2. Problem Statement
• A European drug manufacturer wants to launch an anti-
anxiety drug in India. The drug is already selling in some European
countries. The client needs to be advised whether it will be feasible
for them to launch.
Assumptions
• The patented drug has been selling in the European market for 5
years
• Product benefits include shorter treatment cycles, lower incidence
of addiction
• The firm is planning its entry in 2013
• Exchange rate is $1= Rs 65
2
3. Who is our Client?
CEO/ CMO
•Focus area:
–Market Expansion
–Proof of Concept to Board
•Motivation to seek Help
–Can the product be a block
buster
–Seek Board Approval
–Due Diligence
–Expertise
–Fresh Perspective
Board of Directors
• Focus Area
– Improve long term financial
performance of the firm
•Motivation to seek Help
–Due Diligence
–Expertise
–Fresh Perspective
Understanding the Client to serve them better
3
5. .
Entry Options
.
Business Model
How to create value for both the
customers and the parent
company
Exploring the different routes
and examining the feasibility
8. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Environment Assessment
Political
Foreign direct investment is permitted to the extent of 100% under the
automatic route for green field companies in the Pharmaceutical sector
Implication: Easier clearances for manufacturing can be expected
Economic
Health Insurance premiums and penetration set to rise, private sector Insurance
also showing a rising trend
Implication: Greater affordability for high end drugs
Regulatory
Pricing: Market-based pricing is expected to create greater transparency
IPR: Post-TRIPS, India has well-established statutory, administrative, and judicial
frameworks to safeguard IPRs. A patented invention (including products) is now
given 20 years of protection in India.
Approvals: Quick approvals for new facilities
8
9. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
More IPR related issues
Compulsory licensing
Circumstances for the grant of compulsory license:
a) Requirements of the public with respect to the patented inventions
have not been satisfied,
b) The patented invention isn’t affordable to general public
c) The invention is not exploited commercially within India
Invoking of compulsory licensing
NEXAVAR case
One of the prominent cases of compulsory licensing
Bayer granted license in 2008
However the imports didn’t suffice the demand
License granted to Natco on basis of proof that invention wasn’t
sufficiently utilized
9
10. 686
1209
0
500
1000
1500
2013 2020
Anti Anxiety Market in
Rs Crore
CAGR 8%
A Market dominated by
generics
70%
9%
21%
Generics
Patented
Drugs
OTC
Revenue Share Sub
segments 2015
73
136
0
50
100
150
2013 2020
Anti Anxiety Patented
Market in Rs Crore
CAGR 9 %
2.4 2
1.5
0
1
2
3
Anxiety Mood
Disorder
Psychotic
Disorder
Prevalence of Mental
Disorders %
74%
26%
No Treatment
Seek
Treatment
Health care seeking behavior
among those having mental
Disorders
25%
37%
38%
Psychiatrist
Physician
Others
Treatment Channels
Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Indian Anti-anxiety Market
Source: Poduri GS. Analysis of psychotropic drug sales in India , MENTAL MORBIDITIES: PREVALENCE AND HEALTH SEEKING BEHAVIOR, IBEF report on Pharma sector
10
12. Competitive
Rivalry (High)
Threat of New
Entrants
(Low)
Bargaining
Power of
Customers
(High)
Threat of
Substitute
Products
(Low)
Bargaining
Power of
Suppliers
(Low)
Assessing the Potential for Profitability in the Industry through
Porters 5 forces
Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Competitive Rivalry
High on account of presence of generic drug makers
Ability of players to offer low prices
Threat of New Entrants
Stringent government regulations make entry difficult
Presence of strong distribution channels and networks with doctors
of existing players
Substitute Products
Homeopathy, Yoga Ayurvedic medicines can act as substitute
Bargaining Power of Suppliers
India is home to many API manufactures , hence raw materials can
be sourced easily
Bargaining Power of Customers
Prevalence of generics by the customer and low price points offer
customer a lot of choice
E.g.. Anxofit used for treating anxiety retails at Rs 1.5 per tablet
The strength of Generics and Low price points
make India a difficult market for Branded drug
makers
Competitive Environment
Assessment
12
13. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
89%
11%
Generics
Patented Drugs
Prescription Drug Market- Anti
Anxiety
10654 10484
9070
7262
0
2000
4000
6000
8000
10000
12000
Lupin Cipla Aurobindo Sun Pharma
Sales of Generics Rs Crore
Major Anti anxiety brands(in decreasing order of sales):
Clonazepam
Pregabalin
Clobazam
Aplhrazolam
Source: Poduri GS. Analysis of psychotropic drug sales in India , CMIE data base
13
15. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Increasing Levels of Investments
Market Entry
Options
Exporting
Route
Direct
Indirect
Contractual
Route
Licensing
Contract
Manufacturing
Investment
Route
Greenfield
Mergers &
Acquisition
Joint Venture
15
16. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Exporting Route
• Lowest amount of assets required
in this mode of entry
• Indirect : Drugs can be exported
to distributors in India or
• Direct: A domestic distribution
channel can be established by the
drug maker
Pros Cons
16
17. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Contractual route-Licensing
• Patented drug can be licensed to
licensee who is allowed to
manufacture the product, use
patents, and particular processes
and/or use existing trademarks in
exchange for a royalty
• The royalty can be up to 25
percent
Pros Cons
17
18. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Contractual route- Contract
Manufacturing
• Drug maker outsources the
manufacture of the anti anxiety
pill to a competent local
manufacturer
• Parent company retains control
over marketing and distribution
of the product
Pros Cons
18
19. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Investment Route
• Set up capacity in India
• Considerable sourcing advantages
can be leveraged as India is home
to several API manufacturers
• Mergers and acquisitions can be
considered to quickly scale up
capacity
• However foreign direct investment
in brownfield route requires FIPB
approval
• Green field facilities can be setup
taking the advantage of Make in
India campaign
Pros Cons
19
20. Choosing the best option
Option 1: License
– Positive NPV
– Able to cater demand without
having to incur investment
– Gain brand recognition in
Market so that any foray in
future can be planned
Option 2: Contract Manufacture
– Positive NPV
– Able to cater demand without
having to incur investment
– By some investment in SGA,
greater market share can be
captured
Given the current scenario it is better to enter the market in asset light forms like
Licensing or contract manufacturing
Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
20
22. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Value Delivery- transferring the value to the customer
Meets the need of access to fast action novel genuine drug of the
patients
The price point is not as high as that incurred by importing the drug
Value Capturing- harvesting the value for the firm
License fee of up to 25 percent can be charged
Best ways to elicit inorganic growth in revenue
Value creation- creating gain for the firm
Improved access to market without incurring high fixed costs
Access to economies of scale(manufacture and marketing ) and supply
chains of the licensor
Wards of threat of compulsory licensing
Contractual route-Licensing
22
23. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Value Delivery- transferring the value to the customer
Meets the need of access to fast action novel genuine drug of the
patients
The price point is not as high as that incurred by importing the drug
Improved value delivery through the foreign expertise of parent
Value Capturing- harvesting the value for the firm
Growth through improved marketing
Value creation- creating gain for the firm
Improved access to market without incurring high fixed costs
Access to economies of scale(manufacture and marketing ) and supply
chains of the manufacturer greater control over marketing activities
Contractual route- Contract Manufacturing
23
25. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Licensing Roadmap
• Initial screening to find out potential partners
• Then bidding over license fees grant license to highest bidder
Initial
technical
evaluation
Detailed
technical
evaluation
Detailed
commercial
evaluation
Technical
due
diligence
Commercial
due
diligence
Bidding
Flowchart to find the right partner
25
26. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Contract Manufacturing Road
map
• Get the required
clearances for marketing
and manufacturing drug
in India
• Shortlist top
manufacturers after due
diligence
• Possible players: Cipla,
Sun Pharma
Growth
Levers
Increase field
force
Encourage
cost
reduction
Exploit social
media to
drive
awareness
Drive patient
awareness
and
education
Reach out to
doctors
26
27. Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
The customer
• Urban dwelling, high income, has access to the best psychiatric care
Growth
Levers
Increase field
force
Reach out to
doctors
Build
Reputation
Drive patient
awareness and
education
Reduce
Manufacturing
costs
Medical representative incentive
structure to attract and keep them
motivated
Target the doctors based in
reputed hospitals like
Fortis
Commison structure to
encourage care givers
Commission study and
publish in reputed journals
to gain trust
Improve awareness
through social media
about anxiety and the
need to seek professional
help
Improve margins by
driving down
manufacturing costs by
accessing expertise of
local players
Gaining Market Share
27
28. References
• MENTAL MORBIDITIES: PREVALENCE AND HEALTH SEEKING BEHAVIOR-
Dadwani Roma S , Tintu Thomas
• Poduri GS. Analysis of psychotropic drug sales in India. Acta Medica
International. 2016;3(1):122-125.
• IBEF report on Pharmaceuticals
• http://www.pharmaceutical-drug-manufacturers.com/pharmaceutical-
classification/customs-duty.html
• http://www.livemint.com/Home-
Page/f0R9060osU7bENFNwlnx5O/Compulsory-licences-may-spur-more-
voluntary-licensing-deals.html
• The Licensing Agreement in Pharmaceutical Business Development 3rd edition
• Sales data of generics taken from CMIE data base
28
35. Analysis of Options: Make In India
Market Assessment
Competitor
Assessment
Entry Options Business Model Implementation
Income Statement In crores
Year 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Market Size (In Rs Crore) 61.7958 68.1516 75.2796 81.8928 88.6347 95.3766 102.1185 108.8604 115.6023 122.3442 8%
Estimated Market
Captured by European
Drug Maker
3.08979 6.81516 7.52796 8.18928 17.72694 19.07532 40.8474 43.54416 46.24092 48.93768
Market share % Terms 5% 5% 6% 6% 15% 15% 20% 20% 20% 20%
Sales 3.08979 6.81516 7.52796 8.18928 17.72694 19.07532 40.8474 43.54416 46.24092 48.93768
COGS 0 0 0 3.275712 7.090776 7.630128 16.33896 17.41766 18.49637 19.57507
Gross Margin % 60% 60% 60% 60% 60% 60% 60% 60% 60% 60%
Gross Margin 1.853874 4.089096 4.516776 4.913568 10.63616 11.44519 24.50844 26.1265 27.74455 29.36261
SGA % 20%
SGA 0.617958 1.363032 1.505592 1.637856 3.545388 3.815064 8.16948 8.708832 9.248184 9.787536
Setup Expenses -325 0 0 0 0 0 0 0 0 0 0
Net Income -325 1.235916 2.726064 3.011184 3.275712 7.090776 7.630128 16.33896 17.41766 18.49637 19.57507
Disount rate 8.00%
NPV ($249.84)
*Assuming 50Million Dollars will be needed to setup a plant
$50 Million 325 Rs Crore
35
Editor's Notes
Good Afternoon Sir/ Ma’am
I am Shrinidhi and I am excited to present my case solution for the European drug manufacturer case
Lets have a look at the problem statement
Read
State assumptions
It is always imperative to know who the client is and understand his motivations and point of view before we present the solution
In this slide I have tried to list out the motivations that have driven the clients to ask for help
I shall detail the approach to problem
Market assessment is mainly carried out to understand the opportunity at hand
Copetitor assessment conducted to understand the competitive environment
After which we shall understand and evaluate the different entry options
The kind of business model which can be used to monetize the opportunity
And finally implement the solution
We shall analyze the Environment on basis of Political Economic and Regulatory issues pertaianing to the Pharma industry
On the political front Prime minister Narendra Modi is keen on making India a key manufacturing destination
Read political
Affordability wrt to expensive medicines is set to rise on account of rising penetration of health insurance
Regulatory issues
India has historically been viewed by the global community as a ‘poor patent enforcement’ territory.
Greater Protection of Intellectual Property right. India is now a signitory of TRIPS(Trade Related Aspects of Intellectual Property Rights )
Looking at the IPR matter in more detail
Understanding compulsary licensing
It has been invoked only in very rare cases
There is a need to enter the Indian market because, of condition 1 and 3
Loss of IP in one of the biggest Pharma markets
CL granted by the Controller General of Patents Design and Trademarks of India, Mr. P.H. Kurian granted
Understanding the Figures
Indian Market is riddled with Less awarness
The reliance on Physicians for care
The drug can be manufactured offshore and shipped to the country
