Case Study Pharma

Download as pdf or txt
Download as pdf or txt
You are on page 1of 2

Case Study: To Pharma or not to Pharma

The fact that the pharmaceutical sector outperformed the Sensex in 2010 and recorded a
gain of about 34 percent, making it an attractive destination for foreign direct investment,
has attracted the notice of Mr. Balasingh, a real estate dealer, who is considering parking
his profits in the sector. The information he has collected on this sector is given below:

The Indian pharmaceutical industry was almost non-existent in 1970, but over time, it
became a prominent provider of health care products, meeting almost all of the country’s
pharmaceutical needs at the beginning of the 21st century. More than 60,000 formulations
are produced, and they cover nearly every therapeutic segment. Formulations are the
processed medicines. The raw material for the pharma industry are several organic
chemicals. The chemical industry is competitive and fragmented. Companies like Orchid
Chemicals and Sashun Chemicals were basically chemical companies that turned
themselves into pharmaceutical companies. The contribution of the Indian pharma industry
accounts for 1.4 percent of the global pharma industry in terms of value and 10 percent in
terms of volume. The volume of production ranks third in the world. The year-on-year
growth rate was 18 percent in 2011.

The pharma industry is highly fragmented, with over 10,500 manufacturing units in India.
The top 10 companies contribute more than one-third of the market. The number of generic
product manufacturers is quite large. The number of foreign players investing and
expanding their bases in India is increasing tremendously. Further, India is fast becoming
one of the biggest hubs for conducting global clinical trials. The industry witnessed eight
acquisitions and 17 collaborations or partnerships in 2011.

The Government of India has given permission for 100 percent FDI in drugs and the
pharma sector to establish various pharma Special Economic Zones across the country.

The implementation of product patents has provided a thrust to innovation and research to
launch new patented products. The expenditure incurred on R&D expenditure by the top
five companies ranges between 5 and 10 percent of revenues. The global R&D expenditure
on sales is 15-20 percent. Even though, English-speaking and skilled scientists are
available for this sector, most of the companies have witnessed high attrition rates. Along
with employment costs, raw material costs have also increased.

According to a PricewaterhouseCoopers [PWC], the Indian pharmaceutical market is


expected to touch USD 74 billion in sales by 2020. The boom in sales is expected because
of a large population, increasing health care expenditure, growing urbanization, rising life
expectancy, and active private sector participation. According to McKinsey estimates, in
2025 the Indian middle class is expected to stand at 580 million, representing an annual
growth of 12 percent. The change in lifestyles has resulted in cardiovascular diseases,
diabetes and depression. Drugs that address these complaints will continue to be lucrative
and fast growing.

Besides the domestic market, Indian pharma companies concentrate a lot on exports. The
US Food and Drug Administration [FDA] has stringent rules with respect to the inspection
of manufacturing plants. The market leaders have problems with regard to their plants
satisfying FDA rules.

Even though India is the largest supplier of generic drugs, the menace of fake drug is
severe. Estimates show that the fakes account for 15-20 percent of the pharma industry.
The fakes are common in cough syrups, vitamin supplements, painkillers, and the like.

The aggressive penetration of health insurance in rural and urban areas will benefit the
pharma industry. It is said that nearly 650 million people will have health insurance cover
by 2020, and private insurance coverage will grow by nearly 15 percent annually until
2020.

The industry is controlled by a complex variety of laws and policies. The National Drug
Policy, Drug Price Control Orders, and the Indian Patents Act, have a say on the industry.
The new pharmaceutical policy aims to bring 354 essential drugs under price control.

With the given information can you analyse the industry with one or two analytical tools
and help Mr. Balasingh make a decision?

You might also like