MANAGEMENT DISCUSSION AND ANALYSIS REPORT
INDUSTRY STRUCTURE AND DEVELOPMENT :
The Indian Pharmaceutical Industry (IPI) is globally the 3 largest in terms of volumeand 13 largest in terms of value. The total market size of Rs. 1,233 billion includesdomestic consumption market of Rs.600 billion (contributing 48.6%) and the exports marketbeing Rs.633 billion (contributing 51.4%). Growth in the domestic pharma market will bedriven by increase in the penetration of medical facilities, increase in the prevalence ofchronic diseases, rising per capita income and increase in the health insurance coverage.
Growth in the exports of pharmaceutical products from India will be driven by patentexpiries of the major branded drugs across the world, particularly in the US market. Inthe long term, growth in the exports market will be sustained by emerging markets likeRussia, Brazil, S. Africa etc. along with the enhanced focus on the niche and complexproduct segments such as injectables, inhalers, ophthalmics, ermatology and oralcontraceptives. These are high risk - high return product segments. These offercomparatively huge entry barrier; as their clinical trials, approvals and manufacturingprocess are comparatively more complex and time consuming. Hence very limited numbers ofplayers have entered these segments resulting in limited competition.
Strategies are as often driven by challenges as they are by opportunities. Thestrategic blueprint, we drafted a year ago, as the roadmap for our future growth waswell-aligned to our ability to capitalize on the opportunities that prevailed at the time.Certain unforeseen developments during the year, however, made us rethink our strategiesto realign our priorities to the changing business environment. While our goals remainedintact, we decide to remap our journey to the same.
MAJOR CHALLENGES FACING LARGE PHARMACEUTICAL COMPANIES:
Rising customer expectations: The commercial environment is getting harsher, ashealthcare payers impose new cost constraints on healthcare providers and scrutinize thevalue medicines offer much more carefully. They want new therapies that are clinically andeconomically better than the existing alternatives, together with hard, real-worldoutcomes data to back any claims about a medicine's superiority.
Global pharmaceutical sales are expected to rise at a lower rate of 4.5%-5.5% this yearto top $820 billion. It is estimated that Japan, the world's second-largest market, willsee higher growth, between 4%-5% to $84-$88 billion. The "pharmerging" markets -China, Brazil, India, South Korea, Mexico, Turkey and Russia - are expected to grow at acombined rate of 14%-15%, producing overall sales of $105-$115 billion. Along with thepharmaceutical industry's growing focus on these high-growth markets, they are benefitingfrom increased government spending on healthcare and broader public and private healthcarefunding, which is driving greater access to and demand for innovative medicines.
CURRENT SCENARIO, THREATS AND CONCERNS :
India's pharmaceutical industry is expected to grow at 9% in 2013. India is now amongthe top five pharmaceutical emerging markets. There will be new drug launches, new drugfilings and Phase II clinic trials throughout the year. On back of increasing sales ifgeneric medicines, continued growth in chronic therapies and greater penetration in ruralmarkets, the domestic pharmaceutical market is expected to register a strong double digitgrowth of 13-14 percent in 2013.
Moreover, the increasing population of the higher-income group in the country will opena potential US $8 billion market for multinational companies selling costly drugs by 2015.Besides, the domestic pharma market is estimated to touch US $20 billion by 2015, makingIndia a lucrative destination for clinical trials for global giants. Further estimates thehealthcare market in India to reach US $31.59 billion by 2020.
The Indian Pharmaceutical Industry particularly has been the front runner in a widerange of specialties involving complex drugs manufacture, development and technology. Withthe advantage of being a highly organized sector, the pharmaceutical companies in Indiaare growing at the rate of 8 - 9% annually.
More than 20,000 registered units are fragmented across the country and report saysthat 250 leading Indian Pharmaceutical companies control 70% of the market share withstark price competition and government price regulations.
Competent Workforce: India has a pool of high managerial and technicallycompetent skilled workforce. Professionals are well educated and English is commonly usedin professional services.
Cost-effective Chemical Synthesis: Its track record of development,particularly in the area of improved cost-beneficial chemical synthesis for various drugmolecules is excellent. It provides wide variety of bulk drugs and exports sophisticatedbulk drugs.
Legal & Financial Framework: India has a solid legal framework andstrong financial markets. There is already an established international industry andbusiness community.
Information & Technology: It has a good network of world-classeducational institutions and established strengths in Information Technology.
Globalization: The country is committed to a free market economy andglobalization. Above all, it has 70 million middle class markets, which is continuouslygrowing.
Consolidation: For the first time in many years, the internationalpharmaceutical Industry is finding great opportunities in India. The process ofconsolidation, which has become a generalized phenomenon in the world pharmaceuticalindustry, has started taking place in India via mergers and acquisitions.
On the government policy front, there were a number of significant developments inalmost every aspect Governing the pharmaceutical industry. After much deliberation,stretching into more than a year, the Central government announced a new NationalPharmaceutical Pricing Policy (NPPP-2012) in December, 2012 bringing all 348 essentialdrugs listed in National List of Essential Medicines, 2011 (NLEM -2011) under the ambit ofprice control in line with the direction given by Honble upreme Court of India tobring all essential medicine under price control.
With operations at the center of the Company's performance, PDIL continues to focus onenhancing production capacities, optimizing output, besides adding synergy to sales andmarketing teams' efforts by providing quality products in time, every time. We have seensignificant investment in the last few years towards increasing capacities, capabilitiesand quantities at Baddi (Himachal Pradesh, India) and Dudhiya (Madhya Pradesh, India)plants.
There have been strategic investments in new manufacturing lines. The batch sizes havebeen enhanced to ensure that the market demands are met. Our manufacturing sites arecontinuously working to improve the yield through process improvements, therebycontributing to major cost control.
Acting on our motto of improving the patients' quality of life, we ensure the highestquality in performance. Our operational thrust is all assuring the best possible qualityof products in terms of safety and efficacy.
As a life-centric business, the quality and safety of our products and services isvital to our business model. Therefore, we strive to achieve excellence in quality alongthe entire value chain. Going forward, we plan to further strengthen this quality focusthrough addition of more checks and controls, as we believe can help us deliverconsistently against all odds.
Our Quality Management System also ensures the appropriate quality of products withregard to product safety and efficacy by instituting systems and processes to measure upto international standards. To maintain these high standards, periodic checks and reviewsare done, in order to ensure compliance on each and every aspect of the business valuechain.
PDIL has well established internal control systems for operations of the Company andits subsidiaries. The Finance Department is well staffed with experienced and qualifiedpersonnel who play an important role in implementing and monitoring the internal controlenvironment and compliance with statutory requirements.
The Internal Audit is conducted by an independent firm of Chartered Accountants. TheAudit Committee addresses significant issues raised by the Internal & StatutoryAuditors.
PDIL recognizes that nurturing and recruiting the best talent is vital to the long termsuccess of the enterprise. Employees are provided with continuous opportunities for activelearning and development which are viewed as key drivers of their personal growth and thesuccess of PDIL.
The statements made in this report and those appearing elsewhere, may be "forwardlooking statements" that set forth anticipated results based on management plans andassumptions. These statements are likely to address the Company's growth strategy,financial results, product development, product approvals, product potential anddevelopment programs based on certain assumptions and expectation of future event, actualresults could differ materially from those expressed or implied. Among the factors thatcould cause actual results to differ materially are:
a. success of our research and development initiatives;
b. the impact of existing and future regulatory provisions on product exclusivity;
c. competitive developments affecting our product portfolio;
d. interest rate and foreign currency exchange rate fiuctuations;
e. statutory legislations and regulations affecting domestic and foreign operations,including tax obligations; and other allied factors.
The Company assumes no responsibility to publically amend, modify or revise any forwardlooking statements on the basis of subsequent developments, information of events.