Abstract the largest Pharmaceutical company in India in

Abstract

Expanding
abroad in global pharmaceutical sector is not a new concept. The ongoing trend
in globalization tendency in pharmaceutical sector is an inception to make the
industry broader. The present study is based on the current condition and state
of Sun Pharmaceutical Industries and its possibilities for globalization in Sri
Lanka. I choose Sun Pharmaceutical because this industry is having strong
presence in the generic drug market in India and after its acquisition of
Ranbaxy made its scope very high in other Asian countries. Sun Pharma became
India’s 1st and world’s 4th largest generic drug making
company. This study deals with the current needs of globalization for this
industry.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

1.Industry Analysis

a.      Background
of Industry

 

 

Sun
Pharmaceutical Industries Ltd is an Indian multinational pharmaceutical company
founded in 1983 by Dilip Shanghvi, headquartered in Mumbai, Maharashtra. The
organization manufactures and sells pharmaceutical formulations and active
pharmaceutical ingredients (APIs) in India and United States primarily. Sun
Pharma is currently providing high- quality, affordable medicines in over 150
countries across the world supported by more than 40 manufacturing facilities
spread across 5 continents. Sun Pharma is intending of entering Japan and
Russia in 2017. (The Economic Times 2017)

Sun Pharma
first started exporting their products in neighboring countries in 1989. Over
72% percent of Company sales come from markets outside India primarily in the
US. The US is the single market that accounts about 50% turnover. Formulation
or finished dosage forms accounts for 93% of the turnover. It has own plants in
the US, Canada, Brazil, Mexico and Israel. (NDTV profits 2017)

Sun Pharma
successfully acquired the company’s major competitor, Ranbaxy in 2014, making
the company the largest Pharmaceutical company in India in terms of profit, and
the 4th largest specialty generic company in the world. (Karmali 2014)

Moreover,
Sun Pharma earlier last year acquired 85.1% stake in JSC Biosintez, a leading
Russian Pharmaceutical company which manufactures and markets pharmaceutical
products in Russia and CSI regions as company’s strategy to enter the Russian
market, allowing Sun Pharma access to local manufacturing capabilities across. (The
Economic Times 2017)

i.                   
Products

Sun
Pharmaceutical is widely known for producing high quality branded generic
medicaments. It initially offered 5 products as drug maintenance for psychiatry
ailments in 1983. In 1887, the company started producing drugs used in
cardiology and Monotrate. This product became one of the Company’s largest
selling products till today. Active Pharmaceutical Ingredients (API) is one of
Sun Pharma’s strategic business units focuses on developing and producing
specialty active pharmaceutical ingredients for another pharmaceutical
manufacture. Sun Pharma manufactures API’s such as warfarin, carbamazepine,
etodolac and clorazepate as well as anti-cancers, steroids, peptides, sex
hormones and controlled substances.

ii.                 
Business Segments analysis

Sun Pharma
Corporation is divided into four business segments; US Generics, India Brand
Generics, International Branded Generics, and Active Pharmaceutical Ingredients
(API). Revenues US generic segment
slightly decline from 2066 million to 2051 million from 2016 to 2017 due to the
manufacturing deficiencies cost. In the US market Sun Pharma is the leader in
the generic dermatology segment and ranked 4th US with one of the strongest pipeline
(157 ANDAs & 5 NDAs awaiting approval) and has presence in generics,
Specialty and branded segments with more than 427 approved products. (Sun
Pharma 2017)

The revenue
from India Branded generics increased from 7150 cr to 7749 cr from 2016 to
2017. It was ranked no.1 with 11 classes of doctor categories and leading
position in high growth chronic therapies. In India, Sun Pharma specializes in
technically complex products.

From
international market (except US), Sun pharma generate revenue of 1061 million
in 2017 which was 878 million in 2016. Sun
Pharma is expanding presence globally with key focus markets – Brazil, Mexico,
Russia, Romania, South Africa, and complementary & affiliated markets. The
product portfolio includes differentiated offerings for hospitals, injectables
and generics for retail market. (Sun Pharma 2017)

About 5%
sales generate from API from approximately 300 product portfolios. 20 APIs
scaled up annually. There are about 14 manufactures of API globally. Sun Pharma
is the large generic and innovator company for API.

iii.               
Financial analysis

Sun Pharma
is considered the biggest Indian Pharmaceutical Company in terms of profit. The
company has been generating continuous positive revenues for the past 10 years
with reported annual revenue of US$ 4.9 billion as of March 2017. The company
have enough cash balance. Sun Pharma has been able to successfully acquire
numerous key pharmaceutical companies like his major Indian competitor company
Ranbaxy for US$ 3.2 billion and recently bought 85% stake at Russian
Pharmaceutical Company Biosintez without any debt financing. However, Sun
Pharma’s revenues falls for third straight quarter, with net profit decreasing
by 59% because of issues caused by manufacturing deficiencies cost by the
company’s key plant situated in the U.S. (Nasina & Nallam 2016)

Sun
Pharmaceuticals has numerous R centers across the globe and a multi-
culture workforce over 50 nationalities fostering excellence through innovation
supported by strong R capabilities comprising about 2000 scientists and
R investments of over 7% of annual revenues. (LinkedIn 2017)

 

2. Competitor Analysis

a) Lupin

This
company was founded in 1968 and headquartered in Mumbai. Lupin is a
transnational pharmaceutical company ranked 3rd largest by revenue
in India that produce wide rande of generic formulation, biotechnology product
and APIs. It acquired 100% stake in Medquimica, a Brazilian pharmaceutical and
Laboratories Grin in Mexico.

b) Reddy’s Labs

It is a
Hyderabad based multinational pharmaceutical company providing medicines and
services in Europe, North America and emerging markets of South America, Asia
and Africa. The biggest business for them is generic formulation and they also
offer APIs, pharmaceutical services, biosimilars and proprietary products. It
also launched Somazina in India that is used for treatment of stroke or
cerebral infarction.

c) Cipla

Founded in
1935, Cipla has over 1500 products in various therapeutic categories and it has
presence over 150 countries globally. It is the largest manufacturer of
antiretroviral drugs in the world. It also launched World’s first oral iron
chaletor in 1994.

d) Aurobindo Pharma

This
company was founded in 1986 and has presence in therapeutic segments like
anti-retroviral, neurosciences, anti-diabetes, cardiovascular, gastroenterology
etc. It exports its product to over 150 countries generating 70% revenue from
International operations.

 

3.  External
Environment

a.      Economic
environment

Sri Lanka had estimated population of 21.252 million
in the year 2016 and expected to reach 22.137 million by 2022. Sri Lanka’s
unemployment rate was 4% of total labor force, and it is expected to remain
same till 2022. Sri
Lanka’s real gross domestic product is expected to grow at a CAGR of 4.87% from
it’s 2015 level of LKR 8622.82 billion and reach LKR 12031.95 billion by 2022. Sri Lanka’s real gross
domestic product (GDP) was around LKR 8993.14 billion in 2016 whereas the
nominal GDP was LKR 12147.50 billion. This resulted in GDP deflator 135.075.
Per capita GDP was estimated at USD 3887.49 whereas purchasing power parity
(PPP) based per capita GDP was estimated to be at USD 12262.32. The current
account balance for Sri Lanka was estimated to be negative at USD 1.932 billion
for the year 2016 and is expected to decrease at a CAGR of 2.35% and reach USD
2.364 by 2022. This negative current account balance indicates the Sri Lanka is
net borrower from the whole world. Since the civil war ended in 2009, the economy has
grown on average at 6.2 percent a year, reflecting a peace dividend and a
commitment to reconstruction and growth, but there have been signs of a
slowdown in the last three years. (Digital Journal, 2017)

b.
Demographic environment

Sri
Lanka is a growing and ageing population country. The percentage of the
population over 65 years of age will jump from 9.4% in 2000 to 16.0% in 2020. According
to the UN Population Division, population growth is expected to increase
from 18.85million in 2000 to 22.58 million in 2022, rise of nearly 20%. This
growing population of Sri Lanka will increase demand for pharmaceuticals,
intensive healthcare facilities and treatment soon. The improvement in
purchasing power of the population in Sri Lanka along with less quality and
availability of public health services has contributed to increased demand for
health services delivered by the private sector. Beside that 20% of the population hold 44% of income share in Sri
Lanka. Therefore, only a smaller share of the population can afford private
healthcare. (World Bank, 2017)

c.
Social and cultural environment

Although
Sri Lanka’s economic growth is increasing steadily but the social problems has
also increasing day by day. Due to the change in lifestyle the population are
consuming more alcohol and tobacco. These social changes have leads the
incidence of non-communicable diseases (NCD) to 65% of mortality and 80%
morbidity. Every day in Sri Lanka, there are around 600 people succumb to NCDs.
Furthermore, over 21,000 individuals die annually due to smoking. Also, the
increase in life expectancy that 76 years and decrease in fertility rates (2.09
children’s/women) also require essential drugs and health services. (Index
Mundi, 2017)

d.
Political and legal environment

In 2014,
Government introduced a new price control formula for pharmaceuticals, to
prevent wide variation in drug prices, which is expected to impact profit
margins of pharmaceutical suppliers. In October 2016, Sri Lanka transformed the
pricing of essential medicines, making drugs more affordable for patients. Furthermore,
Government issued a notice to set a price increase for 48 essential medicines
used to treat noncommunicable diseases (NCDs), such as diabetes, heart disease,
high blood pressure, high cholesterol, and other common diseases. The revised
drug price formula introduced in 2016 ensures that essential medicines should
be sold below a recommended maximum retail price always resulting the prices of
drugs reduced up to 85%. The main criteria in pharmaceutical industry for
registration in Sri Lanka are quality, safety and efficacy. Foreign
manufactures are evaluated based on their company profiles.

 

e. Technological
environment

There
are only two existing laboratories carrying out checks in Sri Lanka, but both
are unable to meet testing requirement. The Sri Lanka market is more familiar
with generic medicines rather than branded ones. The patents expiring for
branded drugs in developed markets leads the share of generic drugs in the
market to increase in the future. Moreover, there is a recent trend for
customized treatment, which is popular among the high-income class in Sri
Lanka.

4. Porter’s Five Forces Analysis

a.      Threat
of New Entrants

The Threat
of New Entrants is low for Sri Lanka Pharmaceutical Industry because of high
cost associated with establishing a manufacturing company. The cost and
expertise needed is very high on research & development of new drugs,
marketing sales and distribution. The recent price formula for pharmaceuticals
and price ceiling for non-communicable diseases impacts the profit margin
consideration of potential new entrants.  Moreover, because of the nature of the
product, Sri Lankan government imposes strict regulations before achieving an
approval to enter the local market. Sri Lanka government has communicated
objectives of lowering the price of maintenance medicine for non-communicable
disease and also increasing regulations to improve quality of pharmaceutical
products entering the local market. (The Health Sector of Sri Lanka, 2014)

 

b.      Threat
of Substitutes

The Threat
of Substitutes is considered medium. The rural population are still trusting in
traditional treatments. Despite of the medical industry in Sri Lanka has been
dominated by western medicine, traditional medical practices have been followed
in Sri Lanka for over 3,000 years and remains prevalent in rural areas.
Approximately 60% to 70% of the rural population relies on traditional and
natural medicine for primary health care, the most popular of which is Ayurveda.
(The Health Sector of Sri Lanka,2014)

c.       Bargaining
Power of Buyers

The
bargaining Power of Buyers is medium. The largest buyers for pharma products are
hospitals and other healthcare organizations. These organization orders for
large quantities and have great impact on the sales of pharmaceutical
manufactures. The patients are end users so, hospitals and other healthcare
organization have certain bargaining power and have the capability to exert
pressure on pharmaceutical manufactures to keep price low.

 

d.      Bargaining
Power of Suppliers

The
Bargaining Power of Suppliers is low because there are limited pharmaceutical
manufacture companies and the capital needed is very high. The government has
strict restrictions. Therefore, chemical companies understand the importance of
maintaining a business relationship with the key pharmaceutical manufactures.
Moreover, Pharmaceutical companies can switch supplier without acquiring
substantial cost.

 

e.       Competitive
Rivalry

The
competitive rivalry in pharmaceutical industry in Sri Lanka is considered High.
The medicine industry is estimated to be worth US$469 million. The
pharmaceutical manufacturing in Sri Lanka is currently at its infant stage with
less than 30 active pharmaceutical manufactures producing only generic drugs. (The
Health Sector of Sri Lanka,2014)

Moreover,
with 90% of pharmaceutical needs in the country being met by imports, strong
competition is seen with international drug manufacturers such as Swiss
Biogenics limited, Hemas Pharmaceuticals, Akbar Pharmaceutical Pvt Ltd,
Harcourts, A Baur and Co., City Health who have advantage with expertise,
economies of scale and reputable brand name, seeing the potential in the local
market. (The Health Sector of Sri Lanka,2014)

 

5.  Critical Issues

Most of the
issues faced by Sun Pharmaceuticals are related to the company’s difficulty
adhering to international standards in the company’s manufacturing locations. As
Sun Pharma’s annual report 2017, the organizations main priority is fulfilling
the Global CGMO compliance requirements. Because of government and consumer
expectations of quality and safety, the ability to successfully adhere to cGMP
strict standards has come an important determinant of the profit sustainability
of Pharmaceutical companies. (Sun Pharmaceuticals annual report 2016)

Moreover, most
of the company’s locations underwent successful audits by multiple regulatory
agencies, including the USFDA. However, because of cGMP more stringent
requirements, Sun Pharma has been focusing on improving several of the plants
impacted by cGMP deviations. Sun Pharma has been heavily investing in the
facilities and implementing the requisite remediation steps. (Sun
Pharmaceuticals annual report 2016)

Furthermore,
Sun Pharmaceutical in the past year saw a decline in revenue for third straight
quarter, with profits dropping by 59%. This is due to the production issues in
the company’s key plants, blocking new product introductions in the US, Sun
Pharma’s biggest market. (The Economic Times,2017)

 

6. Recommendations

a. Entry to the Market of Sri Lanka

Due to the
demographic and economic factors of Sri Lanka population, Sun Pharma can target
the mass market with a focus on essential medicines for the general publics,
especially those with NCDs. Non-Communicable Diseases (NCDs) are on the rise
and this is a lucrative market with increasing demand for Sun Pharma to tap
into. Due to the closet distance between India and Sri Lanka Sun Pharma can
maintain well distribution channels. The increment in unhealthy behavior of
population of Sri Lanka also leads to the exciting market for Pharma Products.

 

b. Mode of Entry and timing

Sun Pharma can choose “Direct-to-market” to enter the
market. The company can cut down cost for intermediaries while gain better
control over distribution, product quality and safety by applying this
strategy. The company
can divide its production into two smaller sub-segments, generics essential,
affordable medicines for the general publics and the branded generics innovative
and high-technology products for the private sectors with higher income and
demand for high quality products.
Sri Lanka customers are careful when it comes to health issues. For many
of the essential medicines, cheaper generic medicines are already available
below the maximum retail price. To promote the products most effectively, the
firm can spend heavily in building relationship with local doctors, pharmacists
and hospitals because Pharma industry usually doesn’t communicate with
end-consumers. Sun Pharma can provide trainings and incentives to doctors and
pharmacists to increase their awareness about the company’s long history, high
quality, trustworthiness and global presence.

The recent
price ceiling for the Pharma products in Sri Lanka can be consider better
timing to enter the market. As threat of New entrant is low and regulation are
strict, Sun Pharma can enter this market right now with cost-reduction strategy
to cut down costs and utilize its facility, brand reputation to achieve higher
margin. Sun Pharma can keep its affordable image by offering inexpensive essential
medicines but keeps the price of branded medicines at high level to maintain
its quality image.