Strategies for Accelerating the Growth of Nahar Pharma:
Some of the strategies are discussed here to improve the growth of the Nahar Pharma.
Paucity of Funds to Move to the Next Orbit.
Establishing a regulatory compliant manufacturing infrastructure and developing a quick product portfolio to run these manufacturing engines is quite expensive and consumes most of the borrowing power. In the Nahar Pharma, the availability of funds for long gestation but high return projects, building broad product / market portfolio, entering into new technologies, etc., is an important issue which deserves attention of the government.
The Nahar Pharma's presence in injectible dosage forms, steroids/hormones, sustained or controlled release drugs, poor solubility drugs with difficult bioequivalence, dermatologicals, ophthalmologicals, etc., is almost negligible. Many of the untapped opportunities are not impossible to capture as several corporations like Impax, Schwarz Pharmaceutical, Abrika, Skye Pharmaceutical and scores of companies have hugely benefited from the focus on specialty generic APIs and formulations. With stretched balance sheets a new initiative has to be conceived to push the Nahar Pharma into the next orbit. The Nahar Pharma with significant lower costs of innovation and testing is better placed to capture these opportunities.
Creating Broad Portfolio:
It is a known fact that broad portfolios are crucial for success. Broad portfolios come either through mergers or through significant manufacturing and R&D investments. The product portfolios of the Nahar Pharma are insignificant in size as compared to competitors. The R&D costs, being revenue expenditure, by and large in generics, to create such a product portfolio further stretches the profitability and market capitalization of the company.
Building Market Portfolio:
Commercialization of intellectual property across several markets enables enough profitability in the current competitive context. Most Indian companies are not having financial muscle to file drug registration applications in all target countries. Unlike India, the drug registration costs in Europe, Australia, Canada, etc., are prohibitively expensive (the registration costs are at least 50 to 200 times more than Indian costs) leave alone other costs such as meeting their country requirements like bioequivalence with local reference product, etc. The Nahar Pharma should have the better financial background for building the market portfolio. Once again neither alliances exist between local players to penetrate several countries nor are venture capital concepts prevalent to push innovation to several markets.
Access to International Markets- Need for a Policy Environment:
Inter & intra country competition is significant to capture the opportunity in pharmaceutical intermediates, APIs and formulations. The Nahar Pharma should capable to compete with inter and intra country competitors. The intermediate, API and generic formulators from India, China and established European API/formulator firms are facing challenges:
- Growing consolidation of large generic marketing organisations.
- Consolidation of pharmacies termed as pharmacy chains and distributors.
Hence, the number of players sourcing APIs or formulations is coming down giving way to tremendous bargaining power in the hands of large generic firms or distributors/pharmacy chains, obviously causing price erosion and pressures on profitability. The financial power and business wisdom in developed world ensured significant consolidation in the generic marketing organisations and distribution/pharmacy chains fronts.
Promoting Internationally Competitive Manufacturing:
Currently, there are considerable efforts in various countries for developing pharmaceutical exports. Promoting the competitive manufacturing is must to improve the Nahar Pharma worldwide. There are countries which have specialized in contract manufacturing for global markets. Pharmaceutical industry for international generic markets is capital intensive as several varieties of products need dedicated high cost facilities. Profitability can be achieved only when the product penetrates various markets across the world. Further, different countries have different packaging specifications.
Promoting Competitive R&D:
R&D conducted in house enjoys weighted deduction as an incentive. However, there are a few ambiguities in the definition of R&D itself in the context of pharmaceuticals R&D. For example, when a R&D unit develops a formulation, it has to be tested for bioequivalence. Such a bioequivalence testing gets out sourced. Similarly, the R&D of Nahar Pharma should develop a production process. Such process has to be scaled up in commercial facilities and often some rework is needed. Such production batches in scale up have to be outsourced in commercial facilities, as R&D in general may not have large manufacturing facilities for scale up and process refinements. Outsourcing of scale-up operations cannot be performed at universities, etc. Such outsourcing costs in pharmaceutical R&D are common and should be allowed for weighted deduction.
Overcoming Cost Escalation in Human Resource:
Skill set is strong only in limited number of organisations pushing up the costs of innovation and manufacturing. India traditionally enjoyed the benefits of low costs coupled with committed skills. Costs are rapidly increasing in the relevant manpower base such as scientists, regulatory affairs personnel, manufacturing personnel, pharmaceutical lawyers and international business development personnel.
Availability of right talent at meaningful costs should remain India's strength for some more years and it is feasible to achieve this if some initiatives are taken now. There are no formal and significant efforts to diffuse innovation capabilities due to lack of linkages between academia, public institutions and industry. It is generally not in the interest of the country for select players only to continue to enjoy the competence of a large skilled pool of human resource. The industrial growth and continuity of the Nahar Pharma is dependent on the creation of large skilled population. Intense public initiatives have to be conceived and implemented in this area.
Biocatalysis, Organocatalysis, Nanotechnology, etc., are some of the new technologies that will have significant influence on the industry. Development of biocatalysts requires a significant interface and cross functional understanding between chemistry and biology. Developing micro organisms which act as enzyme catalysts accelerating certain chemical reactions which otherwise take multiple steps or cause lot of environmental issues is an essential technology. The present and upcoming technologies should be applied to improve the quality of Nahar Pharma.
The Linkage with Educational System:
- A number of young students are moving away from pure sciences like chemistry, biology, etc. to other non-science disciplines as science education loses its attraction in the present socio-economic milieu. Premier institutions like IITs, NITs, etc., capture students for engineering and do not have adequate schemes to attract students in sciences especially after 10+2. Integrated courses in these institutions are considered only second option for aspiring engineers.
Building on the key strengths, the company seeks to enhance the position as one of the leading pharmaceutical companies in India. The aim of the company is to become the leading pharmaceutical company in India and continue to expand their operations both locally in India as well as internationally, both through organic growth and acquisitions. They seek to achieve this goal by implementing the following business strategies:
- Continue to implement their focused growth strategy and promote increased exports.
- Since the establishment of Deva almost 50 years ago, they have played a significant role in the development of the Indian pharmaceutical market and we intend to continue to reinforce their commitment to India. They seek to reach the leading position in the Indian pharmaceutical market through, among other things, accelerating the introduction of new products and increasing the number of sales representatives to support this process.
- The company believes that there is growing demand for their products, in particular antibiotics, in selected emerging markets. In the near future, they also plan to enter selected markets in the Middle East and certain parts of Asia.
- Export to fully regulated markets. In addition to India and selected emerging markets, they also see growth opportunities in Europe and the United States. The company expects to commence the export of selected products in connection with the start of the operations of their new plant. They expect the new plant to receive the necessary approvals and certifications required for export operations to these fully regulated markets. With our dedicated and experienced management team and increased production capacity, They believe that they will be able to use their price advantage to expand the export business.
- Capitalize on growing demand for products.
- Pursue selective acquisition and investment opportunities.
- Diversify product and service portfolio.
- Further improvement in core competencies.
- Continue to develop manufacturing facilities and internal research and development function.
- Reduce cost base and streamline corporate structure.
Since the appointment of their new management in 2006, we have created and started to implement a focused, three-layered growth strategy in developing the Human Pharmaceuticals business line:
Growth in the Indian market.
Export to selected emerging markets.
According to [IMS], the Indian pharmaceutical sector is expected to experience significant growth during the next four to five years driven by, among other things, improved macroeconomic environment, demographic factors, such as India having the third largest population in Europe and increasing life expectancy, low level of pharmaceutical consumption per capita as compared to consumption in Western Europe (28 per cent.) and reforms in the social security system. For example, they aim to capitalize on the growing demand for generic products through the continuing development of product offering and raising brand awareness among customers. In order to meet the growing demand, they also plan to upgrade our production equipment and increase our production capacity by approximately 250% during the next two years.
The company acquired majority holding in Deva in 2006 and intends to continue to identify acquisition and investment opportunities both for existing and potential new pharmaceutical businesses. The Indian pharmaceuticals market is currently scattered with a number of small manufacturers and believe that the market will undergo consolidation during the coming years. They plan to take an active role in such consolidation while applying a disciplined approach to investment opportunities.
While the pharmaceutical sector of India is characterized by a strong prevalence of antibiotics, the demand for therapeutic categories such as cardiovascular and central nervous system drugs is expected to grow at above market growth rates. They aim to capitalize on this trend by developing and acquiring new products. They plan, for example, to introduce a new line of cardiovascular products and diversify product portfolio with other selected product lines, including central nervous system drugs, biogenetic products and oncology products as well as to complete existing dossier of filed pipeline products with the Ministry of Health. In addition to product portfolio, they also intend to extend service offering by commencing contract manufacturing when we start the operations of our new production campus, expected to be fully operational. They believe that introducing these new products and services will be a key component in our growth strategy.
They company believes that current strong position in the Indian pharmaceutical market is based on portfolio of high-quality products, strong sales and distribution networks and good relationship with local doctors and pharmacies. They intend to continue to develop and improve these core competencies and further strengthen position as a preferred provider of pharmaceutical products in the market. The company also believes that these core competencies will support our growth strategy and expansion outside of India.
They currently operate eight production units in five production campuses in India and are constructing a new modern production facility. While continuing to develop some of existing facilities, they expect the new facility to be a key factor in the implementation of growth strategy through its significant production capacity and the Food and Drug Administration, or FDA, in the United States and European Medicines Agency, or EMEA, approvals they expect to seek for the new facility. These approvals, if received, will allow us to enter selected fully regulated markets in Europe and the United States. In order to support this expansion, the company increases the number of employees at our research and development department with a view of creating new products and proprietary technologies to be initially used at own facilities and ultimately to be licensed to third parties, and thereby diversify our product and service offering.
Currently, manufacturing costs for the products sold represent approximately 75% of our total costs, with costs relating to the manufacturing and procurement of APIs and other raw materials accounting for approximately 65% of the total manufacturing costs. While the company believe that the procurement department has been successful in managing our raw material costs, we believe that we can further reduce our costs by sourcing more from low cost countries such as China and India as well as through developing our own production and introducing modern production methods, especially at our new plant, which is currently under construction. The company also seeks to streamline our corporate structure in India by integrating our production units, eliminating cross-ownerships between Deva and its subsidiaries and by exiting certain of non-core businesses during the next three years.
Competitive analysis in comparison to various leading firms:
Despite the uncertainty in global financial and consumer markets, the Indian pharmaceutical sector has maintained its performance. But due to certain reasons, like consumption of highly priced materials, decline of money value, foreign exchange (forex) losses, out-licensing activity and mark-to-market losses, Indian companies have suffered in both topline as well as bottom line activities. Overall, Indian pharma companies have shown better net sales in comparison to the same quarter of the last fiscal year (FY).
The latest analysis results of 30 leading Indian pharma companies, all with a minimum turnover of Rs 100 crore. 18 pharma companies showed a loss in net profit against the same quarter in the previous year. During this period, total net profit of these 30 pharma companies moved down 80.8 percent to Rs 649.16 crore from Rs 3,374.41 crore. Likewise, net sales went up 16.5 percent to Rs 19,398.77 crore from Rs 16,653.09 crore. This reflects the general trend of increasing sales, thanks to sustained growing consumer demand, coupled by a decrease in profits due to increasing material costs and forex losses.
Vikas Sonawale, Analyst, Pharmaceuticals, Religare Capital Markets, said, "The key reason for the decline in profit of Indian pharma companies was 'forex' (losses). However, the domestic formulation business activities have performed well and around 10 percent growth has been observed."
In the latest analysis, Indoco Remedies was one of the rare companies to see a dip in both net sales and net profit, but in Q3, it is joined by more companies like Divis Labs, Jubilant Pharma and Panacea Biotech, who have faced a similar set back. Ranbaxy Laboratories, now a subsidiary of Daiichi Sankyo, suffered badly during the quarter ended December 2008. It registered a net loss of Rs 915 crore in a cumulative net profit of Rs 787 crore in the last fiscal. However, the company is betting that its alliance with Daiichi Sankyo will strengthen both companies and unleash tremendous growth opportunities for them. During the quarter it also settled ongoing and potential patent litigations bringing visibility to multiple first-to-file opportunities in the US over several years to come.
During the quarter, Glenmark's net sales moved down 14 percent whereas net profit went up sharply by 190.8 percent. Dr Reddy's Laboratories (DRL) too had something to cheer about as its net profit increased sharply 154.5 percent to Rs 159.16 from 62.55 crore. Biocon and Aurobindo Pharma's net sales increased sharply (83.8 percent and 29.1 percent respectively) but net profit declined (by 90.3 percent and 6.1 percent respectively). Rabindra Basu, Associate Research Analyst, Networth, said, "Due to out-licensing activity Ranbaxy and Glenmark suffered badly in this quarter but DRL has performed well and continued on its growth route."
The initiation of a strategy that establishes lines of action to develop the sub-sector of pharmaceuticals promoting trust and collaboration. This is expected to enhance competitiveness and to result in the application of sustainability criteria in the productive and commercial activities within this sub-sector supply chain.
This strategy seeks to improve export supply through sustainable supply chain management and the strengthening of following economics agents:
- Producer and collectors of raw materials;
- Processors and exporters.
- Institutions and services providers that support economics agents;
- Standards setting institutions.
The implementation of this strategy will be viable only if it is applied in a progressive and systemic manner along the whole value chain, in accordance with market dynamics.
The above flow-chart presents the approach of the strategy. It proposes the development of the sector on the basis of a solid and consolidated normative and regulatory framework, allowing for the development of promotion and support activities aimed at economic actors in the value chain. The depicted relationships would need to be strengthened and/or formalized in order to promote sustainable management and value addition throughout the value chain.
Looking at the expansion of business operations. How to formulate effective strategy for in business expansions.
- Increase the sales and products in existing markets. This is obviously the easiest and most risk-free way to expand. The sales and the products of the Nahar Pharma should be increased in the present market in order to expand the company. This tactic may require a bigger location, different pricing strategies, new/improved marketing techniques - but it will be in a customer group with whom you already have a relationship.
- Introduce a New Product. You have a successful product/service that you have been offering for some time and have been collecting data, customer feedback and doing the tinkering on your newest product. New products with new characteristics should be implemented by the Nahar Pharma. This is a normal evolution in business, not just an expansion tactic. When positioned as adding value and being responsive to customer needs, this can be a relatively risk-free way to expand.
- Develop a New Market Segment or Move into New Geography.
- Start a Chain.
- Franchise or License. While it's a quick way to grow, a franchise agreement can cost (minimally) $100,000 to prepare. You will need to be a good teacher, be able to prepare the training manuals (preferably in more than one language), be very organized and willing to travel. The Nahar Pharma may provide franchise opportunities to other small Pharma companies. Licensing can carry less risk, but demands giving up a certain amount of control. Licensing a patent, trademark or industrial design means that you sell manufacturing, distribution or production rights.
- Join Forces / Strategic Alliance. A merger or acquisition combines the better of two companies, expands the customer base, increases intellectual capital and delivers operational efficiencies. The trick is finding the right partner. These partners may be new distributors, but be forewarned large retailers exact heavy performance expectations. The new distributors and partners can be added in order to expand the Nahar Pharma.
- Go Global. The company can decide to go global in a number of ways. Growing markets, rising consumer spending, improved business climate--sometimes the only place to find these things is overseas. Doing business internationally can take the form of exporting, licensing, a joint venture or manufacturing, but whatever forms the company choose, the basic business rules apply: assess customer demand, gain legal and accounting assistance, protect intellectual property and obey regulations.
Both of these areas require cost outlays and uncertainty. Moving your products into new categories or demographic segments requires market research, beta testing and new marketing strategies, i.e. a message for a 16-year old will differ that one for a 60-year old. Launching new markets in new places is important for expanding the management of Nahar Pharma. Management of new remote locations may absorb significant time and attention. While the risks are more, the payoffs are large - and for most businesses looking to expand, these two methods of expansion are inevitable.
A Pharma company can be easily reproduced and can be run from a distance is all you need to launch a chain. But, you must be cognizant of what made the first location a success - was it location, your staff or you? If it is just you, then duplication is only possible through detailed operations plans and sharing staff between locations. You will need to duplicate the plan of your first location while meeting increased customer demands. Starting a chain gives your current staff a crack at "management" duties, training opportunities and an opportunity to expand their horizons.
SWOT Analysis of the Pharmaceutical Industry:
It may be useful now to present a SWOT analysis of Indian Pharmaceutical Industry:
- India is regarded as having an edge over China in terms of qualified, English-speaking manpower and fair protection of intellectual property rights supported by well-developed judicial system.
- India has skilled scientists/technicians/management personnel at affordable cost leading to low cost of innovation/ manufacturing/capex costs/ expenditure to run cGMP compliance facilities and high quality documentation and process understanding.
- The country has well developed chemistry, R & D and manufacturing infrastructure with proven track record in advanced chemistry capabilities, design of high tech manufacturing facilities and regulatory compliance.
- The healthy domestic market with rising per capita expenditure is another significant strength enabling achievement of economies of scale. The country also has a strong marketing & distribution network.
- India is considered a desirable destination for off shoring of data management functions for clinical trials and also due to its rich biodiversity and strength in Chemistry which are essential for drug discovery.
- The country has significant ability to circumvent API Patents. India has filed a number of non-infringing process patents. The country has a recent success track record in circumventing formulation patents. Proven Legal skills to evaluate IP and commercial strategies are available at least in select top companies.
- The present domestic regulatory environment though in need of further improvement has been conducive to the growth of an emerging pharmaceutical industry.
- Low investments in innovative R&D continue to be a major weakness of Indian pharmaceutical industry.
- Diffused nature of the Indian pharmaceutical industry means that only about 20 to 30 companies are large enough to bear the transactions costs associated with sustained exports to and compliance with entry regulations of the developed markets.
- Majority of companies lack the ability to compete with MNCs for New Drug Discovery, Research and commercialization of molecules on a worldwide basis due to lack of resources.
- Strong linkages between industry and academia which are essential for growth of the industry is lacking in India.
- Comparatively small domestic market size due to low medical and healthcare expenditure in the country.
- The country has at times shown inadequate regulatory framework or compliance and enforcement regime, reflected in occurrences such a production of spurious or low quality drugs.
- Competency in API/Formulation, intellectual property creation, facility design and maintenance, global regulatory affairs, legal intricacies, and managing international work force is limited to a few players among the big players.
- Marketing alliances for MNC products in domestic and international market is another emerging opportunity.
- Contract manufacturing arrangements with MNCs is estimated at 10% of patented markets estimated at US$450bn which is approx. US$45bn.
- India has a very high potential for developing as a centre for international clinical trials due to its rich diversity.
- India can become a niche player in global pharmaceutical R&D and possibilities exist for expansion of biotechnology generics (also known as bio-similars) and biopharmaceuticals.
- There is a possibility of greater returns from an Indian entry into mature and more remunerative markets like Brazil, Japan, CIS, Russia, etc.
- The Work Programme for the European Medicines Agency 2007 identifies greater co-operation with India - especially in the field of traditional and herbal medicines and remedies. Emerging preference for traditional medicines and herbs in the developed markets including lifestyle products and food supplements also presents an opportunity for the country in traditional medicinal systems & Herbal based products.
- Product patent regime poses serious challenge to domestic industry unless it invests in research and development.
- R&D efforts of Indian pharmaceutical companies are hampered by lack of enabling regulatory requirement.
- Drug Price Control Order puts unrealistic ceilings on product prices and profitability.
- Lowering of tariff protection has increased competition in domestic markets resulting in erosion of profitability.
- Mergers and acquisitions by foreign companies particularly multinational corporations of a few Indian generic leaders may completely change the direction of India's pharmaceutical movement neutralising its thrust on generics and cost competitiveness.
Indian pharmaceutical supply chain:
Chart 2: Pharmaceutical Supply Chain from Factory to Shelf:
Source: Cygnus Research:
There has been a paradigm shift in the supply chain process of Indian pharmaceutical industry. Value added tax, consolidation of pharma companies and emergence of pharma retail chains are some the factors that are driving the changes in the distribution cycle.
A report by Ernst & Young entitled, Indian Pharma Distribution, reveals, "With the introduction of VAT in most of the states, the squeeze on domestic margins and increasing government pressure to contain retail drug prices, the reform in the Indian pharmaceutical supply chain is imminent".
The existing pharma supply chain in India.
Indian Pharma logistics market size:
The market size of Indian pharmaceutical logistics was $ 199.5 million in 2006 and the industry has been growing at an average annual growth rate of four percent since 2002. In 2006, it registered a growth rate of 5.1 percent over the previous year.
From the cost composition point of view, the major logistics costs in the pharmaceutical industry include packaging, distribution, etc. Hence, logistics comprises 45-55 percent of the costs in the pharmaceutical value chain.
SCM at Nicholas Piramal India Ltd.
Nicholas Piramal India Limited (NPIL) is India's fourth largest pharmaceutical company with significant joint ventures /alliances/partnerships and a sales turnover of $ 313 million (Rs 14.1 billion) in 2005-06. The company's growth was mostly driven by strategy of partnerships, quality acquisitions, brand building and manufacturing.
On the supply chain management (SCM) front, NPIL's major challenge is to integrate its Indian and international businesses. Transportation of goods and inventory management are two areas the company is trying for further improvement. With the implementation of SCM, the company has achieved significant changes in the domestic market.
With better utilisation of SCM practices, NPIL significantly achieved the following results.
On the material front, NPIL has 28 depots and spends eight lakh to 10 lakh on information communication. Within six months of the SCM applications, the company has been able to reduce materials inventory from 40 percent to 25 percent, which is much lower than the industry's average.
On the supply side, NPIL deliberately used source materials from a reasonable number of suppliers to reduce the risk factors and the company shifted to a single window.
This decision of the company has allowed a gain in bargaining power and reduced prices by five to ten percent.
At the same time, to improve the service quality, the company has also reduced the number of transporters and reduced the delivery time. This move of the company has led to a clear improvement in quality and delivery of products.
This example highlights the significance of SCM in pharma industry. Pharma companies worldwide have started using this technique to improve the entire functional process. SCM has helped pharma companies to enhance their efficiency in managing resources and improving relationships.
Significant aspects of logistics in Indian pharma industry:
Logistics in pharma industry is very critical for providing the right medicine to the right patient at the right time, place and dosage and most importantly at the right price. Since business is highly competitive today, success largely depends upon the efficiency of supply chain.
Supply chain is very critical as it maintains the complex network relationship between the organisations (drug manufacturers), trading partners to source raw materials, delivery products, retailers and hospitals.
With the growing competition among major pharmaceutical players in the industry, inventory control plays a significant role in pharma value chain as lots of inventory exists in the supply chain. For instance, out of stock situation in existing business environment is unacceptable and research and development requires huge investment to bring products to market, when it finally arrives.
In addition, the margins on pharma products are very high. Around 30 percent is shared by different channels of distribution. Hence, pharmaceutical companies are ready to spend to improve efficiency of supply chains.
The Indian pharmaceutical industry is ready to become globally competitive. In this context, a recent report by McKinsey reveals that Indian pharmaceutical industry has the potential to reach $ 25 billion by 2010. The logistics costs of the industry in packaging, transportation, marketing, cold storage, etc been growing at a CAGR of five to seven percent from 2002 onwards.
Thus, in the coming days, logistics and SCM are expected to play a significant role in Indian pharma industry and could contribute towards the enhancement of productivity as well as growth of the industry.
(Source: CII Institute of Logistics).
Indian Pharma Companies are not so financially sound to invest in the R&D. Some of the organization in India has started to invest into R&D, like Dr. Reddy's & Ranbaxy. But their research product will be launched in the near future. The Nahar Pharma should concentrate on R&D in order to develop innovative as well as healthy products.
The untapped potential of the large pool of low-cost, English speaking technical manpower and low-cost of manufacturing, conducting clinical trial and research with diversify education system in the field of Pharmaceutical, Technology and Management, India can be a place of Choice (Outsourcing hub) for multinational organization.
So, for the Indian Pharmaceutical Co. contact manufacturing, contact research - who having good R&D set-up, export of medicine in US Generic market will be a wise step. Beside that Para IV filling will be a strategically important, but challenging the patented products under Para IV, having high risk to loose or win the game. But to implement it organization should be strategically very sharpen on that particular area.
But, before implementing the strategy in domestic or international market Nahar Pharma should have clear sense of strategic vision and Balance Scorecard, which will deploy their business strategy better.