General management project report on

“The Study of Health care Industry In India”

Submitted in partial fulfillment for the award of the degree of

Master of management studies (MMS)

(Under the university of Mumbai)

Submitted by:
Yogesh Harishchandra Kadu
MB/B/16/006
SYMMS (SEM-IV)

Under the guidance of

Prof. Kushal Rajput

2016-2018

SAS Institute of Management Studies (MMS)

i
 Certificate

This is to certify this project titled “The Study of Pharma Industry In India” is successfully
completed by Mr. Yogesh Harishchandra Kadu during the IV semester, in partial fulfillment
of master’s Degree in Management studies recognized by the University of Mumbai for the
academic year 2016-2018 through SAS Institute of Management Studies. This project work is
original and not submitted earlier for the award of any degree / diploma or associate ship of any
other University / institute.

Director Project Guide

Dr.Bhagesh Sankhe Prof.Kushal Rajput

ii
 Declaration

I hereby declare that this project report submitted by me to the SAS Institute of Management
Studies is a bonafide work undertaken by me and it is not submitted to any other University or
Institution for the award of any degree diploma / certificate or published any time before.

Name: Yogesh Harishchandra Kadu

Date: ______________ (Signature of the student)

iii
 Acknowledgement

I am extremely grateful to University of Mumbai for having prescribed this project work as a
part of academic requirement in the ‘SAS Institute of Management Studies’ (MMS) course.

I wish to express a special thanks to my project guide “Prof.Kushal Rajput”. Without whose
guidance the project may not have taken shape.

I would like to thank to staff of pharma industries who give me overall information of company.

Finally I would like to thank all those who have directly or indirectly helped me towards the
execution of this project with full sincerity.

Sincere thanks to all.

Director Project Guide

Dr.Bhagesh Sankhe Prof.Kushal Rajput

iv
 INDEX

Sr,.No Topic Pg.No

1 Certificate ii

2 Declaration iii
3 Acknowledgement iv

Executive Summery 1

Chapter 1 Introduction 2

Health Care Industry 6

Industry Overview 9

Chapter 2 Research Methodology 10

Source Of Data 11
Objective Of The Study 11

Chapter 3 Literature Review 12

Chapter 4 Result 15

Top 10 Healthcare Companies In India 16

Chapter 5 Discussion 21

Current Trends And Scenario 22

Major Problems Of Health Services 25

Price Cut And Its Impact On Pharma Industry 29

Overview Of Price Cut In World 30

Strategies Adopted By Pharma Companies Against 33

Price Cut

Key Initiative Of Global Pharma Companies 34

Strategies Adopted By Pharma Companies Against 35

Government Price Cut
v
Chapter 6 Conclusion 57

Chapter 7 bibliography 59

vi
 EXECUTIVE SUMMERY

An era where the market competition has reached new height due to government policies
and stringent regulation in pharma industry, companies are strategizing and implementing
innovative and novel strategies so as to penetrate the market, a race for increasing customer base,
and the lead for maintaining a position in market and enhance Profit margin, the bottom-line of
any business. Pharmaceutical companies are finding the new ways to compensate their profit
margin with market dynamics.
This Research paper summarizes the results of our global pharmaceutical industry
analysis and is intended to increase awareness of the general public – investors, policy makers,
and managers, employees of the companies – about its current development of strategy against
pricing pressure, either due to Government policy or trade competition, and changing
demographic with implementation of new pricing strategic initiative in pharma industry. This
research also suggest that the future perspective of pharma industry with reference to the market
dynamics.
 Chapter 1

Introduction

2
 Introduction

Healthcare has become one of India’s largest sectors - both in terms of revenue and employment.
Healthcare comprises hospitals, medical devices, clinical trials, outsourcing, telemedicine,
medical tourism, health insurance and medical equipment. The Indian healthcare sector is
growing at a brisk pace due to its strengthening coverage, services and increasing expenditure by
public as well private players.
Indian healthcare delivery system is categorized into two major components - public and private.
The Government, i.e. public healthcare system comprises limited secondary and tertiary care
institutions in key cities and focuses on providing basic healthcare facilities in the form of
primary healthcare centers (PHCs) in rural areas. The private sector provides majority of
secondary, tertiary and quaternary care institutions with a major concentration in metros, tier I
and tier II cities.
India's competitive advantage lies in its large pool of well-trained medical professionals. India is
also cost competitive compared to its peers in Asia and Western countries. The cost of surgery in
India is about one-tenth of that in the US or Western Europe.

Market Size
Deloitte Touche Tohmatsu India has predicted that with increased digital adoption, the Indian
healthcare market, which is worth around US$ 100 billion, will likely grow at a CAGR of 23 per
cent to US$ 280 billion by 2020. The healthcare market can increase three fold to US$ 372
billion by 2022.
India is experiencing 22-25 per cent growth in medical tourism and the industry is expected to
double its size from present (April 2017) US$ 3 billion to US$ 6 billion by 2018. Medical tourist
arrivals in India increased more than 50 per cent to 200,000 in 2016 from 130,000 in 2015.
The Healthcare Information Technology (IT) market is valued at US$ 1 billion currently (April
2016) and is expected to grow 1.5 times by 2020. #
Over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immuno
Deficiency Syndrome) are supplied by Indian pharmaceutical firms^.
There is a significant scope for enhancing healthcare services considering that healthcare
spending as a percentage of Gross Domestic Product (GDP) is rising. Rural India, which
accounts for over 70 per cent of the population, is set to emerge as a potential demand source.

3
A total of 3,598 hospitals and 25,723 dispensaries across the country offer AYUSH (Ayurveda,
Yoga & Naturopathy, Unani, Siddha and Homoeopathy) treatment, thus ensuring availability of
alternative medicine and treatment to the people. In 2017, the Government of India has provided
grant-in-aid for setting up of AYUSH educational institutions in States and Union Territories.

Investment
The hospital and diagnostic centers attracted Foreign Direct Investment (FDI) worth US$ 4.99
billion between April 2000 and December 2017, according to data released by the Department of
Industrial Policy and Promotion (DIPP). Some of the recent investments in the Indian healthcare
industry are as follows:

 India and Cuba have signed a Memorandum of Understanding (MoU) to increase

cooperation in the areas of health and medicine, according to Ministry of Health and
Family Welfare, Government of India.
 Fortis Healthcare has approved the de-merger of its hospital business with Manipal
Hospital Enterprises. TPG and Dr. Ranjan Pal could invest Rs. 3,900 crore (US$ 602.41
million) in Manipal Hospital Enterprise.

Government Initiatives
Some of the major initiatives taken by the Government of India to promote Indian healthcare
industry are as follows:

 India's first ever 'Air Dispensary', which is based in a helicopter, will be launched in the
Northeast and the Ministry of Development of Northeast Region (DONER) has already
contributed Rs 25 crore (US$ 3.82 million) for its funding.
 The Intensified Mission Indradhanush (IMI) has been launched by the Government of
India with the aim of improving coverage of immunization in the country and reach every
child under two years of age and all the pregnant women who have not been part of the
routine immunization programme.

4
  Ministry of Health and Family Welfare is planning to spend more funds, over and above
the current sanction of Rs 955 crore (US$ 148.22 million), to tackle lifestyle diseases
such as cardiovascular disease (CVD), hypertension, obesity and diabetes in India.
 The Union Cabinet approved setting up of National Nutrition Mission (NNM) with a
three year budget of Rs 9,046.17 crore (US$ 1.40 billion) to monitor, supervise, fix
targets and guide the nutrition related interventions across the Ministries.
 The Government of India aims to increase the total health expenditure to 2.5 per cent of
Gross Domestic Product (GDP) by 2025 from the current 1.15 per cent.
 Mr J P Nadda, Union Minister of Health and Family Welfare, Government of India,
launched initiatives such as LaQshya, for Labour Room Quality Improvement, a mobile
application for safe delivery, and operational guidelines for obstetric high dependency
units (HDUs) and intensive care units (ICUs).
 In March 2018, the Union Cabinet of India approved the continuation of National Health
Mission with a budget of Rs 85,217 crore (US$ 13.16 billion) from 1st April 2017 to 31st
March 2020.

Road Ahead
India is a land full of opportunities for players in the medical devices industry. India’s healthcare
industry is one of the fastest growing sectors and in the coming 10 years it is expected to reach
$275 billion. The country has also become one of the leading destinations for high-end
diagnostic services with tremendous capital investment for advanced diagnostic facilities, thus
catering to a greater proportion of population. Besides, Indian medical service consumers have
become more conscious towards their healthcare upkeep.
Indian healthcare sector is much diversified and is full of opportunities in every segment which
includes providers, payers and medical technology. With the increase in the competition,
businesses are looking to explore for the latest dynamics and trends which will have positive
impact on their business.
India's competitive advantage also lies in the increased success rate of Indian companies in
getting Abbreviated New Drug Application (ANDA) approvals. India also offers vast
opportunities in R&D as well as medical tourism. To sum up, there are vast opportunities for
investment in healthcare infrastructure in both urban and rural India.

5
1.1 Health Care Industry

The health care industry, or medical industry, is a sector within the economic system that
provides goods and services to treat patients with curative, preventive, rehabilitative, palliative,
or, at times, unnecessary care. The modern health care sector is divided into many sub-sectors,
and depends on interdisciplinary teams of trained professionals and paraprofessionals to meet
health needs of individuals and populations. The health care industry is one of the world's largest
and fastest-growing industries. Consuming over 10 percent of gross domestic product (GDP) of
most developed nations, health care can form an enormous part of a country's economy. The
health care industry is typically divided into several areas.
As a basic framework for defining the sector, the United Nations International Standard
Industrial Classification (ISIC) categorizes the health care industry as generally consisting of:
1) Hospital activities
2) Medical and dental practice activities
3) Other human health activities.
This third class involves activities of, or under the supervision of, nurses, midwives,
physiotherapists, scientific or diagnostic laboratories, pathology clinics, residential health
facilities, or other allied health professions, e.g. in the field of optometry, hydrotherapy, medical
massage, yoga therapy, music therapy, occupational therapy, speech therapy, chiropody,
homeopathy, chiropractics, acupuncture, etc.
The Global Industry Classification Standard and the Industry Classification Benchmark further
distinguish the industry as two main groups:
1) Health care equipment and services; and
2) Pharmaceuticals, biotechnology and related life sciences.

6
Health care equipment and services comprise companies and entities that provide medical
equipment, medical supplies, and health care services, such as hospitals, home health care
providers, and nursing homes. The second industry group comprises sectors companies that
produce biotechnology, pharmaceuticals, and miscellaneous scientific services.
A health care provider is an institution (such as a hospital or clinic) or person (such as a
physician, nurse, allied health professional or community health worker) that provides
preventive, curative, promotional, rehabilitative or palliative care services in a systematic way to
individuals, families or communities.

Indian Healthcare Industry

In between the 1950's and 1980's the Health care facilities and personnel increased substantially,
but gradually due to the fast population growth, the number of licensed medical practitioners per
10,000 individuals had fallen in the 1980's to 3 per 10,000 from the 1981 level of 4 per 10,000.
There were approximately ten hospital beds per 10,000 individuals in 1991. Primary health
centers are majorly the cornerstone of the rural health care system. In the year 1991, India
constituted about 22,400 primary health centers, 11200 hospitals, and 27,400 dispensaries. Such
facilities were the part of a tiered health care system which funnels more difficult cases into
urban hospitals while attempting to provide routine medical care to the vast majority in the
countryside. Primary health centers and sub-centers would majorly rely on trained paramedics to
meet most of their needs. Indian healthcare industry operates in both of the private and public
sectors.
The public sectors are healthcare system consists of facilities run by the central and state
governments. The facilities are provided freely or at subsidized rates to lower income families in
rural and urban areas. However, further the Indian healthcare industry is going through a growth
phase due to its healthy economy. As the country's middle class continues to grow this industry's
growth will increase. India's ever-growing middle class are able to afford quality healthcare.
With such an increased ability to pay for better healthcare, the demand for healthcare services
has grown from $4.8 billion in 1991 to $22.8 billion in 2001-2002. Today 50 million Indians are
able to afford western medicine and over 150 million have annual incomes of more than 1000 US
dollar.

The Indian healthcare industry, which comprises hospitals, medical infrastructure, medical
devices, clinical trials, outsourcing, telemedicine, health insurance and medical equipment, was
valued at US$ 79 billion in 2012, and is expected to reach US $160 billion by 2017. The Indian

7
healthcare sector is expected to grow at about 15 percent year-on-year (y-o-y), on account of
factors such as rapid growth in infrastructure development, creation of demand for higher levels
of healthcare, rising awareness of end users, and launch of innovative insurance, reimbursement,
and financing policies.
The growth of the Indian healthcare sector is further driven by the 300 million strong middle
class populations with significant disposable income, which is likely to demand superior
healthcare services. Indian health care industry growth story is moving ahead neck to neck with
the pharmaceutical industry & the software industry of the nation. There has been much done in
the health care sector for bringing the improvement like till date, approximately 12% of the scope
offered by the industry has been tapped. In the years to come the health care industry in India is
reckoned to be the engine of the Indian economy. Today the Health care industry in India is
worth $17 billion and there are anticipation & expectation of it to grow by 13% every year. The
health care sector consists of health care instruments, health care in the retail market, hospitals
enrolled to the hospital networks etc.
Indian healthcare Industries include systems like ayurveda and homeopathy which are
increasingly gaining prominence overseas. Another major area for investment in India is the
research industry of the Health Care. In India there is a tremendous prospect with a huge talent
pool and the rise of biotechnology and bioinformatics. India is a rising and expanding destination
for medical tourism. With affordable medical expenses and a sound technology in place goes
good with the growing sector which would be bode well for the healthcare industry in India.

8
1.2 INDUSTRY OVERVIEW

The pharmaceutical industry is complex, dynamic, and highly globalized, with many
pharmaceutical companies operating in multiple countries. The technologies leading to drug
discovery and development are at the limits of human knowledge. The huge size of the
companies and the complexities of their processes and technologies presents many organizational
and management challenges. The development and management of the distribution system is
highly costly. Adding to the international nature of the industry, there is a continued trend toward
outsourcing various stages of the development and production of a single pharmaceutical
product, including intermediate and active ingredient process development; as a result, a single
finished product may be the result of materials manufactured in more than one country. In
addition to its global aspect, the pharmaceutical industry continues to be characterized by high
R&D expenditures and extensive regulation of its products compared with other manufacturing
sectors .
However, excellence in managing all these aspects of the industry is a necessary
Condition for the survival of the global pharmaceutical companies, the uncertainty of the
discovery process and the potentially huge returns from the discovery of a single drug, success in
the industry depends on a high measure of luck. Much of the thinking about business strategy in
the industry is how best to cope with this uncertainty.
The highly skewed nature of the returns from the drug discovery and development process means
that a single drug can deliver corporate success at least in the short to medium term. But this
aspect of dynamic industry fails the diversified product portfolio strategy. Returns from
pharmaceuticals are highly volatile. For the established pharmaceutical companies the response
to the discovery uncertainties has been to build scale through mergers and acquisitions so that the
latter stages of their product pipelines have at least a handful of highly prospective blockbuster
drugs.

9
 Chapter 2
Research Methodology

10
 Source of data

 Secondary data
For collecting information related to the subject matter and study area of present
research the published materials of various government and non government sources were
used. This information was used for both data analysis if needed as well and to develop
the core texts of the research, which are described in various chapters of this thesis.
Number of published Articles of reputed authors of the country and international,
Research Magazines, Journals, Electronic-Journals and Edited Books were used to
enquire the related information. Books of international and national reputed Authors,
Booklets and Publications of Government Agencies had helped to make research work
more significant and informative. Various specified internet sites of lots of
Pharmaceutical Companies and research oriented sites of different stakes related to
Pharmaceutical Industry helped to collect already researched and published data.

Objective of the study

 To study the strategies adopted by Pharmaceutical Company against price cut for drug
Products
 To study of pharmaceutical industry in India
 To study of major player in pharmaceutical industry in India
 To explore the strategy adopted by Pharmaceutical Company against price cut
Government Price cut for drug product
Trade Price cut for drug product.
 To study of major problem in healthcare service in India.

11
 Chapter 3
Literature Review

12
 Literature Review

Alka Chadha (2008) This paper studies the impact of the strict patent regime on the patenting
activity of Indian pharmaceutical firms and finds that patenting activity of these firms has
increased after the signing of TRIPs. The study is conducted for 65 pharmaceutical firms for the
period 1991 to 2004 using different parametric and semi parametric count panel data models.
Results across different count data models indicate a positive and significant impact of the
introduction of stronger patents on patenting activity. Further, the results show a gestation lag of
2 years between R&D spending and patent applications.

Beena, S (2006) This paper tries to address the extent, nature and impact of the recent surge in
consolidation strategies especially in the form of mergers and acquisitions followed by the firms
in the Indian pharmaceutical industry. The study found that many of the firms are implementing
these strategies in the new context of globalization mainly to overcome the acute competition
arising out of the pro-market reforms and to strengthen their market portfolio. The study reaches
the conclusion that the consolidation strategies followed by the firms enabled them to cut down
the wasteful expenses to a greater extent and which resulted in better performance of the merging
firms compared to the non-merging firms in this industry002E

Chadda (2006) in her paper has tried to show that Indian firms are spending huge resources to
secure non-infringing process patents in foreign countries. After tapping the developing
countries, they are trying to access developed countries with drug master filings (DMFs) for bulk
actives supply and abbreviated new drug applications (ANDAs) for formulations.

Chadda (2006) in her paper has tried to show that Indian firms are spending huge resources to
secure non-infringing process patents in foreign countries. After tapping the developing
countries, they are trying to access developed countries with drug master filings (DMFs) for bulk
actives supply and abbreviated new drug applications (ANDAs) for formulations.

13
Chaturvedi and Chataway (2006) has described in their study about Smaller pharmaceuticals do
not have these resources and might not be able to survive in the market. Indian firms are adapting
to the changing environments R&D is recognized as the ‘survival kit’ in the post-TRIPs scenario.
The paper observed that Indian firms are investing in R&D not only for new drug discovery but
for developing capabilities to assimilate and exploit knowledge available externally. They are
also positioning themselves as a partner of choice for technology savvy national and
multinational firms. Chaudhuri (2007) explores that R&D expenditure has dramatically increased
for a segment of the Indian pharmaceutical industry after TRIPS came into effect. It is not only
that the amount of R&D expenditure has increased, but there has been a drastic shift in the
structure of R&D activities of the Indian companies. Earlier they were primarily engaged with
the development of new processes for manufacturing drugs, now they are also involved in R&D
for new chemical entities (NCE). Indian Pharmaceutical Industry has Exciting Opportunities in
Post- TRIPS period.

Gupta (2007) Indian companies are increasing their rate of DMF filings every quarter. Indian
generic players are also increasing their participation in the advanced markets, particularly the
US. ANDA filings with USFDA are also increasing in Post- TRIPS period.

14
Chapter 4
Result

15
Top 10 Healthcare Companies In India

1. Wockhardt Ltd

Wockhardt Ltd is an Indian company founded by Habil Khorakiwala in the year 1960. It is a
global company with huge presence in developing countries like Brazil, Russia, Mexico etc.The
company has manufacturing plants in developed countries like US, UK, France and Ireland.
Wockhardt has state of art treatment facilities and hospitals.

 Industry: Pharmaceuticals and Health Care

 Products: Formulations, Biopharmaceuticals, Nutrition products, Vaccines
 Revenue: The total estimated revenue of the company is Rs 4614 Crore
 Employees: Number of employees could be 8000 or more.
 Headquarter: The head office of the company is in Mumbai, India and hospitals
operating through the country.
 Website: www.wockhardt.com

2. Apollo Hospitals

The second healthcare company in our list is Apollo Hospitals. The company or chain of
hospitals was founded by Dr Pratap Reddy in Chennai in the year 1983. Apollo has over 2000
beds in the hospitals all over the country. Company is growing rapidly and one could see new
hospitals opening all across the country.

 Industry: Healthcare and Hospitals

 Products: The company is basically into Hospital Chains and they are also developing
their own drugs.
 Revenue: Revenue of the company could be around $490 million to $500 million
 Employees: Number of employees are 10,000+
 Headquarter: Apollo is headquartered in Chennai, India and has a huge hospital in New
Delhi.
 Website: www.apollohospitals.com

16
3. Fortis Healthcare

The third best healthcare company in our top 10 list is Fortis Healthcare. The company was
founded by Dr Parvinder Singh in the year 2001. The company has a chain of super speciality
hospitals in cities like Amritsar, Kolkata, Navi Mumbai, Hyderabad, Mohali, Jaipur, Chennai,
Kota, Bengaluru, Gurgaon. Company is also present in Singapore.

 Industry: Healthcare
 Products: The company’s key services are in building Super Specialty Hospitals
 Revenue: Estimated revenue of the company is around $140 million to $150 million
 Employees: Number of employees working are around 1000 to 2000
 Headquarter: The head office of the company is in New Delhi, India
 Website: www.fortishealthcare.com

4. Piramal Enterprises Ltd

The fourth company in our top 10 list is Piramal Enterprises Ltd. The company was founded by
Ajay Piramal in 1988. Some of its business units are Piramal Healthcare, Piramal Life Sciences,
Piramal Capital & Decision Resources Group.

It is a very rapidly growing company and has many units.

 Industry: Diversified Healthcare Conglomerate

 Products: Piramal Healthcare, Piramal Life Sciences, Piramal Capital
 Revenue: The revenue of the company could be around $550million to $600 million
 Employees: Total number of employees are 5000 – 7000 across the country.
 Headquarter: The company is located in Mumbai, India
 Website: www.piramal.com

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5. Cipla Limited

Cipla Limited is basically a pharmaceutical company that manufactures drugs of different

varieties. The company was founded by Khwaja Abdul Hamied in 1935 in India.

Cipla makes drugs to treat cardiovascular disease, arthritis, diabetes, weight control, depression
and many other health conditions.

It is also world’s largest manufacturer of antiretroviral drugs that fight HIV and AIDS.

 Industry: Chemical and Pharmaceuticals

 Products: Company make Pharmaceuticals and Diagnostics drugs.
 Revenue: The total revenue of the company has crossed billion dollar and remains at $1.1
billion
 Employees: Company has over 16,000+ employees.
 Headquarter: Company is based in the city of Mumbai, Maharashtra
 Website: www.cipla.com

6. Sun Pharma

The sixth healthcare company in the top 10 list is Sun Pharma. Sun Pharma was founded by
DilipShanghvi in the year 1983. Company manufactures drugs in 23 different locations like US,
Canada, Brazil, Mexico and Israel.

The company offers formulations in various therapeutic areas, such as cardiology, psychiatry,
neurology, gastroenterology and diabetology.

 Industry: The core business of the company is Pharmaceuticals and making drugs.
 Products: Pharmaceuticals and generic drugs
 Revenue: Total assets of the company are around $1.2 billion and growing rapidly.
 Employees: Number of employees working could be 11,000 to 12,000
 Headquarter: Company was founded in Kolkata but the head office is in Mumbai, India
 Website: www.sunpharma.com

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7. Siemens Healthcare

The seventh healthcare company in India is Siemens Healthcare. Although it is a German

company but has huge presence in India. The company was founded by Werner von Siemens in
year 1847 in Berlin.

Company manufactures different kind of healthcare systems. Many hospitals in the country uses
medical equipment build by Siemens.

 Industry: Healthcare and Medical Solutions, Communication systems, power generation

technology, industrial and buildings automation, lighting, medical technology, railway
vehicles
 Products: Siemens Healthcare Systems as health industry is concerned.
 Revenue: The total revenue of the company around the world $70 billion to $80 billion
 Employees: The total number of employees are around 450,000+
 Headquarter: Company is headquartered in Berlin, Germany
 Website: www.siemens.com

8. Serum Institute of India

The eighth Indian healthcare company is Serum Institute of India. The company is founded and
owned by Cyrus S. Poona Walla. He is also MD and chairman of the company.

The company is fifth biggest vaccine maker. Half of the world’s children populations are
immunized by vaccines made by the Serum Institute of India.

 Industry: The company is in Bio-Technology and producing low cost vaccines.

 Products: Prime product of the company is Immunobiological Vaccines
 Revenue: Total revenue of the company is around $200 million to $250 million
 Employees: The employees are around 1000+
 Headquarter: The company is headquartered in Pune, India
 Website: www.seruminstitute.com

19
9. Opto Circuits

Opto circuits limited (OCI) is a vertically integrated multinational medical technology group.
The company was founded in the year 1992 in Bangalore.

The company is operational in 150 different countries. Vinod Ramani is the chairman and
managing director of the Opto circuits.

 Industry: Medical Systems

 Products: Medical Devices and Systems, some of products are Cardiac Science,
Criticare, Eurocor, Mediaid, AMDL and Unities Vascular.
 Revenue: The total revenue of the company is $160 million to $200 million
 Employees: The total number of employees are around 1800+
 Headquarter: The company is headquartered in Bangalore, India
 Website: www.optoindia.com

10. ICICI Lombard

The last healthcare company in India is ICICI Lombard. Although ICICI Lombard is an
insurance company but it is only for serving healthcare. It is largest private sector general
insurance company in India.

The company issued over 7.6 million policies and settled over 4.4 million claims per year in year
2012.

 Industry: Healthcare Insurance

 Products: General Insurance
 Revenue: The estimated revenue of the ICICI Lombard $22 million to $25 million
 Employees: The total number of employees are around 2000 to 3000
 Headquarter: Company is headquartered in Mumbai, India with offices all over India.
 Website: www.icicilombard.com

20
Chapter 5
Discussion

21
 CURRENT TRENDS AND SCENARIO

The global pharmaceutical market in 2012 is expected to grow by 8.6 percent and will
reach at a level of $990 billion USD, driven by stronger near-term growth in the US market. In
2011, the pharmaceutical market has grown meager to 5.1 percent with market size of $920
billion USD. With the global pharmaceutical market registering sluggish growth (4-6%)
multinational companies have shifted their attention on emerging markets like India, China
Brazil and other emerging market which grow at double digit rate of round 13-15% in 2011.
Economic growth increasing healthcare expenditure and improved intellectual property
frame work has made these emerging countries as attractive destination.
Currently, the global pharmaceutical market is dominated by US, which accounts for
about28 percent of global sales in 2009 followed by the EU accounting for roughly 15 percent
and Japan accounting for 12 percent. Together, these three regions represent nearly 55 percent of
the global market. With global increase in expenditure on healthcare, Governments around the
world are grappling to arrive at solutions for health account deficits also the Political pressures
have increased during the past economic crisis. Actions mainly address treatments for nonlethal
indications with large patient numbers, decreasing profit margins. Pharmaceutical companies
are continuously trying to come out from this loophole and making strategies against global
price cut. In response to this action companies are shifting their business strategies from
highly developed blockbuster model to diversified model.
Due to much patent expiration and rising cost pressure on healthcare, the generic drug
industry has experienced great growth in the past few years. The global market for generic
drugs was worth $107.8 billion USD in 2009 and is projected to reach $129.3 billion USD by
2014 with a CAGR of 9 percent. Generic drugs cost 30 to 80 percent less than their original
equivalents this lead to emergence of Highly Competitive generic Market in Pharmaceutical
industry. This price cut also hurt the generic companies more than originator because their
margin are comparatively low than originator. Hence trends of consolidation and specialization
can be observed in generic industry. Other considers integration of more value added steps as a
mean to increase their profitability.

22
The global pharmaceutical industry is witnessing a disproportionate scenario in recent years
where there is large number of patent expiries coupled with lower introduction of innovative
drugs. This is leading to global pharmaceutical companies strategically outsourcing their
manufacturing and research jobs to countries like India, china while increasing their focus on
introducing low cost generic drugs. Outsourcing activities can be in multiple segments right from
the drug discovery till manufacturing of the final products.

Several large, high-profile pharmaceutical companies have recently sought to improve their
Competitive posture and overall company performance by developing promising
productlines through licensing, engaging in joint ventures, divesting (or “spinning off”)
unprofitable business segments, and negotiating mergers and acquisitions (M&As).
M&As, which result in industry consolidation, arguably have the most significant effect
onthe pharmaceutical industry as a whole..

The dynamic and high-potential pharmerging markets offer tremendous opportunities for
drug manufacturers. Big Pharma’s drive into a group of high-potential “pharmerging”
markets has continued to gather momentum. Emerging market offer attractive opportunity for
growth it is important to prioritize entry into them. China as emerge as tier 1 market,
attracting significant foreign capital. India, Brazil, Russian and Venezuela are next in the line
and offer substantial growth opportunity. M&A has emerged as the preferred model for entry
into emerging markets, but with there being relatively few attractive targets; companies are
compelled to pay high valuations. Over a period of time, collaboration may be viewed as a

more viable option for companies.

According to MC Kinsey Report –India pharma 2015:unlocking the potential of India

pharmaceutical market, multinational company have been vying for a piece of this pies for
some time now, but India represents ,myriad of challenges and it differ greatly from
developed market. Apart from this, India has highest number of USFDA compliant
manufacturing units (outside the US) to produce huge quantities of bulk drugs and

23
formulation products complying stringent quality norms for global pharmaceutical
companies, thus Indian companies have huge opportunity to export their quality driven low
cast generic product.3

24
 MAJOR PROBLEMS OF HEALTH SERVICES:

1. Neglect of Rural Population:

A serious drawback of India’s health service is the neglect of rural masses. It is largely a service
based on urban hospitals. Although, there are large no. of PHC’s and rural hospitals yet the urban
bias is visible. According to health information 31.5% of hospitals and 16% hospital beds are
situated in rural areas where 75% of total population resides.

Moreover the doctors are unwilling to serve in rural areas. Instead of evolving a health system
dependent on paramedical (like bare-footed doctors in China) to strengthen the periphery. India
has evolved one dependent on doctors giving it a top-heavy character.

2. Emphasis on Culture Method:

The health system of India depends almost on imported western models. It has no roots in the
culture and tradition of the people. It is mostly service based on urban hospitals. This has been at
the cost of providing comprehensive primary health care to all. Otherwise speaking, it has
completely neglected preventive, pro-motive, rehabilitative and public health measures.

3. Inadequate Outlay for Health:

According to the National Health Policy 2002, the Govt. contribution to health sector constitutes
only 0.9 percent of the GDP. This is quite insufficient. In India, public expenditure on health is
17.3% of the total health expenditure while in China, the same is 24.9% and in Sri Lanka and
USA, the same is 45.4 and 44.1 respectively. This is the main cause of low health standards in the
country.

4. Social Inequality:
The growth of health facilities has been highly imbalanced in India. Rural, hilly and remote areas
of the country are under served while in urban areas and cities, health facility is well developed.
The SC/ST and the poor people are far away from modern health service.

The table shows social inequality in provision of health in India.

25
5. Shortage of Medical Personnel:
In India shortage of medical personnel like doctors, a nurse etc. is a basic problem in the health
sector. In 1999-2000, while there were only 5.5 doctors per 10,000 population in India, the same
is 25 in the USA and 20 in China. Similarly the number of hospitals and dispensaries is
insufficient in comparison to our vast population.

6. Medical Research:
Medical research in the country needs to be focused on drugs and vaccines for tropical diseases
which are normally neglected by international pharmaceutical companies on account of their
limited profitability potential. The National Health Policy 2002 suggests to allocate more funds to
boost medical research in this direction.

7. Expensive Health Service:

In India, health services especially allopathic are quite expensive. It hits hard the common man.
Prices of various essential drugs have gone up. Therefore more emphasis should be given to the
alternative systems of medicine. Ayurveda, Unani and Homeopathy systems are less costly and
will serve the common man in better way. Concluding the health system has many problems.
These problems can be overcome by effective planning and allocating more funds.

26
7. KEY CHALLENGES

The main challenges for drug companies come from four areas. First, they must deal with
competition from within and without the industry. Second, they must manage within a world of
price controls that dictate a wide range of prices from place to place. Third, companies must be
constantly on guard for patent violations and seek legal protection in new and growing global
markets. Finally, they must manage their product pipelines so that patent expirations do not leave
them without protection for their investment. Other challenges are -

Governments challenging and imposing price controls wherever Possible.

Major regulatory authorities undergoing change following a great deal of adverse

publicity and skepticism.

The difficulty and ever-rising expense of developing new small Molecules and
converting them into potential blockbusters.

The clock marching ever forward toward patent expiry, with no Imminent drug

replacements in sight. Also Patent cliff and its impact on pharma industry.

Challenge abounds in OTC business in Pharma Industry.

Big Pharma R&D pipeline are Drying Up.

Legal and Infrastructure Hurdle in emerging market.

27
Drivers and Inhibitors for Pharma

28
PRICE CUT AND ITS IMPACT ON PHARMA INDUSTRY

Pharmaceutical companies have to operate in a highly regulated environment; the degree of

regulation to a significant extent depends on the country and type of the product. One of the
most important aspects of government regulation for pharmaceutical companies is price
regulation, and different countries have different policies on this issue.

The majority of European countries control drug prices, and this downward pressure on
prices has been increasing during last year. Japan has even stricter price controls than
European countries; all prices are controlled by the government, and they are subject to a
periodic price review. As the result of price control, prices of the same products can
significantly differ in different countries.

Both generic and MNCs are under pressure to maintain their profit margin and finding the
way to fight against price cut. MNCs are greatly affected by price cut in industry; they are
finding difficulty to access the market and their market share are continuously decreasing due
to high prices. MNCs are trying to enter in the emerging market either by tie up with generic
companies or by M&As. Another thing that is threatening to MNCs is the pressure by
government to issue compulsory licensing. Generic companies are also facing prominent
challenges from government intervention on pricing issue in pharma industry. Although their
profit margins are very low and there business is characterized by volume driven low price
business they are finding difficult to survive in competitive environment. Companies are
either merging or finding innovative cost effective way to produce the drug products. This
price cut in industry lead to decline in Profit before tax by one fifth for domestic companies.

29
Overview of price cut in world

China:
In efforts to contain the growth in healthcare expenditure in China National
Development and Reform Commission (NDRC), continuously lowering the MRP of drugs.
The primary objective of this price cut is to bring down the price of drug with high average
daily cost and to narrow the gap between off-patent originator drugs of MNCs and local
products. So far, NDRC has launched 28 round of price cut since 1998.

India :
The Government of India, through a draft National Pharma Pricing Policy (NPPP)
aims to control prices of 348 drugs based on the National List of Essential Medicines
recently prepared by the Health Ministry of India (60% of drugs marketed in the country).
The draft policy seeks to regulate prices of drug formulations only, unlike the existing
principle of controlling prices of specified bulk drugs and their formulations as adopted in the
existing drug policy, 1994.
The key changes from the existing policy are namely:
1. The adoption of market based pricing (MBP) for fixing formulation prices instead of cost
based pricing (CBP) followed currently;
2. The current ceiling limit of 10 % on the yearly permissible hike of prices of nonscheduled
drugs may be revised to 15 %.
3. Control of formulations prices only.

Japan:
The ethical drug prices in Japan are regulated under the National Health Insurance
System. The National Health Insurance (NHI) reviews the prices of drugs every two years.
Recently the NHI has revised prices downwards. They find it important to consider the
balance of cost and benefit, and the pharmaco economic evaluation when the NHI price is
revised.

30
Korea:
The South Korean government has announced a drastic ‘One-Shot Drug Price Cut’
policy for country. The reason why it is called “drastic” is in respect to its timing. To date the
pricing of generic drugs have gradually fallen since the expiry of the patent for the original
drug until the price reached approx. 70-80% of the original drug price. However according to
the ‘One-Shot Drug Price Cut’ policy, generic prices will be cut to 53% of the original price.
During the first year of the patent expiration, the original price of the branded drug will also
be reduced to 70% (30% cut) and the generic price will be reduced to 59% (41% cut) of the
original price and then to 53% (47% cut) in year 2.
The policy applies to about 7,500 drugs, he Government is also hoping that this will result in
domestic companies finally changing their strategy towards R&D development, no t solely
sales oriented.

Taiwan:
Drug price cuts by Taiwan’s Bureau of National Health Insurance (BNHI) have
aroused strong opposition from the pharmaceutical industry. BHNI announced series of
biennial price reductions that have proven extremely disruptive to Taiwan’s pharma industry.
The return on investment for drug companies has been steadily declining due to BHNI’s
previous six rounds of price cuts over the past decade.

Canada:
Patented medicine price review board is charged with review of price of patented medicine and
responsible for remedying excessive pricing. Administered board calculate maximum average
factory gate price that a manufacturer can charge for patented medicine regardless of whether
generic alternatives are available .if manufacturer average price id above this price, board may
allege excessive pricing and a hearing may be commenced.

31
Spain: -
Uses of price cuts and reference group to reduce the drug’s bill.

United Kingdom: -
Continuous use of risk sharing scheme (effective drug discounting) for
expensive drugs.

Brazil: -
Cost containment pressure may result in cuts in the drugs’ budget.
With the global price cut pharmaceutical companies are continuously making strategy to
survive in taught situation. Small Cap companies will consider business restructuring;
starting new complimentary businesses or potentially in more severe cases withdrawing
completely. Mid cap companies are divided into two groups; one having much more
resources to resist this turbulence whilst the other group not having the ability to withstand
these changes alone. The former will most likely buy the latter so as to expand their capacity
to increase the number and volume products being manufactured locally. For the large cap
companies, there could also be strategic M&A opportunities among them to make up their
weakened market position.

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STRATEGIES ADOPTED BY PHARMA COMPANIES AGAINST PRICE CUT

Pharma companies face a number of resistors to profit growth including the looming patent
cliff, pricing pressure by government also by competitors causing a significant slowing in
branded sales, coupled with ongoing R&D challenges. Hence companies are therefore taking
to boosting performance through enhancing operating profit through a Combination of
operating margin and sales growth. The global pharma market is in a state of transformation
with its focus changing from a blockbuster drug to a healthy outcome based approach. The
industry is responding to challenge of patent cliff, decreasing R&D productivity, pricing
pressure, globalization and changing demographics with implementation of new strategic
initiatives-

Market: Penetrating emerging markets and their growing middle class to drive future
growth.

Science :Invigorating pipelines, breaking down silos, collaborating with biotech companies
and licensing in late stage molecules.

Customer: Moving from a product to a customer-centric approach.

In response to the current challenges of industry, pharma companies are ensuring growth via
three key strategies: innovation, diversification, and cost cutting.

These strategic responses are achieved primarily through restructuring, collaborative and
licensing deals, and M&A.

33
Key initiative of Global Pharma Companies

34
STRATEGIES ADOPTED BY PHARMA COMPANIESAGAINST GOVERNMENT
PRICE CUT

I. Changing product portfolio

II. Diversification of business
III. Merger and Acquisition
IV. Reinvigorating R&D
V. Export and Outsourcing
VI. Collaboration or Strategic Partnership
VII. Cost cutting strategies

35
I. Changing Product Portfolio

Pharmaceutical companies are undergoing major changes to cope with the new challenges
of the modern economy. The globalization of the business, the diversity and complexity of new
drugs, the increasing tightness of capita, price cut and the diminishing protection provided by
patents are some of the factors driving these changes. All stages of the business value chain are
suffering the impact: from the development of new drugs to the management of the
manufacturing and marketing networks.
Many companies have altered their drug portfolio from primary care driven blockbusters
towards specialties such as Oncology, Diabetes, immunology and inflammation and
cholesterol reducing drugs, where medical need is so high that prices are more easily
accepted by regulators. Global Healthcare industry is being reshaped by dramatic shift away from
acute care towards the chronic care. Pharmaceutical companies shifting their focus from market
share capture to market creation, also shifting towards super core model. This Model involving
the search for, and distribution of a small number of drugs from Chronic Therapy Area that
achieve substantial global sales. The success of this model depends on achieving large returns
from a small number of drugs in order to pay for the high cost of the drug discovery
and development process for a large number of patients. Total revenues are highly
dependent on sales from a small number of drugs.

36
 I. Diversification of business

The Patent cliff, decreasing R&D productivity, pricing pressure, globalization and changing
demographic trends that have been compelling pharmaceutical companies to reinvent their
business model. Pharmaceutical companies now have diversified products and market
portfolio as compared to a blockbuster based one.

In order to gain operating income, companies are diversified their product portfolio into
following segments

a. OTC market development

b. Nutritional and diet Supplement market

c. Biotechnological and Bio similar product development

d. API and Bulk Drug Industry

37
  OTC market development :

OTC Drugs’ are drugs sold legally ‘Over the Counter’, i.e. without any prescription of a
registered medical practitioner. Those drugs that are not included in the list of prescription and
are considered as non-prescription drugs or OTC drugs. Prescription drugs fall under two
schedules of the Drug and Cosmetics Rules, 1945: Schedule H and Schedule X. Drugs falling
under Schedule G require the following mandatory text on the label: Caution: It is dangerous to
take this preparation except under medical supervision. These drugs are not advertised to the
public voluntarily by the industry.

38
But OTC Drugs can be given without the doctor’s prescription.
OTC market is segmented into-
1. Vitamins, Minerals & Supplements
2. Cough, Cold & Allergy
3. Gastrointestinal
4. Analgesics
5. Dermatological
With the increase in pressure on pharma companies due to decrease in their profit Margin,
Pharmaceutical companies trying to switching their product from Rx to OTC segment. Also
MNCs are ready to pay huge money to buy the OTC segments of domestic companies.
Recently U.S- based Abbott has acquired Piramal Healthcare Solutions business
(Domestic Formulations) for an up-front payment of USD 2.12 billion and an additional
USD 400 million annually for the next four years.Piramal Healthcare, has strong growth
in anti-infective, dermatology, nutritionals and OTC segment, had launched 32 new products
and has been ranked no. 1 in the Indian Pharmaceutical Industry in terms of sales from new
products. Piramal also has approximated of Rs 1.9bn sale from OTC segment. This are all
acquired by US giant Abbott.

 Future Growth:

Demographic trends, lifestyles changes, clinical advances and Global pharma industry
challengelike price cut, patent cliff are transforming medicine and creating Opportunities for
therapeutic areas and drug types in OTC pharma. Consumers are increasingly willing to
selfmedicate, for convenience and cost savings in particular. New regulations are changing OTC
retail channels and sales processes, including the range of products on offer. Importantly,
governments and healthcare providers are promoting self-medication, viewing the process asa
tool to help contain healthcare expenditure. Therefore the OTC pharma market holds high
potential for continued growth in both mature and emerging geographical markets. According to
kaloromadata global OTC market is estimated to grow to Rs. 78 billion by 2012 with a CAGR
3%.

39
Life Cycle of Pharmaceutical Product with and without a switch to OTC status

40
  Nutraceutical and Diet supplement market:

Nutraceuticals have emerged as one of the brightest spots in a global market suffering
from its worst economic crisis, as several first timers turned towards healthy food to reduce their
medical bills. Initial apprehensions regarding the recession making huge dents into the
Nutraceuticals industry proved false as customers traded down from their regular diet towards
Nutraceuticals to boost their immune systems to restrict medical expenditure. Though the overall
Nutraceuticals market has been able to stave off any major recessional effect, the growth rate
slightly tapered down as not all segments could cope with the recession in similar manner.
Majority of the Nutraceuticals that experienced a squeeze in sales during 2008 and 2009 were
priced on the higher side. Among the segments, functional foods witnessed impressive growth as
they provide cheaper alternatives to medical bills in the long run. On the other hand, sales for
premium products such as organic and healthy food declined, as people traded down to more
affordable nutrition. The Dietary supplements segment represents a relatively mature market,
particularly in the developed markets. The herbal supplements sub-segment witnessed slow
downing recent years owing to negative media environment, especially concerning drug
interactions. Functional foods that constitute the faster growing segment in the Nutraceuticals
market, is rising in popularity, as the segment offers a cheaper alternative to supplements.
Growth in the segment is more profound in categories such as cholesterol lowering dairy foods
and digestive health products.

“World Nutraceuticals Ingredients to 2015,” a report from The Fredonia Group, Cleveland OH,
expects world demand for Nutraceutical ingredients to increase 7.2% annually to $23.7billion in
2015, driven by substances with clinically confirmed health benefits and broad applications in
foods, beverages, dietary supplements and adult and pediatric nutritional preparations all
providing the best growth opportunities.

41
Pharmaceutical companies are moving their product portfolio towards Nutraceutical market
because there is no price cut in Nutraceutical and diet supplements, also some drivers for growing
Nutraceutical industry are :-

1. Increasing Consumer Health awareness

2. Increase in disposable income
3. Increased Co Prescription with regular drugs
4. Increase in Life style diseases

As per Indian scenario, NPPA has the authority to monitor and fix the prices of drugs; it
cannot take any action if the same drug is re-launched as a food supplement.
Drug companies such as Ranbaxy, Merck, Trikko and Indochem, Pirmal, (Supracive)
Dabur (Nutrigo) etc., all have transferred some of the products from the medicine category
to the dietary supplement category. They received manufacturing licenses under the
Prevention of Food Adulteration Act. Several examples of brands include Evion 400,
Revital, Recharge Plus and Sort Z Gold, which were all initially marketed as drugs but later
became food supplements. Companies prefer to sell products as food supplements due to
the fact that food supplements do not have price controls.

 Biotechnological and bio similar product development:-

The lure of bio similar, decreasing drug price and stringent regulatory matter in pharma
industry is also enticing companies outside the pharmaceutical arena to develop bio similar
capabilities—an interest that emphasizes the potential size of the bio similar market.
Drug makers are seeking biotechnology acquisitions to bolster their product pipelines as
biologics become a hot area of research and profitability. For bio similar (equivalents of off
patent

biotech drugs), the regulatory demands are much higher, requiring full-blown phase I
and III studies for each production line, as small changes in manufacturing can substantially
impact the medical outcome. However, successful bio similar commercialization will be a
marathon, not a sprint, and prospective market players must commit to the long term when

42
they enter the bio similar arena.
Through 2015, biologic drugs worth more than $80 billion USD in global sales will lose
patent protection, presenting a major opportunity2. Given this potential, Big Pharma
companies are poised to enter the bio similar market. Even the larger generics players are in
danger of being overtaken by the originator drug companies, with Merck & Co., AstraZeneca
and Eli Lilly all looking to carve out a share for themselves in the bio similar market. By
acquiring Ranbaxy, Daiichi-Sankyo has gained a certain degree of bio similar know-how,
through the Ranbaxy’s association with Indian biotech company Zenotech. Ranbaxy entered
into collaboration with Zenotech over a period of two years prior to acquiring a stake in the
company in 2007. Zenotech has three bio similar on the Indian market with a pipeline
reportedly representing a third of the $65 billion USD global biologics market. Another
interesting development is the joint venture between Teva and contract manufacturing giant
Lonza. This gives Teva access to the most important assets in the bio similar game,
production expertise and capacity.

Future Growth:-

GIA announces the release of a comprehensive global report on Bio similars markets. The
global market for bio similars is forecast to reach US$17.9 billion by the year 2017. The
market is driven primarily by the increasing demand for biotech drugs, cost-effectiveness of
bio similars in comparison to their expensive counterparts, impending patent expiries of major
biotechnology drugs, aging population and increasing incidence of cancer and other critical
diseases.
EU has taken the lead on the bio similar front. It has also become the testing ground for
bio similar drugs, with three bio similar having entered the market — hGH, EPO and
filgrastim. All three were first launched in Germany, the largest generics market in Europe,
with one of the highest levels of uptake. The generic-friendly nature of the German market,
driven by strong payer pressure, makes a favorable scenario for the bio similar segment.

Indeed, the German bio similar market will contribute to almost half of all seven major

markets overtaken by the US bio similar market.

43
 The US market represents the greatest opportunity for the Emerging bio similar industry,
and is forecast to constitute nearly 90 percent of the seven major market bio similar volume
markets in 2014. The size of the US market, combined with typically high generic
substitution that characterizes it, makes it an attractive prospect for potential bio similar
players.

44
  API and Bulk drug Market:-

The Active Pharmaceutical Ingredient (API) forms the most vital part of every formulated
end product, and is an important part of the whole pharmaceutical industry. The overall API
market was valued at $101.08 billion in 2010, and is expected to grow at a CAGR of 7.9%
from 2011 to 2016.
The Development in the High Potency Active Pharmaceutical Ingredient (HPAPI) and
Biogenetic drugs is boosting the growth of the Active Pharmaceutical Ingredient (API)
market. There has been a paradigm shift in the use of innovative drugs to that of low-cost
API drugs after the economic recession, thereby causing a positive impact on the overall
growth of the API market. In order to keep abreast with this change, API manufacturers are
applying various novel technologies to reduce the processing time and reducing cost in order
to yield more production. In order to reduce the total overall manufacturing cost
pharmaceutical companies becoming self-sufficient in API and Bulk drug supply and fining
cost effective way to produce this APIs.
The API market is facing a period of unprecedented growth as market dynamics have
undergone a major change with the expiration of patents pertaining to global blockbuster
drugs in the U.S. The consequences of the economic crisis has hit the Innovative drugs
market hard, with less budgets allocated by the major players for the R&D of Innovative
drugs. This has led to drying up of pipelines for new drugs, and therefore the market for
generic drugs is quickly growing. Thus, the patent expiry factor is slated to drive the API
market for the coming years. The API outsourcing trend within the global pharmaceutical
industry remains intact as pharmaceutical companies are increasingly looking to maintain
focus on core competencies, access new technologies, preserve capital and ensure multiple
sources of raw material supply. However, API suppliers in Europe and US are facing
increasing pricing pressures due to presence of low cost providers in developing markets,
excess big pharma capacity, and backward integration by certain generic companies.
Recently a news from the economics times shows that Indian pharmaceutical companies are
filling DMF for raw material supply to US companies. About 51% of total Global application
for DMF are filled by Indian pharmaceutical companies to supply the bulk drug in US market.

45
 Also as per the new policy of NPPA, Bulk drugs are exempted from the price control only
formulations are considered for price cut lead to have greater growth opportunities for domestic
bulk drug manufacturers in India. This decision in India as exempt bulk drug from NPPA will
encourage investment in local production of bulk drug and thereby reduce reliance on import.
Thus The domestic bulk drug industry is poised to benefit from the impending patent expires in
the regulated markets (including many blockbuster drugs)leading to increase in generic
penetration; thereby providing a significant opportunity for supply of APIs to manufacturers of
such generic drugs coupled with increased outsourcing of bulk drugs by multinational
pharmaceutical companies.

Mergers and collaborations are the strategies that have been noticed across the API
industry.
Newer market entrants are causing threats to the existing small and medium manufactures,
leading to high competition. To overcome these challenges, companies are now forming joint
ventures for sharing the technology to manufacture API drugs. The key to survive in the
market for SMEs is joint ventures. Other than this the HPAPI (High Potent Active
pharmaceutical ingredient) market is driving the API market growth globally at a fast rate. As
these compounds are extremely effective in the treatment of cancers, respiratory disorders, and
hormonal imbalances, the HPAPIs market is mostly driven by the growth in the oncology
therapeutics market worldwide. The global HPAPI market is valued at $8,900 million in 2011,
growing at a CAGR of 8.3% till 2016.
The HPAPI compounds are highly effective due to the targeted therapy. Hence, its
application for cancers is a major driver. The market of North America is the largest and
accounts for major share; followed by Europe; but Asia is growing at a higher CAGR as
compared to North America & Europe. The major players for the HPAPI market are SAFC,
Novasep, Lonza, Boehringer Ingelheim, and Carbogen Amics.

46
 II. Reinvigorating the R&D

With industry consolidation, the economic downturn, pricing pressure and an increasing
threat from generics, pharma companies are coming under greater pressure to fill their
pipelines with innovative cost effective drugs. However, despite the costs and risks involved in
drug development, the pharma industry is finding new ways to streamline the R&Dprocess in an
effort to increase efficiency and output. As R&D pipeline are drying out, many companies have
started to experiment with new R&D models. For example, GlaxoSmithKline has restructured
its R&D centers to emulate biotech R&D culture. The company hopes to replicate an
entrepreneurial culture in a large pharma organization. Eli Lilly acquired Incline to source
innovation from outside the company and then left it as a stand-alone unit operating
independently, much as Roche did extremely successfully with Genentech. Pfizer and GSK
broke down corporate barriers to share intellectual property and assets to develop new
drugs for diseases such as HIV. Several pharma companies are partnering with leading
academic institutions to promote innovation from basic research.

Now days there are few issues which are not yet solved by government regarding the
patent of product, that’s why companies are focusing on R&D in biotechnology and developing
Bio similars. It would be restructuring R&D, with an aim on improving focus and reallocating
resources to key pipeline assets and activities. R&D is the engine that powers a pharmaceutical
company. It is also a high-risk endeavor. Furthermore, given all of the hurdles that now exist
especially with regard to ensuring safety and having sufficient novelty to justify pricing, R&D is
more expensive than ever. But, for blockbuster drug, companies have to invest – substantially.
Apart from this Governments are encouraging to develop strong R&Ds like they are
providing loan facility for R&D. that’s why New Pricing Policy exempted the patented drug
from price cut. After heavy investment in R&D companies can have space to talk to
government about the price cut. Broadly, to raise innovation returns back to the level that
prevailed in the era of blockbusters, pharma companies need transformational change. Pressing
areas of improvement for pharma companies are: increasing managerial autonomy; aligning
research goals with incentives; attracting and retaining the right, creative talent; minimizing
bureaucracy; and creating flexible or ganizations.R&D in pharmaceutical industry can be
reinvigorating by following options:-

47
  Scientific and clinical leadership development that builds a highly effective cohort of

discovery and development “managers in the middle” who have extensive external networks,
broad disease and pathway understanding, and decision-making authority given established
scientific and clinical targets, coupled with performance measures that encourage
collaboration and overall portfolio optimization.
 Disciplined portfolio management based on assessments against rigorous, forward-
looking
target product profiles that have been externally tested against market and competitive trends.
 Targeted therapy development involving systematic and early identification of targeted
therapy options, analysis of trade-offs, and selective design of tailored drug development
programs to focus on patient subpopulations, including co development of diagnostics as
appropriate.
 Scale-up of next-generation clinical development that focuses on rapid and broad
rollout of
new approaches such as building access to high-quality electronic medical record data for
protocol modeling and patient recruitment, remote data collection, and novel approaches to
data quality risk monitoring, as well as aligning the design of outsourcing partnerships with
strategic development goals.
Apart from this if the industry is to become more innovative and cut its R&D costs, four
features will be vital:

1.A comprehensive understanding of how the human body works at the molecular level:-
At present, when pharmaceutical companies start investigating biological targets, they may
know relatively little about how those targets are involved in the diseases they want to treat.
The information they possess usually comes from academic literature and patents, and is
often based on animal studies, which may not be relevant to the way in which a disease
progresses in humans. It is generally only in Phase II clinical trials that companies test
whether modulating a particular target with a particular molecule is efficacious in treating a
disease in man. So companies have to understand the proper physiology of body and made
the artificial target element as virtual vermin that might reduce the duration and cost of
R&D. The American Diabetes Association and US biopharmaceutical company Entelos have

48
developed a diabetic virtual mouse that is being used to Study cures for Type 1 diabetes.

In silico methods are currently used to design new molecules, where the structure of the
target is known and the interactions between the target and virtual molecules can be modeled.
But researchers more commonly use in vitro screens to find molecules that “hit” a designated
target, and further screens to test the physical and toxicological properties of these molecules.

2. A much better grasp of the path physiology of disease (by which we mean the functional
changes associated with, or arising from, disease or injury)

3. Greater use of new technologies to “virtualise” the research process and accelerate clinical
development;

4. Greater collaboration between the industry, academia, the regulators, governments and
healthcare providers.

49
 III. Export and outsourcing

Outsourcing and exporting the economical drugs become the Pharmaceutical Industry’s
Strategy of Choice for Managing Risk and Rapid Change. Due to much patent expiration, the
generic drug industry has experienced great growth in the past few years. The global Market
for generic drugs was worth $107.8 billion USD in 2009 and is projected to reach $129.3
billion USD by 2014 with a CAGR of 9 percent. Rising cost pressure on healthcare has
resulted in an increase in generic pharmaceutical usage —generic drugs cost 30 to 80 percent
less than their original equivalents. Generic Companies from Emerging market is planning to
manufacture drug product via reverse engineering process and exporting this drug to Tier 1
market like US because during last five year (2010-2014) the revenues of drugs having
patents that will expire are about $89.5 billion USD, that have a great opportunity for the
generic companies to export their drugs. India have highest no. of FDA approved plant
outside the US, so it would be great opportunity for Indian company to export their product
to US and other tier 1 market.
Soaring drug discovery development times, prolonged regulation-mandated testing and
review processes, rapidly escalating R&D expenditures and competition are hurting the
margins of pharma companies. This is driving them to outsource various services to cheaper
destinations, including India. This trend is now moving from generics and contract
manufacturing to research. Market forces and governmental initiatives have placed
downward pressure on pharmaceutical and biotechnology companies' drug prices.
Pharmaceutical industry is responding to these pressures by converting some of the fixed
costs of maintaining research and development personnel and facilities to variable costs,
which can be increased or decreased as needed, by outsourcing drug development activities
to contract research organizations. In addition to Outsourcing only in R&D field,
Pharmaceutical companies are likely to outsource a wide range of manufacturing-related
activities, including: primary and secondary packaging; formulation; active ingredient
manufacturing; labeling; clinical supplies; sterilization manufacturing of chemical intermediates;
and stability packaging. By working with a wide range of outsourcing partners rather than
investing in new plants, equipment and personnel, pharmaceutical manufacturers can cope with
uncertainty and exploit emerging opportunities as a result of new partnerships.

In addition to this, Pharmaceutical companies are continuously filling dossier for active
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pharmaceutical ingredients (APIs). DMFs are essentially approvals to supply complex raw
materials to all generic manufacturers servicing in the US market, which is the most lucrative
of all global markets.
Outsourcing allow the companies to pursue potential new revenue streams outside of their
core focused area, and to benefit from improved productivity, emerging technology, in
licensing opportunity and increased growth. Outsourcing has also become a strategy of
choice for moving multiple projects forward simultaneously Thus, Outsourcing provides a
mechanism for leveraging risk, plus the flexibility to adapt to rapidly changing conditions

IV. Cost cutting Strategy

The pharmaceutical industry, including drug companies and contract manufacturers, is under
pressure to bring down costs, particularly in manufacturing, R&D and other Invariable costs,
due to an increased focus on emerging markets.“Generalization” of pharmaceutical products
and indirect consequences of the global economic downturn, Companies are introducing
“green” technologies and processes, and expanding the outsourcing of production, as part of
the cost-cutting effort. Developed as well as emerging markets are going through a
generalization phase, in which pricing plays a vital role because generics are a low-priced but
volume-driven Business.
Green Technology refers that pharmaceutical companies are using strategies such as
solvent reduction and replacement, refining a chemical route, and biocatalysts to optimize certain
API syntheses while achieving improved environmental profiles. Pharmaceutical companies
around the world are pressured to lower costs, not only due to the current global economic
slowdown, but also due to continuing pricing pressure, the progener icagenda, and the drying
research and development pipe-line.
The use of better manufacturing processes, including green technology, is also helping
pharma companies and contract manufacturers to cut costs and stay competitive. Pfizer says
that multiple initiatives involving operational excellence and lean manufacturing, as well as
several green programs across the company’s manufacturing and supply network, is paying
off. MNCs are constantly looking for ways to manage processes more efficiently and
effectively. Lean manufacturing, process analytical technology, and green chemistry
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have all yielded, and continue to yield, cost savings. Green chemistry tool box” includes
route scouting with enzymes and the use of micro-reactor technologies for commercial-scale
production. The tool box involves chemo catalysis and biocatalysts, process intensification,
and the proactive management of learning curves to increase yield and reduce waste.
Cost cutting will be required to grow profitability in the face of slowing sales growth.
Megamergers have been used as a pivotal tool for cutting costs and growing sales, ultimately
bolstering operating profit.

Cost Cutting Strategy in Pharma Industry:-

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Other than this suggested cost cutting Methods are –

 Reshape cost management: Traditional cost management approaches aren’t cutting it in

today’s hypercompetitive marketplace. To create the leaner, more agile cost structure
required to survive in the future, companies need to carefully evaluate proven strategies that
are shown to drive sustainable cost management.

 Make fixed costs more variable: This concept acknowledges that there is a lot of
variability
within the individual components that contribute to a company’s overall performance but that
many companies aren’t able to effectively flex or modulate their spending accordingly.

 Manage costs through collaboration: There are many aspects of the pharmaceutical
value chain that require companies to engage in expensive, resource-intensive services
that don’t fundamentally offer competitive advantage and differential returns.

Cost cutting, decreasing profit margin and balance it by volume

driven business

The pressure to control and reduce costs is one of the biggest challenges currently facing
the pharmaceutical industry. Successfully stripping out cost from a business is notoriously
difficult. In Pharma, the challenge is made even more so because the industry has, until
recently, been focused on growth and so there needs to be a cultural change to help
companies and employees face the new reality. Such an environment requires an approach
that reduces costs in a strategic, disciplined and sustainable manner, delivered at pace.
The pharmaceutical industry, once a thriving sector, has been cutting costs right and left by
closing plants, laying off people, outsourcing jobs to third-world countries, and reducing
research efforts to the minimum.
Drug discovery jobs have disappeared by the thousands in the pharma industry as the
industry has cut costs in order to adjust to what is widely perceived as the end of the blockbuster-
drug era. Most of pharma companies are doing retrenchment in order to cut their cost.
Most of MNCs are entering into generic low cost drug production instead of investing into
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R&D because of market dynamics or in order to do the cost cutting. Generic industry are
highly competitive and sensitive in price of drug product so here margin are the less but their
believe in volume driven business so that profit margin can be restored.

Innovate the Products or add the value to product

Current marketing efforts of pharmaceutical companies are mostly product driven and
generally focused. Instead, a differentiated approach to targeted audiences and accounts will
be more productive in the long run. Besides, pharmaceutical companies have to develop
specific added value to product features to develop new partner relationships with health care
professionals. The concept of value innovation presents to pharmaceutical companies the
prospect of an improved market position and performance. It presents:-

A way to develop a unique proposition, and a way to market this proposition to selected
parties in the health care market, to develop sustained performance by way of continuing
partnership in the business of health on the basis of unique added value to health care
professionals and patients. It is very difficult for domestic and MNCs to make profit in
environment where the price is regulated by government. Pharma companies are continuously
focusing to bring the innovation in their product to gain the first mover advantage. This is very
famous in generic industry where very less profit margin to the companies as compare to
patented drug product.

Few example of adding value by way of developing experience co-creation in health

care:-

Experience Co-Creation (ECC) is a concept in which the consumer is actively involved in

shaping the way in which he or she wants to use offered products and services in specific
ways, according to how he or she sees this fit to one’s own needs and desires.
Pharmaceutical companies are utilizing following innovation in their product to show better
than other’s product:
1. Either to implement innovation in packaging like packaging should be more patient
compliance as comparative to their competitor.

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2. Innovation in marketing strategy like changing the flavor of drug product and make it
more patient compliance.
3. Also implementation of innovative strategy in production of drug product like introducing
the drug product in different strength.

Heavy sale promotion and building strong brand image

It is said that to get the market share, first have to get the people’s mind share for that
particular product. Pharmaceutical companies are doing the same for their drug product by
investing heavily in promotional activity. The aim of drug promotion is to persuade people to
buy more drugs and/or to pay higher prices. This is done by increasing the perceived value of
the drug via one or more of several approaches including:

 Increasing the perceived frequency and/or severity of the indications.

 Widening the indications to include more people.

 Increasing the perceived likelihood and magnitude of benefits.

 Decreasing the perceived likelihood and magnitude of harms.

 Increasing the use of drug for longer duration.

Pharmaceutical companies try to identify where people are on the following behavior change
stages and then deploy sophisticated marketing techniques to motivate them to move one or
more stages towards repeat use:
By investing in sale promotion they want to get the higher market share either by converting
brand into OTC or to get the strong Brand equity. Pharmaceutical companies are looking
social media as tool for their product promotion. Social media allow the pharmaceutical
companies to quick access to their customer and they can innovate their product with their
demand.
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Marketing Strategy used by Pharmaceutical Company

Divest:-

This strategy involves cutting all promotional and research expenses once the brand faces direct
competition from generics and redirecting the savings towards brands that are still enjoying
patent
protection. Sometimes, this ‘milking’ strategy actually involves price increases to take advantage
of
the higher brand equity of the brand among the smaller segment of hard-core loyal customers.
This
strategy leads to the lowest levels of brand building (because the brand is not supported) and
price competition (because the price advantage of generics is not challenged)

Innovate:-
Short of introducing a completely new molecule, pharmaceutical companies can innovate by
launching new forms and dosages or by demonstrating effectiveness for new indications. They
can also innovate by offering better services for doctors (eg hotline), and better communication
on the illness and on the brand through higher promotion by the medical representatives.
Compared with the ‘milk and divest’ strategy, this option also entails low price competition, but
can improve the equityof the off-patent brand by offering additional patent protection.

Provide more value for the money:-

Introducing new and improved flavor, packaging, or delivery systems (eg easy to swallow pills,
or patches) can lead to additional emotional or functional consumer benefits (e.g. higher
compliance). The resulting differentiation enhances the awareness and image of the brand and
hence increases its equity. Because these innovations typically do not extend patent life however,
it is more difficult to pass the costs on to the consumer when facing generic competition and
hence, this strategy’s lead is one step ahead towards price competition.

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Chapter 6
Conclusion

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 CONCLUSION

On a more positive note, a scarcity of resources tends to fuel creativity, so, amid this
pharma revolution, success will most likely originate from motivated teams who can maximize
their proof of concept. Further ahead, innovative approaches, such as patient-driven partnerships
and targeted therapies, may result in faster drug development, a greater number of drugs for
specific groups and, ultimately, a better outcome for patients. Some also believe that the centre of
the pharma industry may move to continents where the production costs are lower, resulting in a
loss of global leadership for Europe and the US, but regional success elsewhere. Only time will
tell how the pharma story will unfold, in the interim however, it is likely that innovative cost-
cutting will remain the industry’s mantra.

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 Chapter 7
Bibliography

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 Bibliography

www.wikipedia.com
http://www.indianmirror.com/indian-industries/health.html
https://en.wikipedia.org/wiki/Pharmaceutical_industry_in_India
https://www.ibef.org › Industry
https://www.infinitiresearch.com/thoughts/pharmaceutical-industry-challenges
https://dcatvci.org/152-the-top-10-issues-for-the-pharma-industry-in-2017

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