A Report On

The Pharmaceutical Industry of India

Security Analysis & Portfolio Management

Institute for Technology & Management

B School Navi Mumbai Submitted By:

Vaibhav Goel

Manvi Jain

Priyanka Jethwani

Sanidhya Jain

Shardul Chimote

Hemant Verma

CONTENTS

S.No. DESCRIPTION PAGE(S)

1 About Pharmaceutical Industry 1-5

2 Porters Five Force Model 5-7

3 SWOT Analysis 8-9

4 Main Players 10

5 Sun Pharma 11

6 Ranbaxy 12

7 Biocon 13

8 Ratio Analysis 14-26

9 Variation in Share Valuation 26-28

10 Scope 28-29

11 Conclusion 30-31

ABOUT PHARMACEUTICAL INDUSTRY

The Pharmaceutical industry in India is the world's third-largest in terms of volume. According to Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total turnover of India's pharmaceuticals industry between 2008 and September 2009 was US$21.04 billion. While the domestic market was worth US$12.26 billion. The industry holds a market share of $14 billion in the United States.

According to Brand India Equity Foundation, the Indian pharmaceutical market is likely to grow at a compound annual growth rate (CAGR) of 14-17 per cent in between 2012-16. India is now among the top five pharmaceutical emerging markets of the world.

Exports of pharmaceuticals products from India increased from US$6.23 billion in 2006–07 to US$8.7 billion in 2008–09 a combined annual growth rate of 21.25%.According to PricewaterhouseCoopers (PWC) in 2010, India joined among the league of top 10 global pharmaceuticals markets in terms of sales by 2020 with value reaching US$50 billion.

The government started to encourage the growth of drug manufacturing by Indian companies in the early 1960s, and with the Patents Act in 1970. However, economic liberalisation in 90s by the former Prime Minister P.V. Narasimha Rao and the then Finance Minister, Dr. Manmohan Singh enabled the industry to become what it is today. This patent act removed composition patents from food and drugs, and though it kept process patents, these were shortened to a period of five to seven years.

The lack of patent protection made the Indian market undesirable to the multinational companies that had dominated the market, and while they streamed out. Indian companies carved a niche in both the Indian and world markets with their expertise in reverse-engineering new processes for manufacturing drugs at low costs. Although some of the larger companies have taken baby steps towards drug innovation, the industry as a whole has been following this business model until the present.

India's biopharmaceutical industry clocked a 17 percent growth with revenues of Rs. 137 billion ($3 billion) in the 2009–10 financial year over the previous fiscal. Bio-pharma was the biggest contributor generating 60 percent of the industry's growth at Rs. 88.29 billion, followed by bio-services at Rs. 26.39 billion and bio-agri at Rs. 19.36 billion.

In 2013, there were 4,655 pharmaceutical manufacturing plants in all of India, employing over 345 thousand workers.

The Indian pharmaceutical industry ranks among the top five countries by volume (production) and accounts for about 10% of global production. The industry’s turnover has grown from a mere US$ 0.3 bn in 1980 to about US$ 21.73 bn in 2009-10. Low cost of skilled manpower and innovation are some of the main factors supporting this growth. According to the Department of Pharmaceuticals, the Indian pharmaceutical industry employs about 340,000 people and an estimated 400,000 doctors and 300,000 chemists.

Industry structure

The Indian pharmaceutical industry is fragmented with more than 10,000 manufacturers in the organised and unorganised segments. The products manufactured by the Indian pharmaceutical industry can be broadly classified into bulk drugs (active pharmaceutical ingredients - API) and formulations. Of the total number of pharmaceutical manufacturers,

about 77% produce formulations, while the remaining 23% manufacture bulk drugs. Bulk drug is an active constituent with medicinal properties, which acts as basic raw material for formulations. Formulations are specific dosage forms of a bulk drug or a combination of bulk drugs. Drugs are sold as syrups, injections, tablets and capsules.

Formulations can be categorised under various therapeutic groups (Exhibit 2.1):

Therapeutic groups in the Indian formulations market

Source: D&B Research

Based on the pharmaceutical customer base, the Indian API manufacturing segment can be divided into two sectors – innovative or branded and generic or unbranded. In 2009, the global generic drug market was estimated to be US$ 84 bn, of which the US accounted for 42%. India’s generic drug industry is estimated to be US$ 19 bn and it ranks third globally, contributing about 10% to global pharmaceutical production.

Pharmaceutical manufacturing units are largely concentrated in Maharashtra and Gujarat. These states account for about45% of the total number of pharmaceutical manufacturing units in India.

State-wise number of pharmaceutical manufacturing units in India

Source: Department of Pharmaceuticals, Government of India

Concentration of pharmaceutical manufacturing units in India (%)

Source: Department of Pharmaceuticals, GoI

SMEs in the pharma industry

According to the Confederation of Indian Industries (CII), there are around 8,000 small and medium enterprises (SME) units, accounting for about 70% of the total number of the pharma units in India. Indian SMEs are also opening up for emerging opportunities in the pharmaceutical industry in the field of CRAMS, clinical research etc. These would drive them to play a definitive role in the transitional global pharmaceutical environment, where a sizeable number of drugs are expected to go off patent in the coming years. The Indian government has been making every attempt to support SMEs through several incentives. One such effort is the development of SME clusters in various parts of the country.

Investment in the Indian pharmaceutical industry

100% foreign direct investment (FDI) is allowed under automatic route in the drugs and pharmaceuticals sector, including those involving use of recombinant technology. Also, FDI up to 100% is permitted for brown field investments (i.e. investments in existing companies), in the pharmaceuticals sector, under the Government approval route. The drugs and pharmaceuticals industry attracted foreign direct investment to the tune of US$ 9.17 bn for the period between April 2000 and January 2012.

FDI inflow in the drugs and pharmaceutical industry (US$ mn)

*Fiscal year; Cumulative: April 2000 to January 2012

Source: Ministry of Commerce & Industry

The Indian pharmaceutical industry enjoys certain advantages, which attracts FDI in the country: 1) low cost of innovation and capital expenditure (to operate good manufacturing practices-compliant facilities) which provides leverage in pricing of drugs 2) transparency in the regulatory framework 3) proven track record in bulk drug and formulation patents 4) strong domestic support in production, from raw material requirements to finished goods and 5) India emerging as a hub for contract research, bio-technology, clinical research and clinical data management.

Factors influencing growth of the industry

The Indian pharmaceutical industry ranks 14th in the world by value of pharmaceutical products. With a well-established domestic manufacturing base and low-cost skilled manpower, India is emerging as a global hub for pharma products and the industry continues to be on a growth trajectory. Moreover, India is significantly ahead in providing chemistry services such as analogue preparation, analytical chemistry and structural drug design, which will provide it ample scope in contract research and other emerging segments in the pharmaceutical industry. Some of the major factors that would drive growth in the industry are as follows:

• Increase in domestic demand: More than half of India‘s population does not have access to advanced medical services, as they usually depend on traditional medicine practices. However, with increase in awareness levels, rising per capita income, change in lifestyle due to urbanisation and increase in literacy levels, demand for advanced medical treatment is expected to rise. Moreover, growth in the middle class population would further influence demand for pharmaceutical products.

• Rise in outsourcing activities: Increase in the outsourcing business to India would also drive growth of the Indian pharmaceutical industry. Some of the factors that are likely to influence clinical data management and bio-statisticsmarkets in India in the near future include: 1) cost efficient research vis-à-vis other countries 2) highly-skilled labour base 3) cheaper cost of skilled labour 4) presence in end-to-end solutions across the drug-development spectrum and 5) robust growth in the IT industry.

• Growth in healthcare financing products: Development in the Indian financial industry has eased healthcare financing with introduction of products such as health insurance policy, life insurance policy and cashless claims. This has resulted in increase in healthcare spending, which in turn, has benefitted the pharmaceutical industry.

• Demand in the generics market: During 2008-2015, prescription drugs worth about US$ 300 bn are expected to go off patent, mostly from the US. Prior experience of Indian pharmaceutical companies in generic drugs would provide an edge to them.

• Demand from emerging segments: Some of the emerging segments such as contract research and development, biopharma, clinical trials, bio-generics, medical tourism and pharma packaging are also expected to drive growth of the Indian pharmaceutical industry.

Foreign trade in pharmaceutical products

The Indian pharmaceutical industry’s growth has been fuelled by exports. Its products are exported to a large number of countries with a sizeable share in the advanced regulated markets of the US and Western Europe. India currently exports drug intermediates, active pharmaceutical ingredients, finished dosage formulations, bio-pharmaceuticals and clinical services to various parts of the world. The top five export destinations of Indian pharmaceutical products are USA, Germany, Russia, UK and China. Indian exports of drugs and pharmaceuticals grew at a CAGR of 16.5% to ` 451.4 bn over FY02-FY12 (up to Dec 2011).

Export of drugs and pharmaceuticals from India

*Up to Dec 11

Source: Directorate General of Commercial Intelligence and Statistics (DGCIS) Kolkata

Import of drugs and pharmaceuticals into India recorded a CAGR of 17.6% during FY02-FY12 (up to Dec 2011). During FY12 (up to Dec 2011), pharmaceutical products worth ` 102.2 bn were imported into India. India is almost self sufficient in formulations; its imports mostly comprise bulk drugs and some intermediaries. These imports are freely permitted, except those that are restricted in the foreign trade policy. Import restrictions are mostly on drugs that contain narcotics and psychotropic components.

Chart 2.5: Import of drugs and pharmaceuticals into India

*Up to Dec 11

Source: Directorate General of Commercial Intelligence and Statistics (DGCIS) Kolkata

Major challenges faced by the industry

The Indian pharmaceutical industry was on a strong growth trajectory in the last decade. It has achieved several milestones and is well positioned to leverage emerging opportunities. However, the industry needs to tackle various issues related to its operations and regulations. It faces several challenges in the form of pricing of pharmaceutical products and impact of some agreements. This section touches upon several key issues and challenges faced by the industry:

• Impact of GATT-TRIPS agreement: The General Agreement on Tariffs and Trade1 (GATT) and Trade Related aspects of Intellectual Property Rights2 (TRIPS) have an adverse impact on pricing of pharmaceutical products. Pharmaceutical companies are not allowed to re-generate existing drugs and formulations and change the existing process and manufacture the same drug. New investments are required to perform research. This is a major obstacle for pharma companies, especially the micro, small and medium enterprises. Moreover, transfer of technology from abroad is difficult and expensive. Consequently, revenue of the pharma companies is impacted. Hence, adequate measures should be taken to support the industry’s revenue and minimise losses.

• Pricing: At present, pricing of 74 bulk drugs and their formulations, which account for a large share in the retail pharma market, are controlled by the Drug Price Control Order (DPCO)-1995. The Government had considered reducing the number of regulated drugs, but it has not been implemented. There is a need to reduce the number of regulated drugs to facilitate the growth of the pharmaceutical industry.

• Drug diversions by institutions: Most of the institutional clients of the Indian pharmaceutical companies comprise government hospitals, the Indian defence service and private hospitals; the defence sector is mandated to buy drug stocks through tenders in quantities twice as large as the projected demand for those drugs in the following year at discounted rice. At the year-end, surplus available at the institutions is pushed to regular

channels by leveraging the price discounts, resulting in a loss for companies through the regular distribution channel.

The number of purely Indian pharma companies is fairly less. Indian pharma industry is mainly operated as well as controlled by dominant foreign companies having subsidiaries in India due to availability of cheap labor in India at lowest cost. In 2002, over 20,000 registered drug manufacturers in India sold $9 billion worth of formulations and bulk drugs. 85% of these formulations were sold in India while over 60% of the bulk drugs were exported, mostly to the United States and Russia. Most of the players in the market are small-to-medium enterprises; 250 of the largest companies control 70% of the Indian market. Thanks to the 1970 Patent Act, multinationals represent only 35% of the market, down from 70% thirty years ago.

Most pharma companies operating in India, even the multinationals, employ Indians almost exclusively from the lowest ranks to high level management. Home grown pharmaceuticals, like many other businesses in India, are often a mix of public and private enterprise.

In terms of the global market, India currently holds a modest 1–2% share, but it has been growing at approximately 10% per year. India gained its foothold on the global scene with its innovatively engineered generic drugs and active pharmaceutical ingredients (API), and it is now seeking to become a major player in outsourced clinical research as well as contract manufacturing and research. There are 74 US FDA-approved manufacturing facilities in India, more than in any other country outside the U.S, and in 2005, almost 20% of all Abbreviated New Drug Applications (ANDA) to the FDA are expected to be filed by Indian companies. Growth in other fields notwithstanding, generics is still a large part of the picture. London research company Global Insight estimates that India’s share of the global generics market will have risen from 4% to 33% by 2007. The Indian pharmaceutical industry has become the third largest producer in the world and is poised to grow into an industry of $20 billion in 2015 from the current turnover of $12 billion.

As it expands its core business, the industry is being forced to adapt its business model to recent changes in the operating environment. The first and most significant change was the 1 January 2005 enactment of an amendment to India’s patent law that reinstated product patents for the first time since 1972. The legislation took effect on the deadline set by the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which mandated patent protection on both products and processes for a period of 20 years. Under this new law, India will be forced to recognise not only new patents but also any patents filed after 1 January 1995. Indian companies achieved their status in the domestic market by breaking these product patents, and it is estimated that within the next few years, they will lose $650 million of the local generics market to patent-holders.

In the domestic market, this new patent legislation has resulted in fairly clear segmentation. The multinationals narrowed their focus onto high-end patients who make up only 12% of the market, taking advantage of their newly bestowed patent protection. Meanwhile, Indian firms have chosen to take their existing product portfolios and target semi-urban and rural populations.

Indian companies are also starting to adapt their product development processes to the new environment. For years, firms have made their ways into the global market by researching generic competitors to patented drugs and following up with litigation to challenge the patent. This approach remains untouched by the new patent regime and looks to increase in the future. However, those that can afford it have set their sights on an even higher goal: new molecule discovery. Although the initial investment is huge, companies are lured by the promise of hefty profit margins and have a legitimate competitor in the global industry. Local firms have slowly been investing more money into their R&D programs or have formed alliances to tap into these opportunities.

As promising as the future is for a whole, the outlook for small and medium enterprises (SME) is not as bright. The excise structure changed so that companies now have to pay a 16% tax on the maximum retail price (MRP) of their products, as opposed to on the ex-factory price. Consequently, larger companies are cutting back on outsourcing and what business is left is shifting to companies with facilities in the four tax-free states – Himachal Pradesh, Jammu & Kashmir, Uttaranchal and Jharkhand. Consequently a large number of pharmaceutical manufacturers shifted their plant to these states, as it became almost impossible to continue operating in non-tax free zones. But in a matter of a couple of years the excise duty was revised on two occasions, first it was reduced to 8% and then to 4%. As a result the benefits of shifting to a tax free zone were negated. This resulted in, factories in the tax free zones, to start up third party manufacturing. Under this these factories produced goods under the brand names of other parties on job work basis.

As SMEs wrestled with the tax structure, they were also scrambling to meet the 1 July deadline for compliance with the revised Schedule M Good Manufacturing Practices (GMP). While this should be beneficial to consumers and the industry at large, SMEs have been finding it difficult to find the funds to upgrade their manufacturing plants, resulting in the closure of many facilities. Others invested the money to bring their facilities to compliance, but these operations were located in non-tax-free states, making it difficult to compete in the wake of the new excise tax.

Even after the increased investment, market leaders such as Ranbaxy and Dr. Reddy’s Laboratories spent only 5–10% of their revenues on R&D, lagging behind Western pharmaceuticals like Pfizer, whose research budget last year was greater than the combined

revenues of the entire Indian pharmaceutical industry. This disparity is too great to be explained by cost differentials, and it comes when advances in genomics have made research equipment more expensive than ever. The drug discovery process is further hindered by a dearth of qualified molecular biologists. Due to the disconnect between curriculum and industry, pharma in India also lack the academic collaboration that is crucial to drug development in the West and so far.

Unlike in other countries, the difference between biotechnology and pharmaceuticals remains fairly defined in India. Bio-tech there still plays the role of pharma’s little sister, but many outsiders have high expectations for the future. India accounted for 2% of the $41 billion global biotech market and in 2003 was ranked 3rd in the Asia-Pacific region and 11th in the world in number of biotech. In 2004-5, the Indian biotech industry saw its revenues grow 37% to $1.1 billion. The Indian biotech market is dominated by bio pharmaceuticals; 75% of 2004–5 revenues came from bio-pharmaceuticals, which saw 30% growth last year. Of the revenues from bio-pharmaceuticals, vaccines led the way, comprising 47% of sales. Biologics and large-molecule drugs tend to be more expensive than small-molecule drugs, and India hopes to sweep the market in bio-generics and contract manufacturing as drugs go off patent and Indian companies upgrade their manufacturing capabilities.

Most companies in the biotech sector are extremely small, with only two firms breaking 100 million dollars in revenues. At last count there were 265 firms registered in India, over 75% of which were incorporated in the last five years. The newness of the companies explains the industry’s high consolidation in both physical and financial terms. Almost 50% of all biotech are in or around Bangalore, and the top ten companies capture 47% of the market. The top five companies were home grown; Indian firms account for 62% of the bio-pharma sector and 52% of the industry as a whole. The Association of Biotechnology-Led Enterprises (ABLE) is aiming to grow the industry to $5 billion in revenues generated by 1 million employees by 2009, and data from the Confederation of Indian Industry (CII) seem to suggest that it is possible.

The government has also taken steps to encourage foreign investment in its biotech sector. An initiative passed earlier this year allowed 100% foreign direct investment without compulsory licensing from the government. In April, a delegation headed by the Kapil Sibal, the minister of science and technology and ocean development, visited five cities in the US to encourage investment in India, with special emphasis on biotech. Just two months later, Sibal returned to the US to unveil India’s biotech growth strategy at the BIO2005 conference in Philadelphia.

The biotech sector faces some major challenges in its quest for growth. Chief among them is a lack of funding, particularly for firms that are just starting out. The most likely sources of funds are government grants and venture capital, which is a relatively young industry in India. Government grants are difficult to secure, and due to the expensive and uncertain nature of biotech research, venture capitalists are reluctant to invest in firms that have not yet developed a commercially viable product.

The government has addressed the problem of educated but unqualified candidates in its Draft National Biotech Development Strategy. This plan included a proposal to create a National Task Force that will work with the biotech industry to revise the curriculum for undergraduate and graduate study in life sciences and biotechnology. The government’s strategy also stated intentions to increase the number of PhD Fellowships awarded by the Department of Biotechnology to 200 per year. These human resources will be further

leveraged with a "Bio-Edu-Grid" that will knit together the resources of the academic and scientific industrial communities, much as they are in the US.

PORTER FIVE FORCE MODEL

Today's business environment is extremely competitive and in economics parlance where perfect competition exists, the profits of the firms operating in that industry will become zero.

However, this is not possible because, firstly no company is a price taker (i.e. no company will operate where profits are zero).

Secondly, they strive to create a competitive advantage to thrive in the competitive scenario. Michael Porter, considered to be one of the foremost gurus' of management, developed the famous five-force model, which influences an industry.

In this article, we apply this model for the Indian pharma industry.

Competition Pharma industry is one of the most competitive industries in the country with as many as 10,000 different players fighting for the same pie. The rivalry in the industry can be gauged from the fact that the top player in the country has only 6% market share, and the top five players together have about 18% market share.

Thus, the concentration ratio for this industry is very low. High growth prospects make it attractive for new players to enter in the industry.

Another major factor that adds to the industry rivalry is the fact that the entry barriers to pharma industry are very low. The fixed cost requirement is low but the need for working capital is high.

The fixed asset turnover, which is one of the gauges of fixed cost requirements, tells us that in bigger companies this ratio is in the range of 3.5 to 4 times. For smaller companies, it would be even higher.

Many smaller players that are focused on a particular region, have a better hang of the distribution channel, making it easier to succeed, albeit in a limited way.

An important fact is that pharma is a stable market and its growth rate generally tracks the economic growth of the country with some multiple (1.2 times average in India). Though volume growth has been consistent over a period of time, value growth has not followed in tandem.

The product differentiation is one key factor, which gives competitive advantage to the firms in any industry. However, in pharma industry product differentiation is not possible since India has followed process patents till date, with laws favouring imitators.

Consequently, product differentiation is not the driver, cost competitiveness is. However, companies like Pfizer and Glaxo have created big brands in over the years, which act as product differentiation tools. This will enhance over the long term, as product patents come into play from 2005.

Bargaining power of buyers

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

Bargaining power of suppliers

The pharma industry depends upon several organic chemicals. The chemical industry is again very competitive and fragmented. The chemicals used in the pharma industry are largely a commodity.

The suppliers have very low bargaining power and the companies in the pharma industry can switch from their suppliers without incurring a very high cost.

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

Barriers to entry

Pharma industry is one of the most easily accessible industries for an entrepreneur in India. The capital requirement for the industry is very low, creating a regional distribution network is easy, since the point of sales is restricted in this industry in India.

However, creating brand awareness and franchisee amongst doctors is the key for long-term survival. Also, quality regulations by the government may put some hindrance for establishing new manufacturing operations.

Going forward, the impending new patent regime will raise the barriers to entry. But it is unlikely to discourage new entrants, as market for generics will be as huge.

Threat of substitutes

This is one of the great advantages of the pharma industry. Whatever happens, demand for pharma products continues and the industry thrives. One of the key reasons for high competitiveness in the industry is that as an on going concern, pharma industry seems to have an infinite future.

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

Conclusion

This model gives a fair idea about the industry in which a company operates and the various external forces that influence it.

However, it must be noted that any industry is not static in nature. It's dynamic and over a period of time the model, which have used to analyse the pharma industry may itself evolve.

Going forward, we foresee increasing competition in the industry but the form of competition will be different. It will be between large players (with economies of scale) and it may be possible that some kind of oligopoly or cartels come into play.

This is owing to the fact that the industry will move towards consolidation. The larger players in the industry will survive with their proprietary products and strong franchisee.

In the Indian context, companies like Biocon, Cipla, Ranbaxy and Glaxo are likely to be key players. Though consolidation within the current big names is not ruled out. Smaller fringe players, who have no differentiating strengths, are likely to either be acquired or cease to exist.

The barriers to entry will increase going forward. The change in the patent regime will see new proprietary products coming up, making imitation difficult. The players with huge capacity will be able to influence substantial power on the fringe players by their aggressive pricing which will create hindrance for the smaller players.

Economies of scale will play an important part too. Last but not the least, in a vast country of India's size, government too will have bigger role to play.

SWOT Analysis of the Industry

The SWOT analysis of the industry reveals the position of the Indian pharmaceutical industry in respect to its internal and external environment. a) Strengths

• Higher GDP growth leading to increased disposable income in the hands of general public and their positive attitude towards spending on healthcare. • Low-cost, highly skilled set of English speaking labour force and proven track record in design of high technology manufacturing devices. • Growing treatment naive patient population. • Low cost of innovation, manufacturing and operations. b) Weaknesses

• Stringent pricing regulations affecting the profitability of pharma companies. • Poor all-round infrastructure is a major challenge. • Presence of more unorganised players versus the organised ones, resulting in an increasingly competitive environment, characterised by stiff price competition. • Poor health insurance coverage. c) Opportunities

• Global demand for generics rising. • Rapid OTC and generic market growth. • Increased penetration in the non - metro markets. • Large demand for quality diagnostic services. • Significant investment from MNCs. • Public-Private Partnerships for strengthening Infrastructure. • Opening of the health insurance sector and increase in per capita income - the growth drivers for the pharmaceutical industry. • India, a potentially preferred global outsourcing hub for pharmaceutical products due to low cost of skilled labour. d) Threats

• Wage inflation. • Government expanding the umbrella of the Drugs Price Control Order (DPCO). • Other low-cost countries such as China and Israel affecting outsourcing demand for Indian pharmaceutical products • Entry of foreign players (well equipped technology-based products) into the Indian market.

Conclusion Overall growth outlook for the Indian drugs and pharmaceutical industry appears positive. Pharma manufacturers are likely to benefit from rise in demand for generic products. Some of the factors that would drive growth in the domestic pharma industry are: 1) low cost operations 2) research-based processes 3) improvements in API and 4) availability of skilled manpower. The domestic formulations and bulk drugs markets are currently facing price pressure as benefits of cheaper drugs have been shifted to end-users and trade channels. Hence, consolidation, partnership and alliances are expected to gather momentum in the near future. Off patenting of branded drugs would increase demand for generic drugs. This provides immense opportunities to the Indian pharmaceutical companies especially given their prior experience in generic drug development. Some other factors such as high penetration in the global markets and increase of share in Abbreviated New Drug Application (ANDA) filings are likely to power growth of the formulations market. Major growth drivers for the Indian bulk drug industry include rise in demand for contract manufacturing, increase of share in Drug Master Files (DMF) filings and process innovation. Furthermore, initiatives of the Government will act as a backbone for growth. Some such initiatives include: 1) allowing 100% FDI under the automatic route in drugs and pharmaceuticals including those involving use of recombinant technology 2) increasing weighted tax deduction on expenditure in in-house R&D activities to 200% in the Budget 2010 and 3) setting up a US$ 639.56 mn venture capital fund to support drug discovery and strengthen pharmaceutical infrastructure. Main Players of the Pharma Industry of India:

1. Dr Reddys Labs: With total net sales of Rs 8,434 crore, Dr Reddys Labsis the largest pharmaceutical company in India.

2. Cipla: With total net sales of Rs 8,202 crore Cipla is the second largest pharmaceutical company in India.

3. Lupin: With total net sales of Rs 7,122.51 crore Lupin is the third largest pharmaceutical company in India.

4. Ranbaxy Labs: It is the fourth largest pharma company in India with the total net sales of Rs 6,303.54 crore.

5. Aurobindo Pharma: Aurobindo Pharma is on 5th position with the total net sales of Rs 5,425.10 crore.

6. Cadila Health: Cadila Health is the sixth largest pharma company with the total sales revenue of Rs 3,152.20 crore.

7. Torrent Pharma: It is the seventh largest pharma company with the total sales revenue of Rs 2,766.23 crore.

8. Jubilant Life: Eight largest company has the total sale revenue at Rs 2,641.07 crore. 9. Glaxo SmithKline:It has the total net sales of 2,630.30 crore and the ninth largest

pharmaceutical company in India. 10. Wockhardt: Revenue of Rs 2,560.10 crore makes Wockhardt India's 10th largest

pharma firm by sales.

SUN PHARMA

Sun Pharmaceutical Industries Limited (NSE: SUNPHARMA, BSE: 524715) is an multinational pharmaceutical company headquartered in Mumbai, Maharashtra that manufactures and sells pharmaceutical formulations and active pharmaceutical ingredients (APIs) primarily in India and the United States. The company offers formulations in various therapeutic areas, such as cardiology, psychiatry, neurology, gastroenterology anddiabetology. It also provides APIs such as warfarin, carbamazepine, etodolac, and clorazepate, as well as anticancers, steroids, peptides, sex hormones, and controlled substances.

Sun Pharmaceuticals was established by Mr. Dilip Shanghvi in 1983 in Kolkata with five products to treat psychiatry ailments. Cardiology products were introduced in 1987 followed by gastroenterology products in 1989. Today it is the largest chronic prescription company in India and a market leader in psychiatry, neurology, cardiology, orthopedics, ophthalmology, gastroenterology and nephrology. Some of the top brands of the company include pantocid, susten, aztor, gemer, repace, glucored, strocit, clopilet and cardivas. Over 57% of Sun Pharma sales are from markets outside India, primarily in the US. Manufacturing is across 23 locations, including the US, Canada, Brazil, Mexico and Israel. In the US, the company markets over 200 generics, with another 150 awaiting approval from the U.S. Food and Drug Administration (FDA).

Sun Pharma was listed on the stock exchange in 1994 in an issue oversubscribed 55 times. The founding family continues to hold a majority stake in the company. Today Sun Pharma is the third largest and the most profitable pharmaceutical company in India as well as the largest pharmaceutical company by market capitalisation on the Indian exchanges. The Indian pharmaceutical industry has become the third largest producer in the world in terms of volumes and is poised to grow into an industry of $20 billion in 2015 from the current turnover of $12 billion. In terms of value India still stands at number 14 in the world.

Ranbaxy Laboratories Limited

Ranbaxy Laboratories Limited (BSE: 500359) is an Indian multinational pharmaceutical company that was incorporated in India in 1961. The company went public in 1973 and Japanese pharmaceutical company Daiichi Sankyo acquired a controlling share in 2008. Ranbaxy exports its products to 125 countries with ground operations in 43 and manufacturing facilities in eight countries. In 2011, Ranbaxy Global Consumer Health Care received the OTC Company of the year award.

It is a research based international pharmaceutical company serving customers in over 150 countries. For more than 50 years, they have been providing high quality, affordable

medicines trusted by healthcare professionals and patients. Most of its products are manufactured under licence from foreign pharmaceutical developers, though a significant percentage of their products are off-patent drugs that are manufactured and distributed without licensing from the original manufacturer because the patents on such drugs have expired.

It is a vertically integrated company that develops, manufactures and market Generic, Branded Generic, Value-added and Over-the-Counter (OTC) products, Anti-retroviral (ARVs), Active Pharmaceutical Ingredients (APIs), and Intermediates. It has a large portfolio of over 500 molecules that cover multiple dosage forms including tablets, capsules, injectables, inhalers, ointments, creams and liquids.

BIOCON

Biocon, India's largest biotech company is focused on delivering affordable innovation. It is committed to reduce therapy costs of chronic diseases like diabetes, cancer and autoimmune diseases by leveraging India's cost advantage to deliver affordable healthcare solutions to patients, partners and healthcare systems across the globe.

Biocon's key innovations include world's first Pichia based recombinant human Insulin, INSUGEN®, insulin analogue Glargine, BASALOG® and India's first indigenously produced monoclonal antibody BioMAb-EGFR®, for head & neck cancer. INSUPen® is a next generation affordable insulin delivery device introduced in India by Biocon.

Its aspiration to become a US $ 1 billion company by FY 18 is fuelled by five powerful growth accelerators, Small Molecules, Biosimilars, Branded Formulations, Novel Molecules, and Research Services with a focus on emerging markets.

Over the decades, Biocon has successfully evolved into an emerging global biopharma enterprise, serving its partners and customers in over 75 countries. As a fully integrated bio pharma company it delivers innovative biopharmaceutical solutions, ranging from discovery to development and commercialization, leveraging the cutting edge science, cost-effective drug development capabilities and global scale manufacturing capacities, to move ideas to market.

Leveraging India's globally competitive cost base and exceptional scientific talent, the Company is advancing its in-house R&D programs, and is also providing integrated research services to leading global pharmaceutical and biotechnology companies through Syngene and Clinigene.

Biocon has rapidly developed a robust novel and biosimilars pipeline, focusing on Diabetes, Oncology and auto-immune diseases, which has several molecules at different stages of the development cycle.

With the successful commercial launch of its first anti-cancer drug and several promising discovery partnerships in the clinic, the Company remains committed to scaling new heights in frontier science and achieving new milestones in affordable medicine.

To navigate the challenges of innovation in the next decade we have adopted a well-defined strategic framework that will transform scientific discoveries into advances in human healthcare and generate incremental value for our shareholders.

RATIO ANALYSIS: Ratio Analysis is very important concept to judge a industry's fundamentals, it can be said that it is a tool used to conduct a quantitative analysis of information in a company's financial statements like Profit and Loss account, Balance sheets and cash flow statement . With the help of past data u can judge the company’s current financial performance. Important ratios are listed below:

1. Liquidity Ratio. 2. Solvency Ratio 3. Profitability Ratio 4. Management Efficiency Ratio 5. Valuation Ratio

1. LIQUIDITY RATIO: These ratios refer to the ability of a firm to meet its short term

obligations, as and when they become due. These are further categorized as:

Current Ratio: An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations.

A liquidity ratio that measures a company's ability to pay short-term obligations.

The Current Ratio formula is:

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry.

This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory and prepaid as assets that can be liquidated. The components of current ratio (current assets and current liabilities) can be used to derive working capital (difference between current assets and current liabilities). Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales.

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma Current Ratio 2.03 1.62 0.81 1.95 1.59 2.31

INTERPRETATION: As said above the current ratio signifies the capability of a firm to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). So we conclude that Sun Pharma has the maximum to meet short term liabilities while Ranbaxy has the least capability.

1. QUICK RATIO: An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most

2.03

1.62

0.81

1.95

1.59

2.31

Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma

Current RatioCurrent Ratio

liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows:

sLiabilitieCurrent

sInventorieAssetCurrentRatioQuick_

__

The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company's liquidity position. Also known as the “acid-test ratio" or "quick assets ratio." Quick ratio specifies whether the assets that can be quickly converted into cash are sufficient to cover current liabilities. Ideally, quick ratio should be 1:1. If quick ratio is higher, company may keep too much cash on hand or have a problem collecting its accounts receivable. Higher quick ratio is needed when the company has difficulty borrowing on short-term notes. A quick ratio higher than 1:1 indicates that the business can meet its current financial obligations with the available quick funds on hand. A quick ratio lower than 1:1 may indicate that the company relies too much on inventory or other assets to pay its short-term liabilities. Many lenders are interested in this ratio because it does not include inventory, which may or may not be easily converted into cash.

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma Liquid Ratio 1.76 2.02 0.95 1.68 1.69 1.82

1.762.02

0.95

1.68 1.69 1.82

Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma

Liquid RatioLiquid Ratio

INTERPRETATION: As discussed earlier, quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets

2. SOLVENCY RATIO: These ratios reflects the ability of the firm to meet its long term obligations, the long term amount borrowed from debenture holders, those who have sold their assets on credit and long term loan from bank or financial institutes.

i. Debt Equity Ratio: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as corporate ones. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5.

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma Debt Equity Ratio 0.07 0.2 2.48 0.11 0.11 0.01

INTERPRETATION: Higher debt to equity ratio signifies more pressure on the equity holders. As seen from above only Ranbaxy is facing problems in terms of debt equity ratio i.e. only Ranbaxy has more debt than the equity and that too of 2.48 times. Sun Pharma is in the best condition with a minimal debt equity ratio of 0.01:1.

3. DEBT-COVERAGE RATIO: Debt coverage ratio refers to the amount of cash flow available to meet annual interest and principal payments on debt.

i. Interest Coverage Ratio: A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period:

The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.

Significance:

This ratio reflects earning capacity of the business to pay its interest burden. It

shows EBIT as number of times the interest.

Higher the ratio, business can easily pay the interest.

If the ratio is low or EBIT is declining, there may arise financial difficulty for

payment of interest or short term solvency is in danger.

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma Interest Coverage Ratio 165.18 29.55 1.73 61.27 52.8 Not Available

165.18

29.55

1.73

61.27 52.8

0

Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma

Interest Coverage RatioInterest Coverage Ratio

INTERPRETATION: Interest coverage ratio as said earlier, signifies the efficiency to pay interest on the loan. Ranbaxy already under high debt (as discussed earlier) so the interest paying capability is low for Ranbaxy.

4. PROFITABILITY RATIO: A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well. i. Returns on Capital Employed: Return on Capital Employed ratio indicates

whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. It measures management’s performance. A higher ROCE indicates more efficient use of capital. ROCE should be higher than the company’s capital cost; otherwise it indicates that the company is not employing its capital effectively and is not generating shareholder value.

Significance -

Return on Capital Employed expresses efficiency and inefficiency of a business.

This ratio has a great importance to the shareholders and investors and also to investors.

TO the shareholders it indicates how much their capital is earning and to the management as to how efficiently it has been working.

The ratio influences the market price of the shares.

EmployedCapitalTaxInterestbeforeofitEmployedCapitalonturn

_&__Pr___Re

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma Return on Capital Employed 12.52 19.36 7.68 20.79 32.52 Not Available

12.52

19.36

7.68

20.79

32.52

0

Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma

Return on Capital EmployedReturn on Capital Employed

INTERPRETATION: Return on capital Employed signifies the efficiency of the management to utilize the available capital in earning the maximum profit. Lupin is the most efficient in utilizing fund due to proper management of the available assets. Leading to attract maximum investors. Similarly Ranbaxy is performing not up to the mark. Thus the valuation of Ranbaxy is going down. ii. EARNING BEFORE INCOME & TAX MARGIN: EBIT margin is the

ratio of Earnings before Interest and Taxes to net revenue –earned. It is a measure of a company’s profitability on sales over a specific time period. This indicator gives information on a company’s earnings ability. Increase in EBIT is mainly due to growth of net revenue, good cost control and strong productivity, Decrease in EBIT margin largely results from reduction in revenue and higher operating costs. EBIT margin is most useful when compared against other companies in the same industry. The higher EBIT margin reflects the more efficient cost management or the more profitable business. If no positive EBIT margin can be generated over a longer period, then the company should rethink the business model.

100*Re_

&__arg_

EarnedvenueNet

TaxInterestBeforeEarninginMEBIT

In other words, EBIT is all profits before taking into account interest payments and income taxes. An important factor contributing to the widespread use of EBIT is the way in which it nulls the effects of the different capital structures and tax rates used by different companies. By excluding both taxes and interest expenses, the figure hones in on the company's ability to profit and thus makes for easier cross-company comparisons. EBIT was the precursor to the EBITDA calculation, which takes the process further by removing two non-cash items from the equation (depreciation and amortization).

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma EBIT 15 19.5 3.91 21.53 24.26 Not Available

INTERPRETATION: Lupin has marginal benefit over Cipla in terms of EBIT margin i.e. Lupin has better earning ability over other competitors. Ranbaxy as seen from other parameters is suffering high operating cost is the least again in this ratio as well.

5. MANAGEMENT EFFICIENCY RATIO: Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery.

i. Inventory Turnover Ratio: Inventory turnover ratio is one of the efficiency ratios and measures the number of times, on average; the inventory is sold and replaced during the fiscal year. Inventory Turnover Ratio formula is:

2____

____BalanaceInventoryEndingBalanceInventoryBeginning

GoodsofCostRatioTurnoverInventory

This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying.

High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma Inventory Turnover Ratios 4.9 5.53 3.64 3.5 5.35 Not Available

INTERPRETATION: Dr. Reddys being the leader of Indian Pharma industry has the maximum inventory turnover ratio, i.e. they are able to sell maximum times their inventories. Whereas Cipla finds it most difficult to sell their inventories.

ii. Debtors Turnover Ratio: It is a component of current assets and as such has direct influence on working capital position (liquidity) of the business. Perhaps,

no business can afford to make cash sales only thus extending credit to the customers is a necessary.

Significance:

Debtor turnover ratio is computed to judge the efficiency of firm’s credit policy.

Higher the debtors turnover ratio better it is. Higher turnover signifies speedy and effective collection. Lower turnover indicates sluggish and inefficient collection leading to the doubts that receivables might contain significant doubtful debts.

A low turnover is usually a bad sign because products tend to deteriorate as they sit in a warehouse.

Companies selling perishable items have very high turnover. For more accurate inventory turnover figures, the average inventory figure,

((beginning inventory + ending inventory)/2), is used when computing inventory turnover. Average inventory accounts for any seasonality effects on the ratio.

Receivables collection period is expressed in number of days. It should be compared with the period of credit allowed by the management to the customers as a matter of policy. Such comparison will help to decide whether receivables collection management is efficient or inefficient.

Debtors Turnover Ratio = Net Credit Sales

Average Debtors + Average Bills Receivable

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma Debtor Turnover Ratio 3.6 3.44 2.46 5.18 4.23 3.35

3.6 3.44

2.46

5.18

4.23

3.35

Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma

Debtor Turnover RatioDebtor Turnover Ratio

INTERPRETATION: Higher the debtors turnover ratio better it is. Higher turnover signifies speedy and effective collection. Lower turnover indicates sluggish and inefficient collection leading to the doubts that receivables might contain significant doubtful debts. Cipla having the maximum debtor turnover ratio, has best credit policy while Ranbaxy again faces problem in the credit policy as well.

6. CASH FLOW INDICATOR RATIO: The statement of cash flows has three distinct sections, each of which relates to an aspect of a company's cash flow activities - operations, investing and financing. In this ratio, we use the figure for operating cash flow, which is also variously described in financial reporting as simply "cash flow", "cash flow provided by operations", "cash flow from operating activities" and "net cash provided (used) by operating activities".

i. Dividend Payout Ratio: Dividend payout ratio compares the dividends paid by a company to its earnings. The relationship between dividends and earnings is important. The part of earnings that is not paid out in dividends is used for reinvestment and growth in future earnings. Investors who are interested in short term earnings prefer to invest in companies with high dividend payout ratio. On the other hand, investors who prefer to have capital growth like to invest in companies with lower dividend payout ratio.

100*__

___

EarningsNetTotalDividendsTotalRatioPayoutDividend

The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio.

Name Biocon Dr. Reddy Ranbaxy Cipla Lupin Sun Pharma

Divident Payout Ratos 39.13 20.13 Not Available 12.46 16.61 100.24

INTERPRETATION: An average dividend payout ratio is always appreciated as the company should always pay dividends to its share holders but at the same time it should also save some amount for the growth of organization. Sun Pharma has very high dividend payout ratio, which signifies that it is not saving its earnings for the future growth. Whereas Cipla and Lupin have very low dividend payout ratio, which might get dissatisfaction in share holder’s mind. Biocon maintains a decent dividend payout ratio to maintain a harmony among the investors and the growth of the organization. VARIATION IN STOCK VALUES DR. Reddys’ YEAR BSE NSE 2010 1662.55 1662.85 2011 1577.95 1577.95 2012 1826.85 1829.75 2013 2533.05 2534.6 2014 (7th march) 2726.25 2725.30

Cipla YEAR BSE NSE 2010 369.9 369.05 2011 321.25 319.9 2012 416.4 414.25 2013 400.25 400.05 2014 (7th march) 380.95 381.2 Lupin YEAR BSE NSE 2010 473.6 482.45 2011 439.85 436.7 2012 613.05 613.5 2013 908.6 905.95 2014 (7th march) 965.75 966.3 Ranbaxy YEAR BSE NSE 2010 598.65 572.5 2011 405.25 404.9 2012 502.45 500.05 2013 453.1 452.2 2014 (7th march) 370.1 370.35

BIOCON

YEAR BSE NSE 2010 421.75 417.2 2011 279.15 267.75 2012 283.65 286.8 2013 461.6 461.4 2014 (7th march) 442.25 442.05 INTERPRETATION: All the company lays in approximately the same region, other than Dr. Reddy’s proving the market supremacy yet again. SCOPE: Over the years pharmacy has grown in the form of pharmaceuticals sciences through research and development processes. It is related to product as well as to services. This profession has a large socio-economic relevance to the Indian economy. In India this sector is among the future economy drivers. It is committed to deliver high quality drugs and formulations at an affordable price, so that majority of people can afford them. The transformation of the sector from conventional pharmacy to drug experts, which is both desired and necessary to reach the global standards, has already made commendable progress. Liberalization, privatization and globalization (LPG) have helped the Indian pharmaceutical companies to achieve international recognition. It's remarkable to note that today several Indian pharma companies are approved by US FDA and are listed at NASDAQ. The multibillion-dollar pharma industry grows mainly through knowledge wealth creation. This sector has transformed a lot over the years. The big pharma companies that were there about 15-20 years back are not in picture these days. The analysis of Indian pharmaceutical sector shows that the innovative products, product life cycle management and marketing management steps taken by the pharma companies have led them to flourish. And the companies that refused to change their strategy lost the race. Cipla and Sun Pharma are two companies that are focused on new product development and have grown tremendously. The Indian Pharma industry has been able to claim a share in the global market by leveraging its strengths and enhancing its regulatory and technical maturity. Formulations manufactured in India constitute 20 per cent of the global generics market by value, and the overall share of Indian manufactured formulations is as high as 46 per cent in the generics segment in the emerging markets.

The drugs and pharmaceuticals sector attracted foreign direct investments (FDI) worth US$ 5.03 billion between April 2000 and November 2013, according to the latest data published by Department of Industrial Policy and Promotion (DIPP) CONCLUSION: Overall growth outlook for the Indian drugs and pharmaceutical industry appears positive. Pharma manufacturers are likely to benefit from rise in demand for generic products. Some of the factors that would drive growth in the domestic pharma industry are: 1) low cost operations 2) research-based processes 3) improvements in API and 4) availability of skilled manpower. The domestic formulations and bulk drugs markets are currently facing price pressure as benefits of cheaper drugs have been shifted to end-users and trade channels. Hence, consolidation, partnership and alliances are expected to gather momentum in the near future. Off patenting of branded drugs would increase demand for generic drugs. This provides immense opportunities to the Indian pharmaceutical companies especially given their prior experience in generic drug development. Some other factors such as high penetration in the global markets and increase of share in Abbreviated New Drug Application (ANDA) filings are likely to power growth of the formulations market. Major growth drivers for the Indian bulk drug industry include rise in demand for contract manufacturing, increase of share in Drug Master Files (DMF) filings and process innovation. Furthermore, initiatives of the Government will act as a backbone for growth. Some such initiatives include: 1) allowing 100% FDI under the automatic route in drugs and pharmaceuticals including those involving use of recombinant technology 2) Increasing weighted tax deduction on expenditure in in-house R&D activities to 200% in the Budget 2013 and 3) setting up a US$ 639.56 mn venture capital fund to support drug discovery and strengthen pharmaceutical infrastructure. India’s drug discovery and development capabilities will without doubt continue to expand. In their efforts to outsource and to partner drug discovery projects, Western pharmaceutical companies will be faced with the challenge, given the wealth of activities and services available, to decide internally on what activities to perform externally, then to select the right partner, without falling into the classical traps that have in the past hampered outsourcing initiatives. These include above all inefficient preparation, unrealistic expectations, lack of trust, and lack of communication, not to mention perceived cultural differences. All of these potential issues can be significantly reduced, even avoided, provided externalising drug discovery is not anymore considered as a tactical tool to reduce R&D costs, but as a unique strategic opportunity to tap into a wealth of drug discovery resources. It is a dynamic and challenging environment, which requires preparation, company intelligence and, once collaboration is in place, an appropriate alliance management, but the results can be uniquely rewarding.