Competitive Analysis Of Pharmaceutical Industry

Using Porters 5 Force Model & PEST Analysis

Presented By:
Amaneet Singh Brar Gurmohit Singh Gurtez Singh Kusum Saltanat

Pharmaceutical Industry
Introduction Global pharmaceutical companies are experiencing an ever shifting landscape, ripe with challenges and opportunities. In this challenging environment the pharmaceutical companies need to enhance their reach and at the same time leverage their competitive advantages. The Indian Pharmaceutical Industry today is in the front rank of Indias science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology

Future Prospects
The Indian pharmaceuticals market is expected to reach US$ 55 billion in 2020 from US$ 12.6 billion in 2009. This was stated in a report title "India Pharma 2020: Propelling access and acceptance, realising true potential" by McKinsey & Company. In the same report, it was also mentioned that in an aggressive growth scenario, the pharma market has the further potential to reach US$ 70 billion by 2020

Characteristics of Indian Pharmaceutical Industry

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share. The pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectable. There are about 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units).

KEY STATS FOR PHARMA INDUSTRY

Annual Turnover Rs. 226 b Growth rate 5.2% Exports Rs. 141 b Future projections Rs. 1200 b (by McKinsey) Share of World Pharma market 1.0% in value 8% in volume terms Global ranking 13th in value terms 4th in volume terms Number of Generic Brands over 60,000 in 60 therapeutic categories Number of units - 10,000 out of which approximately 300 in organized sector OTC market Rs. 35 b growth 18-20% Alternative medicine - Herbal / Ayurveda market Rs. 38 b Per capita drug expenditure Rs. 220 per annum

Porter's five forces Model

Porter's five forces helps to analyse the attractiveness of the industry where it uses concepts developed in Industrial Organization (IO) economics to derive five forces which determine the competitive intensity and therefore attractiveness (relative profitability) of a market. Porter's five forces include three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers, bargaining power of customers.

THE THREAT OF THE ENTRY OF NEW COMPETITORS

Profitable markets that yield high returns will draw firms. This results in many new entrants, which will effectively decrease profitability. Unless the entry of new firms can be blocked by incumbents, the profit rate will fall towards a competitive level (perfect competition). Brand value Quality regulations by the government Patents High Competition Easily accessible industry. Consolidation High working Capital Requirements

THE BARGAINING POWER OF CUSTOMERS

End user of the product is different No choice but to buy what doctor says. Scattered Market

THE BARGAINING POWER OF SUPPLIERS

Suppliers of raw materials, components, labour, and services (such as expertise) to the firm can be a source of power over the firm. Suppliers may refuse to work with the firm, or e.g. charge excessively high prices for unique resources. Several chemicals Low bargaining power Low Switching cost for the manufacturer Standard Inputs

THE INTENSITY OF COMPETITIVE RIVALRY

For most industries, this is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc. Number of units - 10,000 out of which approximately 300 in organized sector Alternative medicine - Herbal / Ayurveda market Rs. 38 billion High growth prospects. Very low entry barriers. Fixed cost requirement is low Need for working capital is high. Indian Market has a wide variety of bulk drugs and exports sophisticated bulk drugs.

THE THREAT OF SUBSTITUTE PRODUCTS

The existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases (high elasticity of demand). Demand for pharma products continues and the industry thrives attracting new entrepreneurs. No substitute for medicine Developments in Bio-technology Ayurveda and Homeopathy

Power of Suppliers
Several suppliers Low switching cost Standard Inputs Volume Benefits occur

Threat of New Entrant

Very less barriers Govt. support Govt. regulations Patents Brand value

Industry Competition
Highly competitive Low fixed costs High working capital

Threat of Substitutes
No substitute to medicine Growing developments in biotech Ayurveda

Power Of Buyers
End user is different Motivated by the influencer Fragmented buyers with no power

Pest analysis
To understand the implications of the environment on pharmaceutical industry it is imperative to study the four cardinal influencers on the industry namely political ,economic ,social and technological factors. Technological advancements , tighter regulatorycompliance overheads ,rafts of patent expiries and volatile investor confidence have made the modern pharmaceutical industry an increasingly tough and competitive environment.

Political factors
Diverse Political Thought Stringent Price Controls Chronically sick PSU segment Special Economic Zones

Economic factors
India spends very small proportion of its GDP on healthcare (a mere1%), this has stunned the demand and therefore the growth of the industry. Per capita income of an average Indian is low. The incidence of taxes are very high. The number of registered medical practitioners is low There are only 5000000 medical shops adversely affecting the distribution.

 With time significant economic value is added to the pharmaceutical industry because majority of pharmaceutical sales originates in U.S , European and Japanese markets. India is a highest rate regime. Therefore the cost of funds is double that in America . This adds to the cost of goods .

Social factors
In recent times , the impact of various global epidemics e.g. SARS, AIDS etc has also attracted popular and media attention to the industry . The effect of the intense media and political attention has resulted in increasing industry efforts to create and maintain good government -industry society communications. Increasing pollution is adding to the healthcare problems. Cattle rearing encourage diseases communicated by animals . The use of magic /tantric/ozhas/hakims is prevalent in India .

 Poor sanitation and polluted water resources prematurely end the life of about one million children under the age of 5 every year . Smoking ,drinking and poor oral hygiene is adding to the health care problem.

Technological factors
Humano insulin , hepatitis B vaccines , AIDS drugs and many such molecule have given the industry a pioneering status. Newer drug delivery system are the innovations of the day . Computerization has increased the efficiency of the pharmaceutical industry . Ayurveda is a well recognized science and it is providing the industry with a cutting edge.

Conclusion
Overall, the pharmaceutical industry shows an upward trend in its core markets. The industry remains highly valued, has a favourable market position with strong financial make-up and strong earnings growth. Its future potential demand trend is positive and despite increased competition the industry still shows a continuing upward growth momentum. The Pharmaceutical industry has a lot of yet untapped potential and it will be interesting to see how the industry matures over the long term. Notwithstanding its strengths, complacency must be guarded against because smaller, agile and innovative firms are on the prowl

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