This case study evaluated the feasibility of a pharmaceutical company launching products in the Indian market. Mangal Advisory Services conducted reviews of the company's operations, marketing, the industry, and financials. It was found that manufacturing locally in India could reduce costs by 30-40% and allow the company to better deal with currency risks. However, the company's high pricing and reliance only on ethical marketing posed challenges. For the project to be viable, the summary recommends manufacturing in India and considering less stringent advertising approaches to reduce costs.

1. Delivering Excellence, Partnering Success
Case Study III
Startup Evaluation

2. Executive Summary
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The client is a Multi-National company in the
pharmaceutical sector, with one
Manufacturing unit based in Goa, India.
The director of the India unit wanted to
launch their products in the Indian market,
however, they were not sure of the market
potential.
In this regard, the client approached Mangal
Advisory Services to conduct a feasibility
study for their products in the Indian Market

3. Process
Review of
Operations Model
Review of
Marketing Model
Evaluation of
Industry
attractiveness
Review of
Financial Model
•Understanding of the operation processes and technology requirements
•Evaluation of supply chain and vendor relations
•Evaluation of manpower requirements and labour markets (availability of qualified labour)
•Evaluation of Product Mix
•Examination of proposed marketing channels
•Evaluation of distribution networks
•Review of pricing based on competitor rates
•Estimation of demand by reviewing market research reports
•Evaluation of similar comparable companies
•Estimation of key success factors
•Tie in Macro and micro factors to the projections
•Evaluation of projected financial statements

4. Operations Review - Findings
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The products to be launched into the Indian
market are being produced outside the country.
This meant a high conversion cost.
Initially the procurement planned was 100%
captive, hence no problems were envisaged as
far as supply chain was concerned. Transportation
cost however, was estimated to be high.
Significant cost arbitrage exists in labour markets
between India and Europe, especially in the areas
of R&D and Sales force. Qualified and
experienced personnel are easily accessible.

5. Marketing Review - Findings
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Product mix was mainly OTC drugs with a focus on
lifestyle diseases in dermatology and gynaecology.
The marketing channels was proposed to be through
ethical means of promotion only, which meant a
heavy investment in sales force.
In the first phase of the plan, distributors and C&F
agents were identified in the states of
Goa, Karnataka and Maharashtra. The company
was already in possession of letters of intent from the
prospective distributors.
It was found that the proposed pricing was on
average 7% higher than the largest competitors. This
would prove to be a challenge.

6. Industry Review - Findings
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PwC reported that over 40% of the global Pharma industry’s
incremental growth over the next decade is expected to come
from the emerging markets (Asia, Australia, Africa and Latin
America).
The pharmaceutical industry has been reported to have the
potential to grow at an accelerated 15 to 20% CAGR for the next
10 years to reach between US$49 billion to US$74 billion in 2020.
OTC products, a key driver of this growth, constituted USD 1.8 billion
of the entire pharma market in India in 2009 and is expected to
grow at 18% CAGR to a total value of over USD 13 billion in 2020.
Most of the ingredients required for the manufacture of OTC
products don’t fall under the DPCO price controls.
OTC manufacturers enjoy the privilege of a wider distribution
network as they are sold not only in pharmacies but also other
areas such as departmental stores etc.
The government has no restrictions on the advertisement of OTC
products which makes marketing easier for these products

7. Industry (Dermatology) Review
- Findings
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As per IMS dataset MAT-Mar, 2011, the Indian derma market has grown
by 14.8 per cent over the last year.
With growth estimated at around 20% (Express Pharma) over the next
three to four years.
While the treatment of skin related disorders remains the primary
segment for derma, the sector driving growth will be cosmetic
dermatology since it is of high value.
The total number of dermatologists have almost doubled in last five
years, and that clinical dermatology will remain the mainstay, whereas
aesthetics/ cosmetology segment will prosper even in the rural areas
because of increased awareness and availability of
knowledgeable/skilled doctors.
Basic treatments for skin related disorders are always in demand,
however, since most medical spending in India is mainly out-of-pocket,
the drug sales can be expected to be higher in metros and tier II cities
than in all rural areas as well. With an increase in pollution, stress and
poor nutrition, many skin disorders have become more common in India,
and that will definitely drive the market.

8. Industry (Gyneacology)
Review - Findings
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This therapeutic segment seems to be he next
growth driver for Indian pharmaceutical
companies.
Most Indian companies have recently started
marketing wings dedicated to the Gynecology
segment:
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Unichem launched the “Unifem” range of
products in 2011
JB Chemicals has launched a new sales wing in
July 2011 dedicated to the gynecology segment.
Lupin has committed to form a strategic tie up for
marketing their Gynecology products before
March 2012.

9. Financial Review - Findings
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The projected sales were found to be higher
than could be justified
The projected debtors days was calculated
at 20 days.
The projected creditor period was calculated
at 60 days.
The sensitivity limits were found to be as
follows: 
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Revenue – 30% (-ve)
Input cost (material) – 50% (+ve)
Marketing cost – Not Relevant

10. Operations - Conclusions
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The Project, in its existing form is viable but has
a high susceptibility to foreign exchange risks.
It is recommended that the Indian unit utilise
its unused capacity to manufacture products
for local market in order to reduce costs and
hedge against currency fluctuations.
The cost reduction estimated by
manufacturing in India was expected at 3040% on conversion costs and 10% on
transportation.

11. Marketing - Conclusions
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The current marketing channels, though
viable, is highly expensive.
Ethical means of promotion have shown to
have had the lowest ROI amongst all other
marketing channels.
Given that the company planned to operate
only in the OTC segment, it was
recommended that they make use of the
Government’s less stringent advertising policy.
Such a move could reduce costs by upto
20%.

12. Industry - Conclusions
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OTC industry was found to be a high
growth industry accentuated by liberal
Government policies and increasing
lifestyle related diseases.
 OTC products were found to demand a
brand premium which indicates that
marketing and advertising is an important
driver for success of any product.

13. Finance - Conclusions
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As per the independent research conducted, the
revenue sensitivity was estimated at 35% (-ve)
which is greater than the limit.
The input cost however was estimated to have a
sensitivity of 50% (+ve) which more than
compensates for the loss of revenue. This is
provided that the manufacturing was shifted to
India.
Debtors period was projected at 20 days of sales.
As per industry norms, the average debtors period
was found to be at 45 days. This would mean an
increase in working capital requirement by 125%.

14. Final Recommendations
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The project was found to be viable provided that the
following points were addressed:
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High pricing without any existing brand recognition
Operational cost and currency risks need to be mitigated by
initiating manufacture in India
The segment is highly influenced by the presence of strong
brands. A mere ethical means of promotion would require a
long gestation period for the products to take root.
Considering the fact that the sales sensitivity was found to be
greater than the limit it indicated a high probability of the
company facing losses. However, these losses would cease to
exist if manufacturing was commenced in India. This is
evidenced from the fact that local manufacture deceases the
input and conversion cost by close to 50%.

15. Thank You!!
Delivering Excellence, Partnering Success