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INTERNSHIP REPORT

EQUITY RESEARCH OF PHARMACEUTICAL INDUSTRY

MANEESHA C

HOLYCROSS IMT, CALICUT

30TH MAY 2019

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ACKNOWLEDGMENT

I sincerely thank Hedge Equity Ltd, Kochi (Kerala) for providing me the corporate
exposure in finance industrial and an opportunity to do the project with their esteemed
organization for two month during my summery internship. It was a challenging yet a
rich learning experience for me.

I would like to take this opportunity to express my profound gratitude and deep
regards to Krishnathampi Sir for their exemplary guidance, monitoring and
encouragement throughout the course of the work.

I would also like to thank Mr. Benil Dani Alexander (Director, Hedge school of
Applied Economics) Sreehari Sir and Suvin Sir who extended their support whenever
needed.

This internship at Hedge one of the prestigious finance organizations has given me a
background of strong learning which would be of great help to me in the future. I also
thank fellow interns with whom I have worked and have shared valuable input and
together we successfully completed our internship.
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CONTENTS
1. Introduction to Hedge equities.
2. Industry analysis
 Economic analysis
 Swot analysis
 Porter’s five factor analysis
 Pestle analysis
3. Company analysis
 Profile of the company
 Swot analysis
 Business model
 products
 Strategies
 opportunity
4. Company valuation
 Reasons
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PROFILE OF THE ORGANIZATION:

Hedge Finance Limited (HFL) is a Kochi-based non-deposit taking NBFC, registered

with the Reserve Bank of India. The company was founded by Mr. Alex K Babu in 2008.
Over the years, HFL has established itself as a prime lender in Kerala with a wide client
base and advanced infrastructure. Its focus is on finance against shares and mutual funds,
complementing the business of its parent company, Hedge Equities Ltd. HFL have
diversified into loans against property, business loans, and personal loans. The company
is a part of the Hedge group of companies, which includes Hedge Equities Ltd (engaged
in equity broking) and Hedge Commodities Ltd (commodity broking). The group started
its operations in 2008. It provides services in capital markets, wealth management, and
other investment products. The Company incorporated and issued by the Registrar of
Companies, Kerala to carry on the business of lending money either with or without
security, carry on the business of hire purchase finance, leasing, gold loan, carry on the
business of financiers, but the company shall not do the business of banking within the
meaning of Banking Regulation Act, 1949 and subject to the Rules and Regulations
issued by the Reserve Bank of India from time to time. The company has obtained
Certificate of Commencement of Business on 18th June 2012.

Hedge Group has evolved from its humble beginnings in 2008, to a leading specialist in
the financial services sector in Kerala. In the past decade we have grown from strength to
strength offering a gamut of financial services and products tailored to our diverse client
base. We initially started off with stock broking in 2008, but in the following years have
expanded into offering Wealth Management services as well as NBFC services to our
clients.
We are a 250 member strong team with exceptional expertise and knowledge with a
proven track record for providing high quality services to our 50,000 clients in broking,
2500 clients in wealth while managing a AUM of 1000crores. In the NBFC segment, our
loan book stands at 100crore and we primarily offer Loans against Securities. (LAS)
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In the years to come, we are committed to becoming a leader and role model for
upcoming businesses and individuals alike. We plan to spread our wings and take off on a
never before journey and become the leading brand not only across Kerala but India as
well. We are poised to reach great heights and leave a lasting imprint in the financial
services space.

VISION
Partnering with clients to build, manage, and grow their wealth
We understand that each client is unique, so we deliver individualized wealth
management and investment solutions – aligning financial resources with values and
goals

MISSION
To be a financial supermarket
We believe in our vision and values as strongly today as we did the first time we put them
on paper. Staying true to them has served us well and continues to guide us as we cross
milestones on growth and success.

Hedge Wealth Management Services is a trusted advisory and wealth management

solutions provider to individuals, families, and institutions. With our unwavering
commitment to earning clients trust and nurturing long lasting relationships via an in-
depth understanding of customer needs, we have made customer interests first in
everything we do. We are forward looking in our views, innovative in our thinking, and
committed to help clients thrive and communities prosper.

WORKING METHODOLOGY AND STRUCTURES

A DEDICATED INVESTMENT ADVISOR/MANAGER

Your relationship is personally led by a dedicated investment advisor who crafts a
customized investment strategy tailored to your financial needs, the time frame of your
investment objectives and matching your risk appetite. He or She works to build a
partnership with you, and regularly reviews your goals and changing life circumstances
to ensure your investment objectives stay on track. They ask the right questions to truly
understand your needs, goals, and risk tolerance. This is followed by formulating an
investment strategy that is tailored to your needs and comfort level.

A STRONG SUPPORT TEAM

Each of our Investment Advisor/Manager is supported by a capable, experienced team of
investment professionals who also work to fully understand your objectives and place
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your satisfaction at the very core of our relationship. This team works in close
conjunction with the investment advisor, and any tax/legal advisors you engage with to
ensure that your needs are met proactively in a timely, efficient and consistent manner.
Our implementation of your investment plan also makes sure that it is cost effective and
tax efficient. Transparency and Trust is ensured by being direct, clear and comprehensive
in all communications. You will receive regular reports on the performance of your
portfolio, ongoing portfolio advice and investment ideas, and a proactive approach to
making adjustments as your needs and requirements change with time.

DEFINING RISK PROFILE

Types of Risk Profiles

Each asset class offers returns that are commensurate with the underlying risk involved.
High risk asset classes offer the possibility of higher returns but require the assumption of
higher risk by the investor. It is therefore essential to know your ability and willingness to
undertake financial risks aka your risk profile.
The first step in building your tailored wealth advisory is to assess your capacity to
undertake financial risk. This requires a thorough understanding of your objectives,
responsibilities, personality, time horizon for investment, and a variety of other variables.
It also needs to factor and account for your age, lifestyle, habits, and life stage. Your
response to risk is basically a reflection of your personality and as with any kind of
analysis, it requires you to assess your risk appetite with honesty to make mature
investment decisions.
Globally investments are bracketed into differing risk profiles ranging from
Conservative, Moderate, and Aggressive. Our wealth management experts work with you
to help understand the level of risk that you are willing to undertake in your portfolio
selection.

BUILDING A PORTFOLIO
The assets that comprise your portfolio play differing roles in portfolio construction. A
customized investment portfolio should therefore balance the need for returns from the
investment with the risk profile of the investor. Portfolio construction should be done
dynamically with the flexibility to adapt to both the investor profile and changes in risk
appetite over time.
They are mainly focused on the wealth management services

ACTIVE ADVISORY

As part of an active advisory mandate, our investment advisory team studies and analyses
global and financial markets. They identify and analyse opportunities and risks, and
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present it to you with investment recommendations. You are then able to make rapid and
informed investment and trading decisions. This service is ideal for our clients who
would like a proactive advisory service that keeps them up to date on investment
opportunities and trading ideas and who also wants to work closely with our investment
experts.

INVESTMENT AND PORTFOLIO MANAGEMENT

Their investment approach has a singular goal – satisfaction of customers. And to achieve
this result, they endeavor to construct the portfolio around very own objectives and
needs. To arrive at this result, they begin by working to intimately understand financial
needs and goals coupled with willingness to take on different levels of risk. They then
take an actively involved and accountable management process - to deliver portfolio
returns while mitigating controllable risks across all economic cycles. To meet this
objective, they draw upon our core strengths in investment fundamentals and discipline,
portfolio diversification and balance across asset classes, and dynamic asset allocation to
arrive at maximizing the after-tax total portfolio returns.
And throughout the relationship and continually stay in touch with to keep gaining
insights and understanding of evolving/changing circumstances, needs, and objectives as
well as adapting to changing market opportunities and dynamics. They believe that this
engaged process ensures that our actions on your behalf stay in complete alignment with
the needs and objectives and are ably supported by the best-in-class thinking and
discipline.

RETIREMENT PLANNNING
They believe that the retirement planning and goals should receive customized and
personalized services that take into account all the emerging and anticipated needs as
well as the current and post retirement lifestyle. Above all it should be prudent, tax
efficient, and cost effective. Their aim is to help clients approach retirement with a sense
of calmness and confidence, and the advisories and recommendations are vetted and
presented based on data and facts, not mere emotions or opinions and also the work at
each step along the way to help ensure that we stay the course, and not be caught in the
vagaries of market volatility.

FINANCE AND INVESTMENT OPPORTUNITY

Whether you are looking for financing options to fund a major purchase, pursue your
entrepreneurial aspirations by investing in a new business, looking for creative ways to
refinance your debt, or simply find a financing provider that meets your needs, we can
help
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Our financing team is equipped to arrange customized credit and financing solutions built
around your short-term or longer-term objectives. We understand that your time is
precious, and we can work with you to get rid of the hurdles and obstacles in your path,
by arranging the finance you need in a time-saving and efficient manner.

TYPES OF INVESTMENT PRODUCTS

They work closely with all our clients to prepare investment strategies that match with
their risk profile and recommend asset classes after determining the volatility and risk
return profile for the same. Their team is one-stop access gateway to a wide range of
products and backs it up with in-depth research and operational efficiencies.
Some of the products that get included in client portfolios are:

 Direct Equities
 Mutual Funds
 Liquidity Management Solutions
 Commodities
 Insurance
 Loans and Services
 Derivatives – Futures and Options
 Structured Products
 Fixed Income Products
 Estate Planning Products
 Retirement Planning Products

Macro-economic factors

A macro economic factors is an influential fiscal, natural or geographical event that

broadly affects a regional or national economy
• Tend to impact wide swaths of population, rather than just a few select individuals
• Events or situations that affect the economy on a broader level, influencing
the economic outcome of large groups of people on a national or regional level.

List of macro Economic Factors are as follows

1. Change in GDP

It is simply defined as the total value of all goods and services produced within the
borders of a country during a specific period of time, usually a year or a quarter.
When GDP growth is strong firms hire more workers and can afford to pay higher
salaries and wages which leads to more spending by consumers on goods and services.
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Similarly, firms also have the confidence to invest more when the economic growth is
strong and investment lays the foundation for economic growth in the future.
Same time when GDP growth is very low or the economy goes into recession the
opposite applies workers may be retrenched and paid lower wages and firms are reluctant
to invest.
GDP includes several components, things like personal /consumer spending business,
business spending, government spending, import and exports.
Generally GDP is noted by the following components;
* Personal consumption expenditure
* Business Investment
* Government spending
* Exports
Almost everything that happens in a country's economy is captured by GDP and is
translated into a number.

2. Income and Wages

If the economy is Operating efficiently, earning should increase regularly to keep up
with the average cost of living.
When income declines, however, it is a sign that employers are either cutting pay rates
or reducing their hours. Income decline reflect an environment where investment are not
performing.
Incomes are broken down by different demographics such as gender, age, ethinicity
and level of education and these demographics give insight into how wages changes for
various groups
Wages are the most common earnings of people. Perceived by workers, clerk’s and
salaries constitute the core elements in income for the majority of active people.
Similarly, many pension schemes are based on wage levels and dynamics.
Self employment do not receive waged but sell directly their labour in the market. The
property and Enterprise owners obtain income from rents, dividends and other financial
instruments gains. The unemployed in certain countries and under constraints receive
public financial support.

3. Unemployment Rate

The unemployment Rate is very important and measure that no of people looking for
work as a percentage of the total labour force. When unemployment rates are high and
consumers have less money to spend which negativity affect retail stores, GDP, housing
markets and stocks
When someone loses a job, a family is affected also the standard of living. When many
people lose their jobs eventually the whole nation is affected. Workers lose income, while
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the country loses production and consumer spending. With such a strong impact the
unemployment Rate is a key way to measure the state of the economy
Unemployment can lead to greater pessimism about the value of education and training
and lead workers being less willing to invest in the long years of training some jobs
require.
Absence of income created by unemployment can force families to deny educational
opportunities to their children. Studies h e shown the prolonged unemployment harms the
mental health of works and can eventually worsen physical health and shorten lifespan.
The social costs of unemployment are difficult to calculate but no less real. When
unemployment becomes a serious probe there are often increased calls for protectionism
and severe restrictions on immigrations. Elevated crime makes sense because, absence of
a wage paying job will turn people to do crime to meet their economic needs
Also unemployment leads to higher payment from State or federal government for
unemployment benefits, good assistance and Medicaid.

4. Consumer Price Index (Inflation)

The consumer Price Index reflects the increased cost of living or inflation. The CPI
is calculated by measuring the costs of essential goods and services, including vehicles,
medical care, professional services, shelter, clothing, transportation and electronics.
Inflation is then determined by the average increased cost of the total basket of goods
over a period of time.
A high rate of inflation is not entirely a bad thing, especially if it is in line with
changes in the average consumer's income.
It encourages spending and investing, which can help grow an economy. Otherwise,
the value of money held in cash would be simply corroded by inflation
It keeps interest rates at a moderately high level, which encourages people to invest
their money and provide loans to small businesses and entrepreneurs.

5. Currency strength

A strong currency increases a country's purchasing and selling power with other
nations. The country with the stronger currency can sell its product overseas at higher
foreign prices and import products more cheaply
However, there is advantage to having a weak dollar as well. When the dollar is weak,
the United States can draw in more tourists and encourage other countries to buy US
goods. In fact as dollar drops, the demand for American products increases.
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6. Interest Rates
Interest rates are another important indicator of economic growth. They represent the
cost of borrowing money and are based around the federal funds rate, which represents
the rate at which money is lent from one bank to another and is determined by the Federal
Open Market Committee (FOMC). These rates change as a result of economic and
market events.
When the federal funds rate increases, bank and other lenders have to pay higher
interest rates to obtain money. They, in turn, lend money to borrowers at higher rates to
compensate, which thereby makes borrowers more reluctant to take out loans. This
discouraged businesses from. Expanding and consumers from taking on debt. As a result
GDP growth becomes stagnant.
On the other hand, rates that are too low can lead to an increase demand for money
and raise the likelihood of inflation. Current interest rates are thus indicative of
the economy's current condition and can further suggest where it might be headed as
well.

7. Corporate Profits

Strong corporate Profits are correlated with a rise in GDP because they reflect an
increase in sales and therefore encourage job growth. They also increase stock market
performance as investors look for places to invest income.

8. Balance Of Trade

The balance of trade is the net difference between the value of exports and imports and
shows whether there is a trade surplus or a trade deficit.
Trade surplus are generally desirable, but if the trade surplus is too high, a country may
not be taking full advantage of the opportunity to purchase other countries products. That
is, in a global economy, nations specialize in manufacturing specific products while
taking advantage of the goods other nations produce at a cheaper more efficient rate.
Trade deficits, however, can lead to significant domestic debt. Over the long term, a
trade deficit can result in a devaluation of the local currency, which will inevitably lower
the demand for it and thereby the value. Moreover, significant debt will likely lead to a
major financial burden for future generations who will be forced to pay it off.
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9. Government Policies

Governments may make policy changes in response to economic conditions.

Government regulation of the economy is frequently used to engineer economic growth
or prevent negative economic consequences.
In response to inflation concerns, governments may decide to increase interest rates.
Government Policies may use tax incentive to direct economic conditions also.

10. Monsoon

The monsoon is the lifeblood for India's farm dependent $2 trillion economy, as at
least half the farmlands are rain fed. The country gets about 70%of annual rainfall in the
June -September monsoon season, making it crucial for estimated 263million farmers
About 800million people live in villages and depend on agriculture, which accounts
for about 15%of India's gross domestic product and a failed monsoon can have a rippling
effect on the country's growth and economy.
Whereas a normal to above normal and we'll distributed monsoon boosts farm output
and farmer's income, thereby increasing the demand for consumer and automotive
products in rural markets
A deficit monsoon could also lead to a drought like situation thereby affecting the
rural household incomes, consumption and economic growth. A poor monsoon not only
leads to weak demand for fast moving consumer goods, two wheelers, tractors and rural
housing sectors but also increases the imports of essential food Staples and forces the
government to take measures like farm loan waivers, thereby putting pressure on
finances.
Whereas a normal monsoon results in a good harvest, which in turn lifts rural
incomes goods. It also has a positive impact on hydro power projects
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INDUSTRY ANALYSIS OF PHARMACEUTICAL SECTOR

INTRODUCTION

The pharmaceutical industry discovers, develops, produces, and markets drugs or

pharmaceutical drugs for use as medications to be administered to patients, with the aim
to cure them, vaccinate them, or alleviates the symptoms. Pharmaceutical companies may
deal in generic or brand medications and medical devices. They are subject to a variety of
laws and regulations that govern the patenting, safety, efficiency and marketing of drugs.

The Indian pharma industry has been growing at a compounded annual

growth rate (CAGR) of more than 15% over the last five years and has significant growth
opportunities. However, for the industry to sustain this robust growth rate till 2020,
companies will have to rethink their business strategy. Today, the US pharmaceutical
industry is widely recognized as the world leader in development of innovative
medications. Since the United States is the only major developed country that allows drug
prices to be freely determined by the market.

The top ten pharmaceutical companies in India are:

1. Cipla
2. Aurobindo pharma
3. Lupin
4. Dr Reddys laboratories
5. Sun pharma
6. Glen mark
7. Cadila health
8. Alkem labs
9. Torrent pharma
10. Divis labs.
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Market overview

India is the largest provider of generic drugs globally. Indian pharmaceutical sector
Industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of
generic demand in the US and 25 per cent of all medicine in UK.
India enjoys an important position in the global pharmaceuticals sector. The country also
has a large pool of scientists and engineers who have the potential to steer the industry
ahead to an even higher level. Presently over 80 per cent of the antiretroviral drugs used
globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by
Indian pharmaceutical firms.

Market Size
The pharmaceutical sector was valued at US$ 33 billion in 2017. The country’s
pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–20
to reach US$ 55 billion. India’s pharmaceutical exports stood at US$ 17.27 billion in
FY18 and have reached US$ 15.52 billion in FY19 (up to January 2019). Pharmaceutical
exports include bulk drugs, intermediates, drug formulations, biological, Ayush & herbal
products and surgicals.
India’s domestic pharmaceutical market turnover reached Rs 129,015 crore (US$ 18.12
billion) in 2018, growing 9.4 per cent year-on-year (in Rs) from Rs 116,389 crore (US$
17.87 billion) in 2017.
Indian companies received 304 Abbreviated New Drug Application (ANDA) approvals
from the US Food and Drug Administration (USFDA) in 2017. The country accounts for
around 30 per cent (by volume) and about 10 per cent (value) in the US$ 70-80 billion
US generics market.
India's biotechnology industry comprising bio-pharmaceuticals, bio-services, bio-
agriculture, bio-industry and bioinformatics is expected grow at an average growth rate of
around 30 per cent a year and reach US$ 100 billion by 2025.

Investments and Recent Developments

The Union Cabinet has given its nod for the amendment of the existing Foreign Direct
Investment (FDI) policy in the pharmaceutical sector in order to allow FDI up to 100 per
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cent under the automatic route for manufacturing of medical devices subject to certain
conditions.
The drugs and pharmaceuticals sector attracted cumulative FDI inflows worth US$ 15.93
billion between April 2000 and December 2018, according to data released by the
Department for Promotion of Industry and Internal Trade (DPIIT).
Some of the recent developments/investments in the Indian pharmaceutical sector are as
follows:

 In February 2019, the Indian pharmaceutical market grew by 10 per cent year-on-
year.
 Between Jul-Sep 2018, Indian pharma sector witnessed 39 PE investment deals
worth US$ 217 million.
 Investment (as % of sales) in research & development by Indian pharma
companies* increased from 5.3 per cent in FY12 to 8.5 per cent in FY18.
 In 2017, Indian pharmaceutical sector witnessed 46 merger & acquisition (M&A)
deals worth US$ 1.47 billion
 The exports of Indian pharmaceutical industry to the US will get a boost, as
branded drugs worth US$ 55 billion will become off-patent during 2017-2019.

Government Initiatives
Some of the initiatives taken by the government to promote the pharmaceutical sector in
India are as follows:

 The allocation to the Ministry of Health and Family Welfare has increased by
13.1 per cent to Rs 61,398 crore (US$ 8.98 billion) in Union Budget 2019-20.
 In October 2018, the Uttar Pradesh Government announced that it will set up six
pharma parks in the state and has received investment commitments of more than
Rs 5,000-6,000 crore (US$ 712-855 million) for the same.
 The National Health Protection Scheme is largest government funded healthcare
programme in the world, which is expected to benefit 100 million poor families in
the country by providing a cover of up to Rs 5 lakh (US$ 7,723.2) per family per
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year for secondary and tertiary care hospitalisation. The programme was
announced in Union Budget 2018-19.
 In March 2018, the Drug Controller General of India (DCGI) announced its plans
to start a single-window facility to provide consents, approvals and other
information. The move is aimed at giving a push to the Make in India initiative.
 The Government of India is planning to set up an electronic platform to regulate
online pharmacies under a new policy, in order to stop any misuse due to easy
availability.
 The Government of India unveiled 'Pharma Vision 2020' aimed at making India a
global leader in end-to-end drug manufacture. Approval time for new facilities
has been reduced to boost investments.
 The government introduced mechanisms such as the Drug Price Control Order
and the National Pharmaceutical Pricing Authority to deal with the issue of
affordability and availability of medicines.

EVOLUTION OF INDIAN PHARMACEUTICAL SECTOR

1970-1990

 Indian patent act passed in 1970.

 Several domestic companies start operations.
 Development of production infrastructure.
 Export initiatives taken.

1990-2010

 Liberalized market.
 Indian companies increasingly launch operations in foreign market.
 India a major destination for generic drug manufacturing.
 Approval of patents (Amendment) Act 200, which led to adoption of product
patents in India.
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2010

 Increased patent filings by pharma players.

 Likely adoption of newer sales models such as channel management, KAM and
CSO.
 The national pharmaceutical pricing policy, 2012(NPPP-2012)

2010-2015

 2013- New drug pricing control order issued by directorate of food and drugs this
will reduce the prices of drugs by 80%.
 2014- 100% FDI allowed in medical device industry. The investment will be
routed through automatic route.
 Leading pharma companies are raising funds aggressively to fund acquisitions in
domestic as well as international market to increase their production portfolios.
 2015-india has 10500 manufacturing units and over 3000 pharma companies.
 National health policy draft 2015 to increase expenditure in health care sector.
 Patent Act Amendment 2015, it includes amendments in patent act2002.

2016 onwards

 In union budget, 2016, FDI increased to 74% in existing pharmaceutical

companies.
 The government of India unveiled ‘pharma vision 2020’ aimed at making India a
global leader in end- to- end drug manufacture.
 Approval time for new facilities has been reduced to boost investments.
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US PHARMACEUTICAL INDUSTRY
The US pharmaceutical market is the world’s most important market.
Together with Canada and Mexico, it represents the largest continental pharma market
world-wide. The United States holds over 45% of the global pharmaceutical market. In
2016, this share was valued around 446 billion US dollars. Many of the global top
companies are from the United States. In 2016, six out of the top 10 companies were
from the United States when based on pure pharmaceutical revenue.The largest US
companies on the global market are Johnson & Johnson, Pfizer and Merck & co. Johnson
& Johnson generated around 72 billion US dollars of revenue in 2016, although only a
part of it came from the company’s pharmaceutical division.

The company is also active in the medical devices/ diagnostics and consumer products
segments. Interestingly, among the top pharma companies by revenue alone within the
US, there are several non- US based companies, for example, British – Swedish
AstraZeneca and Swiss Novartis.Regarding medical research and development, the US
has always been a pioneer; and a booster for the global pharmaceutical industry. Almost
60 billion US dollar are spent annually on pharmaceutical R&D purposes in the United
States. Costs for developing a new drug have been increasing drastically over the last
decades from under 200 million US dollars in the 1970’s up to over 2.6 billion nowadays.
The R&D expenditures per employee in the pharmaceutical industry are incomparably
higher than in any other manufacturing sector. Total nominal medicine spending in the
US was around 425 billion US dollars in 2015.Among consumer and patients, the
pharmaceutical industry often leaves an ambiguous image. According to a recent survey
among American adults, only 28% stated that their impression of the industry is positive,
while 43% tended to have a negative impression. On the other hand, nearly 60% think
that the quality of products manufactured by US pharmaceutical companies is good or
excellent.
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PHARMA EXPORT TO CONTINUE WITNESSING POSITIVE

GROWTH

Pharmaceutical export from India (US$

billion)
20
18
16
14
12
10
8
6
4
2
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

 India is the world’s largest provider of generic medicines; the country’s generic
drugs account for 20 per cent of global generic drug exports (in terms of
volumes). Indian drugs are exported to more than 200 countries in the world, with
the US as the key market.
 Indian pharma companies are capitalising on export opportunities in regulated and
semi-regulated markets.
 Pharmaceutical exports from India reached US$ 17.27 billion in FY18 and US$
10.80 billion in FY19 (up to October 2018). Pharmaceutical exports include bulk
drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and
surgicals.
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 The biggest export destination for Indian pharma product is the US. In FY18, 31
per cent of India’s pharma exports were to the North America, followed by 19.4
per cent to Africa and 15.9 per cent to the European Union.

MAJOR EXPORT DESTINATION IN INDIA’S PHARMA EXPORT IN FY18 (%)

M
A
J 15%

O North America
31%
R 5% Africa
European Union
7%
ASEAN
E
LAC
X 7%
Middle East
P
Others
O 19%
16%
R
T
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RESEARCH AND DEVELOPMENT SPENDING IN INDIAN

PHARMA
10

5
8.7 8.5 8.6 8.4
4 7.9
6.6 7
3 5.8
5.3
2

0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

R & D Investment by Indian pharma companies (% of sales)

Investment (as % of sales) in research & development by Indian pharma companies

increased from 5.3 per cent in FY12 to 8.5 per cent in FY18.
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GOVERNMENT EXPENDITURE IN THE PHARMA SECTOR ON AN

UPTREND

40 Government expenditure on Health in India

(US$ billion)

35

30

25

20
35.07 34.91
15

23.12 23.58
10 21.27
19.55

0
FY13 FY14 FY15 FY16 FY17 FY18

 Government expenditure on health increased from Rs 1.26 lakh crore (US$ 19.55
billion) in FY12 to Rs 2.25 lakh crore (US$ 34.91 billion) in FY18, implying a
CAGR of 12.3 per cent.
 Medical Technology Park in Vishakhapatnam, Andhra Pradesh has already been
set up with an investment of US$ 183.31 million. States like Himachal Pradesh,
Gujarat, Telangana and Maharashtra are showing interest for making investments
in these parks.
 German technical services provider TUV Rheinland’s Indian subsidiary has
partnered with Andhra Pradesh MedTech Zone (AMTZ) to create an
infrastructure for Electro-Magnetic Interference (EMI/EMC) at an investment of
US$ 12.64 million over a course of four to five years.
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IMPORTANT SEGMENTS IN PHARMACEUTICAL SECTOR

Active Pharmaceutical Ingredients (APIs)

 India became the third largest global generic API merchant market in 2016, with a
7.2 per cent market share.
 The Indian pharmaceutical industry accounts for the 2nd largest number of
Abbreviated New Drug Applications (ANDAs), is the world’s leader in Drug
Master Files (DMFs) applications with the US.

Contract research and manufacturing services (CRAMS)

 Fragmented market with more than 1,000 players.

 CRAMS industry is estimated to reach US$ 18 billion in 2018 and expected to
witness a strong growth at a CAGR of 18-20 per cent between 2013-18

Formulations

 Largest exporter of formulations in terms of volume, with 14 per cent market

share and 12th in terms of export value. Domestic market size currently
valued at US$ 11.2 billion.
 Double-digit growth expected over the next five years.

Biosimilars

 The government plans to allocate US$ 70 million for local players to develop
Biosimilars.
 The domestic market is expected to reach US$ 40 billion by 2030.

ADVANTAGE INDIA

Cost efficiency

 Low cost of production and R&D boosts efficiency of Indian pharma

companies
 25

 India’s cost of production is approximately 33 per cent lower than that of the
US.
 Due to lower cost of treatment, India is emerging as a leading destination for
medical tourism.
 India’s ability to manufacture high quality, low priced medicines, presents a

huge business opportunity for the domestic industry.

Economic drivers

 Economic prosperity to improve drug affordability.

 Increasing penetration of health insurance.
 With increasing penetration of pharmacies, especially in rural India, OTC
drugs will be readily available.

Diversified portfolio

 Accounts for over 10 per cent of the global pharmaceutical production.

 Over 60,000 generic brands across 60 therapeutic categories. Manufactures
more than 500 different APIs.
 More than half of all 345 drug master filings (DMFs) in the USA in Q4 2016
and Q1 2017 were from India.

Policy support

 Government unveiled ‘Pharma Vision 2020’ aimed at making India a global

leader in end-to-end drug manufacturing.
 Reduced approval time for new facilities to boost investments.
 In this sector, 100 per cent FDI is allowed under automatic routes.

INDIAN PHARMA MARKET

 Indian pharmaceutical market grew 5.5 per cent in CY2017 in terms of moving
annual turnover. With a turnover of Rs 1.16 trillion (US$ 18.06 billion).
 26

 In Jul-Sep 2018, Indian pharmaceutical market grew 9.7 per cent and stood at Rs
1.26 trillion (US$ 17.95 billion) for the Moving Annual Total (MAT) ended
September. In November 2018, the Indian market grew by 6.3 per cent year-on-
year.
 Medicine spending in India is projected to grow 9-12 per cent over the next five
years, leading India to become one of the top 10 countries in terms of medicine
spending.
 India’s cost of production is significantly lower than that of the US and almost
half of that of Europe. It gives a competitive edge to India over others.
 The Ayurveda sector in India is expected to reach US$ 4.4 billion by 2018 end
and grow at 16 per cent CAGR till 2025.
 Increase in the size of middle class households coupled with the improvement in
medical infrastructure and increase in the penetration of health insurance in the
country will also influence in the growth of pharmaceuticals sector.

NOTABLE TRENDS IN THE INDIAN PHARMACEUTICAL SECTOR

Research and development

 Indian pharma companies spend 8-13 per cent of their total turnover on R&D.
 Expenditure on R&D is likely to increase due to the introduction of product
patents; companies need to develop new drugs to boost sales.

Increasing exports

 India’s pharmaceutical export market is thriving due to strong presence in the

generics space.
 Pharmaceuticals exports from India stood at US$ 17.27 billion in FY18 and US$
10.80 billion in FY19 (up to October 2018).

Joint Ventures

 Multinational companies are collaborating with Indian pharma firms to develop

new drugs.
 27

 Cipla formed an exclusive partnership with Serum Institute of India to sell

vaccines in South Africa.
 Six leading pharmaceutical companies have formed an alliance ‘LAZOR’ to share
their best practices, so as to improve efficiency and reduce operating costs.

Expansion by Indian players abroad

 Cipla, the largest supplier of anti-malarial drugs to Africa, acquired South African
company Mirren in 2018 for Rs 228 crore (US$ 34 million).
 Mankind Pharma entered the US market in 2018.

STRATAGIES ADOPTED

Cost leadership

 Sun Pharma is trying to achieve cost leadership by Vertical Integration:

Complex API, which require special skills and technology, are developed and
scaled up for both API and dosage forms.

Differentiation

 Players in the sector are trying to strengthen their position in the market and
expand themselves by investing heavily in R&D activities, such as:
1. Dr Reddy’s acquired OctoPlus N.V, a Netherlands-based company, to get
access to the Poly Lactic-CoGlycolic Acid (PLGA) technology for the
formulation of complex injectables.
2. In January 2017, Piramal Enterprises acquired a portfolio of anti-
spasticity and pain management drugs from US based drug maker –
Mallinckrodt, for US$ 203 million.
3. In May 2017, Lupin has launched erectile dysfunction drug named as
Cialis. The company has quoted the market worth for US$ 58.01 million
in India. This tablet is available in 20 mg and 10 mg strengths.
 28

Focus on new markets

 Lupin is making inroads into new markets such as Latin America, Russia and
other East European countries.
 Sun Pharma decided to focus on specialty and chronic therapies such as
neurology, oncology, and dermatology segments.
 Companies like Dr Reddy’s, Cipla and Wockhardt are planning their expansions
in US$ 100 billion China market in 2018.

Mergers and Acquisition in Biotech

 In October 2016, Advanced Enzyme Technologies, a biotech based firm in

Mumbai signed an agreement with JC Biotech - Active Pharmaceutical Ingredient
(API) maker in Hyderabad, to acquire 70 per cent stake in the company.
 In December 2017, Torrent Pharmaceuticals completed acquisition of branded
business of Unichem Laboratories.

GROWTH DRIVERS OF INDIAN PHARMA SECTOR

Supply – side Drivers

 Cost advantage
 Skilled manpower
 India a major manufacturing hub for generics
 India accounts for 22 per cent of overall USFDA approved plants
 Increasing penetration of chemists

Demand – side Drivers

 Increasing fatal diseases

 Accessibility of drugs to greatly improve
 Increasing penetration of health insurance
 Growing number of stress-related diseases due to change in lifestyle
 Better diagnostic facilities
 29

Policy support

 National Health Policy 2015, which focuses on increasing public expenditure on

healthcare segment
 Reduction in approval time for new facilities
 Plans to set up new pharmaceutical education and research institutes
 Exemptions to drugs manufactured through indigenous R&D from price control
under NPPP-2012

NATIONAL PHARMA POLICY TO BRING GREATER

TRANSPARENCY

 In 2017, the Department of Pharmaceuticals released a draft National Pharmaceutical

Policy with the following objectives:
1. Make all essential drugs accessible to masses through affordable prices
2. Provide the Indian pharmaceutical sector with a long term stable policy
3. Make India self-sufficient in end to end domestic drug manufacturing
4. Maintain world class quality for domestic consumption and exports
5. Create a positive environment for research and development in the pharma sector.
 As per the new policy, the Department of Pharmaceuticals will have control over the
National List of Essential Medicines (NLEM), which decides the drugs for which the
Government of India can control the prices.

FAVOURABLE POLICY MEASURES SUPPORT GROWTH

Pharma vision 2020

 Pharma Vision 2020 by the government’s Department of Pharmaceuticals aims to

make India a major hub for end-to-end drug discovery.

Reduction in approval time for new facilities

 Steps taken to reduce approval time for new facilities.

 NOC for export license issued in two weeks compared to 12 weeks earlier.
 30

Single – window clearance

 As per NBDS, a proposal has been made to set up the National Biotechnology
Regulatory Authority (NBRA) to provide a single-window clearance mechanism
for all bio-safety products to create efficiencies & streamline the drug approval
process.

Support for technology upgrades and FDIs

 Government is planning to relax FDI norms in the pharmaceutical sector.

 In March 2017, the government decided to create a digital platform to regulate
and track the sale of quality drugs, and it can be used by people living in the
country as well as abroad.

Pharmaceutical parks

 Government of India is planning to set up mega bulk drug parks in order to reduce
industry’s dependency on raw material imports.
 As of October 2018, the Uttar Pradesh Government will set up six pharma parks
in the state and has received investment commitments of more than Rs 5,000-
6,000 crore (US$ 712-855 million) for the same.

Online pharmacies

 Government of India is planning to set up an electronic platform to regulate

online pharmacies under a new policy.

National Biopharma Mission

 The Industry – Academia mission was launched in June 2017 to boost

development of biopharmaceuticals in India.
 31

Union Budget 2018-19

 The allocation to the Ministry of Health and Family Welfare has increased by
11.5 per cent to Rs 52,800 crore (US$ 8.16 billion).
 The National Health Protection Scheme is largest government funded healthcare
programme in the world, which is expected to benefit 100 million poor families
in the country by providing a cover of up to Rs 5 lakh (US$ 7,723.2) per family
per year for secondary and tertiary care hospitalization.
 The government has allocated Rs 1,200 crore (US$ 185.36 million) towards the
National Health Policy 2017 under which 150,000 health and wellness centers,
will provide healthcare closer to homes of the people.
 The increased expenditure on healthcare is expected to benefit the
pharmaceutical sector as well.

Biotechnology Industry Research Assistance Council

 BIRAC has been established to promote research & innovation capabilities in

India’s biotech industry. The council will provide funding to biotech companies
for technology & product development.
 BIRAC under Small Business Innovation Research Initiative (SBIRI) scheme
supports innovations in biotechnology.

Biotechnology Based Programme for Women

 Programme on application of biotechnology for women was done to provide

employment, skill development, awareness generation, health improvement &
socio-economic upliftment of the women population.
 32

INDUSTRY ANALYSIS

Industry analysis helps the business to predict changes and further allows the business to
react strategically. Industry Analysis provides the business an in-depth understanding of
the industry and its competitors, this further helps the planners to position their
companies in the market.

There are three commonly used and important methods of performing industrial analysis.
The three methods are;

 ECONOMIC ANALYSIS
 SWOT ANALYSIS
 MICHEAL PORTER’S FIVE FORCE ANALYSIS
 PESTLE ANALYSIS

1.MACRO FACTORS AFFECTING THE PHARMACEUTICAL INDUSTRY

Inflation

If higher the expected inflation occurs, many players in the US economy will suffer the
burden of higher cost. But perhaps no sector would feel the strain more than health care.
Higher cost would be start of many problems come for providers, and eventually
patience. When the inflation rate is high the companies will sell at a high price and
thereby they can increase their revenues. But the demand is stable.

If lower the inflation, the producers can produce at lower cost and the consumers can buy
it at a lower price. The non-substitute products can produce at a lower price during lower
rate of inflation and sell it at a higher price and thereby they can earn huge profit, because
they enjoy the monopoly power.

Interest rate

Research and development is essential for pharmaceutical industry. They spend a huge
amount for research and development. When the interest rate is high the rate of
borrowing went to decrease and it affect the pharmaceutical industry negatively. When
lower the interest rate higher will be the borrowing rate and it leads to a high expansion
in research and development service.

Fiscal policy

Due to government intervention the companies cannot sell their products at a higher
price. Such a way they cannot make a huge profit. The government set the legal patent to
protect the original brand. This leads to appear a phenomenon of “generic medicine
“which contain same ingredients as the original brand and compete with it .Lower the
 33

government spending on pharmaceutical industry will negatively affect the research and
development.

Monetary policy

Pricing a drug incorrectly is one of the biggest mistakes a drug company can make.
Pricing a drug too low or too high has a great impact on its potential for success. For eg: a
drug is priced too high, payers may be unwilling to reimburse for it or physicians may be
disinclined to prescribe it. They may believe the drug is not worth the high cost if it is
likely that it will offer too little benefit to warrant the cost. On the other hand, if a drug is
priced too low, physicians may conclude that it offers a discounted form of therapy, less
effective than a more expensive drug that already exists.

Unemployment

Unemployment affects the pharmaceutical industry in two major ways. First, people who
do not have jobs usually do not have the funds to buy the pharmaceuticals they need.
Second, many people rely on jobs to provide health. Even when they are hired, many new
employees do not receive benefits until they have been employed set period of time.

Balance of payment

Indian pharmaceutical industry supplies over 50% of global demand for various vaccines,
40% of generic demand in the US and 25% of all medicines in UK .India enjoys an
important position in the global pharmaceutical sector.

Balance of payment deficit means the country exports more goods, service and capital
than it exports. It must borrow from other countries to pay for its imports .In the case of
India; it has a large export on pharmaceutical products. If there is a large export on drugs
means, there is an advantage in balance of payment position and if there a decline in
export there is a trade deficit in bop.

An increase in the share of export is also advantage to the balance of payment. Since
2009 the shares have been fluctuating but there is clear overall growth. Since 2002, the
share for exports has grown by 1.0 pp. While the growth for import has grown by 3.1 pp.

Trade war

Indian merchants within export – focused sectors with significant links to the United
States have become very apprehensive about the growing noise from within the white
house for higher tariffs. India’s pharmaceutical sector is heavily exposed to the US
market, which accounts for at least 20% of revenues generated by Indian pharmaceutical
companies. Donald trump’s protectionist stance has sent shockwaves across the world as
 34

he looks to put ‘America First’ and make the country self-sufficient rather than reliant on
outside help.

The US and China are significantly raising import duties on each other’s products. In
international commerce parlance, trade war means increasing import duties by trading
partners. The on-going trade war between China and US gave a wide opportunity for
Indian exporters have all the potential to increase the exports in both these countries. So,
that Indian pharmaceutical industry can raise their exports on both the countries.

Infrastructure

The macroeconomic factor that is infrastructure, affect the pharmaceutical industry

positively and negatively. Insufficient energy infrastructure and inadequate transport
infrastructure posed challenges for companies operating in India. A better infrastructure
facility leads to a high investment opportunity in R&D and improve competitiveness by
reducing costs, reducing energy price volatility, and providing other value – added
benefits to the manufacturing process. On the other hand less development in
infrastructure will adversely effect on the investment in R&D and other areas of pharma
industry.

Monsoon

Another macroeconomic factor that directly affected the pharmaceutical industry is

monsoon. Rainy season brings various kinds of infections and skin diseases. Consumers
will spend a part of their income for medicines and treatments. No one avoid treatments if
they haven’t money because it is necessary. There is a growth in the consumption pattern
and an increase in the production and sales of pharmaceuticals.

Crude oil

Low oil price are good for countries whose economies rely on oil imports. For the drug
industry, however, lower oil price are likely to be positive. Petroleum is used widely in
health care primarily as a transport fuel and feedstock for pharmaceuticals, medical
suppliers, and few substitutes for it are available. Petroleum products are intrinsic to
modern health care and petroleum supply shifts can affect health care prices.

Foreign exchange rate

Exchange rate is parameter to measure the international competition between the

different countries. An exchange rate has two important components, the domestic
currency and a foreign currency. In the first way the price of a unit foreign currency is
represent in terms of the domestic currency. In indirect way, the price of a unit of
domestic currency is representing in terms of the foreign currency. The Indian
pharmaceutical industry currently occupies the top position among science based
 35

industries. The steady decline in the Indian rupee, which affected the export oriented
business. Pharmaceutical firms earn a large part of their revenue in dollars. A decline in
the value of rupee will negatively affected the export of pharmaceuticals. Decrease in the
value of rupee will reduce the exports and revenue of the industry.

Political stability

If a country maintain a political stability that have a positive impact on the economy also.
A nation that is constantly having political coups or revolutions or civil wars would be
said to have very low political stability, since there would be very low levels of respect
for the existing political order, constitution, government institutions by key political
players like politicians, judges, and army officers.

A country is politically stable there will be a huge flow of foreign investment, increase in
the number of partnership, mergers, and acquisitions.

Demand and supply

The demand and supply factors which directly and indirectly affects the pharmaceutical
industry. The increase demand for various medicines and the continuous need to launch
new drugs are key contributors to the spending growth in the pharmaceutical industry.
The use of anti - hypertensive, anti – diabetic and anti – depressant medications nearly
doubled, while the use of cholesterol – lowering drugs tripled. The rise in demand stems
from the following increases:

 Chronic Disease
 Aging population
 Innovation

Increasing chronic disease, which result in an increase in demand for research and
development of new drugs. The impact on the increase in expected life span has an
impact on the increasing demand for pharmaceutical drug pipeline. The focus of
continuous improvements and investments has been striving to find solutions for early
treatments and discoveries. Research and development is a huge investment so the
increase in manufacturing is usually worth the risk.

Factors that influence the supply of pharmaceuticals are; price, natural condition,
technology, transport condition, cost of production etc.
 36
2.SWOT ANALYSIS OF PHARMA INDUSTRY
STRENGTH
 Commitment to scientific and
management excellence.
 Global influence spans 151
countries.
 Leading brands and research
and development capabilities.
 Cost effective.
 Strong manufacturing base.
 Availability of high quality
skilled workforce.
 Excellent marketing and
distribution network.
OPPORTUNITY
 Increased export potential.
 Marketing ties ups with
multinational companies to
sell their products in domestic
market.
 Export of generic drugs to
developed markets.
 Health care awareness camp
increases brand value.
 Global demand for generics.
WEAKNESS
 Depend on international sales.
 Less investment in research
and development.
 Manufacturing of fake and low
quality medicines.
 Less financial support.
 Limited product mix
THREATS
 Product patent regime is a
major threat to domestic
industry unless the industry
takes up R&D initiative
aggressively.
 Drug prices control order puts
undue pressure on product
prices, affecting the
profitability of the
pharmaceutical companies.
 The new MRP based exercise
duty regime threatens the
business of smaller pharma
companies.
 Foreign players with advance
technology.
 37

3.A PESTEL ANALYSIS OF THE GLOBAL PHARMACEUTICAL

INDUSTRY

POLITICAL FACTORS

 Many countries have a monopsony where there is one powerful

 Governments have focused on pharmaceutical companies as easy target in their
efforts to control rising health care expenditure. Methods include price or
reimbursement controls.
 Government price controls also created “parallel trade”. Single European market
allows distributors to pocket difference after buying from low price market and
selling in high price market.
 South African government proposed legislation to allow generic imports of
branded drugs – 39 firms took legal action – not a good example of industry
relation.
 Clear principles agreed on and adopted by many companies that they would
supply critical drugs to poor countries on a no loss no profit basis.
 Japanese government calling for consolidation and globalization of domestic
companies.
 Free trade allows wholesalers to extract a large chunk from the value chain.

ECONOMIC FACTORS

 Pharmaceutical growth is aligned with GDP growth.

 Chinese government pouring money into new universities and science parks.

 Product life cycle has shortened and R&D cost, in- licensing and marketing cost
have risen.

 Emerging markets accounting for 50% of global GDP growth in 2005.

 Companies cost for providing drug benefits to employees were increasing by up

to 20% annually.
 38

 Venture capitalists offering funding for new industry players like biotechnology
companies.

 Universal coverage system, i.e. NHS in UK too slow or unable to introduce latest
treatments and insurance funded systems i.e. in USA some people can afford
treatments, but not all. 15.9% US population without health insurance.

 New economic reality in 2006 where growth s shifting from mature markets to
emerging ones.

SOCIOCULTURAL FACTORS

 Regulators, payers and consumers more carefully weighing the risk/benefit factors
of pharmaceuticals.

 Lack of public or political support for industry.

 Increasing patient expectations.

 Trend by payers to use generic drug as first line treatment option, only switching
to patented drugs if they fail.

 Emerging markets have enormous population with high levels of unmet need.

 In 2006 companies realized that well informed patients were prepared to ask for
drugs by name and were becoming increasingly vocal, well informed and
demanding.

 Consumers become more educated.

 Consumers beginning to purchase across borders with no guarantees of drugs

being sale or even genuine.

 Average life expectancy in developed countries increased during 20th century by

about 20years.

 Public perception of pharmaceutical companies was that they were greedy and
consumers lost trust.
 39

TECHNOLOGICAL FACTORS

 Expensive high technology solution.

 International convergence of medical science and practice under the influence of
modern communications technology and increased travel and information
exchange.
 Easy to purchase addictive painkillers and other potentially harmful drugs over
the internet and rogue website offering miracle curses for aids cancer.
 Pace of change outstripping the capabilities and powers of regulators.
 New product adoption is not keeping pace with loss of patent protection.

LEGAL FACTORS

 Regulatory controls becoming tighter

 Legislation enacted to set fixed period on patent protection typically 20 years
 Regulatory changes in 1997 to direct to consumer (DTC) advertising
 Regulatory process undergoing international harmonisation
 European Medicines Evaluation Agency (EMEA) established.
 Move towards global regulatory harmonisation through the international
conference on harmonisation (ICH).
 Strengthened patent protection and liberalised equality controls in emerging
market.
 Illegal drug cartels moving into the less risky, but equally as lucrative business of
fake pharmaceuticals.
 Increasingly onerous regulation.

ENVIRONMENTAL FACTORS

 Various kinds of pharmaceutical residues can pollute the environment.

 While most of these products do not have a major impact on the environment, still
their proper storage and disposal is essential to avoid any kind of environmental
impact.
 Based up on the global pharma industry, its responsibility is also big.
 40

 The pressure on the pharma companies is high over synchronization between

environmental needs.
 Both government and community are pressing the industry to invest more in
environmental concerns.

3.PORTER’S FIVE FACTOR ANALYSIS OF PHARMA

INDUSTRIES

1. The threat of entry

Threat of entry depends on the barriers to entry. Higher barriers entry means it can
protect them from new competitor. But it also makes potential competitors harder to
access the industry.

The pharmaceutical industry have high R&D cost, they spend a large amount to develop
their medicine. Furthermore, the government wants to ensure the quality of the medicine,
they will exam of that data, to support the safety. According to above, it show that it have
a medium impact on the industry, because new entries maybe expensive to match them.
They may need a large amount to investigate, and need more professional help. However,
nowadays technologies develop faster, this kind producer maybe easy for new entries to
catch up.

2. The threat of substitutes appear

Substitutes offer similar benefit to an industry, but in different ways. It can reduce the
demand of product as customers can switch to the alternative.

The government set the legal patent to protect the original brand. This leads to appear a
phenomenon of “Generic Medicine” which contain same intergradient as the original
brand and compete with it. Because the patent expiry will affect the medicine sale, the
generic products help to save cost, so new entries almost select to produce generic
product. The impact on the industry is low.
 41

3. The power of buyer

Buyer can have higher bargaining power that their suppliers are hard to make profits. In
2006, the Medicare is reformed which extent the drug coverage for elderly. Government
becomes the largest purchaser in the market. It gives a high impact on the industry,
because the purchaser buys medicine lower than other market such as Canada.

4. The power of supplier

We found that there are a lot of different suppliers in the market such as USA, European
and Asia. Also, there are more than thousand pharmaceutical companies provide
medicine. So, there have a wider selection for buyer to select. If there is not only one
supplier within the organization, the impact on the industry is low.

5. Competitive rivalry

It is easy for customers to move to substitute products then again rivalry will be high.
Due to this reason, lots of similar medicines appear in the market. These “generic
medicine” provides same performance as the original product. The Allegra make the
original brand loss 84% sale. If there is little differentiation between the products sold
between customers, the impact to the original product company will be high.
 42

COMPANY ANALYSIS – CIPLA

Company profile

Cipla Limited is an Indian multinational pharmaceutical and biotechnology company,

headquartered in Mumbai, India. Cipla primary develops medicines to treat respiratory,
cardiovascular disease, arthritis, diabetes, weight control and depression, children’s
health, cosmetology, malaria, oncology, ophthalmology, urology, and women’s health.

It was founded by Khwaja Abdul Hamied as ‘The Chemical, Industrial & Pharmaceutical
Laboratories’ in 1935 in Mumbai. The name of the company was changed to ‘Cipla
Limited’ on 20 July 1984. It is a global pharmaceutical company which uses cutting edge
technology and innovation to meet the everyday needs of all patients. For over 80 years,
Cipla has emerged one of the most respected pharmaceutical names in india as well as
across more than 80 countries. Its portfolio includes over 1500 products across wide
range of therapeutic categories with one quality standard globally.

Cipla has 34 manufacturing facilities in India that are cGMP compliant and conform to
national and major international standards. Its formulations are sold in 170 plus countries
including the United States, Canada, Europe, Africa, Australia, Latin America and
Middle East.

Whilst delivering a long –term sustainable business, Cipla recognizes its duty to provide
affordable medicines. Cipla’s emphasis on access for patients was recognized globally for
the pioneering role played in HIV/AIDS treatment as the first pharmaceutical company to
provide a triple combination anti- retroviral (ARV) in Africa at less than a dollar day and
there by treating many millions of patients since 2001. Cipla’s research and development
focuses on developing innovative products and drug delivery system.

Executive leadership

 Yusuf Hamied – Non –Executive Chairman of the Board, Since 2016.

 Umang Vohra – Global Chief Executive Officer, Managing Director, Additional
Director, Since 2016.
 Samina Vaziralli – Executive Vice Chairman of the Board, Since 2016.
 Kedar Upadhye – Global Chief Financial Officer, Since 2016

History

 In the year 1985, US FDA approved the companies’ bulk drug manufacturing
facilities. The company provide AIDS and other drugs to treat poor people in
developing world.
 In 1995 Cipla launched Deferiprone, the world’s first oral iron chelator.
 43

 In 2001, Cipla offered medicines for HIV treatment at a fractional cost (less than
$350 per year per patient).
 In 2013 Cipla acquired the South African company Cipla-Medpro, kept it as a
subsidiary, and changed its name to Cipla Medpro South Africa Limited.
 At the time of the acquisition Cipla – Medpro had been a distribution partner of
Cipla and was South Africa’s third biggest pharmaceutical company.
 The company had been founded in 2002 and was known as Enaleni
pharmaceuticals ltd.
 In 2005, Enaleni bought all the shares of Cipla-Medpro, which had been a joint
venture between Cipla and Medpro pharmaceuticals, a South African generic
company, and in 2008 it changed its name to Cipla- Medpro.
 In 2013, acquired 100% stake in Medpro South Africa.
 In 2014, acquired minority stake in US-based chase pharma.
 In 2016, sold its stake in chase.
 In 2017, received approval for Q-TIB from WTO (world health organization).

Products and services

Cipla sells active pharmaceutical ingredients to other manufacturers as well as
pharmaceutical and personal care products, including Escitalopram (anti-
depressant), Lamivudine and Fluticasone propionate. They are the world's largest
manufacturer of antiretroviral drugs.
Listings
The equity shares of Cipla are listed on the Bombay Stock Exchange, where it is a
constituent of the BSE SENSEX index, and the National Stock Exchange of India, where
it is a constituent of the CNX Nifty. Its global depository receipts are listed on the
Luxembourg Stock Exchange.
Awards and recognitions
 In 2012, Cipla received the Thomson Reuters India Innovation Award.
 Cipla won Dun & Bradstreet American EXPRESS corporate Award for 2006.
 In 2005, Forbes included Cipla in the 200 ‘Best under the billion’ list of small
Asian companies.
 In 1980, Cipla won chemexil Award for excellence exports.
 Cipla stood third in the India’s most reputed brands list in thr study conducted by
BlueBytes, a leading media analytics from association with TRA Research, a
brand insights organisation (both a part of the Comniscient Group).
 44

SWOT ANALYSIS OF CIPLA

Strength
 Strong research and development – Cipla has focused on developing new
products as well as improving drug delivery systems and expanding product
applications. Cipla has set up strong research and development for the same.
 The wide range of products – Cipla has a broad product portfolio includes APIs
and formulations for humans and animal health care products. Cipla has 2000
products in over 65 categories and is constantly looking for expansion of its
product portfolio.
 Social and technological initiatives - Cipla provides and supports to cancer
patients by providing them low- cost medicines and it also initiated a “no touch
breast scan” which is a step forward to screening technology in India.
 Well recognised by various regulatory authorities – Cipla’s products are well
recognised by regulatory authorities of India, USA, Germany, and the UK etc. this
provides credibility to the products of Cipla.
Weaknesses
 Lack of significant presence in developed countries – India is Cipla’s major
market for revenue generation. Although, Cilpa has the presence in over 100 other
countries but it has low significance in other developed markets and hence is
highly dependent on the Indian market.
 Negative campaigning – AIDS healthcare foundation had challenged Cipla over
pricing of its drug for AIDS, which keep the drugs out of reach of many in need.
This brought a negative publicity for Cipla.
 Limited market share – High competition from local as well as multinational
pharmaceutical companies limits market share for Cipla and doesn’t allow rapid
growth.
Opportunities
 Strategic Expansion – In the recent past, Cipla has been expanding its business
through initiatives such as investments, partnership and acquision in India as well
as in the international market. For instance, Cipla invested in a biotech
manufacturing facility in South Africa. It also acquired invagen pharmaceuticals
in the USA etc.
 Treatment of HIV – Cipla offers a wide range of ARV products through C-GA
for the treatment of HIV/AIDS in both children and adults. The growing number
of patients can be provided cure by Cipla’s medicines.
 Grow in emerging markets – Cipla should look forward to growing in emerging
markets, especially places where medicines infrastructure is improving and hence
pharmaceutical is also expected to grow.
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Threat
 Drug pricing control methods in India – Government have influence over
pricing of a drug through national health organisations. In India, a new pricing
policy under drug price control has been proposed which can have a negative
impact on the industry. Changes in pricing policy affect pharmaceutical
companies.
 Intense competition in generics industry –There is intense competition in the
Indian generics industry from major competitors such as Lupin, Sun pharma etc.
this affects growth potential as well as limits the market share of Cipla.
 Fluctuation in exchange rates – Any changes in the exchange rates affects the
company’s financial agreement with other countries and thus can affect
profitability.
Shareholdings

Promoters 36.7%

FII/ FPI 25.96%

Total DII 37.34%

Financial 0.35%
institutions/Banks

Insurance company 3.4%

MF 10.27%

Other DIIs 23.32%

Performance highlights
 Strong momentum continues across key markets including India, South Africa
among others; India recorded healthy double digit growth with South Africa
delivering its highest ever quarter in terms of sales.
 Focus on building a strong speciality portfolio for us continues with certain assets
in advanced stages of discussion in Neurology and Respiratory space.
 Research and development investment for the quarter stepped up to 7.6% of
revenues, up 150bps from last quarter.
Cipla’s Opportunities and Outlook
We have witnessed the evolution of healthcare and pharmaceutical industry over last
eight decades. During this period, healthcare and disease patterns around the world
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changed, bringing in new opportunities for growth in this complex environment.

Biologics, complex generics, innovative drug delivery platforms and artificial
intelligence are the areas for future bets which may see huge potential in coming years.
Even in the face of constant challenges like a volatile regulatory climate, ever-changing
competitive landscape and adverse pricing movements, we have continued to deliver
growth and stakeholder value. By building systems to promote digitalisation and
advanced analytics across the Company.
Cipla has ensured reliability and availability of information and business support, and
maximised efficiency and data integrity. The Company continues to meet the objective of
ensuring that the systems, processes and technology are aligned to the changing business
environment and help us maximise efficiency.
In keeping with the current momentum and bolstering future growth, we are looking to
strengthen our position in key markets through a differentiated portfolio, and enter newer
ones through organic and inorganic routes. With initiatives set to deliver cost and
operational efficiencies, Cipla is poised to explore market opportunities across the short,
medium and long term as illustrated below:
Opportunities
 Enhance Specialty segment- Develop branded drugs in the Specialty segment in
US, specifically in respiratory and CNS, to address clinically unmet needs of the
patients.
 Growth in India and South Africa- India – Targeting a revenue of USD 1
billion in FY19, driven by volume growth, new launches and focus on diabetes
and respiratory therapies
South Africa - Growing through partnerships and expansion of OTC and bio
similar portfolio.
 Entry in new emerging markets- Focusing on markets like Brazil and China
 Gaining competitive edge - Differentiated products and wider portfolio in the US
generics market. Deepen the alliances and partnerships in B2B markets.
 Enhancing efficiencies to fuel growth- Driving cost efficiencies through
initiatives like Project Eagle and operational efficiencies through a lean operating
model, use of artificial intelligence and advanced analytics.

Over the next few years, Cipla’s growth efforts will revolve around four core
levers:

1. Difficult-to compete spaces like Specialty and complex generics in US.

 Develop a complex generics portfolio.
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Build specialty portfolio in areas like CNS and respiratory for US market
through licensing or acquisition opportunities, complemented by internal
R&D
2. Continue to build scale and depth in branded home markets of India and
South Africa
 Strengthen select categories in home markets through partnerships;
India- Dermatology and Diabetes South Africa- OTC segment
 Grow business organically through product development efforts and new
launches, supported by execution excellence
3. Strengthen and expanding presence in emerging markets
 Grow emerging market footprint as the next leg of cipla’s strategy, beyond India
and US
 Build aggressive pipelines in ‘future markets’ like China, Indonesia and Brazil
through a combination of internal pipeline and partnership
 Explore entry into new emerging markets as long term bets
4. Explore investment in new therapy areas
 Explore early investment in one of the promising new therapy areas – such as
insulins, vaccines, biosimilars, in the US market
 Partner with proven and established market players for co- development / or
licensing efforts
Business Model
The business model is driven by elements critical to Cipla, encompassing the internal and
external factors influencing the Company. These elements include:

a) The six capitals, which demonstrate how we define and utilise our resources.

b) Strategic allocation of high-quality resources that flow in from these capitals. These
resources act as the fuel for business activities, which churn out superior quality outputs
and outcomes.

c) The global value chain which outlines the components of Cipla’s business and its
flow. Each element of the value chain works in conjunction with the others seamlessly
and ceaselessly to ensure that the Company delivers quality products to patients. This
process operates with the help of key enablers and within defined frameworks that ensure
sustainable and transparent business conduct.

d) Enhanced stakeholder value, which is derived through the high-quality outcomes

from the streamlined value chain.
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Revenue from various markets

Revenue split (in crore)

4% 3%
4%
India
11% North America
39%
SAGA
Emerging Markets
Europe

22% API
Others

17%

PRODUCT IN THE MARKETING MIX OF CIPLA

Cipla has the largest product kitty in India and its product range is vast and varied. It
includes 1500 products for therapeutic segment and nearly sixty dosage forms. The
company provides services like commissioning, plant engineering, consulting and
technical know-how support and transfer. It is the first to manufacture oral iron chelator
in the world. Some of its products include;

Active pharmaceutical ingredients- It is the largest exporter of high quality and low
cost APIs in global market and some vital intermediates and bulk drugs are Albendazole
USP, Adefovir Dipropyl

OTC- Portfolio related to over the counter drugs includes the artificial sweetener,
cosmetics and skin care, food supplements, child care, constipation, cold and flu dental
care and medicated shampoos. It also has a product division for animal healthcare and
this is dedicated to poultry, equine, livestock animal products and companion animals.

Prescription- some of it include anti-inflammatory drugs, anti- allergic drugs, antibiotics

and anabolic steroids.
 49

Fragrance- It is manufacturer of various flavors that are used in beverages and food
items.

COMPANY VALUATION

Particulars Average Assumption FY20

(E)
Revenue from operation 4.47 4 17247.6
Other operating income 8.81 - 391.44
Other income 44.74 - 476
Total revenue - - 19232.94
Cost of material 28.53 3 5436.44
consumed
Purchase of stock in trade 8.17 - 1501.48
Changes in inventories of 0.86 - 158.17
finished goods, stock in
trade and work in progress
Employee benefit expense 17.51 - 3215.36
Other expense 28.57 - 5246.77
Total expense - - 15623.15
EBITDA(TR-TX) - - 3609.79
Depreciation and 8.67 2 1840.32
Amortization
EBIT - - 2285.77
Finance cost 0.96 - 147.37
EBT - - 2138.43
Tax expense 25.38 - 542.73
Profit after tax - - 1595.69
Earnings per share - - 12
3 Year average P/E - - 78
Ratio
Target price - -
744.68
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REASONS

1. As per historical data average sales growth was 4.47 percentages, but by
considering the current and future plans of Cipla it is expected to have 15
percentage growth.
 Continue to build scale and depth in branded home markets in India and
South Africa.
 Strengthen selected categories in home market through partnerships; India-
dermatology and diabetes, South Africa- OTC segment.
 Strengthen and expand presence in emerging markets like China and Brazil.
 New product launch- 47
 Number of launches-US-11
-Europe-16
-India-22
-South Africa-2
-International market- 22
2. As per historical data average cost of material consumed is 28.53, but in fy20 the
cost of material consumed is anticipated by an increment of 33.53%
 Cipla target an increase in revenue driven by volume growth.
 Explore promising new therapy areas- such as insulin, vaccines,
biosimilars in the US market.
3. As per historical data depreciation and amortization charge was8.67, but by
considering current and future plans od cipla it is expected to have 10.67
percentage increase.
 Depreciation and amortization cost have increased due to increased capital
investment and acquisition. Example- cipla’s aquisition of two US based
companies INVEGEN and EXELAN.
 Explore investment on new therapy areas insulins, vaccines, biosimilars in
the US market.
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