Sample Project Pharmaceuticals

PROJECT TITLE JARO EDUCATION
1

<PROJECT TITLE>

PROJECT REPORT

SUBMITTED IN FULFILLMENT OF THE REQUIREMENTS FOR
THE AWARD OF

THE INTERNATIONAL MBA IN
PHARMACEUTICALS

BY
<STUDENT NAME>
UBI/MBA/IE/JULY11/XXX

Under The Guidance of

<GUIDE NAME>

JARO EDUCATION MUMBAI <Batch(e.g. January 2012)>
2

DECLARATION

I, Mr. NAME OF STUDENT hereby declare that this project report titled
PROJECT TITLE submitted in partial fulfillment of the requirement for
the International or Executive MBA in Pharmaceuticals is my original
work and it has not formed the basis for the award of any other degree.

Name & Signature of Student

Place:

Date:
3

ACKNOWLEDGEMENT

I feel fortunate to get the support of numerous sources and people in
making this project a success.

I take this golden opportunity to express my profound gratitude and thank
to ABC of MNC Company for his valuable guidance by giving me the
knowledge for transforming my ideas into reality.

I would like to thank all colleagues of MNC Company for their kind co-
operation. I gratefully acknowledge the help provided by my friends and
those who gave me their moral support while making this project.

Name & Signature of Student

4

I N D E X

SR.
NO.
PARTICULARS PAGE
NO.

01

INTRODUCTION

5

02

INDUSTRY PROFILE

7

03

COMPANY PROFILE

13

04

NEED FOR STUDY

24

05

LITERATURE SURVEY

25

06

OBJECTIVE OF STUDY

31

07

RESEARCH METHODOLOGY

33

08

ANALYSIS

34

09

CONCLUSION

57

10

FINDINGS & RECOMMENDATION

58

11

BIBLIOGRAPHY

59


5

INTRODUCTION

The history of pharmacy as an independent science is relatively young. The origins of
historiography pharmaceutical back to the first third of the . XIX which is when the first
historiographies that while not touching all aspects of pharmaceutical history is the starting
point for the final start of this science.

Until the birth of pharmacy as an independent science, there is a historical evolution from
antiquity to the present day that marks the course of this science, always connected to the
medicine.

In the coming decades, pharmacists are expected to become more integral within the health care
system. Rather than simply dispensing medication, pharmacists are increasingly expected to be
compensated for their patient care skills. In particular, Medication Therapy Management
(MTM) includes the clinical services that pharmacists can provide for their patients. Such
services include the thorough analysis of all medication (prescription, non-prescription, and
herbals) currently being taken by an individual. The result is a reconciliation of medication and
patient education resulting in increased patient health outcomes and decreased costs to the
health care system.

This shift has already commenced in some countries; for instance, pharmacists in Australia
receive remuneration from the Australian Government for conducting comprehensive Home

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Medicines Reviews. In Canada, pharmacists in certain provinces have limited prescribing rights
(as in Alberta and British Columbia) or are remunerated by their provincial government for
expanded services such as medications reviews (Medschecks in Ontario). In the United
Kingdom, pharmacists who undertake additional training are obtaining prescribing rights. They
are also being paid for by the government for medicine use reviews.

In Scotland the pharmacist can write prescriptions for Scottish registered patients of

their regular medications, for the majority of drugs, except for controlled drugs, when the patient
is unable to see their doctor, as could happen if they are away from home or the doctor is
unavailable.

In the United States, pharmaceutical care or clinical pharmacy has had an evolving influence
on the practice of pharmacy. Moreover, the Doctor of Pharmacy (Pharm. D.) degree is now
required before entering practice and some pharmacists now complete one or two years of
residency or fellowship training following graduation. In addition, consultant pharmacists,
who traditionally operated primarily in nursing homes are now expanding into direct
consultation with patients, under the banner of "senior care pharmacy."


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INDUSTRY PROFILE

The Pharmaceutical industry develops, produces, and markets drugs licensed for use as
medications. Pharmaceutical companies can deal in generic and/or brand medications. They are
subject to a variety of laws and regulations regarding the patenting, testing and marketing
of drugs. The main aim of a pharmaceutical Industry is to develop, research and
distribute drugs in order to provide health care for the people in the society.

The Pharmaceutical Industry needs to follow rules about patent, marketing as well as testing
of drugs that are scheduled to come to the market as medicines. Since the inauguration of
the Pharmaceutical Industry in the 19th century, it has covered a long way and now it has
become one of the most influential and successful industry in the world with both controversy
and praise on its part. Pharmaceutical Industry is very much dependent upon the
developments and discoveries that are made to search new types of drugs and also to search
for new kind of medicines. One can also see differences within the industry regarding the same
drug or report and different companies within the Pharmaceutical Industry look to follow
different paths for the same thing.

Drug Discovery and Drug Innovation are two very aspects in the Pharmaceutical

Industry:

Drug Discovery: Drug Discovery is a process through which potential drugs are
designed or discovered. It has been observed in the past that most of the drugs were invented
by means of isolating the active component from remedies which are traditional in nature or
through another kind of discovery known as serendipitous discovery.

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Drug Development: This process is taken forward after the discovery is done and a thing is
identified as a potential drug. The development takes place immediately after that as the
component is turned into a medicine. So this is also considered as a very important process and
has great importance in the Pharmaceutical Industry.

For the first time ever, in 2006, global spending on prescription drug stopped $643 billion,
even as growth slowed somewhat in Europe and North America. The United States accounts
for almost half of the global pharmaceutical market, with $289 billion in annual sales
followed by the EU and Japan. Emerging markets such as China, Russia, South Korea and
Mexico outpaced that market, growing a huge 81 percent.

US profit growth was maintained even whilst other top industries saw slowed or no
growth. Despite this, the pharmaceutical industry is and has been for years the most
profitable of all businesses in the U.S. In the annual Fortune 500 survey, the
pharmaceutical industry topped the list of the most profitable industries, with a return of 17%
on revenue.

Following diagrams provides schematic information on the percent of shipment, employment
size distribution and worldwide sales for the pharmaceutical industry.

9

Figure 2 : Employment Size Distribution for Medicinals and Botanicals and
Pharmaceutical Preparations Establishments

Figure 3: Worldwide sales of pharmaceutical industry

10

Indian Pharmaceutical industry at a glance:

The I ndian pharmaceutical industry is a success story providing employment for millions
and ensuring that essential drugs at affordable pieces are available to the vast population of
this sub-continent. Richard Gerster

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. 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. Playing a key
role in promoting and sustaining development in the vital field of medicines, Indian
Pharma Industry boasts of quality producers and many units approved by regulatory
authorities in USA and UK. International companies associated with this sector have
stimulated, assisted and spearheaded this dynamic development in the past 53 years and
helped to put India on the pharmaceutical map of the world.

Growth Scenario in 2011

India's pharmaceutical industry is now the third largest in the world in terms of volume. Its
rank is 14th in terms of value. Between September 2008 and September 2009, the total
turnover of India's pharmaceuticals industry was US$ 21.04 billion. The domestic market was
worth US$ 12.26 billion. This was reported by the Department of Pharmaceuticals, Ministry of
Chemicals and Fertilizers. As per a report by IMS Health India, the Indian pharmaceutical
market reached US$ 10.04 billion in size in July
2010. A highly organized sector, the Indian Pharma Industry is estimated to be worth

$ 4.5 billion, growing at about 8 to 9 percent annually.

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Leading Pharmaceutical Companies in India

In the domestic market, Cipla retained its leadership position with 5.27 per cent share.
Ranbaxy followed next. The highest growth was for Mankind Pharma (37.2%).

Other leading companies in the Indian pharma market in 2010 are:

Sun Pharma (25.7%)

Abbott (25%)

Zydus Cadila (24.1%)

Alkem Laboratories (23.3%)

Pfizer (23.6 %)

GSK India (19%)

Piramal Healthcare (18.6 %)

Lupin (18.8 %)

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

Due to increase in the population of high income group, there is every likelihood that they will
open a potential US$ 8 billion market for multinational companies selling costly drugs by
2015. This was estimated in a report by Ernst & Young. The domestic pharma market is
estimated to touch US$ 20 billion by 2015. The healthcare market in India to reach US$ 31.59
billion by 2020. The sale of all types of pharmaceutical
drugs and medicines in the country stands at US$ 9.61 billion, which is expected to reach
around US$ 19.22 billion by 2012. Thus India would really become a lucrative
destination for clinical trials for global giants.


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There was another report by RNCOS titled "Booming Pharma Sector in India" in which it was
projected that the pharmaceutical formulations industry is expected to prosper
in the same manner as the pharmaceutical industry. The domestic formulations market
will grow at an annual rate of around 17% in 2010-11, owing to increasing middle class
population and rapid urbanisation.
Characteristics of Indian Pharmaceutical Industry

The Indian Pharmaceutical sector is highly fragmented with more than 20,000 registered units.
It has expanded drastically in the last two decades. The leading 250 pharmaceutical companies
control 70% of the market with market leader holding nearly 7% of the market share. It is an
extremely fragmented market with severe price competition and government price control.

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 injectables. 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). These units produce the complete range of pharmaceutical
formulations, i.e., medicines ready for consumption by patients and about 350 bulk drugs,
i.e., chemicals having therapeutic value and used for production of pharmaceutical
formulations.

Following the de-licensing of the pharmaceutical industry, industrial licensing for most of the
drugs and pharmaceutical products has been done away with. Manufacturers are free to
produce any drug duly approved by the Drug Control Authority. Technologically strong and
totally self-reliant, the pharmaceutical industry in India has low costs of production, low R&D
costs, innovative scientific manpower, strength of national laboratories and an increasing
balance of trade.


13

COMPANY PROFILE

XYZ in brief

XYZ Corporation is an innovative European R&D-based pharmaceuticals company having
headquarter situated in Finland with an emphasis on developing, manufacturing and
marketing pharmaceuticals, active pharmaceutical ingredients and diagnostic tests for global
markets. XYZ has been building well-being for over 90 years.

XYZ has also a large portfolio off-patent prescription medicines, hospital
treatments and self-care products. These products are sold mainly in Finland, other Nordic
countries, the new EU countries and Germany.

In animal health, XYZ has the leading market position in its home territory, the Nordic
countries. The subsidiary Fermion produces active pharmaceutical ingredients for
both XYZ and other pharmaceutical companies.

XYZs diagnostic tests are used widely around the world to help in diagnosing patients
and to contribute to the follow-up of treatment. The emphasis in this product sector is on easy-
to-use and rapid point-of-care tests. The leading brand is the QuikRead CRP test for
diagnosing infections.

XYZ AS A LISTED COMPANY

XYZs Shares A and B are quoted on the NASDAQ OMX Helsinki in the Large Cap group
under the Healthcare sector heading. Trading in both of the companys share classes
commenced on 3 July 2006 under the trading codes ORNAV and ORNBV.

Net Sales 2010: EUR 370.9 million

Total number of employees: 3000 +

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CLIENTELE

XYZs clientele consists of healthcare service providers and professionals, such as doctors,
pharmacies, hospitals, healthcare centers, clinics and laboratories.

Pharmaceuticals business

Pharmaceuticals account for about 95% of XYZs net sales, of which a considerable

part comes from proprietary patented pharmaceutical innovations.

Business segments:

XYZ has two business segments: the Pharmaceuticals business and the Diagnostics business:
Proprietary Products : XYZ develops and produces proprietary drugs for both
humans and animals.
Specialty Products : XYZ offers a versatile range of 300 generic prescription drugs and
self-care products for basic healthcare.
Animal Health : XYZ is one of the leading players in veterinary medicines in the
Nordic countries.
Fermion : Fermion manufactures active pharmaceutical ingredients (APIs).

XYZ Diagnostica : XYZ Diagnostica manufactures in vitro diagnostic tests and
systems.

Product portfolio:

Human prescription medicines: Broad portfolio of basic medicines

XYZ's product portfolio consists of a range of approximately 300 prescription drugs for
primary healthcare for the treatment and prevention of most common illnesses. Most of
XYZ's products are so-called generics which XYZ has developed and introduced after the
original product has become off patent. Practically all XYZ

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products are sold in Finland, XYZ's home base, and most of them are in the scope of

the reference pricing system and also reimbursable.

XYZ's best selling pharmaceutical
products in 2010
Net sales,
EUR million
Stalevo and Comtess/Comtan
(Parkinson's disease)
253
Simdax (heart failure) 40
Easyhaler product family (asthma, COPD) 28
Precedex (ICU sedative) 27
Dexdomitor, Domitor, Domosedan and
Antisedan (animal sedatives)
24
Burana (inflammatory pain) 22
Divina range (menopausal symptoms) 13
Marevan (anticoagulant) 13
Enanton (prostate cancer) 13
Fareston (breast cancer) 12
Total net sales 445

PROPRIETARY PRODUCTS :
XYZ develops and produces proprietary drugs for both humans and animals.
The Proprietary Products division is responsible for XYZs proprietary drugs for humans.
Proprietary Products is the largest division of XYZ's Pharmaceuticals business.

The Proprietary Products division is composed of three core therapy areas:

Central nervous system

Oncology and critical care

Respiratory products for XYZ's proprietary device Easyhaler

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XYZ's own R&D activity has generated seven drugs based on XYZ's own molecule
discoveries. These products nowadays contribute to approximately half of the XYZ Group's
annual net sales. The brightest stars in the XYZ constellation of products are Stalevo

and
Comtess
/Comtan
, which are used for the treatment of advanced Parkinson's disease

and which contain entacapone, an active ingredient discovered and developed by XYZ's
own R&D. Other XYZ-orginated drug discoveries for human use are Simdax

(levosimendan) for severe heart failure and Precedex

(dexmedetomidine) for sedation
of patients in intensive care, and Fareston

(toremifene), for breast cancer. Included in
XYZ's proprietary product range is Easyhaler

, a multi-dose device for administrating
inhalable, dry-powder-formulated asthma medicines.

Proprietary XYZ-originated products are Domitor (medetomidine), Dexdomitor
(dexmedetomidine), Domosedan (detomidine), which are sedatives used by veterinarians,
and their reversal, Antisedan (atipamezole).

The research and development of proprietary drugs is a long process that can take up to 15
years and involves many risks. To become successful, a new proprietary drug must first prove
its clinical superiority in the market. In addition, introduction of new pharmaceutical
discoveries requires more and more intense marketing efforts.

STRATEGY:

XYZs mission is to build well-being. To this end, XYZ provides pharmaceuticals and
diagnostic tests that help patients to effectively treat their diseases. Effective drugs also
provide added value for patients by improving quality of life. XYZ wants to be an innovative
European R&D-based pharmaceutical and diagnostic company with
a special emphasis on developing medicinal treatments and diagnostic tests for the global
markets. Innovation is at the centre of XYZs vision, because the development of

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innovative products alone is not enough in the current competitive environment: the
companys overall approach should be based on innovation. XYZ is aiming at
innovative, effective practices and business models throughout its operations.

The core therapy areas in XYZs product and research strategy are:

central nervous system

oncology and critical care

respiratory medicines administered with the Easyhler device.


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OPERATIONAL MODEL

XYZ aims to ensure transparency of the supply chain, high quality, safety and good
partnership management in all activities to promote the well-being and satisfaction of XYZ's
customers.

XYZ is committed to developing and producing health-promoting pharmaceuticals and
diagnostic products for consumers and healthcare professionals. The company also
manufactures active pharmaceutical ingredients (APIs). XYZ markets its products globally
through its sales organizations and partners. XYZ always aims for innovation, high quality,
cost-efficiency and safety, with a customer oriented approach.

LINE FUNCTIONS

In the matrix-type organizational structure of the XYZ Group, the following operations are so-
called Line Functions:

Supply Chain
Global Sales (sales and marketing)

Research and Development

The roles of the line functions are dealt with on sub-pages for each function.

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SALES AND
MARKETING

XYZs products are marketed worldwide, in more than a hundred countries. The companys
own sales organizations cover 21 European countries. In most of these markets, XYZ is present
via its own local marketing company. In some eastern European markets, the presence is in
the form of a representative office. As a rule, the names of these companies are XYZ
Pharma, which is the globally adopted and registered auxiliary business name for XYZ's
pharmaceutical business. Correspondingly, the diagnostics business promotes its products
under the registered name XYZ Diagnostica. Foreign XYZ Diagnostica marketing
subsidiaries are promoting XYZ's diagnostic products in Sweden, Denmark and Norway.

RESEARCH AND
DEVELOPMENT

XYZ invests an annual average of about 15% of its net sales in research and product
development, a work field of about 600 people.

The focus in XYZs pharmaceutical R&D is on early research, i.e. preclinical as well as
clinical Phases I and II, whereas the large-scale Phase III trials are preferred to be conducted
together with partners selected for further development and marketing. Research is
increasingly done in collaboration with other pharmaceutical companies also in the early
phases of R&D with an aim to develop new, innovative medicinal treatment approaches for
unmet medical needs.

FINANCIAL RISKS

The objective of the Group's financial risk management is to decrease adverse effects of
changes in the financial market on the Group's results and cash flows and to
ensure sufficient liquidity. Financial risks consist of market, credit and liquidity risks. The
Groups most important financial risks are exchange rate risk and counterparty risk.

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Human Resources:

General principles

In the XYZ Group Human Resources Policy refers to the principles adopted by the Board of
Directors of XYZ Corporation for the implementation of human resources issues. These
principles are guided by the corporate values.

It is the principle of the Group to have an open and respecting attitude to trade union
operations and personnel representatives. In the development and implementation of Human
Resources Management issues the opinions of both the employer and the personnel shall be
observed. The aim is primarily to agree on personnel representation in Group management
with the personnel.

Responsibilities

The contents and development of the Human Resources Policy is the responsibility of the
Executive Management Board of the Group and the Human Resources Manager.

Development of Competence

The aim of the development of competence is that the personnel of the Group has the
competence required by the implementation of the strategy. XYZ have a positive attitude
towards the development of competence; it has to be versatile and take into account different
learning styles and needs. Individuals are encouraged to self- development.

The superiors are in a key position in the implementation of the Human Resources Policy and
the development of personnel competence. Continuous inputs are made in the quality of the
work of the superiors and their competence.

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The superiors shall ensure that the persons working in their units are familiar with the strategy
and goals of the company, the targets of the departments derived therefrom and, through this,
their personal goals.

The superiors are responsible for organising adequate familiarization to new personnel
members, those changing tasks and those returning to work after a longer leave.

Recruitment and planning of resources

While filling new job openings and finding employees for vacancies, the objective is to
priorities persons already employed by the Group and suitable for the tasks. Appropriate job
rotation is utilized as a force of change and as a chance to the professional development of
personnel. The goal of job rotation is to have motivated and multi-skilled personnel.

The planning of resources shall ensure that the organization has the resources and
competence required to attend to the tasks derived from the goals of the company. The
continuance of uninterrupted operations is ensured by substitute and successor plans.

The work of experts and superiors is equally valued. There should be possibilities for
development at work and career development in both tasks.

Rewards and personnel benefits

The salaries and personnel benefits are country-specific. They are affected by local
legislation, collective agreements, the branch and location. The monetary salary and other
personnel benefits shall, with regard to their level and coverage, form a competitive entity in
comparison to the market salary of each task.

22

The personal salary is determined on the basis of the demands set by the work and personal
performance. The following are taken into account in assessing personal performance:
results, professional skills, multiple skills, development orientation, initiative and co-
operation ability.

The aim is to develop performance-based pay systems.

The personnel is entitled to continuous feedback. Excellent performance may be
rewarded immediately after the completion of the task.

Work community and work climate

The whole personnel is responsible for the maintenance and development of a good work
community and work climate.

The work climate is

open and interactive and promote the preparedness for change

encourage the personnel to engage in co-operation and exchange of
information both within and between the departments

promote creativity, internal enterprise, as well as own initiative and
responsibility as regards the presentation of new ideas

encourage the personnel to renew the work community and to constantly improve
the quality of operations

encourage and help to achieve results

support the development of competence as well as encourage the individuals to self-
development in relation to their own work tasks

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promote the understanding of international business operations among the personnel,
and help to develop their internationalisation skills
promote internal information in communicating the objectives and the results which
have been achieved.

The Human Resources Policy of the Group includes workplace health promotion, which
means versatile measures to promote and improve the working and functioning capabilities of
each individual at every stage of his career.

Equality

In the XYZ Group, the age, sex, religion or ethnic background of an individual may never,
at any stage of the employment relationship, be considered a discriminating factor.

Innovations to the market from XYZs R&D

Over its long history, XYZ has invented and been the first to introduce many new products to
the pharmaceutical market. Since the 1980s, e.g. the following proprietary products have been
launched:
Product Launch year Indication
Stalevo 2003 Parkinsons Disease
Simdax 2000 Acute Heart Failure
Precedex 1999 Intensive care sedative
Comtan/ Comtess 1998 Parkinsons Disease
Indivina, Divina, Diviseq, Divigel 1980-1990 Menopause
Fareston 1988 Breast cancer
Antisedan, Domitor &

Domosedan
1989, 1987

1983
Animal sedatives

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NEED FOR STUDY

This study is conducted to understand the competitive advantage of XYZ Corporation. It is
nearly 94 years old research based European organisation and during this years company
only focuses on research and manufacturing of own proprietary formulation products i.e.
the products for which XYZ is patents holder / innovator. Approximately 85% of the
business profits belong to these patented products.

To study the future difficulties because during the period 2013 -2015 nearly 90% its
products patents are expiring.

The main purpose is to analyze the immediate action or strategies taken in place to
overcome this challenging and difficult phase.

This project study is mainly concentrating on the best possible way to avoid or
minimise this difficult and challenging situation so that even though the XYZ is going to
experience the significant reduction in profit and alternative strategy of outsourcing the
generic development in India will help to improve the profit.


25

LITERATURE SURVEY

Key Challenges in pharmaceutical business:

The main challenges for drug companies come from four areas. First, they must deal with
competition from within and without. Second, they must manage within a world of price
controls that dictate a wide range of prices from place to place. Third, companies must
be constantly on guard for patent violations and seek legal protection in new and growing
global markets. Finally, they must manage their product pipelines so that patent expirations do
not leave them without protection for their investment.

Competition

The pharmaceutical industry currently represents a highly competitive environment.

One can distinguish three layers of competition for Big Pharma companies:

First, obviously, Big Pharma companies compete among themselves. Although not all leading
pharmaceutical companies cover all segments of pharmaceutical market, almost all of them are
active in R&D and production of drugs in the segments with the highest potential such as
treatment of infectious, cardiovascular, psychiatric or oncology diseases.

Secondly, Big Pharma companies experience significant profit losses due to competition from
the generic drug manufacturers. Opposite to the research-oriented pharmaceutical companies,
which invest significant financial resources and time to develop new medicines, generic drug
manufacturers spend minimum resources on R&D, and start manufacturing already developed
by other companies drugs after their patent expiration. Because generic drug manufacturers do
not have to recoup high R&D costs, prices of their products are usually much lower then those
of major pharmaceutical companies; as the result, after patent expiration, generic drugs
manufacturers capture significant market share, dramatically decreasing revenues of the Big
Pharma companies.

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Finally, the whole pharmaceutical industry competes with other health care industries. In this
case, pharmaceutical companies should not only demonstrate high efficiency of their products,
but also provide obvious proof of cost advantages in comparison with other forms of care.

Price control

Pharmaceutical companies have to operate in a highly regulated environment; the degree of
regulation to a significant extent depends on the country and type of the product.

One of the most important aspects of government regulation for pharmaceutical companies is
price regulation, and different countries have different policies on this issue.

In the United States the largest and the most attractive pharmaceutical market currently
there is no direct price control for non-government drug sales. At the same time, it is expected
that Medicare Prescription Drug Improvement and Modernization Act will potentially increase
downward price pressure.

The majority of European countries control drug prices, and this downward pressure on
prices has been increasing during last years. Japan has even stricter price controls than
European countries; all prices are controlled by the government, and they are subject to a
periodic price review.

As the result of price control, prices of the same products can significantly differ in
different countries.

Protection of patents

Generic drugs manufacturers represent a significant threat to research-based
pharmaceutical companies. For example, Schering-Ploughs Claritin patent expired in

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2002; as the result of generic drug competition, sales of Claritin by Schering-Plough declined
from $3.2 billion in 2001 to $1.8 billion in 2002 and to $0.37 billion in 2003.

Moreover, generic drugs manufacturers sometimes start production of patent- protected drug
analogues even before a patent expires. Although research-oriented companies in many cases
are able to protect their patents, they do suffer from lost revenues.

Therefore, protection of patents is one of the key conditions necessary for further development
of the pharmaceutical industry. At the same time, non-efficient legislation that does
not provide the necessary level of patent protection is one of the factors that hamper
expansion of Big Pharma companies to the developing countries.

Drugs portfolio management

Drug portfolio management is one of the most important determinants of long-term prosperity
of research-oriented pharmaceutical companies.

First, it takes an extremely long time to develop a new drug, and only a very small portion of
all projects is successful. Projects that the company starts today will determine its financial
performance 10-15 years later. Therefore, careful planning of R&D projects is very important
for the long-term stability of the company.

Second, insofar as patents keep exclusivity of drugs only during a limited time, and soon after
the expiration of the patent the sales of the drug sharply go down, the company has to carefully
monitor its patent expiration dates, and insure that new products become available by that date.
Otherwise, we are reminded of the case of Shering-Plough, when after expiration of its major
drug patent the company did not have a new product of similar value and the company
experienced losses in 2003 and
2004.

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Definitely, planning errors or rapidly changing demand in the industry can be corrected
by acquisition of smaller research companies or patents from competitors, but in any of
these cases the company will have to pay a premium price, thus reducing its
profitability.

Prospects for international expansion

According to IMS Health as restated in the 2004 AstraZeneca Annual Report, the United
States, the European Union and Japan comprise the three major pharmaceutical markets which
together represent 88% of world sales; and the U.S. market alone accounts for about 47%
of world sales. Not surprisingly, all Big Pharma companies to a significant extent
concentrate their resources on these markets, especially on the U.S. market.

At the same time, although the share of world pharmaceutical sales in developing countries at
this point of time is much lower, they show much faster growth rate than developed countries
do. For example, the China, 9th largest world market, showed a
26% sales increase in 2004, followed by Thailand (16% growth) and Egypt (15%). Some Latin
American countries, such as Mexico, Brazil, Argentina and Venezuela also show much
faster sales growth rate than average worldwide. Therefore, developing countries contain a
significant potential for further expansion of pharmaceutical industry in the future.

In all successful major companies worldwide it is observed that the outsourcing is done
on regular basis for efficient usage of resources. All these companies also outsource the
research, development and manufacturing activities to India.

Why India?

India is selected as outsourcing hub mainly due to following reasons:

Competent workforce: India has a pool of personnel with high managerial and technical
competence as also skilled workforce. It has an educated work force and English is

29

commonly used. Professional services are easily available.

Cost-effective chemical synthesis: Its track record of development, particularly in the
area of improved cost-beneficial chemical synthesis for various drug molecules is
excellent. It provides a wide variety of bulk drugs and exports sophisticated bulk drugs.

Legal & Financial Framework: India has a 53 year old democracy and hence has a
solid legal framework and strong financial markets. There is already an established
international industry and business community.

Information & Technology: It has a good network of world-class educational
institutions and established strengths in Information Technology.

Globalisation: The country is committed to a free market economy and
globalization. Above all, it has a 70 million middle class market, which is
continuously growing.

Consolidation: For the first time in many years, the international pharmaceutical
industry is finding great opportunities in India. The process of consolidation, which has
become a generalized phenomenon in the world pharmaceutical industry, has started
taking place in India.

Steps to strengthen the Industry

Indian companies need to attain the right product-mix for sustained future growth.

Core competencies will play an important role in determining the future of many Indian
pharmaceutical companies in the post product-patent regime after 2005. Indian companies, in
an effort to consolidate their position, will have to increasingly look at merger and acquisition
options of either companies or products. This would help them
to offset loss of new product options, improve their R&D efforts and improve distribution to
penetrate markets.

30

Research and development has always taken the back seat amongst Indian
pharmaceutical companies. In order to stay competitive in the future, Indian
companies will have to refocus and invest heavily in R&D.

The Indian pharmaceutical industry also needs to take advantage of the recent advances in
biotechnology and information technology. The future of the industry will be determined by
how well it markets its products to several regions and distributes risks, its forward and
backward integration capabilities, its R&D, its consolidation through mergers and
acquisitions, co-marketing and licensing agreements.


31

Objective of Study

The objective of the study is to find the best suitable outsourcing business strategy for
XYZs research, manufacturing and technical know-how of generic product development
to Indian contract research organizations (CROs) and contract manufacturing organizations
(CMOs) so that expected future reduction in profitability can be minimize. In long run
company should be in highly profitable position.

The main goals of the study are to find out the strategy which can fulfill the following
requirement:

Fulfill the post patent gap for proprietary products portfolio

Should easily withstand pricing pressure in Europe

Should increase the operational flexibility, competitiveness and efficiency

Should upside the potential from long-term portfolio management

Larger self-care portfolio for continued growth

Strengthen branded generic market position

Increase cost efficiency and flexibility across value chain

Sreamline processes

32

Improve complexity management

Partnerships and network operating models throughout the value chain

Risk - reward sharing models

Competitive product portfolio


33

RESEARCH METHODOLOGY

Looking at the vastness and complexity of the task/ project it was very challenging to select a
single research methodology alone which can help to understand the situation and
consider potential solution to the problem. To do it better way I have visited XYZs Finland
head office for 2 months during the period of September 2011 to October 2011 and gathered
all relevant information to this study.

Hence various research methodologies were used based on the demand of situation.

Sources of Primary Data

Questionnaire by mail and feedback - As it was not possible to cover each and every
employee of the Organisation by above methodology another methodology of sending the
questioner by mail and requesting their feedback was adopted.

Interviews / Meetings/ Live meetings / MS Communicator: The information was gathered
by meeting various personnel the as possible either these people were interviewed or discussed
by use of live meeting or MS Communicator.

Sources of Secondary Data

Websites
Books
Newspapers & Magazines


34

ANALYSIS

As it was very important to consider the past global scenario in terms of R&D expenditure,
development time required and sales figures in the last decade which will mainly focus on
challenges to pharmaceutical industry.

Challenges of pharmaceutical industry

The R&D costs are increasing, but output of new NCEs is not

Science is moving fast, but making a drug based on genomic information may take decades
Regulatory requirements are continuously becoming more stringent
Pricing pressures for NCE are getting tougher (health economic evaluations)

35

Patents are being challenged earlier, high costs of legal activities

The price of older, generic products is getting lower than ever, cost of goods is becoming
challenging

Liquidity analysis

All companies have high enough level of Current Ratio, showing the ability of the company to
cover its short-term liabilities with it current assets. At the same time several companies have
Cash Flows from operations to Total Liabilities ratio at the level below 20% which is
considered as a minimum safe level for financially healthy company. For Wyeth and Schering-
Plough companies that experienced significant reduction in profitability during the last years
as it was mentioned above the inability to satisfy long-term liquidity requirement is
especially alarming.

Analysis of geographical distribution of sales in 2004 revealed that 7 out of 8 major

U.S. pharmaceutical companies have more than 50% of their sales from the U.S.

Liquidity ratios

2.00

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Pfizer J&J Merck BMS Wyeth Eli Lilly Abbott Schering-
Plough

Current Ratio CF from operations to Total Liabilities Debt-Equity Ratio

36

market; and only Schering-Plough in 2004 was the exception to this rule. Most important
international markets for U.S. companies remain Japan and Western Europe.

Geographical distribution of sales
A pharmaceutical industry profile contains the highlights of different facets of
pharmaceutical business such as:
Industry structure

Major markets

Major players.
Given the rising complexity of pharmaceutical business due to technological
advances and globalization.
Geographical distribution of sales in 2004

100%

90%

80%

70%

42%

32%

41%
45%
43% 45%
43%

61%

60%

50%

40%

30%

20%

58%

68%

59%
55%
57% 55%
57%

39%

10%

0%
Pfizer J&J Merck* BMS Wyeth* Lilly Abbott* Schering-
Plough*

Change:

USA International

Various questions were asked to employees about the feeling of new change and the answers
are as depicted in following figure. Many of them were not have clear idea about the change.

42

XYZ's employee

Employees afraid of change Not idea Other reasons

32%

45%

23%

Why the change journey can fail? Its mainly due to above facts. Personnel behaviour
explains over half of the change failures.
As there will be the change in the business model it wasnt easy to get positive response from
various employees.

43


44

Why outsourcing to India?

This question was asked throughout the survey, blogs, social sites, interviews and
questioner by mails. The feedbacks received are depicted below.

Large pool of well educated experts in pharmaceutical fields (especially in chemistry,
galenics, process development, manufacturing, medicine) with good IT skills (>100 000
scientists annually, 12 000 PhDs in chemistry)

Lower costs of man power for R&D and manufacturing, contract manufacturing

(CMO) and research organizations (CRO) are well developed in India:

o manufacturing costs about 20 %

o research 10-30%

o clinical development 50 % of the costs in Western Europe or USA

Adequate quality in GMP: India has the highest number of FDA approved
manufacturing facilities (>60) outside USA, India produces more than 20 % of
worlds generic products!
Communication easy in English

Due to large population a significant pool of untreated patients available with vast
genetic diversity, high level cliniques

Rapidly improving skill sets in biotechnology and drug discovery, new research
centers are being built (annual turnover of biotech products 700 m$ in 2004, 5 b $ in
2010)

India presents 20 % of the global drug markets by volume, but only 1 % by value,
a significant increase of value is expected (over 20b$ in 2010)

Tax benefits available for foreign investments (SEZ etc.),


45

Trends and challenges in Indian pharma sector:

Following information was gathered by the responses to the email

There are 23 000 pharma companies, 3000 involved in production, but 250 leading
companies control 70 % of Indias market, consolidation is expected to take place,
opportunities for M&As emerge

The strategy of Indian pharma companies seems to be to launch the products first in
India and the neighboring countries, then Latin America, Africa, CIS, the USA and
finally the EU

Indian companies are acquiring companies in the USA and Europe.

Competition with Chinese API manufacturers.

Prices in the Indian market are generally very low, competition is fierce, how to bring
European drugs into the Indian market? How will the reimbursement system work?
Development of health insurance system?
More than 300 million people living below the poverty line, only 5 % of GDP spent
on health care, per capita spending of pharmaceuticals is 4$ (796 $ in USA, 322$ in
the UK)

The infrastructure of the society should be improved (traffic, power and water
supply)

Ethical issues in clinical studies (low literacy rate, consent)

Some extra byrocracy exists (e.g. import licences)

XYZ in India

Discovery cooperation

Sourcing of active pharmaceutical ingredients and intermediates

In-licensing of selected generic products

46

Development of selected older generic products

Marketing diagnostic products through a partner

Screening for new business opportunities with pharma companies and

CROs, assuring timely delivery and quality of the products

Strategic partnerships/joint ventures

Long term commitments between XYZ and selected Indian companies

Balanced business model providing win-win deals is the cornerstone of the
long-term relationship
Price levels are usually very competitive, but some companies offer services at a rate
similar to European CROs

Great variability in quality, but the FDA approved sites usually are
excellent, strong USA focus in documentation

Following time tables is sometimes too flexible, there are production
planning needs

Discovery cooperation has been excellent

Getting import licences cause delays in R&D work

Fast turnover of staff

In family owned companies the decision making is fast

Some larger Indian companies may feel they do not need a partner in

Europe as they already have daughter companies established there

Checklist for managers:


47

Following checklist was prepared and questions were asked to the Managers of various
functions.
Plan do
check- act
BE
area
Questions:
Are we aware of
Yes Part- no
ly

Approach
and
execution
(Plan and
do)
Customers What are our customer needs?

How do we manage our customer
relationships management?

Strategy How is the external environment and
competitors changing?

What is our internal capability to achieve the
strategic goals?

Are these elements inputs to our strategy?

Are we communicating the strategy to the
personnel and stakeholders efficiently?

Leadership How good we are as leaders and motivating
people and implementing XYZ values?

How efficient our management system is?

How do we lead the change?

Partnerships
and networking
How efficiently we manage our external
resources?

Personnel How competent our people are?

How is our working climate supporting to
reach our goals?

How is well being taking care of?

What kind of different rewarding and
encouraging procedures we use as a
manager?

Processes How efficient our processes, workflows are?

Measurements How do we measure all elements above?

Results What kind of results we have in areas?


48

WORKING WITH EXTERNAL COLLABORATORS REQUIRES

A need for external help and understanding what is needed

Optimal choice of the collaborator

Efficient negotiations

Well-thaught contract (technical, substance, legal)

Good start of the relationship

Sufficient follow-up/monitoring of the work

Prompt issue-solving

Continuous relationship management

Fields within the 7 sub-categories in R&D

1. Non-clinical and biomarker studies:

Non-clinical safety studies, DMPK in animals, Bioanalytics related to research, AH
pharmacokinetics (GLP), AH BE studies (GLP), non-clinical pharmacology,
biomarkers

2. Phase I, BE and human bioanalytics:

Bioanalytics related to human studies, Ph I studies, BE-studies, imaging

3. Analytics:

Analytics (incl.chemical, physiol, microbial, method devel), including QC and
possibly Fermion related work

4. Writing, regulatory, pharmacovigilance and auditing:

Regulatory, drug safety, medical writing, other writing and GxP auditing

5. Clinical outsourcing:

Clinical phase II-IV, monitoring, clinical study management, statistics, data
management, CTS

49

6. Formulation development:

Pharmaceutical formulation and process-development, contract manufacturing

(SC), IMP for GD-PLM, IMP for clinical studies

7. Organic chemistry:

Medicinal chemistry, co-operation with Fermion

What has been accomplished?

This question was raised for brainstorming session during R&D meeting. The
solutions obtained are as follows

Pallas structure all outsourcing material collected here including current
agreements

CRO calendar open for all (decreasing e-mails, info sharing, efficient meetings with
CROs)

Contract manager role in use

R&D Outsourcing strategy

Categorization initiated and teams in action

R&D IG and Q1 SOP updated

Negotiation training

Contract templates

(MSA, SA) under up-dating with legal

Metrix

Service Provider Tracker implemented

50

R&D Outsourcing - Metrix

To show cost-efficiency decreased total costs

To show the improving quality of contracts and collaboration

To show the efficiency and agility of the outsourcing process

The timeline metrics included in those of the projects

In practice:

Savings (to be defined)

Internal workload (e.g. CATS)

Collaboration (mutual surveys)

CRO performance (internal survey/score)

Action plan:

Based on the feedback action plan was prepared as follows:

Goal Final outcome Actions leading to outcome
Categorizing of
the R&D work

Follow-up of the implementation of the
evaluation of new CROs according to the
sub-category strategy
Follow-up of the sub-category strategy and
action plan implementation
Up-date of the status in the Outsourcing days

51

Define common
ways of working
Optimal
harmonisation
Continuous evaluation of needs for
harmonisation by OCT with network
Category specific instructions as needed

Template and instructions for collaboration
evaluation
Template and instructions for CRO

performance evaluation

IT systems in communication with service
providers instructions to R&D
Define roles and
responsibilities
of teams and
people involved
in outsourcing
Common R&D
guideline on
outsourcing
Relationship management (definition, why
important, metrix, training, partnership
guideline) e.g. initiated with a workshop Q1
Up-date of the Oursourcing in R&D guideline
Increase
transparency
within R&D and
XYZ
Origo and SPT
in active use
Network
working as an

active forum
Discussion and info-sharing in Origo;

development of the Origo tools

Outsourcing Network meeting for info
sharing

52

How would you build up a well functioning network?

In order answer this questions survey was made and the results are as follows:

To d

53

o
above work and considering the workload following hrs are required.

Generic Development
2010 costs 5,3 meur vs.7,2 meur bud
2011budgeted costs 7,6 meur
8000 000,00 -,--------------- - -=-----------------

: ono oou,IK>

6000 000,00 +--------- -- - --1

OJO 000,00 +----

3 000 000,00 +----

l OIJOOOO,tKl t---

1000000,00
AH projects
n-LICensed Proo uc t s

Turr'Key pro j::<: t s
on-MediCinalproducts

Scandinav anOTC

Joc t-t

)ocD
JS evaluation project
'le\: Products

0,00 +----

:!u dgE:!t cut 2010 :!udgE:!t cut 2011

GD PLM FTE 01-12 / 2010
act 90,5 FTE vs. bud 84,7 FTE
Bud 2011; 112,2 FTE

80,0

60,0

40,0

20,0

0,0

Generic P roduc t Organization Other R&D
Development Maint enance Devel opment work
Act FTE 2010

Bud FTE 2010

Bud F TE 2011

56


57

CONCLUSION

The goals set out in the Indian government's draft National Pharmaceuticals Policy in
terms of domestic market development are ambitious, and will require a positive
pricing environment if the country's 1 billion people are to be able to access the life-
saving and innovative medicines they need.

Again, partnership is key: industry leaders are keen to work with government on issues
of affordability and point out that price controls will do nothing to increase access to
new and effective treatments.

Overall outsourcing will definitely play a vital role towards increase in profit of
the organisation.


58

FINDINGS AND RECOMMENDATIONS

For foreign investors like XYZ Corporation, collaborations with India present a
huge opportunity both in terms of joint production for the global market and
supply of the growing domestic market.

The pharmaceutical outsourcing of R&D, manufacturing and technical
know-how to India provides the excellent tool to minimise the
investment and expenditure. Thus it maximises the profit of the organisation.

There has never been a more important time for India's government and its
drug producers, both multinational and domestic, to work together in
partnership for the good of the industry and the nation. With its enormous
advantages, including a large, well-educated, skilled and English-speaking
workforce, low operational costs and improving regulatory infrastructure, India
has the potential to become the world's hub for pharmaceutical and
biotechnology discovery research, manufacturing, exporting and health care
services within the next decade.

However, in order for this to happen, it is imperative that the regulatory
environment continues to improve. Otherwise, India needs to look to the
achievements of China, where the government's strong commitment pro-
industry policies have produced a positive environment that not only offers drug
manufacturers a product patent regime but also, and crucially, data protection.
India's continuing failure to do so needs to be urgently rectified.


59

BIBLIOGRAPHY

1. Abbott Laboratories Annual Report 2004
http://abbott.com/investor/2004annualreport/includes/abbott_ar04_full.pdf
2. Agarwal Sumit, Desai Sanjay, Holcomb Michele, Oberoi Arjun, Unlocking the

Value in Big Pharma

3. The McKinsey Quarterly, 2001 Number 2

4. AstraZeneca Annual Report 2004
http://www.astrazeneca.com/sites/7/imagebank/typearticleparam511562/astrazene ca-2004-
annual-report.pdf
5. National Science Foundation, Research and Development in Industry: 2001,

2001

6. ONeill Jim, McCann Brian, George Mark, The New Medicare Prescription Law

7. TS Insight, Volume 1 No 6, May 7, 2004

8. Pharmaceutical Research and Manufacturers of America (PhRMA).

Pharmaceutical Industry Profile 2004 (Washington, DC: PhRMA, 2004)

9. Marketing Information and Market Segmentation Gleim Publications, Inc. and/or

Gleim Internet, Inc; year 2009

10. Industrial Marketing Management, 3 (1974) 153-166 Elsevier Scientific

Publication Company, Amsterdam

11. Indian Pharma outlook year 2010

12. Journal of Pharmaceutical Industry EPA/310-R-97-005

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