report on strategic tools analysis_pharmaceutical industry

7/29/2019 Report on Strategic Tools Analysis_Pharmaceutical Industry.

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Report onStrategic Tools Analysis for

Pharmaceutical Industry

Submitted to: Submitted By

Mr. Jayant Bose Abhay Duseja ((P301311CMG201)Course In charge Agnel Vas(P301311CMG207)Business Planning, Policy & Strategy AmulpreetSehgal(P301311CMG209)

Ankit Jain (P301311CMG213)Ashish shah(P301311CMG218)Deepesh Agrawal (P301311CMG223)

NIIT University, Neemrana


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Strategic Tools Analysis for Pharmaceutical Industry `

Page 1

ContentsOverview of Indian Pharmaceutical Industry.............................................................. 2

Introduction to Dr Reddys Laboratories .................................................................... 4

Manufacturing facilities and R&D............................................................................. 4

Business profile ........................................................................................................ 4

Market Position ........................................................................................................ 5

Key developments ................................................................................................... 5

PEST Analysis.............................................................................................................. 6

External Factor Analysis Summary (EFAS) ................................................................ 7

Steps for EFAS ......................................................................................................... 7

EFAS for Pharmaceutical Industry ........................................................................... 8

External Factor Analysis Score ................................................................................ 9

Internal Factor Analysis Summary (IFAS) ................................................................. 10

Steps for IFAS ........................................................................................................ 10

IFAS for Dr Reddys Labs....................................................................................... 11

Internal Factors Details .......................................................................................... 12

Internal Factor Analysis Score ............................................................................... 13

Strategic Factor Analysis Summary (SFAS) ............................................................. 14

TWOS Matrix ............................................................................................................. 15

Porter's Competitive strategy Analysis ..................................................................... 16

Recommendations .................................................................................................... 17

References ................................................................................................................. 19


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Overview of Indian Pharmaceutical Industry

The Indian pharmaceutical industry is estimated to be worth $29.9 billion (includingexports) in 2011-12. Of this,the domestic formulations market was valued at $11.6 billion(or Rs 556.6 billion). In value terms, it constituted only 1.2 per cent of the global

pharmaceutical market because of lower drug prices and lower penetration of healthcarevis-a-vis developed markets, such as the US and Europe. India spends just 1.4 per centof its total gross domestic product on healthcare; the country ranks amongst the lowestin this respect. In contrast, the corresponding figure for developed countries is in excessof 6.5-8 per cent of GDP.

Pharmaceutical Value Chain

Pharmaceutical value chain

Source: CRISIL Research

Bulk drugs or active pharmaceutical ingredients ( APIs), are raw materials used tomanufacture formulations, which in turn, are ready-to-use forms of bulk drugs(including capsules, tablets, syrups and injections) administered to patients. Bulkdrugs are manufactured by combining more than two chemicals or intermediaries. Theydirectly affect the diagnosis, cure, mitigation, treatment or prevention of a disease.

Domestic formulation industry highly fragmented

Over 100,000 drugs across various therapeutic categories ar e produced annually inIndia. The domestic formulations industry is highly fragmented in terms of both numberof manufacturers as well as the variety of products. There are 300-400 organized playersand about 15,000 unorganized players (small scale sector) in this industry.However, in terms of sales, the formulations market is dominated by organizedplayers.


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Regimes of Pharmaceutical Industry Pre Patent regime

The Indian pharmaceutical industry has grown rapidly over the last few decades.Prior to 2005, the Indian regulatory system recognized only process patents

Post Patent regimeIn line with its commitments to the WTO, the Indian government passed anordinance to introduce the product patent regime w.e.f. January 2005.

Pharmaceutical Value Chain

Bulk drugs are manufactured by combining more than two chemicals orintermediaries

Bulk drugs or active pharmaceutical ingredients (APIs) are raw materials, used toform formulations, which in turn, are ready-to administered to patients

Chemical /Intermediaries

Active Pharmaceutical Ingredients(API)/Bulk Drugs

Formulations


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Page 4

Introduction to Dr Reddys Laboratories

Dr Reddy's Laboratories (DRL) was founded by Dr Anji Reddy in 1984. One of India's largest pharmaceutical companies, in terms of revenues. The company has over 190 medications, 60 active pharmaceutical ingredients(APIs) for

drug manufacture, diagnostic kits,critical care, and biotechnology products.

DRL commenced operations as a supplier to Indian drug manufacturers. Subsequently,in the late 1980s, the company started exporting products to semi-regulated markets

and gradually expanded its scale of operations.

By the early 1990s, the company shifted focus towards acquiring approvals for itsformulations and bulk drugs in regulated markets, such as the US and Europe.

Manufacturing facilities and R&D DRL has eight API manufacturing units - six in India, and one each, in Mexico and the

UK. All these facilities are approved by the US FDA.

The company has seven formulation manufacturing facilities in India (of which, 2are approved by the US FDA) and two manufacturing units in the US (both approved

by the US FDA).

Additionally, the company has a biologics facility in Andhra Pradesh, which hasapproval from various regulatory agencies.

Further, DRL has three technology development centers; two in Hyderabad and one inUK. It also has two R&D centres, one each in Bangalore and Hyderabad.

Business profile DRL is present across the pharmaceutical value chain. It produces formulations, active

pharmaceutical ingredients (APIs), diagnostic kits, critical care products, and

biotechnology products.

At present, it also has a handful of molecules or New Chemical Entities (NCEs) inthe discovery and pre-clinical stages.

DRL sells its products in approximately 100 countries worldwide, with the US,Russia and European countries, being the major markets.

The company has strategic alliances with global firms, such as Par Pharmaceuticals,Leiner Health Products, Cobalt Pharmaceuticals, Pharmascience, Merck Sereno etc.


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Market Position DRL is the 15th largest player in the domestic market, with a 2.09 per cent share, as

of March 2012.

Mainly derives revenues through exports and has a strong pipeline of ANDAs (80ANDAs pending with the US FDA, as of March 2012) and drug master files (543 asof March 2012).

Gastro-intestinal, cardio-vascular and pain analgesics are the top therapeuticcategories for DRL.

These segments jointly constitute more than 55 per cent of DRL's total domesticformulation revenues. The companys top brands are Omez (acute gastritis),

Stamlo (chronic) and Nise (acute).

Key developments In June 2012, DRL entered into a partner ship with Merck Serono (a division of

German company, Merck KGaA) to develop and manufacture a portfolio of

biosimilar drugs, primarily in the oncology segment.

Under this deal, Dr. Reddys will lead the early product development stage andcomplete the initial round of trials.

Merck Serono will have exclusive sales rights for these drugs, globally (with certainexceptions), and will pay royalty fees to Dr. Reddy's.

DRL's API plant in Mexico restarted operations from July 2012, a year after itreceived an import alert from the US FDA.


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PEST Analysis

The macro environment tends to have a long term impact and requires extensive

research. These external forces (Political, Economical, Social and Technology) will play a

big part in shaping the final outcome of the ultimate corporate achievement.

PoliticaL

-Drug controllers plan to bring

more drugs unde prcie control

-Pharmaceutical SEZs-Changes in Import and exportduties

-Concers of animal rightsorginations such as PETA andBUAV

-Implementation of productpatents

Economical

-Amount of low level medical

spending (!%)

-Low labour cost-Increasing population

-Healthcares increasingindustry penetration

-Expected hight GDP growthrate

Social

-Poor resources causingillness

-Preference of householdmedicines

-Lack of awareness due to loweduction levels

Technical

-Advancements resulting intodifferentiation and costeffetivenss

-Increased output

-NDDS-Advances capability informulation research


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External Factor Analysis Summary (EFAS)

Opportunity and Threats Gives position of a firm w.r.t. external environment, considering the following

factors

o Politicalo Economicalo Socialo Technologicalo Research and Developmento Environmental

Helps organize the External factors into the generally accepted categories ofopportunity and threats

To analyze how well the industry is responding to external factors in light of theperceived importance of these factors to the company.

Helps to formulate new strategies and policies on the basis of a firm s currentposition

Steps for EFAS


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EFAS for Pharmaceutical IndustryOpportunityExternalFactors Weight Rating WeightedScore CommentsOPPORTUNITY

Significantexportpotential

0.2 5 1 Significant export potential to thedeveloping & developed countries

Licensing dealsandcollaborations

0.15 4 0.6 Licensing deals and collaborations withMNCs for New Chemical Entities andNew Drug Delivery Systems

Contractmanufacturing

0.1 4 0.4 Contract manufacturing arrangementswith MNCs

Awareness and

Spending

0.1 3.5 0.35 Growing awareness and increasing

spending on healthMarketingoperations

0.05 4 0.2 Providing marketing operations to sellMNC products in domestic market

ThreatsExternalFactors Weight Rating WeightedScore Comments

THREATS

Product patentregime

0.15 2 0.3 Product patent regime poses seriouschallenges to domestic industries unless itinvests in R & D.

Ceilings onproduct prices

0.1 2 0.2 DPCO puts unrealistic ceilings on productprices and profitability and preventspharmaceutical companies fromgenerating investible surplus.

Research &Development

0.05 1.5 0.075 R & D efforts of Indian pharmaceuticalcompanies hampered by lack of enabling

regulatory requirement.

Currency

Fluctuations

0.1 1.5 0.15 More than 50 % of revenue is earned from

Exports which posed high risk due to

currency fluctuations


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External Factor Analysis Score

Internal Factor Weights Total Score

Opportunity 0.6 2.55Threats 0.4 .725Total 1.0 3.275 Total weighted score of Pharmaceutical Industry is above average. External factors are above average :

o Significant export potential to the developing & developed countrieso Licensing deals and collaborations with MNCs for New Chemical Entities

and New Drug Delivery Systems


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Internal Factor Analysis Summary (IFAS)

IFAS Table is one way to organize the internal factors into the generally acceptedcategories of Strengths and Weaknesses.

It gives position of a firm w.r.t. internal environment, considering the followingfactorso Financialo Managemento Human Resourceo Research & developmento Legalo Competitive

Helps organize the internal factors into the generally accepted categories ofstrengths and weaknesses

To analyze how well a particular companys management is responding to thesespecific factors in light of the perceived importance of these factors to the

Helps to formulate new strategies and policies on the basis of a firm s currentposition

Steps for IFAS


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IFAS for Dr Reddys Labs

StrengthsInternalFactors

Weight Rating WeightedScore

Comments

STRENGTHS

HumanResourceCompetency

0.08 4 0.32 Best employer in Pharmaceuticalindustry

FinancialPosition

0.15 4.5 0.675 Highest Revenue with highprofitability

CompanyManagement

0.07 4 0.28 Corporate governance & CSR

Alliances andPartnerships

0.1 3.5 0.35 Building Synergies

Approvals andInternationalCertification

0.05 4 0.2 US FDA along with USPcertifications

ExclusiveProducts

0.15 3.5 0.525 Limited competitive generics

Weakness

InternalFactors

Weight Rating WeightedScore

Comments

Weakness

Infrastructure 0.05 2.5 0.125 Limited Production facilities

Diversified

Portfolio

0.1 2 0.2 Higher concentration on Generic

products

Research &Development

0.2 1.5 0.3 Investment lowest among peers

Legal 0.05 1.5 0.075 Patent infringement, Productrecalls


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Internal Factors DetailsHuman Resource Competency

Awardso Best Employer in India 2007o Best company to work with in India 2006,2007o Best Employer in Pharmaceutical Industry in India - 2011

Leadership programs Adoption of role based organization

Key Financials

Expression Units 10-Mar 11-Mar 12-Mar

Operating Income Rs million 73293 78829 97655

Net Income Rs million 3515 9989 13009

Operating Margins Percent 23.8 21.7 25.8

Net Margins Percent 4.8 12.7 13.3

RoCE Percent 14.6 24.5 29.1

Debt/Equity Times 0.5 0.8 0.8

Interest Coverage Times 55.8 46.3 22.1

Net CashAccruals/Total Debt Times 0.4 0.5 0.5

Current Ratio Times 1.6 1.1 1.5

In 2011-12, DRL's revenues grew by 23.9 per cent y -o-y, led byhealthy growth of 68 per cent in the US market.

Growth in the company's US revenues was primarily supported bythe launch of new products, especially generic olanzapine, which waslaunched under a 180-day marketing exclusivity.

The marketing exclusivity also led to an improvement in operatingmargins by 410 bps y-o-y to 25.8 per cent.


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Company Management

Dr K. Anji Reddyo 30 years of experienceo

Has served as a member of Prime Ministers council on Trade & Industryo President of Indian Pharmaceutical allianceo Chairman of Andhra Pradesh Industrial development corporation

Awarded Golden Peacock Award for excellence in corporate governance - 2009 &2010

Awarded Best CSR activity award in Pharmaceutical Industry in 2011o LABSo Schools

Exclusive Products

4 Drugso Tacrolimuso Lansoprazoleo Omeprazoleo Fondaparinux

Contributed 32% of sales in USInternal Factor Analysis ScoreInternal Factor Weights Total ScoreStrengths 0.6 2.35Weaknesses 0.4 0.7Total 1 3.05 Total weighted score of Dr Reddys is above average. Its strategies are effective:

o Company is taking advantage of low cost generic products in emergingmarkets.

o Company is shifting its focus to research on difficult to make generic drugs


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Strategic Factor Analysis Summary (SFAS)

Strategic Factor Analysis Summary(SFAS) matrix, also referred to as Quantitative SWOT

Analysis, which is used widely across organizations globally as a key strategic planning

tool. The framework trifurcates an organizations operating environment into Societal, Task

& Internal environment respectively with the societal & task environments togetherconstituting the firms external environment.

SFAS Analysis

Total weighted score of Strategic factor Analysis summary is 3.25 which is aboveaverage.

SFAS is above average :o High Financial Position of Dr. Reddy Lab due to high revenue and high

profitability

o Significant export potential to the developing as well as developed countries


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TWOS Matrix

TOWS is just another way of saying SWOT illustrates how the external opportunities and

threats facing a particular corporation can be matched with that companys internal

strengths and weaknesses to result in four sets of possible strategic alternatives. It helps in

creating alternative strategies related to growth and retrenchment.The TOWS Matrix is very useful for generating a series of alternatives that the decision

makers of a company or business unit might not otherwise have considered. It can be

used for corporation as a whole or it can be used for a specific business unit within a

corporation.

TWOS Matrix

STRENGTHS WEAKNESS1. Human Resource Competency 1. Infrastructure

2. Financial Position 2. Diversified Portfolio

3. Company Management 3. Research & Development

4. Alliances and Partnerships 4. Legal

5. Approvals and InternationalCertification

6. Exclusive Products

OPPORTUNITY SO Strategies WO Strategies1. Significantexport potential

Strategic alliances/partnershipsignificantly improve export potential(S4)

Exports effort hampered by proceduralhurdles in India as well as non-tariffbarriers imposed abroad (W4)

2. Licensing dealsand collaborations

Licensing deals and collaborationswith MNCs for New Chemical Entitiesand New Drug Delivery Systems (S6)

R & D efforts of Indian pharmaceuticalcompanies hampered by lack ofenabling regulatory requirement.

3. Contract

manufacturing

Contract manufacturing arrangements

with MNCs (S4)4. Awareness andSpending

Growing awareness and increasingspending on health (S2)

5. Marketingoperations

Providing marketing operations to sellMNC products in domestic market(S5)

THREATS ST Strategies WT Strategies1. Product patentregime

Product patent regime poses seriouschallenges to domestic industriesunless it invests in R & D.(S3)

2. Ceilings onproduct prices

DPCO puts unrealistic ceilings onproduct prices and profitability fromgenerating investible surplus.(S2)

3. Research &Development

R & D efforts of Indian pharmaceuticalcompanies hampered by lack ofenabling regulatory requirement.

4. CurrencyFluctuations

of revenue is earned from Exportsgh risk due to currency fluctuations


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Porter's Competitive Strategy Analysis

Scope

Bro

ad Generics, APIs

Cost Leadership

Different Formulations,NCEs

Differentiation

Narrow

CostFocus

DifferentiationFocus

Cost Differentiation

Source of Competitive Advantage

Dr Reddys lab has been focusing on low cost for domestic and export markets.

Companys major purpose is to provide affordable medicines through its branded and

unbranded generics. Company offers low cost alternatives for its highly priced innovative

brands. For eg the company successfully introduced Fluoxetine (generic version of

Prozac), Donepezil hydrochloride tablets (generic version of Aricept). Companies attains

economies of scale through centralized production. Thus the company follows overall cost

leadership business strategy in case of Generic drugs and APIs.

Company is also investing in R&D to bring differentiated formulations and New Chemical

Entities (NCEs) into the market. Its strategy with respect to these products is overall

innovative as it tries to bring new effective drugs into the market.


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Recommendation

Research & DevelopmentDr. Reddys Lab invest approximately 8% of revenue for the R & D , which is

approximately half the amount invested by the global multinational pharmaceuticalcompanies. So Dr. Reddy Lab can be more competitive and can also take the benefit of

the margins if sufficient amount is invested in R & D.

Patent infringement & Product recallsSince the patent infringement and product recalls can adversely affect the brand image

and the customer value, Dr Reddys Lab should ensure high degree of compliance to

the guidelines issued by the regulators of the domestic as well as the exporting country.

In addition violation also results in levy of huge financial penalty as in recent case of

Ranbaxy.

Approvals and International CertificationIt is prerogative for any pharmaceutical company to obtain the approvals and

certifications from the regulator of the country where the medicines are getting sold

and hence Dr. Reddys Lab is recommended to vouch for the same in order foray into

international markets and increase revenue.

Shift Research Focus to Diagnostic-Led StrategyEven with well-established treatments for a condition, there are significant numbers of

patients that are either not diagnosed in a timely manner or not diagnosed at all. Betterdiagnostics and physician education could significantly improve the number of people

getting diagnosed and therefore increase the number of patients getting treated thus

resulting in increased revenues for drug companies. In order to adopt this approach, Dr

Reddy Laboratory would have to: a) Shift marketing resources from promoting specific

products to promoting diagnostic testing; b) Time the development of the diagnostic to

coincide optimally with the development of the therapeutic; and c) Develop business

models that motivate physicians and diagnostic providers to participate

Strategic Alliances & PartnershipsIn an increasingly challenging marketplace, where M&A strategies are failing to deliver

R&D productivity gains, the importance of alliances has increased significantly. In fact,

research suggests that products co-developed by a pharmaceutical and biotech

company are more likely to be commercialized than those that are developed by a

single entity


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Consortium arrangement with Peer CompaniesWhile several models of combining research capabilities among companies can be

conceived (joint ventures, alliances, etc.) and are presented with a variety of

justifications, philosophically it is difficult to distinguish these ventures from the

financial reality of merging firms. Even if the venture is of smaller scope than the entirefirm for example, combining cardiovascular research to jointly-develop a product

these type of arrangements offer little or no value to the shareholders of the

participating companies from a risk-sharing perspective.


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References

o Changing Patterns of Pharmaceutical Innovation: A Research Report. TheNational Institute for Health Care

o Management Research and Educational Foundation. Self-published. May 2002.pp. 15-6.

o Gilbert, J., et al.; Rebuilding Big Pharmas Business Model. In Vivo. November2003.

o www.drreddys.como Henderson, Rebecca. Drug Industry Mergers Wont Necessarily Benefit R&D.

Research Technology

o www.moneycontrol.como Management. Vol. 43. No. 4 (Jul/Aug 2000). pp. 10-11.o Landau, Ralph. Achilladelis, Basil. Scriabine, Alexander. Pharmaceutical

Innovation: Revolutionizing Human

o Health. Chemical Heritage Press, 1999. pg 100-105.o www.capitaline.como Lam, Michael D. Why Alliances Fail. Pharmaceutical Executive. June 2004. Vol.

24. Issue 6. pp. 56.

o www.yahoofinance.como Myshko, Denise. The Secret to Alliance Success. PharmaVOICE. October 2004.

Vol. 4, No. 10, pp. 14-24.

o www.researchandmarkets.com
http://www.drreddys.com/http://www.moneycontrol.com/http://www.capitaline.com/http://www.capitaline.com/http://www.moneycontrol.com/http://www.drreddys.com/

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