cancer drugs,” said a person familiar with the matter, adding that the talks centred on the number of drugs and the processes involved in transferring knowledge.

Piramal buys Cipla’s i-Pill for Rs 95 crore

Piramal Healthcare has bought the rights to Cipla's emergency contraceptive drug brand i-Pill for Rs 95 crore in an all-cash transaction. Domestic pharma major Piramal managed to edge out multinational Pfizer, which was also in the fray, according to officials close to the deal.

The moot question then is what prompted Cipla to sell its successful and the only OTC brand in its portfolio. Industry experts believe that the government’s ban on airing the television commercials of I-pill, due to irresponsible advertising, probably raised scepticism in the company regarding the future growth of the brand. There was

also an underlying fear that the emergency contraceptive pill category may not remain within the OTC segment for long and may be included under the less-lucrative prescription drug category.

Besides, this fast-growing category is attracting several new players. Apart from Cipla, there are three other companies — Mankind Pharma, Morepen Labs and the recent entrant Paras Pharma with similar branded products in the market. With rising competition, Cipla might not have wanted to spend money on nurturing the brand further. On the contrary, acquiring a premium brand such as I-pill for Rs 95 crore appears to be a good deal for Piramal Healthcare, which has proven expertise in managing OTC brands. For a brand that is growing at 36% annually, the company has paid fair valuations of three times its annual sales. Piramal Healthcare already has a strong and growing portfolio of OTC products and I-pill would be a premium addition to it.

Cipla has entered into a strategic alliance with Stempeutics Research Pvt. Ltd.

promoted by the Manipal Group, for the marketing rights of stem-cell-based products being developed by Stempeutics. Cipla is sponsoring up to Rs.50 crore, in the initial phase, for research and development of these products.

No interim stay on Cipla’s Nexavar clone

1 March -Cipla has launched a copycat version of German pharma company Bayer’s cancer medicine Nexavar at one-tenth the price, thumbing its nose again at the pharma multinational by selling drugs at a fraction of the original rates. Cipla’s launch of its drug Soranib — used to treat kidney cancer — at Rs 28,000 for a month’s dose, comes just a month after Bayer filed a patent infringement case against the company.The Supreme Court (SC) on Friday turned down a request by German drugmaker Bayer AG to stop Mumbai-based Cipla from launching the low-cost version of Bayer’s patented cancer medicine Nexavar while admitting the case.

CONCLUSION

The growing global generics markets, increasing contract-manufacturing opportunities as a result of India’s low-cost manufacturing advantage, and a robust domestic market are the main drivers of the strong fundamentals of the Indian pharma sector.

The Indian pharma companies will maintain the growth momentum in revenues from international markets over the medium term because of above mentioned factors.International markets account for more than half of the total revenues of Indian pharma players, and revenues from these markets are expected to grow faster than revenues from the domestic market.However, international markets pose increasing challenges because of evolving healthcare regulations, intensifying competition, volatile exchange rates, and lengthening working capital cycles.

While players in regulated generics markets are facing severe pricing pressures as a result of government-led cost-containment measures, intensifying competition, and a more stringent regulatory environment, players operating in semi-regulated markets have been exposed to risks related to sharp volatility in exchange rates and stretched working capital cycles.

To continue its excellent growth in future Indian pharma companies should take some steps such as more R & D expenditure for new molecule discovery programme, utilise the advantage of cost efficient CRAMS, drug discovery programme for neglected drugs such as malaria, kala azar and concentrate on business opportunities in potentially untapped markets such as Japan, China