ORGANIZATION

ORGANIZATION STUDY

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CHAPTER 1: INTRODUCTION

The Indian Pharmaceutical

Pharmaceutical Industry is capable to meet the country’s
country’s demand for every drug.
The manufacturing units within the country are meeting about 80% of the country’s drug
requirem
requirements.
ents. The drug producti
production
on sector
sector is equipped
equipped with
with technol
technology
ogy and research
researched
ed
knowledge base. The industry produces drugs worth Rs.18000 crores and is growing at 9%
every year. It offers quality products with internationally accepted quality standards. There
are about 20,000 production units in India with products sold at competitive lower prices than
international drug prices.

India has various competitive advantages in Pharma production over western world. It has a
large pool of educated manpower with technical and managerial skills.

It has a well-developed research and development base equipped with advanced technology.
Low cost of research over the western countries gives India a potential advantage for future
developments. The country has an open market policy where foreign capital investment is
  permitted. Restriction on capital investments has been removed in the recent years with a
view to make new investments profitable.
profitable. Also, the country has a strong legal framework, an
essential for pharmaceutical industry. The most promising fact about India is a 70 million
middle class population with good consumption power.

India has various competitive advantages in Pharma production over western world. It has a
large pool of educated manpower with technical and managerial skills.

It has a well-developed research and development base equipped with advanced technology.
Low cost of research over the western countries give India a potential advantage for future
developments. The country has an open market policy where foreign capital investment is
 permitted. Restriction on capital investment has been removed in the recent years with a view
to make new investments profitable. Also, the country has a strong legal framework, an
essential for pharmaceutical industry. The most promising fact about India is a 70 million
middle class population with good consumption power.

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1.1 INDUSTRY PROFILE

Overview of pharmaceutical sector:

Accounting for 2% of the world’s pharmaceutical market, the Indian pharmaceutical sector 
has an estimated market value of about US $8 billion. It is 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 $12 billion by the end of 2010.

Over the last two years the pharmaceutical market value has increased to about US
$355million because of the launch of new products. According to an estimate, 3900 new
generic products have been launches by big brands in the Pharma sector. As in the present
scenario, only a few people can afford costly drugs, which have increased price sensitivity in
the pharmaceutical market. Now the companies are trying to capture the market by
introducing high quality and low price medicines and drugs.

With the product patent act, which came into action in January 2005, this industry is able to
attract big MNCs to India. Earlier these firms had apprehensions in launching new drugs in
the Indian market.

At present, a large number of Indian pharmaceutical companies are looking for tie-ups with
foreign firms for in-license drugs. Glaxo smithkline is among the top choices for the firms
that wish to launch their product in India, but do not have any branch over here.

Contract research and pharmaceutical outsourcing are the new avenues in the pharmaceutical
market. Contract manufacturing is growing at a very fast pace and is estimated to grow to US
$30billion, whereas contract research is estimated to reach US $6-10billion.

Indian multinational companies like Dr.Reddy's Lab, Cipla, Ranbaxy, etc have created
awareness about the Indian market prospects in the international pharmaceutical market.
Approvals given by Foods and Drugs Administration (FDA) and ANDA (Abbreviated New
Drug Application)/DMF (Drug Master File) have played an important role in making India a
cost-effective and high quality product manufacturer. Furthermore, the changes that took 
 place in the patent law, change of process patent to product patent, have helped in reducing
the risk of loss for intellectual property.

In other words of Richard Gerster, the famous economist and activist from Switzerland,
“Indian pharmaceutical industry can be defined as a success story providing employment for 
millions and ensuring that essential drugs are available at affordable prices to vast population
of Indian sub-continent.

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The pharmaceutical industry has witnessed a growth rate of about 10% over the last few years
and is expected to touch US$ 12 billion by 2010. Pharmaceutical industry has given
employment to approximately 2.86 million people and has around 20,053 units. Globally,
India is 4th in terms of volume (8% of world's production), 13th in terms of value, and 17th
in terms of pharmaceutical export value.

Classification of Indian Pharmaceutical Industry

The Indian pharmaceutical industry can be classified into organized and unorganized sectors.
Accounting for over 70% of total sales, the organized sector has about 250 manufacturing and
formulation units.
On the basis of management control, the organized sector can be further classified into MNCs
and Indian companies.
On the basis of the product manufactured, the pharmaceutical industry can be classified into:
• Bulk drugs: They are the key ingredients that form the basic raw material for the
manufacture of formulations.
• Formulation: Particular mixture of a bulk drug or a combination of different bulk drugs.

Scope and importance

Over the years pharmacy has grown in the form of pharmaceuticals sciences through research
and development processes. It is related to product as well as to services. The various drugs
discovered and developed are its products and the healthcare it provides comes under the
category of services.

Pharmacy involves all the stages that are associated with the drugs i.e. discovery,
development, action, safety, formulation, use, quality control, packaging, storage, marketing,
etc. This profession has a large socio-economic relevance to the Indian economy. In India this
sector is among the future economy drivers. It is committed to deliver high quality drugs and
formulations at an affordable price, so that majority of people can afford them.

Industry strength

• Capital Investment in Technology: Owing to the availability of advanced

technology at low costs, the companies can produce drugs at lower costs.
• Cost Effective: The filing cost of ANDAS and DMFs is comparatively low for the
Indian companies.
• Manpower: There is a large pool of technical experts available at modest salaries.
• Contract Research & Contract Manufacturing: There is a good scope for contract
research and contract manufacturing.

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• 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.

Indian pharmaceutical Sector: Current scenario

According to the Economic Survey (2006-07), the pharmaceuticals industry had achieved a
turnover of about US$ 12 billion in 2005-06, and is expected to grow by 13% in 2007. Its
 pharma export value reached about US$ 4.7 billion during 2005-06.
Pharmaceutical industry accounts for about 2.91% of total FDI into the country. The FDI in
  pharmaceutical sector is estimated to have touched US$ 172 million, thereby showing a
compounded annual growth rate of about 62.6%. Drugs and pharmaceuticals sector is at 8th
rank in India's top 10 FDI attracting sectors. According to the Economic Survey for the year 
2006-07, the value of pharma output has increased ten times over the last 15 years.

Indian pharmaceutical Sector: Future scenario

The dream of Indian pharmaceutical companies for marking their presence globally and
competing with the pharmaceutical companies from the developed countries like Europe,
Japan, and United States is now coming true.
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. With market value of about US$ 45billion in 2005,
the generic sector is expected to grow to US$ 100billion in the next few years.
The future of Indian pharmaceutical sector is very bright because of the following factors:
• Clinical trials in India cost US$ 25 million each, whereas in US they cost between
US$ 300-350 million each.
• Indian pharmaceutical companies are spending 30-50% less on custom synthesis
services as compared to its global costs.
• In India investigational new drug stage costs around US$ 10-15 million, which is
almost 1/10th of its cost in US (US$ 100-150million).

Indian Pharmaceutical Sector: Economic value

The Indian pharmaceutical industry, which is now meeting over 95% of the country's
  pharmaceutical needs, was almost non-existent before 1970. With the compound annual
growth of 19.8% the industry has grown from Rs.4 billion in 1970 to Rs.290 billion in 2003.
The pharma sector has shown tremendous growth over the years. About 250 Indian

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 pharmaceutical companies hold 70% of the market share with top players controlling about
7% of the market share.
On 1st January 2005, the Government of India issued patent ordinance according to which
the Indian pharma companies can no longer produce patented drugs.
A few years ago, investment in R&D was as low as 0.001% of the total R&D worldwide, but
now companies are focusing on drug discovery and R&D. They are spending over 5% of 
their turnover on R&D e.g. Wockhardt (8%), Cipla (4%), Cadila (4.45%).

The value of Indian Over-The-Counter Medicines (OTCs) market is over US$ 940 million
and is growing at the rate of 20% per year. There are about 61 US FDA approved plants in
India, which will help Indian companies grab the opportunity of contract manufacturing.

Top players in Pharma industry

• Aventis Pharma Limited

• Biocon
• Cadila Healthcare Limited
• Cipla Limited
• Dr Reddy's Laboratories
• Glaxo SmithKline Pharmaceuticals Limited
• Wockhardt Limited
• JB Chemicals
• Serum Institute of India
• Ranbaxy Laboratories
•  Nicholas Piramal

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domestic market, which includes antibiotics, anti‐  bacterial, anti‐asthmatics, anti‐

inflammatory, antiretroviral, anti‐cancer and cardiovascular. The company also concentrates
on developing specialty bulk drugs for export markets.

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 1.2.3. CIPLA: VISION, MISSION AND QUALITY POLICY

VISION: Cipla started with a vision to build a healthy India. And along the way realized that
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our own small way, we could contribute to making the world a healthier place. We’ll
continue to bring a smile on as many faces as we can to heal the world as much as we can.
Because there’ll always be a better world out there for those who have the passion to create it.

MISSION: We use the latest in pharmaceutical technology to tunnel over seven decades of 
experience into one capsule that cures, one drop that defends and one puff that protect. We
explore every drug to its last particle and instill safe and sure healing to create one does of 
confidence. For us, the final measure of our success is a simple curve- the smile of health
regained

QUALITY POLICY: Cipla is one of the biggest exporters of low-cost, high quality APIs
across the world. It strives not just to meet international specifications, but to exceed, to
excel, to meet what we call the Cipla benchmark. In fact, it has set standards for the world to
follow and have contributed to more than 125 monographs in the last 15 years - to British,
European, US and international pharmacopoeia.

Today companies from around the world seek strategic alliances with Cipla for product
development, technical support and marketing. In a small way, it even helps countries set up
their pharmaceutical infrastructure and train their professionals, contributing to their quest for 
self-reliance just the way we began healing India, seven decades ago.

Cipla’s manufacturing facilities have been approved by the following regulatory authorities:
• Food and Drug Administration (FDA), USA
• Medicines and Healthcare products Regulatory Agency (MHRA), UK 
• Therapeutic Goods Administration (TGA), Australia
• Medicines Control Council (MCC), South Africa
•  National Institute of Pharmacy (NIP), Hungary
• Pharmaceutical Inspection Convention (PIC), Germany
• World Health Organization (WHO) Department of Health, Canada
• State Institute for the Control of Drugs, Slovak Republic ANVISA, Brazil

1.2.4 CIPLA:PRODUCT AND SERVICE PROFILE

Cipla Limited engages in the manufacture, sale, and export of pharmaceutical products in
India and internationally. It offers various prescription pharmaceutical products for various
diseases; and animal health care products, including aqua, equine, poultry, companion
animals, and livestock animal products, as well as herbal specialty and therapeutic group
 products. The company also provides over the counter drugs, comprising child care, eye care,
food supplement, foot care, hair care, health drink, life style, low-calorie sweetener,
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nutraceutical and tonic, oral hygiene, pain care, probiotics/indigestion, skin care, sports
care/muscle building, and vitamin and mineral products, as well as cough, cold, and flu
 products. In addition, it offers flavors to food and beverage, and pharmaceutical industries for 
use in fruit juices, medicinal liquids, baked goods, and oral hygiene products; and fragrances
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1.2.8. INFRASTRUCTURAL FACILITIES

Manufacturing and R&D facilities

• Mumbai: Corporate Office and R& D centre for formulations

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• Vikhroli(Corporate office) : Manufacturing of bulk drugs & formulations (Liquid

Orals, Aerosols), R&D bulk drugs & formulations.

• Bangalore: Manufacturing of bulk drugs & formulations (R&D Bulk drugs)

Approved by US FDA (for bulk drugs); WHO

• Patalganga: Manufacturing plant for bulk drugs & formulations (R&D Bulk drugs)

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Operations

Material Cost 610.82 566.52 2481.79 2366.67

% to total sales 46.0% 45.4% 45.9% 47.1%
Operating margin 257.99 349.15 -26.1% 1360.23 1036.13 31.3%
% to income from
18.6% 25.4% 23.9% 19.5%
operations

Profit before tax 348.13 295.67 17.7% 1330.51 901.31 47.6%

% to income from
25.1% 21.5% 23.4% 16.9%
operations

Profit after tax 275.53 252.92 8.9% 1082.01 776.81 39.3%

% to income from
19.9% 18.4% 19.0% 14.6%
operations

During the year, the company posted a growth of about 7% in income from operations.
During the quarter, domestic sales grew by about 9% and export sales grew by 5%. Exports
of formulations grew by more than 10% whereas exports of APIs & others have declined by
about 14%. The decline in exports of APIs & others is primarily due to seasonal variations.
Technical knowhow/fees for the quarter have decreased by about Rs. 87 cr on account of a
high base on a year-on-year basis (mainly due to one-time payment for certain technical
services).

Material cost (as a percent to total sales) has marginally increased during the quarter due to
changes in product mix. Operating margins have reduced by about 26% mainly due to lower 
technical knowhow/fees as indicated above.

The increase in staff cost (Rs. 22 cr) is due to overall increase in manpower as well as annual
increments. The increase in other expenditure is in line with the increase in operations.
Interest cost has decreased by about Rs. 13 cr due to repayment of short-term working capital
loans and fixed deposits availed by the company. While depreciation is lower by about Rs. 6
cr, it is in line with the current year’s trend.

The Company has provided for tax under Minimum Alternate Tax (MAT). However, the
liability for the current quarter has increased due to the increase in rate of MAT.
During the quarter, the company signed an agreement with Piramal Healthcare Limited for 
sale of intellectual property rights in India related to the brand “i-pill” for an aggregate
consideration of Rs. 95 crore.

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CHAPTER 5: REFERENCES
Website

1) http://www.google.com
2) http://www.wikipedia.com
3) http://www.cipla.com
4) http://www.theofficialboard.com

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