ANALYSIS OF CIPLA LIMITED
BUSINESS STRATEGY-I
SUBMITTED BY:
SUBMITTED TO:
RACHIT YADAV (10BSPHH010581)
Prof. G.K. SRIKANTH
RITI RITIKA KA SIN SINGH GH
(10B (10BSP SPHH HH01 0106 0642 42))
SECTION: B Page | 1
TABLE OF CONTENTS
1.
INTRODUCTION TO INDIAN PHARMA INDUSTRY
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2.
CI C IPLA LIMITED
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3.
COMPETITOR’S ANALYSIS
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4.
PESTLE ANALYSIS
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5.
PORTER’S FIVE FORCES
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6.
CIPLA’s SWOT
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PRODUCTS
1 0
BCG MATRIX
1 1
STARTEGIES PR PROPOSED
1 2
REFERENCES
1 3
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8.
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10.
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1.
INTRODUCTION TO INDIAN PHARMA INDUSTRY
Indian Pharmaceutical Industry today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organized sector, the Indian Pharma Industry is estimated to be worth $ 4.5 billion, growing at about 8 to 9 percent annually. It ranks very high in the third world, in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.
Accounting Accounting for two percent of the world's pharmaceutical market, the Indian pharmaceutical pharmaceutical sector has an estimated market value of about US $8 billion. It's at 4th rank in terms of total pharmaceutical production and 13th in terms of value. It is growing at an average rate of 7.2 % and is expected to grow to US $ 14 billion by 2015.
The new patent regime has led many multinational pharmaceutical companies to look at India as an attractive destination not only for R&D but also for contract manufacturing, conduct of clinical trials and generic drug research. The Indian companies are using the revenue generated from generic drug sales to promote drug discovery.
As there is a cheap availability of high skilled knowledgeable workers and with the increasing help provided from the government for the development of the pharmaceutical industry, the companies have started investing heavily on R&D. Leading players such as Cipla and Ranbaxy will remain at forefront of research for new formulations and molecules. Here are certain point about the industry:
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Capital Investment in Technology: Owing to the availability of advanced technology at low costs, the companies can produce drugs at lower costs.
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Cost Effective: The filing cost of ANDAS and DMFs is comparatively low for the Indian companies.
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Manpower: There is a large pool of technical experts available at modest salaries.
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Contract Research & Contract Manufacturing: There is a good scope for contract research and contract manufacturing.
Infrastructure: There is a well-developed infrastructure for the pharmaceutical industry.
Generic Drugs: In the last few years, the generic drug-manufacturing segment has received huge investments, in the process making it more competitive and efficient
2.
CIPLA LIMITED
Cipla Limited is a prominent Indian pharmaceutical company, which is best-known in the world for manufact manufacturin uring g low-cost low-cost anti-AIDS anti-AIDS drugs drugs for HIV-posi HIV-positive tive patient patientss in develop developing ing countri countries. es. It was founded by Khwaja Abdul Hamied as The Chemical, Industrial Industrial & Pharmaceutical Pharmaceutical Laboratories Laboratories in 1935. Cipla makes drugs to treat cardiovascular disease, arthritis, diabetes, weight control, depression and many other health conditions, and its products are distributed distributed in more than 180 countries worldwide i.e. has has a global global prese presenc nce. e. The Board Board of dire directo ctors rs consi consists sts of Foun Founder der Dr. K.A. K.A. Hamied Hamied (1898 (1898-19 -1972 72), ), Chairman & Managing Director Dr. Y.K. Hamied, Joint Managing Director Mr. M.K. Hamied, Wholetime Director Mr. S. Radhakrishnan and the Non-Executive Directors. Cipla is the world's largest manufacturer of antiretroviral drugs (ARVs) to fight HIV/AIDS, as measured by units produced and distributed (multinational brand-name drugs are much more expensive, so in money terms Cipla medicines are probably somewhere down the list). Roughly 40 percent of HIV/AIDS patients undergoing antiretroviral therapy worldwide take Cipla drugs.
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As of 2010 data,
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CIPLA is now India’s No: 1 Pharma Company.
Cipla maintained its top position in the domestic market for with a market share of 5.38 per cent — up 18 per cent over the year and ahead of Ranbaxy Laboratories and GlaxoSmithKline (GSK). The total domestic drug market is valued at Rs 40,051.74 crore, an increase of 17 per cent, according to data from drug sales tracking agency, ORG-IMS. The agency tracks drug sales among more than 500,000 traders in the country, through stockist data. Cipla’s domestic market share grew 18 per cent, due to its product basket of 924 products, which is way ahead of Ranbaxy’s 565 and GSK’s 177 products. During During the the perio period, d, Cipla Cipla had sales sales of Rs 2,155. 2,155.29 29 cror croree in the domesti domesticc marke market, t, ahead ahead of Ranbaxy’s Rs 1,968.24 crore and GSK’s Rs 1,743.15 crore. Cipla had overtaken Ranbaxy and GSK India to become the largest pharmaceutical company in the domestic market. Cipla Cipla offers offers servic services es like consult consulting, ing, commissi commissionin oning, g, engineer engineering, ing, project project appraisa appraisal, l, quality quality control, know-how transfer, support, and plant supply. Cipla is also considerably well-known for its technological innovation and processes, and has been approved by regulatory bodies.
3.
COMPETITOR’S ANALYSIS
To analy analyze ze and and look look at the various various opport opportuni unitie tiess of growth growth for Cipla Cipla we need need to look look how close close competitors are to it, which will also help us to anticipate possible threats. For the competitor’s analysis, we have chosen the 4 closest competitors of Cipla in the Indian Pharma sector. They are: •
Dr. Reddy’s Lab
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Sun Pharmaceuticals
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Ranbaxy
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Glaxo Smith Kline (GSK)
We have undertaken a comparative study among these companies in terms of
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Market share
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Sales
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Profits
MARKET SHARE
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The percentage of an industry or market's total sales that is earned by a particular company over a specified time period is known as market share. Market share is calculated by taking the company's sales over the period and dividing it by the total sales of the industry over the same period. The following graph shows us the market share of the 5 companies.
Cipla has a market share of 5.40% which is second only to GlaxoSmithKline which has a market share of 5.90%. But there relative positions positions keep on changing as there is very close competition competition in the Pharma sector today. If we look at the competitors they are somewhere close to each other. The major portion of 70.50% is either catered by other small player or by unorganized sector. Through this we can clearly say that if Cipla try then can surely expand the market share.’
SALES Sales are defined as the total amount of revenue collected from sale of goods and services. The following table shows the sale pattern of the five competitive companies in the year (2008-09).
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SALES PATTERN
S.NO.
COMPANY
1.
Cipla
5295.33
2.
GSK GS K
1724.84
3.
Dr.Reddy’s Lab
3999.5
4.
Ranbaxy
4676.21
5.
Sun Pharma
2833.65
As indicated in the table, CIPLA achieved the highest level of sales as compared to other competitive companies included in the analysis. In spite of having less market share in comparison to Glaxo Smith Kline, Cipla is having larger sale this can be probably because of those products whose sales would be less but revenue generated because of it is more.
PROFIT A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. activity. The following table shows the profit after tax of the five competitive companies in the year (2008-09).
S.NO.
COMPANY
PAT
1.
Cipla
776.81
2.
GSK GS K
188.33
3.
Dr.Reddy’s Lab
560.89
4.
Ranbaxy
-1044.8
5.
Sun Pharma
1265.29
Sun Pharmaceutical Company has managed to maximize its profits in the year 2008-09 and second rank is held by CIPLA. The reason is that CIPLA has been following a pricing strategy considering consumers and therefore charges a lesser price and on the other hand Sun Pharmaceutical would be charging high prices. This can also be validated if we look at the sales and the profit of Cipla and Sun Pharmaceutical despite of having fewer sales the profit contribution is more in case of Sun Pharmaceuticals.
4.
PESTLE ANALYSIS
POLITICAL
Political Instability:
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Any consistent political or economical policy cannot be expected.
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Ministry imposing stringent price control on industry than before.
Government- the determinant of price With DPCO (Drug Price Control Order) being implemented since 1995 for the purpose of controlling price of drugs, the price of a drug is determined by the Govt. on the basis of approved cost rather than actual cost.
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IPR (Intellectual Property Rights)- Pharmaceutical Sector worst hit In the past the Indian manufacturers had exploited the law by doing reverse engineering and manufacturing the drug using a different chemical composition and in the process saved money.
With IPR enforced in India in January 2005, only the inventor or licentiates are allowed to manufacture a patented product. •
Thus, competition increased in terms of non-input related innovations such as packaging, colors, flavors etc.
PSU and Government Policies- Inefficient and ineffective
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Huge segment of PSU in Pharma industry is inefficient Surplus generated by efficient units is subsidized by putting them into price equalization account of inefficient units. Charging cost of manufacturing to MRP rather than excise duty (as was earlier) has made many life savings drugs unaffordable to poor. Promo Promotin ting g un unfai fairr compe competit titio ion n by provi providin ding g extra extra benef benefits its to some some indus industri tries es loca located ted in particular regions.
IMPACT ON BUSINESS:
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Many companies have resorted to lobbying official bodies, which has promoted unfair and unhealthy competition on the sector. Political pressure has pressurized companies on pricing and cut-backs
ECONOMIC
Low demand and growth of Pharma sector
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With average per capita income of Rs. 12890, spending on healthcare is takes low priority.
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Low priority towards healthcare has led to mushrooming of unqualified doctors
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Mere 1% of GDP is spent on healthcare in India.
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Number of registered medical practitioners is also low, thereby affecting the reach of the sector adversely.
Poor Infrastructure
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Inadequate transport and storage facilities.
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With poor roads and rail network transportation time is higher.
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High carrying cost and longer delivery time.
Cost element
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Incidence of taxes is high. Numerous kinds of taxes such as Excise Tax, Custom Duty, Service tax, License tax, etc add to cost to the tune of 40-45%. With only 5 million shops the reach of the sector is reduced and the cost of distribution hikes. High interest rates in India add to the cost of goods.
IMPACT ON BUSINESS:
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Increased pressure on pricing.
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Market likely to grow with the aging population
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Reluctance of consumers to spend on healthcare makes demand volatile
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SOCIAL
India- a backward country
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Household treatments handed down for generations are preferred for common ailments.
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Use of magic, tantric, hakims is also prevalent in India.
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Early marriage and early child bearing adversely affects the health of child and mother.
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Inability to eradicate diseases like polio, chicken-pox, measles etc due to ignorance towards vaccination. Superstitious beliefs of considering ailments as the curse of god for the sins committed.
Pollution and Poverty
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Poor sanitation and water pollution is one of the major causes of death among children.
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Poverty leads to malnutrition which in turn leads to problems like malaria, TB, etc
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Other kinds of pollutions further adds to healthcare problems.
Unhygienic habits
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Cattle rearing encourage communication of diseases by animal.
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Consumption of gutka, alcohol and smoking adds to health care problems.
IMPACT ON BUSINESS:
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More likely to grow with increasing health concerns
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More pressure on customer service and increased need for education
TECNOLOGICAL
Automation & Advancement
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Automation of machinery has led to increase in output and cost reduction.
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Computerization has added to the efficiency of Pharma sector.
Innovations & Discoveries
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Newer medications, molecules and active ingredients are being discovered. Advan Advance cemen mentt in stem-c stem-cel elll resea researc rch h and and Bio-te Bio-tech chnol nolog ogy y has has also also added added to the growt growth h of Pharma sector in India. Innovation with regard to newer drug delivery system has also led to Pharma growth in the country.
Advancement - a Bane
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With huge unemployment spread nation wide automation reduces the level of employment.
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As a result both Government and Labor unions complain against such establishments
IMPACT ON BUSINESS:
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More responsive services are required.
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New information and communication technology has led to development of new e-models.
ENVIROMENTAL
Conservation of environment
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With growing growing awarenes awarenesss about about environ environment ment conser conservati vation, on, Pharma Pharma companie companiess nee need d to be proactive in this field.
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Pharma sector companies need to see how their business and marketing plans are linked with the environment issues. There is an opportunity to incorporate environmental issues within the CSR programs.
Impact On Business: With growing concern about environment, the need is to identify eco opportu nities in the market
LEGAL
Increased Regulation With advancement in technology and evolution of internet legislative bound aries have stretched with patients demanding more rig hts in their healthcare programs. With IPR Act prevalent in the country since 2005, the restrictions and regulations have increased in
Pharma sector.
IMPACT ON BUSINESS:
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Quality of product has gained significant importance.
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Customer education has gained prominence
5.
PORTER’S FIVE FORCES
Michael Porter’s 5 forces framework helps in identifying the sources of competition a nd the profit potential in an industry or sector. The following table gives the five forces of an Indian pharmace utical industry. The five forces have an important effect on ho w profitable the pharmaceutical industry will be:
Suppliers Suppliers do affect the profitability of companies in the pharmaceutical pharmaceutical industry, but because they
are an element of the market they affe ct everyone and are not a significant force. Many firms now own their own manufacturing plants, so the ir profits are not influenced very much by sup pliers.
Forces
Innovative Firms
Generic Firms
Low
Low
Medium High
Medium High
Threat of new Entrants.
Threat of Substitutes
Bargaining power of suppliers
Bargaining power of Buyer
Competitive Rivalry
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When buyers have a high bargaining power they are able to put pressure on firms to lower prices, but buyer’s power for pharmaceutical firms, especially ones that have patented drugs, is relatively low. This also goes along with the affects of substitutes, because buyers switching from expensive brand names to generic brands are significantly significantly lowering prices and profitability, profitability, but a firm with a patent on its new drug is not affected by generic drugs.
The threat of alternative medicine substitutes is also low and does not seem to affect profitability.
Since the barriers to entry make it hard for new firms to enter the market, this force also does not affect profitability. Industry rivalry is intense in this industry and has a large effect on profitability. Firms in the pharmaceutical market need to be aware of all five forces in order to be profitable and keep a competitive advantage
6.
CIPLA’s SWOT
The SWOT analysis provides an internal and external picture of the situation to a company, so that it can harness on its strengths to overcome its weakness in order to capitalize on the opportunities in the long run while tackling the threats in an efficient manner. utilizes its own R&D. STRENGTH
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OPPORTUNITY
More than 75 years of existence has given CIPLA CIPLA a ph pheno enomen menal al exper experie ience nce in the Pharmacy sector. •
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Huge product portfolio of over 200 brands.
Exc Excelle llent R&D R&D exp expertise tise which ich are considered to be the best in the country. Well kn Well knit itted ted and effec effectiv tivee distr distrib ibuti ution on network across nation and globally.
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Constant increasing share price. Low-ri Low-risk sk busine business ss model model:: With With Robust Robust Partner Partnership ship model, model, CIPLA CIPLA leverage leveragess on local market knowledge of its partners and
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With global competition competition increasing, increasing, global tie-u tie-ups ps and and merge mergers rs would would bring bring about about greater level of efficiency. Banking of Brand equity for diversification.
Large number of drugs are going to be off-patent in the USA soon, so by produ produci cing ng gener generic ic subst substit itute utess for these ese could prove ove to be a great opportunity. With With incre increasi asing ng econo economic mic growt growths hs and development, income levels are on a rise and people are becoming more conscious
about their health. WEAKNESS
With cost of raw material rising, the operation margins of CIPLA are falling. •
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With price regulation in place, the pricing ability of the company has suffered.
Lack of experience to explore new patent regime in a more effective manner.
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No switching over cost to customers.
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Strict registration procedures.
THREAT
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Increasing competition from MNC’s Amended IPR Act could cause situation of monopoly and price rise.
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As a result of IPR Amendment CIPLA is required to focus more on R&D activities.
Non tariff barriers developed countries.
imposed
High costs in exploring new markets, sales & marketing and new product development.
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