Abstract the largest Pharmaceutical company in India in

AbstractExpandingabroad in global pharmaceutical sector is not a new concept. The ongoing trendin globalization tendency in pharmaceutical sector is an inception to make theindustry broader. The present study is based on the current condition and stateof Sun Pharmaceutical Industries and its possibilities for globalization in SriLanka. I choose Sun Pharmaceutical because this industry is having strongpresence in the generic drug market in India and after its acquisition ofRanbaxy made its scope very high in other Asian countries. Sun Pharma becameIndia’s 1st and world’s 4th largest generic drug makingcompany. This study deals with the current needs of globalization for thisindustry.  1.

Industry Analysisa.      Backgroundof Industry     SunPharmaceutical Industries Ltd is an Indian multinational pharmaceutical companyfounded in 1983 by Dilip Shanghvi, headquartered in Mumbai, Maharashtra. Theorganization manufactures and sells pharmaceutical formulations and activepharmaceutical ingredients (APIs) in India and United States primarily. SunPharma is currently providing high- quality, affordable medicines in over 150countries across the world supported by more than 40 manufacturing facilitiesspread across 5 continents. Sun Pharma is intending of entering Japan andRussia in 2017.

(The Economic Times 2017)Sun Pharmafirst started exporting their products in neighboring countries in 1989. Over72% percent of Company sales come from markets outside India primarily in theUS. The US is the single market that accounts about 50% turnover. Formulationor finished dosage forms accounts for 93% of the turnover. It has own plants inthe US, Canada, Brazil, Mexico and Israel. (NDTV profits 2017)Sun Pharmasuccessfully acquired the company’s major competitor, Ranbaxy in 2014, makingthe company the largest Pharmaceutical company in India in terms of profit, andthe 4th largest specialty generic company in the world. (Karmali 2014)Moreover,Sun Pharma earlier last year acquired 85.1% stake in JSC Biosintez, a leadingRussian Pharmaceutical company which manufactures and markets pharmaceuticalproducts in Russia and CSI regions as company’s strategy to enter the Russianmarket, allowing Sun Pharma access to local manufacturing capabilities across.

(TheEconomic Times 2017)i.                   ProductsSunPharmaceutical is widely known for producing high quality branded genericmedicaments. It initially offered 5 products as drug maintenance for psychiatryailments in 1983. In 1887, the company started producing drugs used incardiology and Monotrate. This product became one of the Company’s largestselling products till today. Active Pharmaceutical Ingredients (API) is one ofSun Pharma’s strategic business units focuses on developing and producingspecialty active pharmaceutical ingredients for another pharmaceuticalmanufacture.

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Sun Pharma manufactures API’s such as warfarin, carbamazepine,etodolac and clorazepate as well as anti-cancers, steroids, peptides, sexhormones and controlled substances.ii.                 Business Segments analysisSun PharmaCorporation is divided into four business segments; US Generics, India BrandGenerics, International Branded Generics, and Active Pharmaceutical Ingredients(API).

Revenues US generic segmentslightly decline from 2066 million to 2051 million from 2016 to 2017 due to themanufacturing deficiencies cost. In the US market Sun Pharma is the leader inthe 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. (SunPharma 2017)The revenuefrom India Branded generics increased from 7150 cr to 7749 cr from 2016 to2017. It was ranked no.1 with 11 classes of doctor categories and leadingposition in high growth chronic therapies.

In India, Sun Pharma specializes intechnically complex products. Frominternational market (except US), Sun pharma generate revenue of 1061 millionin 2017 which was 878 million in 2016. SunPharma is expanding presence globally with key focus markets – Brazil, Mexico,Russia, Romania, South Africa, and complementary & affiliated markets. Theproduct portfolio includes differentiated offerings for hospitals, injectablesand generics for retail market. (Sun Pharma 2017)About 5%sales generate from API from approximately 300 product portfolios. 20 APIsscaled up annually. There are about 14 manufactures of API globally. Sun Pharmais the large generic and innovator company for API.

iii.               Financial analysisSun Pharmais considered the biggest Indian Pharmaceutical Company in terms of profit. Thecompany has been generating continuous positive revenues for the past 10 yearswith reported annual revenue of US$ 4.9 billion as of March 2017. The companyhave enough cash balance. Sun Pharma has been able to successfully acquirenumerous key pharmaceutical companies like his major Indian competitor companyRanbaxy for US$ 3.2 billion and recently bought 85% stake at RussianPharmaceutical Company Biosintez without any debt financing. However, SunPharma’s revenues falls for third straight quarter, with net profit decreasingby 59% because of issues caused by manufacturing deficiencies cost by thecompany’s key plant situated in the U.

S. (Nasina & Nallam 2016)SunPharmaceuticals has numerous R centers across the globe and a multi-culture workforce over 50 nationalities fostering excellence through innovationsupported by strong R capabilities comprising about 2000 scientists andR investments of over 7% of annual revenues. (LinkedIn 2017) 2. Competitor Analysisa) LupinThiscompany was founded in 1968 and headquartered in Mumbai. Lupin is atransnational pharmaceutical company ranked 3rd largest by revenuein India that produce wide rande of generic formulation, biotechnology productand APIs. It acquired 100% stake in Medquimica, a Brazilian pharmaceutical andLaboratories Grin in Mexico.b) Reddy’s LabsIt is aHyderabad based multinational pharmaceutical company providing medicines andservices in Europe, North America and emerging markets of South America, Asiaand Africa. The biggest business for them is generic formulation and they alsooffer APIs, pharmaceutical services, biosimilars and proprietary products.

Italso launched Somazina in India that is used for treatment of stroke orcerebral infarction. c) CiplaFounded in1935, Cipla has over 1500 products in various therapeutic categories and it haspresence over 150 countries globally. It is the largest manufacturer ofantiretroviral drugs in the world. It also launched World’s first oral ironchaletor in 1994.

d) Aurobindo PharmaThiscompany was founded in 1986 and has presence in therapeutic segments likeanti-retroviral, neurosciences, anti-diabetes, cardiovascular, gastroenterologyetc. It exports its product to over 150 countries generating 70% revenue fromInternational operations. 3.  ExternalEnvironmenta.      EconomicenvironmentSri Lanka had estimated population of 21.252 millionin the year 2016 and expected to reach 22.137 million by 2022. Sri Lanka’sunemployment rate was 4% of total labor force, and it is expected to remainsame till 2022.

SriLanka’s real gross domestic product is expected to grow at a CAGR of 4.87% fromit’s 2015 level of LKR 8622.82 billion and reach LKR 12031.95 billion by 2022.

Sri Lanka’s real grossdomestic product (GDP) was around LKR 8993.14 billion in 2016 whereas thenominal 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 currentaccount balance for Sri Lanka was estimated to be negative at USD 1.932 billionfor the year 2016 and is expected to decrease at a CAGR of 2.

35% and reach USD2.364 by 2022. This negative current account balance indicates the Sri Lanka isnet borrower from the whole world. Since the civil war ended in 2009, the economy hasgrown on average at 6.

2 percent a year, reflecting a peace dividend and acommitment to reconstruction and growth, but there have been signs of aslowdown in the last three years. (Digital Journal, 2017)b.Demographic environmentSriLanka is a growing and ageing population country. The percentage of thepopulation over 65 years of age will jump from 9.4% in 2000 to 16.

0% in 2020. Accordingto the UN Population Division, population growth is expected to increasefrom 18.85million in 2000 to 22.58 million in 2022, rise of nearly 20%. Thisgrowing population of Sri Lanka will increase demand for pharmaceuticals,intensive healthcare facilities and treatment soon.

The improvement inpurchasing power of the population in Sri Lanka along with less quality andavailability of public health services has contributed to increased demand forhealth services delivered by the private sector. Beside that 20% of the population hold 44% of income share in SriLanka. Therefore, only a smaller share of the population can afford privatehealthcare. (World Bank, 2017)c.Social and cultural environmentAlthoughSri Lanka’s economic growth is increasing steadily but the social problems hasalso increasing day by day. Due to the change in lifestyle the population areconsuming more alcohol and tobacco. These social changes have leads theincidence 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, theincrease in life expectancy that 76 years and decrease in fertility rates (2.09children’s/women) also require essential drugs and health services. (IndexMundi, 2017)d.Political and legal environmentIn 2014,Government introduced a new price control formula for pharmaceuticals, toprevent wide variation in drug prices, which is expected to impact profitmargins of pharmaceutical suppliers. In October 2016, Sri Lanka transformed thepricing of essential medicines, making drugs more affordable for patients. Furthermore,Government issued a notice to set a price increase for 48 essential medicinesused to treat noncommunicable diseases (NCDs), such as diabetes, heart disease,high blood pressure, high cholesterol, and other common diseases.

The reviseddrug price formula introduced in 2016 ensures that essential medicines shouldbe sold below a recommended maximum retail price always resulting the prices ofdrugs reduced up to 85%. The main criteria in pharmaceutical industry forregistration in Sri Lanka are quality, safety and efficacy. Foreignmanufactures are evaluated based on their company profiles. e. TechnologicalenvironmentThereare only two existing laboratories carrying out checks in Sri Lanka, but bothare unable to meet testing requirement. The Sri Lanka market is more familiarwith generic medicines rather than branded ones. The patents expiring forbranded drugs in developed markets leads the share of generic drugs in themarket to increase in the future. Moreover, there is a recent trend forcustomized treatment, which is popular among the high-income class in SriLanka.

4. Porter’s Five Forces Analysisa.      Threatof New Entrants The Threatof New Entrants is low for Sri Lanka Pharmaceutical Industry because of highcost associated with establishing a manufacturing company. The cost andexpertise needed is very high on research & development of new drugs,marketing sales and distribution.

The recent price formula for pharmaceuticalsand price ceiling for non-communicable diseases impacts the profit marginconsideration of potential new entrants.  Moreover, because of the nature of theproduct, Sri Lankan government imposes strict regulations before achieving anapproval to enter the local market. Sri Lanka government has communicatedobjectives of lowering the price of maintenance medicine for non-communicabledisease and also increasing regulations to improve quality of pharmaceuticalproducts entering the local market. (The Health Sector of Sri Lanka, 2014) b.      Threatof SubstitutesThe Threatof Substitutes is considered medium.

The rural population are still trusting intraditional treatments. Despite of the medical industry in Sri Lanka has beendominated by western medicine, traditional medical practices have been followedin Sri Lanka for over 3,000 years and remains prevalent in rural areas.Approximately 60% to 70% of the rural population relies on traditional andnatural medicine for primary health care, the most popular of which is Ayurveda.(The Health Sector of Sri Lanka,2014)c.       BargainingPower of BuyersThebargaining Power of Buyers is medium. The largest buyers for pharma products arehospitals and other healthcare organizations. These organization orders forlarge quantities and have great impact on the sales of pharmaceuticalmanufactures.

The patients are end users so, hospitals and other healthcareorganization have certain bargaining power and have the capability to exertpressure on pharmaceutical manufactures to keep price low. d.      BargainingPower of SuppliersTheBargaining Power of Suppliers is low because there are limited pharmaceuticalmanufacture companies and the capital needed is very high. The government hasstrict restrictions. Therefore, chemical companies understand the importance ofmaintaining a business relationship with the key pharmaceutical manufactures.

Moreover, Pharmaceutical companies can switch supplier without acquiringsubstantial cost. e.       CompetitiveRivalryThecompetitive rivalry in pharmaceutical industry in Sri Lanka is considered High.The medicine industry is estimated to be worth US$469 million. Thepharmaceutical manufacturing in Sri Lanka is currently at its infant stage withless than 30 active pharmaceutical manufactures producing only generic drugs. (TheHealth Sector of Sri Lanka,2014)Moreover,with 90% of pharmaceutical needs in the country being met by imports, strongcompetition is seen with international drug manufacturers such as SwissBiogenics 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 localmarket.

(The Health Sector of Sri Lanka,2014) 5.  Critical IssuesMost of theissues faced by Sun Pharmaceuticals are related to the company’s difficultyadhering to international standards in the company’s manufacturing locations. AsSun Pharma’s annual report 2017, the organizations main priority is fulfillingthe Global CGMO compliance requirements. Because of government and consumerexpectations of quality and safety, the ability to successfully adhere to cGMPstrict standards has come an important determinant of the profit sustainabilityof Pharmaceutical companies. (Sun Pharmaceuticals annual report 2016)Moreover, mostof the company’s locations underwent successful audits by multiple regulatoryagencies, including the USFDA. However, because of cGMP more stringentrequirements, Sun Pharma has been focusing on improving several of the plantsimpacted by cGMP deviations.

Sun Pharma has been heavily investing in thefacilities and implementing the requisite remediation steps. (SunPharmaceuticals annual report 2016)Furthermore,Sun Pharmaceutical in the past year saw a decline in revenue for third straightquarter, with profits dropping by 59%. This is due to the production issues inthe company’s key plants, blocking new product introductions in the US, SunPharma’s biggest market. (The Economic Times,2017) 6. Recommendationsa.

Entry to the Market of Sri LankaDue to thedemographic and economic factors of Sri Lanka population, Sun Pharma can targetthe mass market with a focus on essential medicines for the general publics,especially those with NCDs. Non-Communicable Diseases (NCDs) are on the riseand this is a lucrative market with increasing demand for Sun Pharma to tapinto. Due to the closet distance between India and Sri Lanka Sun Pharma canmaintain well distribution channels. The increment in unhealthy behavior ofpopulation of Sri Lanka also leads to the exciting market for Pharma Products.  b. Mode of Entry and timingSun Pharma can choose “Direct-to-market” to enter themarket. The company can cut down cost for intermediaries while gain bettercontrol over distribution, product quality and safety by applying thisstrategy.

The companycan divide its production into two smaller sub-segments, generics essential,affordable medicines for the general publics and the branded generics innovativeand high-technology products for the private sectors with higher income anddemand for high quality products.Sri Lanka customers are careful when it comes to health issues. For manyof the essential medicines, cheaper generic medicines are already availablebelow the maximum retail price. To promote the products most effectively, thefirm can spend heavily in building relationship with local doctors, pharmacistsand hospitals because Pharma industry usually doesn’t communicate withend-consumers. Sun Pharma can provide trainings and incentives to doctors andpharmacists to increase their awareness about the company’s long history, highquality, trustworthiness and global presence.

The recentprice ceiling for the Pharma products in Sri Lanka can be consider bettertiming to enter the market. As threat of New entrant is low and regulation arestrict, Sun Pharma can enter this market right now with cost-reduction strategyto cut down costs and utilize its facility, brand reputation to achieve highermargin. Sun Pharma can keep its affordable image by offering inexpensive essentialmedicines but keeps the price of branded medicines at high level to maintainits quality image.