BEACON.Dec 2013


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BEACON Dec. 2013_ Volume : 2, Issue : 2

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BEACON.Dec 2013

  1. 1. Issue : 2 Volume : 2 December 2013 B E A C O N A Newsletter by SIMCON– SIMSREE Consulting Club
  2. 2. Volume : 2 Issue : 2 BEACON : Page 1 Dec. 2013 INDUSTRY ANALYSIS : Pharmaceutical Introduction The Indian pharmaceutical Industry has witnessed a robust growth of around 14% since the beginning of the 11th Plan in 2007 from about Rs. 71000 crores to over Rs. 1 lac crores in 2011‐12 comprising some Rs. 62,055 crores of domestic market and exports of over Rs. 42,154 crores. This also amounts to around 20% of total volume of global generics. Porter’s 5 Forces Model Barriers to Entry The Indian Pharmaceutical Industry is characterized by high entry barriers for patented drugs. In order to produce one of the existing drugs a generic drug manufacturer would incur a fraction of the costs incurred by the patented drug manufacturer. However it has to research the active ingredients, obtain suppliers, secure distribution channels, set prices and prime sales channels. Hence the threat of new entrant is low – moderate. Major Segments in Pharma industry Threat of Substitutes The threat to pharmaceutical companies manufacturing patented drugs is low due to patent protection as production of a close substitute using a different formulation is usually not possible. Only when this company loses its patent protection does it face competition from the generic drug manufacturers. Thus the threat of substitute is low – moderate. Bargaining Power of Suppliers Due to the highly specialized nature of the products being manufactured by the patented drug manufacturer, vertical integration plays a key role in their competitive strategy. The bargaining power of suppliers is thus low. Bargaining Power of Consumers Overall the bargaining power of the consumers is determined by presence of substitutes in case of generic drugs, volume of drugs purchased by the consumer and fragmentation of the industry. The bargaining power of consumers in case of pharmaceutical industry is moderate. Top pharma companies Pharma sector is India is highly competitive market with top companies in pharma sector are Cipla, Sun Pharma, Ranbaxy, GSK account only 20 percent of the market share, whereas top 10 companies also include Zydus cedilla, Abbott HC, Lupin, Mankind and they account for 39% of market share. Intensity of Rivalry Despite increasing consolidation in the past 4 years, the market continues to remain highly fragmented with top ten pharmaceutical companies accounting for only ~35-40% of the market. Therefore competitiveness among the Indian pharmaceutical players is high. For detailed report and all industry analysis from previous Beacons together, please visit our blog :
  3. 3. Volume : 2 Issue : 2 BEACON : Page 2 Dec. 2013 INDUSTRY ANALYSIS : Pharmaceutical Impact Analysis Drug Price Control Order (DPCO) The new policy under the Drug Price Control Order (DPCO), May 2013, is market based, and seeks to control prices of all strengths and dosages of 358 drugs and their combinations falling into the National List of Essential Medicines (NLEM). The ceiling price is computed using the simple average method of all drugs with over 1% market share under a particular therapeutic area. Pharmaceutical companies will have to focus on volumes to negate the impact of the policy and devise suitable pricing strategies to mitigate the risk to product prices. Goods and Service Tax (GST) Some of the key tax challenges, benefits and opportunities that GST brings for the Pharmaceutical industry are: Procurement: The pharmaceutical industry may not continue to enjoy a host of concessional rate of excise duties and State VAT in the GST era. This will have an impact on the cost of procurement. Beneficial impact of the GST is the expected discontinuance of CST charged on inter-State sales and refunds in relation to the Special Additional Duty (SAD) of Customs. Manufacture: As opposed to the current taxable events of manufacture and sale, the taxable events under GST regime would be supply of goods and services. This would give flexibility to the entities to set up their units at a place most convenient from a logistic standpoint. The area based tax exemption also may not continue. Pricing: GST will prune the series of product specific exemptions that pharmaceutical industry enjoys, be it for research, life saving devices etc., leaving only a handful of products with exemptions. Trends Impact of Amendments to the Patents Act Amendments to the Patents Act, 1970 make it TRIPS compliant has reiterated India’s commitment to IP Protection following introduction of product patents due to which following impact can be seen.    The introduction of product patents in India in 2005 has boosted the discovery of new drugs Increased incentives to domestic firms to conduct R&D Increased likelihood of technology transfer from developed nations PPP in R&D in India and Pharma Vision 2020 The Department of Pharmaceuticals has a vision 2020 for the development of the Indian pharmaceutical Industry. In the area ,of R&D and human resource development the major recommendations concern setting up of pharma venture capital fund to fund innovations in drug discovery including incubator driven translational research pharma Innovation and Infrastructure Development Initiative for R&D infrastructure development including funding of private sector initiatives in PPP mode. Revenues continue to rise due to exports and domestic markets India’s cost of production is nearly 60 per cent lower than that of the US and almost half of that of Europe Labour costs are 50–55 per cent cheaper than in Western countries. The cost of setting up a production plant in India is 40 per cent lower than in Western countries. India is well poised for the export oriented growth in pharma. India’s generic drugs account for 20 per cent of global generic drug exports (in terms of volumes). Also, there has been growing trend in the domestic market due to higher expenditure on health care and rising income levels. Per capita sales of pharmaceuticals is expected to expand at a CAGR of 16.3 percent to USD27 by 2016. Conclusion In recent years, several foreign players have made acquisitions in India to get a foothold in the country’s pharma market and leverage on the technical and cost efficiency of Indian companies. Indian market has for the last few years has been at the forefront of pharma sector growth. Several factors such as Rise of domestic markets due to rising income levels, government’s policy of introduction of product patents and cost advantage to the exports have contributed to the growth rate of over 14 percent CAGR in this sector. Hence Indian pharma sector is set for a robust growth in future. References Pharmaceuticals-Sector-Analysis-Report.asp#pr wg_pharma2902.pdf For detailed report and all industry analysis from previous Beacons together, please visit our blog :
  4. 4. Volume : 2 Issue : 2 BEACON : Page 3 Dec. 2013 COMPANY ANALYSIS : Dr. Reddy's SWOT Analysis of Company Introduction Dr. Reddy's Laboratories Ltd., founded by Dr. K Anji Reddy in 1984 and headquartered at Hyderabad, India, is one of the leading pharmaceutical companies in India. In 1986, the company went public with listing in Bombay Stock Exchange and entered international markets. Also it is the first pharmaceutical company from the Asia Pacific, outside Japan, to be listed on the New York Stock Exchange in 2001. The company currently has its presence in United States of America (USA), India, Russia and CIS, Germany, United Kingdom (UK), Venezuela, South Africa and Romania comprising of 16,500+ employees from over 23 nationalities. Mr. G V Prasad is currently Chairman and Chief Executive Officer and Mr. Satish Reddy is Vice Chairman and Managing Director. Major Competitors for Dr. Reddy’s Lab are Ranbaxy, Sun Pharma, Lupin, Cipla etc. Financial Statements The consolidated revenue for the year recorded year-on-year growth of 20% to Rs. 116.2 billion. Products and Services The company offers a portfolio of products and services through their three business segments - Global Generics, Pharmaceutical Services & Active Ingredients and Proprietary Products. Omez, Exifine,Enam, Ketorol and Cetrinehas are some of the branded generics. It offers more than 150 products in Active Pharma Ingredients (APIs), including niches such as oncology and hormone therapy. Custom Pharma Services helps Big Pharma, Emerging Biotech and a large number of Emerging Pharma companies to get their proprietary medicines to patients faster by providing technology platforms at competitive costs. The company is also in NCE research with therapeutic areas of focus in bacterial infections, metabolic disorders, and pain/ inflammation. It is also developing novel formulations of currently marketed drugs to give more comfort to the patients. PromiusPharma, the whole-owned subsidiary is the initiative in dermatology where several innovative and effective products are developed. This growth was primarily driven by North America and Emerging Markets in Global Generics; and by the overall performance of the Pharmaceutical Services and Active Ingredients (PSAI) segment Earnings before interest, taxes depreciation and amortization (EBITDA) grew by 9.5% to R27.8 billion. Profit after tax for FY2013 increased by 17% to Rs. 17.6 billion or 15% of consolidated revenues. Revenue(In Billion Rs) Gross Profit (In Billion Rs) PAT (In Billion Rs) 116.3 96.7 60.6 17.4 2013 53.3 74.7 15.5 2012 70.3 69.4 40.3 36.5 36.3 10.5 9.1 8.3 2011 2010 2009 For detailed report and all company analysis from previous Beacons together, please visit our blog:
  5. 5. Volume : 2 Issue : 2 BEACON : Page 4 Dec. 2013 COMPANY ANALYSIS : Dr. Reddy's Increasing R&D Investments Dr. Reddy’s Sector wise performance The ability to produce complex generics and develop niche capabilities are pivotal to drive the next wave of growth. The Company is consciously investing in R&D activities to build such capabilities. Dr. Reddy’s R&D spend over the last three years has been in the range of 6% to 6.8% of consolidated revenues. Building Productive Infrastructure to Deliver Future Growth Dr. Reddy’s has seen considerable revenue growth in the last few years. To cater to this increase in volume and complexities in the product portfolio, the Company has been systematically investing in its productive infrastructure. It has invested close to Rs. 36 billion in the last five years to increase capacity in existing infrastructure and create new capacities in oral solids, injectable facilities and biosimilars, among others. Shareholders Pattern The shareholder pattern for Dr. Reddy's Laboratories Ltd. is given below. Sustainability Dr. Reddy's Laboratories Ltd. has taken many initiatives to sustain the health of the planet and people. Dr. Reddy’s plays a significant role in improving safety, health as well as helps in resources optimization and energy conservation. The company in year 2012 met 30% of the total water conservation by recycled water and 7% of the energy requirement by use of Renewable Energy. In addition to this, the company strives to minimize Greenhouse Gas Emission by recreating, restructuring their processes. Dr. Reddy’s has taken many initiatives to expertise the resources, enhance patient care and make quality medication affordable for cancer patients. Some of them are Sparsh, Lymphoma Awareness Campaign, Smart Woman, PromOTE India. Business Strategy Reddy’s lab Ltd is currently focusing on: Securing Bio-similar opportunities References Entering into regulated markets like biosimilars clinical trials to prove efficacy of the biosimilar To address this, the Company has entered into with Merck Serono, a division of Merck KGaA, Germany. necessitate candidates. an alliance Darmstadt, Investing in Technology Platforms Dr. Reddy's Laboratories Ltd. Annual Report2013 Dr. Reddy's Laboratories Ltd. Factsheet Dr. Reddy's Laboratories Ltd. Sustainability report Ever increasing rigor in product development coupled with large scale competition in the commoditized generics space necessitates Dr. Reddy’s to enter niche areas where there are good sales potential with relatively limited competition. An acquisition of OctoPlusN.V, a Leiden (Netherlands) based service/specialty pharmaceutical company, by Dr. Reddy’s Lab helped them to acquire and nurture specialized and unique technology platforms. For detailed report and all company analysis from previous Beacons together, please visit our blog:
  6. 6. Volume : 2 Issue : 2 BEACON : Page 5 Dec. 2013 SIX SIGMA GREEN BELT SESSION BY MR. VISHWADEEP KHATRI Mr. Vishwadeep Khatri, CEO, Benchmark Six Sigma visited SIMSREE on 27th December,2013 as a part of SIMCON’s initiative to spread awareness among the batch regarding the relevance of six sigma practices in today’s business world. Mr. Khatri is one of the most renowned trainers of six sigma worldwide, having over 15 years of experience in business process improvement related to service as well as manufacturing industries, as a trainer, consultant and auditor. Apart from being a BTech and an MBA, Mr. Khatri is a certified lead auditor by IRCA, UK, an RLA, RABSAQ of Australia , a Master Black Belt in Lean Six Sigma by AMT,USA, six sigma black belt , Morestream University and a member of ASQ. Mr. Khatri specifically targeted to dispel the myths prevalent in the minds of the students regarding the use of Green Belt Six Sigma certification to branches such as marketing, finance and HR. He presented cases of different organizations where the principles of six sigma benefitted in improving the overall processes of the functions. He presented the cases wherein he showed how six sigma improved the market research process at a research consultancy , online payments systems at banks and resume shortlisting process at a HR consulting firm. He emphasized the need for this certification considering that today’s businesses are more complex and need to be completed in far lesser time. He also let us know how simple hypothesis testing methods can lead to significant results by providing inputs for process improvement. He also explained the DMAIC and DMADC methods used to improve processes and develop new products respectively. With his crisp and exhaustive oratory, Mr. Khatri enthused the entire batch about the efficacy of six sigma. His presentation was complimented well by the batch which offered him a plethora of questions to quench the inquisition generated by his words. By the end of the session, SIMSREE students seemed to be all the more geared up for SIX SIGMA.
  7. 7. Volume : 2 Issue : 2 Concept of the Month BEACON : Page 6 Dec. 2013 MECE Principle MECE (pronounced "me see") is a principle devised by McKinsey & Company to describe a way of organizing information that is "Mutually Exclusive & Collectively Exhaustive". The principle is now widely used by many consulting firms. The reason MECE is popular in consulting is that it allows consultants to communicate complex information to clients in a way that eliminates confusion and ensures thoroughness. Mutually exclusive : Information is grouped into categories so that each category is separate and distinct without any overlap. Mutually exclusive thinking forces to consider the details, seeing the individual tree as opposed to the forest. It helps ensure that each element is different than the others. Collectively exhaustive : All the categories of information are taken together deal with all the possible options without leaving any gaps. Collectively exhaustive thinking helps ensure that one does not forget possible solutions; that is, one must be innovative, viewing the forest as opposed to its individual trees. Mutually Exclusive and Collectively Exclusive (MECE): When considering solving any business problem, the MECE principle suggests that all the possible causes or options to be considered in solving these problems be grouped and categorized in a particular way. Specifically, all the information should be grouped into categories where there is no overlap between categories (mutually exclusive) and all the categories added together cover all possible options without any gaps (collectively exhaustive). An example of a grouping structure that is MECE could be to group customers by their age group. This is MECE because no particular individual can appear in more than one category (hence it is mutually exclusive) and the age groupings taken as a whole cover the entire population (so they are collective exhaustive). An alternative that is not MECE could be to group customers by their hobbies. It is not MECE because a single individual customer may appear under more than one hobby category.
  8. 8. Volume : 2 Issue : 2 1. BEACON : Page 7 Dec. 2013 QUIZ OF DECEMBER Connect the pictures in sequence and identify this term related to the stock market. 2. X, the founder of the consulting firm Y employed an agency as the creator of a logo for Y. They came up with 3 ideas: a bee, a toothed wheel and an ace of a playing card suit. X rejected all 3 ideas and chose another ace as the logo. Identify X and Y. 3. Created in the year when World War II began, this biscuit brand positioned itself as independence from British biscuits in 1947. Identify this brand. 4. Born in Bangalore, X has regularly featured in Forbes’ list of the World's 100 Most Powerful Women list and is a Padma Bhushan. Identify X. 5. Identify the Bank whose ATM is namesake of the common name of Epipremnumaureum. Answer To: with Subject= simcon_quiz_dec_2013 Winner will be recognized. All Correct Answers will be published in next month’s Edition. ANSWERS : NOVEMBER ISSUE 1. Netflix, reed hastings Winner:- 2. Jagdish Khattar, Carnation auto 3. Deepinder Goyal, Zomato 4. Operation flood, Verghese Kurien, USA 5. Baringa Partners LLP Devarshi Shakywal IIM Udaipur  Bain and company topped Consulting magazine’s The 2013 Best Firms to Work For.  Textile manufacturing is the second largest source of employment after agriculture in India.  Pepsi was first introduced as "Brad's Drink". Contributions invited: To make this feature a successful effort, we seek continued involvement and contribution from our readers, that is YOU. We invite articles and trivia on themes related to consulting. Be it industry news, consulting trends, a joke, a cartoon or feedback, we are eager to hear from you. So go ahead, do your research, pen down your thoughts and mail your entries to Best Regards, SIMCON –SIMSREE CONSULTING CLUB Our FB page : Mail To: