REPORT ON SUN PHARMACEUTICAL CONTENTS 1. INTRODUCTION 2. GROUP OF COMPANIES 3. FORMULATION OF MANUFACTURING 4. UNIQUE PROFILE OF SUN PHARMACEUTICAL 5. SWOT ANALYSIS 6. PESTLE ANALYSIS 7. PORTER’S FIVE FORCE ANALYSIS 8. FINDINGS & CONCLUSION 9. RECCOMMENDATIONS INTRODUCTION TO THE ORGANISATION Sun Pharmaceuticals was set up in 1983 and the company started off with only 5 products to cure psychiatric illness. Sun Pharma is best known worldwide as the manufacture of specialty Active Pharmaceuticals Ingredients and formulations.
However, the company is also concerned with chronic treatments such as cardiology, psychiatry, neurology, gastroenterology, diabetology, and respiratory ailments. Active Pharmaceuticals Ingredients (API) includes peptides, steroids, hormones, and anti-cancer drugs and their quality is internationally approved. The international offices of Sun Pharmaceuticals Industries Ltd. are located in British Virgin Islands, Russia, and Bangladesh. In India, the offices are in Vapi, Silvassa, Panoli, Ahmednagar, and Chennai. Dilip S. Shanghvi is the Executive Chairman and Managing Director of Sun Pharma and Kamalesh H.
Shah is the Secretary. There are 3 major group companies of Sun Pharmaceuticals Industries are: •Caraco Pharmaceuticals Laboratories (based in Detroit, Michigan) •Sun Pharmaceuticals Industries Inc. (Michigan) •Sun Pharmaceuticals (Bangladesh) In 1983, when Sun Pharma was set up, it only dealt with two cities in India – West Bengal and Bihar. In 1985, it started trading nationally and by 2000, Sun Pharmaceuticals made its way through the international market. Products used in cardiology were manufactured in 1987 and at that time, Monotrate was one of the first products that was launched and went on to become a best-seller.
In 1993, Sun Pharmaceuticals Industries set up their own research institute and named it SPARC. SPARC became popular by generating knowledge and honing process development skills across the world. In 1994, Sun Pharma enrolled itself in the main stock exchanges in India. Subsequently in 1995, the first API manufacturing plant was established at Panoli to mark its standard beyond competition and also capture the international market. Sun Pharmaceuticals shifted its headquarters in Mumbai as it is at the center of Indian commercial trade.
The company began its first international acquisition with an amount of US$ 7. 5 million, acquiring Caraco Pharm Lab in Detroit. After 8 acquisitions by 2000, Sun Pharma established another research center at Mumbai with an objective to sharpen skills for the US market. Later on, the company introduced a few more treatment areas which include orthopedics, gynecology, and oncology. Sun Pharma’s speedy acclivity is one of its best attributes that has made it gain an international status across the world. It is always updated with the latest data and is highly competent.
Quality remains the prime concern and is maintained strictly by the team. There are 3 forms of medicines manufactured plied by the company: oral, injectable, and delivery-system based. Caraco Pharma and the Halol Pharma Lab have got the approval of UKMHRA and USFDA in recent years. Sun Pharmaceuticals was one of the first pharmaceutical firms to file an application to market a generic known as ANDA by assuring a 180-day marketing rights to formulate a more usual version of anti-ulcer drug in the US market. Sun Pharma shared this honorable 180-day achievement with Israel’s Teva Pharmaceutical Industries.
With such achievements, Sun Pharmaceutical Industries Limited is still ruling the pharmaceutical industry all across the world and is aiming high to gain popularity and success in brand building by making newer discoveries everyday. IT’S GROUP OF COMPANIES Caraco Pharmaceutical Laboratories Based in Detroit, Michigan, Caraco develops, manufactures, market and distributes generic and private label pharmaceuticals and markets them throughout the United States. The corporation’s present portfolio consists of a number of products in various strengths and package sizes, across a variety of therapeutic segments, including epilepsy and hypertension.
For the most recent year ending March 2008, Caraco had sales of over $350 mill. Caraco’s manufacturing facility and executive offices were constructed in 1991, after a $9. 1 million loan from the Economic Development Corporation of the city of Detroit. Since August 1997, capital infusions and loans have primarily come from Sun Pharma. Sun Pharma’s investment in and support of Caraco has resulted in, since the second quarter of 2002, Caraco achieving the sales to support its operations. As on March 2008, Sun Pharma owns approx 76% on a diluted basis of the outstanding common shares of Caraco.
Sun Pharma has two R centers in Baroda and Mumbai, where development work for generics is done. Sun Pharmaceutical Industries Inc. (SPI) Sun Pharmaceutical Industries Inc is a Michigan Corporation and a wholly owned subsidiary of Sun Pharmaceutical Industries Ltd, India. In the second half of 2004, Sun Pharma acquired the trademarks, manufacturing know-how and other intellectual property of certain pharmaceutical products from Women’s First Healthcare, Inc, which was under bankruptcy proceedings.
On completion of the acquisition in December 2004, these products were assigned to Sun Pharma Inc. In December 2005, Sun Pharma Inc completed the purchase of dosage form manufacturing operations of Able Labs in the US for USD 23. 15 million from the US Bankruptcy Court of the District of New Jersey, Trenton. A plant spread over 35,000 sq ft, in Bryan, Ohio, manufactures liquids, creams, and ointments. This plant was purchased from Valeant Pharma. The Ohio plant is now approved by the USFDA and the Cranbury plant expects to receive approval shortly.
In January 2005, the company entered into a distribution and sale agreement with Caraco. Under the agreement, Caraco distributes and sells SPI’s products using its business organization, management personnel, and distribution set up. Sun Pharmaceutical (Bangladesh) Sun Pharmaceutical (Bangladesh) is a private limited company incorporated in March 2001 under the Companies Act 1994. This company was formed jointly with Sun Pharma, City Overseas Ltd, a company incorporated in Bangladesh and Sun Pharma Global Inc, a company incorporated under the laws of the British Virgin Islands.
The company began commercial operations in October 2004. The company owns and operates a pharmaceutical factory and makes pharmaceutical products that are sold in the local market. It currently markets 58 products and had reported a turnover of 105 mill Rs with a profit of Rs. 22 mill Rs for the year ending March 08. Alkaloida Chemical Company Exclusive Group Ltd. ICN Hungary, purchased from Valeant Pharmaceuticals in 2005, is one of the few units worldwide, authorized to make controlled substances. ICN Hungary has now been renamed Alkaloida Chemical Company.
This 170 acre site has facilities spread over 1, 75,000 sq ft for the manufacture of bulk actives, with 500 KL capacity and designated areas to make controlled substances. It has a 150,000 sq ft facility for different dosage forms such as film coated and effervescent tablets, capsules, etc. A large 65,000 sq ft research center has labs across synthetic chemistry, instrumentation analytical and structural elucidation. The site is operational with 450 people and additional recruitments are planned over time. FORMULATION OF MANUFACTURING
Their internationally approved plant in Halol, India, and the increasing US presence with the plants in New Jersey and Ohio, where Sun Pharma is beginning to get approvals, takes manufacturing skills to a global platform. Currently tabaleting capacity across all the plants is in excess of 10000 mill tabs/yr. The plant at Halol is spread over 65,000 sq. mt. and holds USFDA approval as well as UKMHRA approval. It has manufacturing lines for a large number of dosage forms (sterile dry powder injections, small volume injections, tablets, capsules, aerosols, liposomal and depot preparations, ointments).
A new injectable plant with 7 manufacturing lines, spread over 36,000 sq. ft has recently been added. Of particular interest are an oral solid dosage form area that is USFDA approved, and a large injectable and nasal spray area that recently received USFDA approval. These areas are used for our filings for the US generic market. This plant recently received approvals from the South African MCC, the Columbian regulatory agency INVIMA and the Brazilian agency ANVISA. A state-of-the-art formulation plant in Dhaka makes formulations for this important market.
Their internationally approved plant in India and the increasing US presence with recently acquired plants in New Jersey and Ohio take their manufacturing skills to a global platform. The factories at Dadra, Jammu and Silvassa are equipped to manufacture solid oral finished dosages to international regulatory requirements. The Karkhadi plant is dedicated for sterile as well as non sterile cephalosporin based formulations (it makes cephalosporin API as well). These facilities comply with cGMP, WHO standards and are approved by local FDA with excellent regulatory compliance records.
Currently these plants meet requirements for the market in India, as well as select international markets. For instance, the Karkhadi plant (non sterile formulations) is USFDA approved. The Silvassa plant is approved for a number of markets including Brazil, Tanzania and Peru. The plant in Halol holds approvals for tablets, nasal spray and injectables from the USFDA in addition to a number of regulated market approvals from the UK MHRA, South African MCC, etc. This plant can make a number of formulations in a vast, world-class site, with international systems and procedures.
UNIQUE PROFILE OF SUN PHARMACEUTICAL Although Sun Pharmaceutical is the most valuable pharma company in India, it is no so well known as Cipla, Ranbaxy or Dr. Reddy’s. The reason behind this can be found by studying the man behind the success of Sun Pharma- Dilip Shanghvi. Mr. Shanghvi believes in keeping a low profile, but he is not the one to shy away from risk. In 1997, Sun Pharmaceutical, then a mid-sized pharma firm, acquired a minority stake in Caraco Pharmaceuticals, a loss-making Detroit-based generic drugs maker with sales worth $800,000 and debt of $1. 05 million.
The move took the Indian pharma industry by surprise. Many people were skeptical about the decision. The first reason was that America was seen as a difficult market to crack, and the second was why would a small company do what even the biggies-Ranbaxy and Dr. Reddy’s – had not attempted? For the next two years, many believed that the Caraco deal could prove to be the undoing of Sun. And it seemed for a while that the skeptics were going to be proved right—the company posted losses in the two consecutive years and the Sun Pharma management had to infuse funds to maintain operations.
Investors, analysts and creditors sharpened their knives and got ready to go after Dilip Sanghvi. The ever-smiling Mr. Shanghvi took all the criticism in his stride and refused to flinch. By 2000, Caraco’s profits touched $2 million, and in 2003, it crossed the break-even point. Today, Sun Pharma is India’s most valuable pharma company (on the basis of market capitalization) and Caraco is yet another testimonial to the vision that Mr. Shanghvi had shown at Sun Pharma over the years. The man, however, refuses to believe that his achievements are out of the ordinary.
These are modest words considering that since Caraco, Mr. Shanghvi has made 14 acquisitions, most of which were loss-making companies, and has turned them around. Since its inception in 1983, Sun Pharma has never reported a loss. The recent quarters have seen the company posting profits in the range of 40%-50%, which is way above the average industry margin of 18-20%. His own low-profile approach is reflected in Sun Pharma which, despite being a pioneering pharma company and one of the biggest, has never received the kind of accolades given to rivals like Dr.
Reddy’s, Cipla or Ranbaxy. Today, Sun Pharma is not just a successful pharma company, but also the one with the highest margins. Mr Shanghvi’s strategies have paid off, and are often imitated by competitors. At a time when most Indian pharma companies had not thought of America as a major market, Sun entered the US through the inorganic route. Besides, he was one of the first to realize that research and development (R&D) will be the backbone of a pharma company in a patent-protected regime and hived off Sun Pharma’s R&D business as a separate company to give research more focus.
According to Shanghvi the biggest milestone Sun has achieved so far was the Sun Pharma Initial Public Offering (IPO) in 1994, it was with that capital Sun Pharma reached the current level. SWOT ANALYSIS Strengths 1) Sun Pharma is highly regarded for its ability to launch new products with a great amount of speed and consistency. The company operates in niche formulations segments such as psychiatry, cardiovascular, gastroenterology and neurology. While most of the top Indian companies have focused on antibiotics and anti–infectives, Sun Pharma focused on therapeutic areas such as depression, hypertension and cancer.
The company has introduced the entire range of products and has gained leadership position in each of these areas. Being a specialty company insulates Sun Pharma from the industry growth. While the industry was affected to a large extent by a slowdown in the domestic formulations market, Sun Pharma logged a growth of 26% in revenues. Over the years Sun has also used the strategy of acquisitions and mergers to grow quickly. It acquired Knoll Pharma’s bulk drug facility, Gujarat Lyka Organics, 51. 5% in M. J. Pharma, merged TamilNadu Dadha Pharma & Milmet Labs and acquired Natco’s brands.
Post Merger with TamilNadu Dadha Pharma the company gained presence in gynecology and oncology segments. The company has been very aggressive in new product launches, which enables it to keep its exposure to the Drug Price Control Order (DPCO) to the minimum (19% of total sales). Sun Pharma has launched 11 products across 8 divisions in 1QFY02. These products coupled with a bundle of 33 products launched in FY01 are expected to help in sustaining growth momentum in coming years. Lastly, aggressive marketing strategy coupled with customer centric focus of the company has made Sun Pharma’s products a favorite among doctors and specialists. ) The company has only 20% exposure to the DPCO. The Drugs Price Control Order (DPCO), 1995 is an order issued by the Government of India under Section 3 of the Essential Commodities Act, 1955 to regulate the prices of drugs. The Order inter alia provides the list of price controlled drugs, procedures for fixation of prices of drugs, method of implementation of prices fixed by Government and penalties for contravention of provisions among other things. For the purpose of implementing provisions of DPCO, powers of the Government have been vested in the National Pharmaceuticals Pricing Authority (NPPA).
Drugs are essential for health of the society. Drugs have been declared as essential and accordingly put under the Essential Commodities Act. Only 74 out of 500 commonly used bulk drugs are kept under statutory price control. All formulations containing these bulk drugs either in a single or combination form fall under the price control category. However, the prices of other drugs can be regulated, if warranted in public interest. Coverage of Sun Pharma to DPCO is less than 10% of the sales. The Company has an advantage that very few products are under price control.
Lower coverage under price control has given SPIL an edge over its competitors. Since the new products are outside the preview of price control, it further lowers the DPCO coverage. The lower coverage under DPCO has resulted in improved margins for SPIL. 3) The past growth rate of the company has always been double that of the industry as a whole. Domestic pharma major, Sun Pharma announced its 2QFY04 results in November 2003. The company has reported a 13% growth in top line for the quarter. Despite a drop in the operating margins, strong other income growth has helped Sun Pharma register a 24% increase in bottom-line.
For 1HFY04, Sun Pharma has recorded an 11% growth in net sales and a 19% rise in net profits. Sun Pharma’s top line growth was fuelled by a strong performance in its exports business, which recorded a 55% growth during 1HFY04. In the September quarter, while formulations exports grew by 83%, bulk drugs exports grew by 42%. The bulk drugs exports have been driven by higher regulated market approvals. On the domestic front, revenue growth was a mere 5%, with bulk drugs sales growing by 17%. However, formulations sales grew by a meager 3%.
Sun Pharma’s core therapeutic segments of psychiatry, neurology, cardiology, diabetology, and gastroenterology, which make up for 72% of the domestic formulations sales, grew by 14% as a whole during the quarter. The company has share capital base of Rs. 15. 4 crore. The number of total outstanding shares is 1. 54 crore. The face value per share is Rs. 10. The share is currently trading at Rs. 625, as on 16th May, 2001. The market capitalization of the company is Rs. 962. 5 crore. The free float available is 11% and the promoters hold 73% stake in the company.
Weaknesses 1) The profit margins are declining for the company Despite a drop in operating margins, strong growth in other income and a marginal drop in tax provisions have resulted in Sun Pharma recording an improvement in net profit margins. The operating profit margin (OPM) of companies under the coverage is expected to shrink by 400 basis points, largely driven by a reduction in the margin of Sun Pharma (the Q3FY2008 margin was at an all-time high due to the Oxcarbazepine, Pantoprazole and Ethyol exclusivities) 2) Poor Domestic Market
Sun Pharma has recorded strong growth in the export market, but it continues to witness low growth rate in the domestic market. As a major portion of Sun Pharma’s revenues are derived from the domestic market, poor showing here could affect the growth prospects for the company. Among the positives, strong showing by Caraco will reflect in Sun Pharma’s numbers (may be in the form of dividends) going forward. Opportunities Over the last few years, Sun Pharma was moving towards a profile that is much more international and formulation-driven.
The Sun Pharma of tomorrow can have brands registered in major markets of the world, and in most markets, promoted by a high quality field force. In India, Sun Pharma could retain their position of market leadership in the key therapy areas, and reach leadership in newer therapy areas that they entered after 1997. In key international markets across Asia, South East Asia, Russia, China, the Middle East, Latam and Africa they could be a strong specialty company with prescription driven sales. With a strong network and established company equity, they could be an excellent partner for a company seeking to license out products across markets.
In the high value generic markets of the US Sun Pharma can become a respected generic company, with a portfolio comprising both of complex and simple-to-file generics, building an edge with technology and the cost advantage of vertical integration. While they have recently completed their fourth acquisition in the US, there are excellent opportunities in the US generic space, where they can affect a turnaround and add value to a business. They have about $400 million earmarked for acquisitions in the US generic/drug discovery space. Their innovation-based R&D programs were recently demerged into a separate company.
The new R&D company could be devised to have projects covering new molecule and novel drug delivery in late phase human trials over the next few years, which it may seek to license out. Threats A major issue facing the industry is the intense competition and the changing face of the pharmaceutical market. The industry has seen a legion of new market entrants, increased competition among key players and industry consolidation. This poses a serious threat to Sun Pharmaceuticals. A host of large scale mergers and acquisitions have taken place over the last two decades.
Competitive advantage within the industry is being constantly redefined and to maintain the presence Sun Pharma should revamp their organizational structure, overcome huge barriers in R & D, clinical trails simply to ensure continuity and maintain profitability. PESTLE ANALYSIS Political: Over the years Sun Pharmaceutical along with other pharmaceutical industry has witnessed increased political attention due to the increased recognition of the economic importance of healthcare as a component of social welfare. Political interest has also been generated because of the increasing social and financial burden of healthcare.
Economic: In the decade of 2003 the pharmaceutical industry witnessed high value mergers and acquisitions. With a projected stock value growth rate of 10. 5% (2003-2010) and Health Care growth Rate of 12. 5%, the audited value of global pharmaceutical market is estimated to reach a huge 500 billion dollars soon. Only Information Technology has a higher expected growth rate of 12. 6%. Social: Good health is an important personal and social requirement and the unique role pharmaceutical industry play in meeting society’s need for popular wellbeing cannot be underestimated.
In recent times the impact of various global epidemics e. g. SARS, AIDS etc has also attracted popular and media attention to the industry. The effect of the intense media and political attention has resulted in increasing industry efforts to create and maintain good government-industry-society communications. Technological: Modern scientific and technological advances in science are forcing industry players to adapt ever faster to the evolving environment in which they participate. Scientific advancements have also increased the need for spending on research and development in order to encourage innovations.
Legal: The pharmaceutical industry is a highly regulated and compliance enforcing industry. As a result there are immense legal, regulatory and compliance overheads which the industry has to absorb. This tends to restrict its dynamism, but in recent years government have begum to request industry proposals on regulatory overheads to so as not to discourage innovation in face of mounting global challenges from external markets. PORTER’S FIVE FORCES ANALYSIS Barriers to entry: Very High (pharmaceuticals). Cost of R&D and patent limitations Industry Competition: High. Advantages gained by first mover dvantage (patents) Suppliers: Supplier power is low Buyers: Buyer power is low Substitutes: Low (with patents) and Medium (after patent expiry) Overall Sun Pharma, like other pharmaceutical industry shows an upward trend in its core markets. The industry remains highly valued has a favorable market position with strong financial make-up and strong earnings growth. Findings & Conclusion For a company that started in 1983 with just five people and five products, it’s no mean achievement that Sun Pharma today commands the largest market capitalization of Rs 212. 71 billion in the pharma universe.
Thanks to a strategy that focuses on niche segments such as psychiatry and lifestyle drugs, the company has raced ahead, with its business growing four-fold between 1999-2000 and now, with revenues of Rs 2,237 crore (Rs 22. 37 billion). The story goes that the reason chairman and managing director Dilip Shanghvi decided to manufacture medicines for psychiatry, when he set up his first unit at Vapi in Gujarat, was that the number of psychiatrists was few and so it would be easier to reach out to them rather than sell to a whole lot of general physicians, which would require a large field force.
Whatever be the reason, Sun, from the very beginning, has focused on the high-margin chronic care therapy products that have made the company very profitable. Together with a head for numbers, Shanghvi — who started life as a wholesaler of pharmaceutical products in Kolkata where his father ran a business — has a knack for turning around companies. Most of his acquisitions have been of distressed assets. Known to be extremely conservative, with his feet firmly on the ground, 51-year-old Shanghvi has desisted from overpaying for assets or getting carried away by bids from peers, preferring instead to bide his time.
That’s possibly why Sun hasn’t made any big acquisitions since it first bought into the Detroit-based Caraco Pharma in 1987 and took over, over a period of time for $50 million. Initially, the Caraco takeover seemed to be a wrong move — it was in the red for several years — and the Sun management perhaps miscalculated the timelines required to sort out some of the US FDA issues that Caraco faced. Shanghvi, however, persevered and finally Caraco is making money. Industry watchers are convinced that Sun’s more recent takeovers, including Valeant and Able Pharma, too will soon turn profitable.
Sun Pharma’s buyouts have been well thought out. In almost every instance the company has managed to diversify into a new area. When it acquired Tamil Nadu Dadha Pharma it gained entry into the oncology space; with Milmet Labs it was able to acquire expertise in ophthalmology, while with Valeant it penetrated the controlled substances segment. The story is much the same with its latest acquisition, the Israel-based Taro, which Sun has bought for an enterprise value of $454 million.
The $300 million generics player, which has a subsidiary in Canada, is a strong contender in the dermatology segment which accounts for more than50 percent of its revenues. Taro is strategically a good fit for Sun because, as the soft-spoken and down to earth Shangvi says, it will help Sun tap into the former’s customer base in Canada, Europe and US and sell Caraco’s existing portfolio of products to them. Taro may not be in great shape financially — it made a loss in 2006 — but then Shanghvi should not have too much trouble turning it around.
When Sun Pharma first started selling its products on a national scale, way back in 1987, it ranked a low 108 on the ORG list. Today, with a domestic market share of 3. 2 per cent, it is ranked number six. The numbers tell the story: whether it’s building a profitable business or creating wealth for his shareholders, Shanghvi’s done a great job. Recommendations India Info line maintains the `Reduce’ rating on Sun Pharma with the price target of Rs 1,108 as the stock remains richly valued.
Sun Pharma has been in the news of late for a number of reasons, both good and bad. Its FY09 annual report shows that the company has taken steps to contain its spiraling receivables, with the result that they have come down to about 21% of annual revenues in FY09. The company received US FDA approval for Eloxatin only to be suspended soon after on account of continuing patent litigation. Domestic business remains strong, with the company maintaining its brand franchise.
Non-US international business is also doing well, with the company’s increasing focus on such opportunities. Sun Pharma has gone the extra mile in addressing investor concerns over its high receivables. This issue could be recommended to be rectified. The Company needs to have adequate internal controls for its business processes across departments to ensure efficient operations, compliance with internal policies, applicable laws and regulations, protection of resources and assets, and accurate reporting of financial transactions.
The Company should also have an internal audit system which is conducted by an independent firm of Chartered Accountants so as to cover various operations on continuous basis. Summarized Internal Audit Observations/Reports are reviewed by the Audit Committee on a regular basis. The finance and accounts functions of the Company are well staffed with qualified and experienced members.