805_Venezuela_Pharmaceutical.pdf

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Global Country Study Report

On

Pharmaceutical Industry in Venezuela

Business Opportunities for Gujarat / India

Submitted to Institute Code: 805

Institute Name: S.R. Luthra Institute of Management

Under the Guidance of

Mr. Harshesh Patel (Asst. Professor, SRLIM)

In partial Fulfillment of the Requirement of the award of the

degree of Master of Business Administration (MBA)

Offered By

Gujarat Technological University

Ahmedabad

Prepared by:

Students of

MBA (Semester - IV)

Group No. 5

Month & Year:

APRIL, 2014

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Student’s Declaration

We, following students, hereby declare that the Global/ Country Study

Report titled “Pharmaceutical industry” in(Venezuela) is a result of our

own work and ourindebtedness to other work publications, references,

if any, have been duly acknowledged. If we are found guilty of copying

any other report or published information and showing as our original

work, or extending plagiarism limit, we understand that we shall be

liable and punishable by GTU, which may include ‘Fail’ in examination,

‘Repeat study & re-submission of the report’ or any other punishment

that GTU may decide.

Enrollment no. Name Signature

128050592078 Sweety Patel

128050592082 Pooja Patoliya

128050592107 Jigna Solanki

128050592112 Viral Thakkar

128050592116 Jignesh Vasani

Place: Surat Date :

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Institute Certificate

Certified that this Global Country Study and Report

Titled“Pharmaceutical industry (Venezuela)” is the bonafide work of

attached student list with enrollment numbers, who have carried out

their research under our supervision. We also certify further, that to the

best of my knowledge the work reported herein does not form part of

any other project report or dissertation on the basis of which a degree

or award was conferred on an earlier occasion on this or any other

candidate. We have also checked the plagiarism extent of this report

which is 7.2 % and the separate plagiarism report in the form of html

/pdf file is enclosed with this.

Signature of the Faculty Guide

(Harshesh Patel, Assistant Professor)

Signature of I/C Director

(J.M. Kapadia)

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PREFACE

“Education is simply the soul of a society as it passes from one generation to

another”. The study of GCR (Global Country Report) was thus assigned so that we

enable ourselves with Pharmaceutical industry of Paraguay.

As education is not only in books but in learning and learning does not end with

knowledge of one’s own country but how can one country live in harmony and serve

the interest of other countries also.

Hence a global country report was prepared as a learning assignment and

information was collected from various websites and study materials that helped us

make a report to serve the purpose of the topic that was Pharmaceutical industry Of

Venezuela.

While doing the GCR, It brought into light the potentials of trade that can take place

between Venezuela and India. It focused on how bringing together the nations for

trade practices. Apart from the agricultural trade that is being shared by both

countries, the potential for pharmaceutical trade can also rise. The ultimate purpose

of any country is to maintain health of its people through providing good medical and

health facilities and is possible when in the country there are good pharmaceutical

products. With the business plan we have proposed it would enable the citizens to

use better quality of products and build up good relations between countries.

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ACKNOWLEDGEMENT

We owe our deepest gratitude to our University for including GCR in our syllabus

which has given the students a glimpse of studying trade relations of two countries.

We would like to express our deepest appreciate to our Institute, SRLIM, Surat for

encouraging and allowing us to carry out this report.

We would also like to thank our distinguished and wonderful academic guide Mr.

Harshesh Patel. Your guidance and support were crucial contributions and we are

grateful in every way possible.

This project report was supported by SRLIM. This entity provided us with the

support and resources we need to conduct and complete our project report.

Thank you all.

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EXECUTIVE SUMMARY

The study examines India and Venezuela’s Pharmaceutical industry in terms of its

structural anomalies and other key factors inhibiting the growth of the industry,

competitive strengths and weaknesses of the industry, and other market access

barriers impeding growth in trade and investment.

With great pleasure, we undertake the writing of this report of Global Country Study

because it is a fact to be proud that we are one of the few students, who are

presently undertaking education in field of business administrative. We must be

encouraged by the growth and development taken place in the corporate sector in

the world. Keeping in mind the ever developing field of management and the great

demand of management cadre around the world, the university has arranged Global

Country Report (GCR) at the second year level. Thus it is our moral and obligatory

duty to take this part of our studies with great enthusiasm and seriousness and give

it the due importance.

Importance of Country Study

Today all over the world people have become highly economic minded. They have

realized that the study of country can provide them a solution to various problems

regarding international business like economic, political, cultural, technological and

social. Today country study is more useful than any other branch of knowledge in

order to take various business decisions regarding international trade, because it

makes analysis of various environments prevailing in country its direct and primary

concern. About the importance of economics Malthus says, "Political economy is

perhaps the only science of which it may be said that the ignorance of it is not

merely a derivation of good but produce great positive evil." Hence, it becomes very

much important to study country’s economy before entering into any trade with that

country.

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Following are the main advantages of studying a country.

1. USEFUL FOR THE PRODUCER:

Country study is very useful for the producer. It guides him that how he should

combine the four factors of production and minimize the cost of production.

2. USEFUL FOR THE CONSUMER:

The consumer can adjust his expenditure of various goods in better way if he knows

the principles of economics. He will spend his income according the law of Equi-

Marginal utility in order to get maximum satisfaction.

3. POVERTY AND DEVELOPMENT:

It helps in analyzing the poverty level in the country. Under developed countries are

facing many problems like unemployment, over population, low per capita income

and low production. Country study is very useful in knowing these problems.

4. USEFUL FOR THE FINANCE MANAGER:

Finance manager prepares the yearly budget of the company. Study of economic as

well as legal framework of the country guides him that how he should take

investment decisions keeping in view on the tax policy and monetary policy of that

country.

5. CULTURAL VALUE:

A person's education cannot be considered complete unless he has some knowledge

of country’s culture. The things which happen daily around us have an important

economic bearing. Hence, studying culture becomes an integral part of a country

study.

6. RESOURSE PLANNING:

In the modern age the importance of recourse planning cannot be ignored. Through

planning we can utilize country’s natural resources in better way and can improve

operational efficiency by making the optimum use of their resources.

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7. SOLUTION FOR ECONOMIC CRISES:

It guides the companies that how they can save themselves from the economic

crises. The advanced companies’ desire is that there should be economic stability

and full employment without inflation to achieve their objectives, country study is

very useful for them.

8. USEFUL FOR INTERNATIONAL TRADE:

Its study is very useful for international trade. It helps the importers and exporters to

earn maximum profit. A businessman can easily understand the trade policies of

various countries.

This study comprises of social, technological, economic, environmental, political, and

legal environment analysis of India and Venezuela in context with Pharmaceutical

Industry. Overview of pharmaceutical industry of Venezuela, Trade and Commerce in

the Venezuela, Analysis of Pharmaceutical Business Potential between the

Venezuela and Gujarat and India.

KEY CHALLENGES

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.

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Competition

The pharmaceutical industry currently represents a highly competitive environment.

One can distinguish three layers of competition for pharmaceutical companies in

India as well as Venezuela:

First, obviously, 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, 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 than those of major pharmaceutical

companies; as the result, after patent expiration, generic drugs

manufacturers capture significant market share, dramatically decreasing

revenues of the Pharma companies.

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.

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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, and so does have the India and Venezuela.

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.

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Protection of patents

Generic drugs manufacturers represent a significant threat to research-based

pharmaceutical companies.

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 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

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go down, the company has to carefully monitor its patent expiration dates,

and insure that new products become available by that date.

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.

Latin America is home to Venezuela and is the location of several pharmaceutical

manufacturing companies. These companies contribute significantly to Venezuela’s

domestic and international profile. Demographics and rising incomes in industrial

and developing countries combine to promise rapidly growing future sales.

But the gains for any particular company are not guaranteed. Drug companies

compete vigorously – with themselves, generic producers, and with related-health

companies who want a share of their action. The industry is changing fast. To survive

and to prosper involves managing drug pipelines – as drugs come off patents they no

longer bring in enough revenues and must be replaced quickly by other drugs with

durable patents. This means that the companies have to think ahead, something that

sounds easy but involves great risks. Huge sums must be invested in uncertain in-

house research and development and/or must go toward mergers and acquisitions

with other promising companies. Strategic alliances can be used to augment

opportunities as well.

As companies develop their new pipelines they must be mindful of changes caused

by regulations and deregulations in countries all over the globe. While most of drug

consumption and sales is a U.S.-European-Japanese affair – deregulation means sales

opportunities are growing rapidly in the developing world. China, Thailand, Egypt,

Mexico, Argentina, Brazil, and Venezuela have been increasing their imports of

pharmaceuticals products at rapid rates. Of course, where there is growing demand

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– there is also growing supply and competition. Many new drug companies are

springing up in developing countries and the biggest global firms are moving into

those territories. But even this has more than the usual global risk for drug

companies because of the importance of intellectual property protection. Picking

places and partners takes more than the usual scrutiny or a company can lose

valuable resources.

This global competitive environment creates challenges and opportunities for the

companies – with equal importance for the communities in which they reside. If size

matters in the drug industry then both domestic and foreign mergers, acquisitions,

and strategic alliances will continue to be critical. Such changes always have

implication for location requiring communities around the globe to think harder

about their roles as globalization unfolds. Communities that desire to maintain or

build pharmaceutical clusters must be mindful that investment is always a two-way

street. Building strong and growing pharmaceutical clusters at home will entail both

inbound and outbound investment since whatever companies locate or stay in their

areas – they will be compelled by global competition to own production facilities

abroad.

This research offers no new insights into what it takes to build a viable

pharmaceutical cluster but it surely underlines two facts – that it is worth doing in

India and Venezuela and that it will involve retaining and attracting companies that

need to take sizeable financial risks. This suggests an infrastructure that supports not

only the usual needs for top flight talent and communications/transportation

advantages – but it suggests an environment that allows for flexibility and risk taking.

While clusters bring to mind new facilities and higher employment, global

competition suggests that drug companies will survive and prosper sometimes by

shedding unprofitable lines of business. It is always painful for any community when

firms restructure. It is tempting to regulate firms so that the blows to the community

are softer. But the truth of the drug industry is that competitiveness and growth will

require many actions on the parts of these firms – and not all of them will seem to

be in the best short-run interest of the community.

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Executive Summary

Cipla is a global pharmaceutical company which balances cutting edge technology

and innovation with the everyday needs of all patients. For more than 70 years, Cipla

has emerged as one of the most respected pharmaceutical names not just in India

but across more than 170 countries.

Cipla’s emphasis on access for patients was recognized globally for the pioneering

role played in HIV/AIDS treatment as the first pharmaceutical company to provide a

triple combination anti-retroviral (ARV) in Africa at less than one dollar a day and

thereby treating many millions of patients since 2001.

Cipla’s research and development focuses on developing innovative products and

drug delivery systems and has given India and the world many ‘firsts’.

The company manufactures and sells various over the counter (OTC) products,

prescription products, flavors and fragrances, pesticides, bulk drugs and animal

products, agrochemicals and technology. The company's offered products are in the

form of tablets, capsules, injection, suspension, syrup, and dispersible tablet.

The company’s products are certified by various recognized regulatory authorities

namely Food and Drug Administration (FDA), USA; Prior Informed Consent (PIC),

Germany; World Health Organization (WHO); Medicines and Healthcare products

Regulatory Agency (MHRA), the UK and so on.

Cipla has 120 medications approved to sell in Venezuela, and expects $15 million in

revenue this year. In 2006, half of all HIV patients in Venezuela received at least one

Cipla drug.

Trade relations between India and Venezuela are still in their infancy. India is at a

stronger position, although exports amounted to $74.34 million (0.1 % of total Indian

exports) in the period from April to December 2005-06 and imports being $8.63

million (0.008% of total Indian imports) in the same period.

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On the enterprise side, Indian pharma firms have stolen the show. Ranbaxy, Dr.

Reddy’s Labs, Aurobindo Pharma, Cipla, Core Health Care and Strides are currently

operating in Venezuela. Recently, ONGC Videsh Ltd. entered into a MoU with PDVSA,

the Venezuelan State Petroleum Company for crude oil.

Venezuela’s trade involves several restrictive processes and heavy documentation.

Moreover, foreign exchange is not available in the nation freely. This implies that all

trading transactions need to be administered by a bank managing the

documentation process, in collaboration with the nation’s government agency,

Comisión de Administración de Divisas. The agency has complete discretion to

permit or refuse a bank foreign exchange to trade.

Imports in Venezuela are subject to customs duty, which is levied on the basis of the

Andean Pact. The Andean Pact is a regional trade agreement between Venezuela,

Bolivia, Columbia, Ecuador and Peru to setup a common external trade tariff

structure. Transit duties are also applicable on certain goods, which include coffee,

cocoa and cotton. Additionally, the Government of Venezuela has complete

authority to levy export duties if it deems fit.

Import of rough diamond from Cote d’Ivoire shall be prohibited in compliance to

Paragraph 6 of UN Security Council Resolution (UNSCR) 1643(2005).

No Kimberley Process Certificate shall be accepted/ endorsed/ issued for import and

export of rough diamonds from / to Venezuela.

Every exporter or importer shall comply with the provisions of FT (D&R) Act, the

Rules and Orders made there-under, FTP and terms and conditions of any

Authorisation granted to him.

DGFT may, specify procedure to be followed for an exporter or importer or by any

licensing or any other competent authority for purpose of implementing provisions

of FT (D&R) Act, the Rules and the Orders made there under and FTP.

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Any goods, export or import of which is restricted under ITC(HS) may be exported or

imported only in accordance with an Authorization or in terms of a public notice

issued in this regard.

Every Authorization shall be valid for prescribed period of a license / Certificate

/validity and shall contain such terms and conditions as Permission / Authorization.

Import duty and taxes are due when importing goods into India whether by a private

individual or a commercial entity. The valuation method is CIF (Cost, Insurance and

Freight), which means that the import duty and taxes payable are calculated on the

complete shipping value, which includes the cost of the imported goods, the cost of

freight, and the cost of insurance.

Import duty and taxes are due when importing goods into Venezuela whether by a

private individual or a commercial entity. The valuation method is CIF (Cost,

Insurance and Freight), which means that the import duty and taxes payable are

calculated on the complete shipping value, which includes the cost of the imported

goods, the cost of freight, and the cost of insurance. In addition to duty, imports are

subject to sales tax.

The U.S. goods trade deficit with Venezuela was $30.9 billion in 2011, up $8.8 billion

from 2010. U.S. goods exports in 2011 were $12.4 billion, up 16.0 percent from the

previous year. Corresponding U.S. imports from Venezuela were $43.3 billion, up

32.2 percent. Venezuela is currently the 26th largest export market for U.S. goods.

Venezuela officially withdrew from the Andean Community (AC) in April 2006.

President Chavez stated publicly that the reason for the withdrawal was the entry of

other AC member countries into free trade agreements or negotiations with the

United States.

A Law of Fair Costs and Prices was promulgated on July 14, 2011, and entered into

effect on November 22, 2011. The law gives the Venezuelan government broad

authority to regulate the prices of almost all goods and services sold to the public,

including imported products.

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Currency controls introduced in 2003 continue to pose a significant barrier to most

trade with Venezuela, with the possible exception of food and agricultural goods and

health and pharmaceutical products.

Venezuela maintains restrictions on a number of services sectors, including

professional services, audiovisual, and telecommunications services.

Big challenges stare at India's biggest drug maker by domestic sales. Foremost

among these are key amendments to India's Patents Act passed by Parliament in

2005, which put the lid on 'reverse engineering' practised by most pharmaceutical

companies in India, including Cipla.

Cipla has protested the 2005 amendments, pointing out they will make key drugs

prohibitively expensive. But the writing is on the wall: the amended Patents Act,

whose impact will be felt from 2015, will put an end to the gravy train many Indian

drug makers have been riding.

Cipla, which has about 40 factories today and spends liberally on research,

meanwhile, has invested more than Rs 3,000 crore in the last five years to scale up

capacity, setting up units at Indore, Patalganga and elsewhere.

In August 2007, Cipla launched pregnancy termination pill 'i-pill'. The morning-after

pill was sold as the easiest way to avoid unwanted pregnancies but drew criticism as

it was sold over-the-counter (hence not requiring a medical prescription) and for the

probable side effects. The drug contained twice the amount of main ingredient

‘levonorgestrel’ as compared to similar drugs such as Norlevo (Win Medicare) and

Ecee2 from German Remedies.

Cipla's stock has been gaining since the company sweetened its offer to gain 100 per

cent stake in South Africa-based Cipla Medpro. It saw good gains over a period of

time, as the company received the approval of Cipla Medpro's shareholders for the

revised offer.

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Cipla transformed the global HIV-AIDS treatment landscape by offering its copycat

anti-retroviral combination drug at one-fortieth the price charged by multinational

drug makers, making the life-saving drug accessible to millions of poor patients in

Africa and other markets.

In the domestic market, Cipla is open to partnering global companies looking for

expanding into India through product licensing agreements and joint ventures.

As in every revolution, the question of power, about who really rules the house, was

posed in Cipla and Interfibras by the November 2002 strike; wages in arrears, debts

with the State (10 years without contributing to the Social Security system) and lack

of investments while production continued and orders kept coming in as normal led

to the strike.

India also has a strong presence in the pharmaceutical sector in Venezuela. Cipla has

120 medications approved to sell in Venezuela, and expects $15 million in revenue

this year. In 2006, half of all HIV patients in Venezuela received at least one Cipla

drug. Five years ago, 4,000 HIV patients were treated at a cost of $14,000 per patient

a year. This year, 26,000 patients were treated at a cost of $800 per patient a year.

Domestic pharma major Cipla may extend its "affordable and humanitarian" pricing

strategy on other anti-cancer drugs in its portfolio, even as domestic generic

companies are still trying to grapple with the huge cuts and evaluate their pricing

options.

Cipla, which has 23 oncology drugs in its portfolio, has been able to offer the price

advantage because of backward integration and reverse engineering, its chairman Dr

YK Hamied told TOI, adding it is hoping to launch biosimilars like Roche's Avastin and

Herceptin used in cancer, at cut-throat prices in the next two years. However, a

section of the industry feels that price is not the only determinant in the oncology

market, and quality becomes more important especially in critical care products.

Cipla transformed the global HIV-AIDS treatment landscape by offering its copycat

anti-retroviral combination drug at one-fortieth the price charged by multinational

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drug makers, making the life-saving drug accessible to millions of poor patients in

Africa and other markets.

Strategic Tie-Ups Cipla has set up a wholly owned subsidiary, Cipla FZE

situated at Jebel Ai Free Zone in Dubai, United Arab Emirates. This is the part of

strategy to explore the growing markets in Middle East countries through exports.

On December 5th 2013 Cipla announced that it had purchased, for an undisclosed

sum, 100% of Celeris, a Croatian drug distributor. Cipla’s management says that the

acquisition will serve as a platform to market the Indian company’s products in

Europe. Celeris is already the sole distributor of Cipla’s products in Croatia.

Exports accounted for 59% of Cipla’s total sales in the last fiscal year, with the

company exporting to around 170 countries. Cipla is India’s third largest drug

company by worldwide sales, after Ranbaxy, in which Daiichi Sankyo of Japan took a

controlling stake in 2008, and Dr Reddy’s Laboratories.

Cipla has meanwhile formed a venture capital unit to invest in start-ups in areas such

as biotechnology, and is developing its biosimilars business (producing generic

versions of biotech-derived drugs) though in-house research and collaborations. In

April the company launched in India a biosimilar version of blockbuster drug Enbrel

(generic name etanercept), for the treatment of rheumatoid arthritis and psoriasis,

through an alliance with Shanghai CP Guojian Pharmaceutical of China.

R&D has always used a popular method like the Tap Test because it’s quick, easy to

perform, and the data may give a picture of potential flow problems. However, this

particular test is more an indicator of compaction density for the powder and not

flowability in gravity discharge from a hopper.

Financial Management plays an important role in the strategic issues of any

company or organization. The finance team needs to be up to speed with current

trends and issues for successful implementation of strategy.

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Even the best alliances can be difficult to manage. Your finance team needs to be

able to structure an alliance deal, and to evaluate the performance of the alliance to

be sure value is being created.

Diabetes Mellitus remains the single most worrying hormonal disease as it is

affecting millions of people in the world and numbers are not encouraging as well.

Only in INDIA, prediction is that that 7 out 10 people are going to be affected with

Diabetes Mellitus (DM) by the year of 2025. If it is to be true then it will be the

greatest opportunity for the people who are in to medicine to treat all these patients

as well as to make people aware of the disease and its prevention measures.

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Index

Sr, No.

Particulars Page Number

1 Introduction 1 1.1 Introduction to Cipla 1 1.2 Cipla’s Import-Export 4

2 SWOT Analysis of Cipla 5

3 Market Opportunities 7 3.1 Venezuela Export 8 3.2 Venezuela Import 9 3.3 Venezuela Export to 10 3.4 Venezuela Import from 11 3.5 Products and Shipment data of Cipla 12

4 Policies and Norms of India 16 4.1 Policies and Norms of India for Import or Export to the

Venezuela 16

4.2 Taxation Policies of India for Import or Export to the Venezuela

20

4.3 Trade Barriers for Import or Export to the Venezuela 22

5 Global Strategy Problem with Cipla 26

6 Winning Strategies for the Cipla 42

7 Future Projections of Trade 46

8 Resources Required 57

9 Findings & Suggestions 60

10 Business Plan 63 Bibliography

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LIST OF TABLES

Table

Number Particulars

Page

No.

1 STP 3

2 SWOT Analysis of Cipla 5

3 Competition 5

4 Venezuela Export 8

5 Venezuela Import 9

6 Venezuela Export to 10

7 Venezuela Import from 11

8 Products and Shipment Data 12-15

9 Cipla’s Business Model 32

10 Key Driver and Challenges to Cipla’s Success 33

11 Diabetes in Venezuela 77

12 Sales Forecast 85

13 Does Schedule 86

14 Marketing and Sales 87

15 BEP 88

16 Personnel Plan 90

17 Start up Requirement 96

18 Start up Funding 97

19 P&L 98

20 Projected Cash Flow 99

21 Important Assumption 99

22 Projected Balance Sheet 100

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LIST OF GRAPHS

Graph

Number Particulars

Page

No.

1 Gain 39

2 Global Generics 51

3 M&A Deals 52

4 M&A Opportunities 53

5 Generic Sales 54

6 Generated Market 55

7 Injectable Insulin 66

8 Insulin Pump 66

9 Reprive Inhaler 70

10 Key Issue and Challenges for Pharma company 78

11 Sales Forecast by Month 84

12 Sales Forecast by Year 84

13 BEP 88

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1.1 Introduction to CIPLA

Cipla is a global pharmaceutical company which balances cutting edge technology

and innovation with the everyday needs of all patients. For more than 70 years,

Ciplahas emerged as one of the most respected pharmaceutical names not just in

India but across more than 170 countries. Our portfolio includes 2000 products in 65

therapeutic categories with one quality standard globally. Cipla’s turnover in

2012/13 was 1.5 billion USD.

Whilst delivering a long-term sustainable business, Cipla recognises its duty to

provide affordable medicines. Cipla’s emphasis on access for patients was

recognized globally for the pioneering role played in HIV/AIDS treatment as the first

pharmaceutical company to provide a triple combination anti-retroviral (ARV) in

Africa at less than one dollar a day and thereby treating many millions of patients

since 2001.

Cipla’s research and development focuses on developing innovative products and

drug delivery systems and has given India and the world many ‘firsts’. In a tightly

regulated environment, the company’s manufacturing facilities have approvals from

all the main regulators including USFDA, UKMHRA, WHO, MCC, ANVISA, and PMDA

which means the company provides one universal standard of quality both

domestically and internationally.

Cipla was established in 1935 with the vision of making India self-reliant and self-

sufficient in healthcare. Today, we are one of the world’s largest generic

pharmaceutical companies with a presence in over 170 countries. We are renowned

for making affordable, world-class medicines that meet the needs of patients across

therapies. We also offer services like consulting, commissioning, plant engineering,

technical know-how transfer and support.

Cipla Ltd. (Cipla) is a pharmaceutical company. The company offers various drugs and

healthcare products. The company manufactures and sells various over the counter

(OTC) products, prescription products, flavors and fragrances, pesticides, bulk drugs

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and animal products, agrochemicals and technology. The company's offered

products are in the form of tablets, capsules, injection, suspension, syrup, and

dispersible tablet. More than 50% of the company’s turnover is contributed by

overseas business. The company has long-standing key alliances for product

development and supply with large generic companies in the developed markets and

has over 6,000 product registrations. The company exports its products to 183

countries across the world. The company’s products are certified by various

recognized regulatory authorities namely Food and Drug Administration (FDA), USA;

Prior Informed Consent (PIC), Germany; World Health Organization (WHO);

Medicines and Healthcare products Regulatory Agency (MHRA), the UK and so on. It

has various manufacturing facilities and R&D centers located across India. The

company is headquartered in Mumbai, Maharashtra, India.

Profile

Incorporated 1935

Corporate Office Cipla Ltd., Mumbai Central, Mumbai 400 008, India

Chairman Dr. Yusuf K. Hamied

Executive Vice-Chairman Mr. M.K. Hamied

Listing Equity Shares: BSE Limited and National Stock

Exchange of India Limited

Global Depository Receipts: Luxembourg Stock

Exchange

Turnover* USD 1.5 billion

Employees* 20,000

Approvals US FDA, WHO-Geneva, MHRA-UK, TGA-Australia,

SUKL-Slovak Republic, APVMA-Australia, MCC-South

Africa, PIC-Germany, Danish Medical Agency, ANVISA-

Brazil, INVIMA- Colombia, NDA-Uganda, Department

of Health-Canada and MOH-Saudi Arabia, among

others

Page | 26

Highlights One of the world’s largest generic companies.

Over 2,000 products, 65 therapeutic

categories, over 40 dosage forms.

34 state-of-the-art manufacturing facilities

approved by major international regulatory

agencies.

Continuous innovation in R&D; over 20 world

firsts.

Parent Company Cipla

Category Pharmaceuticals

Sector Healthcare Industry

Tagline/ Slogan Caring for life

USP

Commitment to make medicines affordable and

accessible particularly to cancer patients

STP

Segment

AIDS, respiratory disease, cancer cardiovascular disease,

arthritis

Target Group

Customers of various flavors and fragrances, OTC

products, prescription products, pesticides,

agrochemicals, doctors

Positioning

They use latest technology to concentrate all their

knowledge of over seven decades in developing life saving

drugs

Table 1

Page | 27

1.2 Cipla’s Export – Import Trade or Investment (actual or potential)

with Venezuela

Cipla has 120 medications approved to sell in Venezuela, and expects $15 million in

revenue this year. In 2006, half of all HIV patients in Venezuela received at least one

Cipla drug. Five years ago, 4,000 HIV patients were treated at a cost of $14,000 per

patient a year. This year, 26,000 patients were treated at a cost of $800 per patient a

year.

Trade relations between India and Venezuela are still in their infancy. India is at a

stronger position, although exports amounted to $74.34 million (0.1 % of total

Indian exports) in the period from April to December 2005-06 and imports being

$8.63 million (0.008% of total Indian imports) in the same period. Undoubtedly, the

larger slice of the pie comes from oil trading. As per the latest estimates, bilateral

trade is expected to reach $1 billion this year, thanks to exports of Venezuelan crude

oil. Deepak Bhojwani, Ambassador of India in Venezuela states, “We are seeking

energy security and Venezuela, a sister country, can provide it.”

On the enterprise side, Indian pharma firms have stolen the show. Ranbaxy, Dr.

Reddy’s Labs, AurobindoPharma, Cipla, Core Health Care and Strides are currently

operating in Venezuela. Recently, ONGC Videsh Ltd. entered into a MoU with PDVSA,

the Venezuelan State Petroleum Company for crude oil. An agreement on co-

operation in the field of hydrocarbons and a MoU in the area of biotechnology are

some other major collaborations. “We are collaborating in the economic and

energetic sectors as well as in science & technology, et al,”

Page | 28

2. SWOT ANALYSIS of CIPLA

Strength

1. Cipla has developed good positive image by providing

support to cancer patients by issuing drugs at low cost

2. Imminent commencement of the Fixed-Dose

combination for treatment of uncomplicated P.

falciparum malaria to tackle the 200+ million cases of

malaria globally

3. Initiation of ‘No Touch Breast Scan’ a step forward in

the screening technology in India.

4. A foremost player in anti-infective and anti-asthmatic

formulations.

5. Has a strong employee force of over 16,000

Weakness

1. Strong competition from international and domestic

giants means limited market share

2. Cipla had faced problems during negative campaign by

AHF

Opportunity

1. It can venture into Alzheimer’s disease medication

2. They can use Viramune generic to achieve higher

growth.

3. Increased investment in the budding markets, to push

expansion in the global economy

Threats

1. Constant price rises in the Indian country is taking its

toll and compounding the problem

2.The Indian Rupee depreciated as compared to the US

Dollar

3. Fluctuations in currency exchange rates have a

Page | 29

noteworthy impact on the Company’s operations and

financial results.

Table 2

Competition

Competitors

1. Sun Pharmaceuticals

2. Dr. Reddy’s laboratories

3. Lupin

4. Ranbaxy labs

Table 3

Page | 30

3. Market Opportunities

Top 5 Products

exported by Venezuela

Crude Petroleum (77%), Refined Petroleum (18%), Iron

Ore (0.62%), Raw Aluminium (0.34%), and Iron Reductions

(0.33%)

Top 5 Products

imported by

Venezuela

Refined Petroleum (33%), Crude Petroleum (2.2%), Iron

Ore (2.0%), Other Sea Transportaion (1.8%), and Soybean

Meal (1.6%)

Top 5 Export

destinations of

Venezuela

United States (27%), LAIA (20%), North America and

Central America (11%), Other Asia (8.9%), and Areas

(7.8%)

Top 5 Import origins of

Venezuela

United States (24%), China (15%), Brazil (9.8%), Spain

(5.2%), and Colombia (4.6%)

Page | 31

3.1 Venezuela Export

Crude Petroleum $110,840,671,246.13 77%

Refined Petroleum $25,907,465,045.45 18%

Iron Ore $882,055,206.10 0.62%

Raw Aluminium $489,007,749.42 0.34%

Iron Reductions $475,150,784.36 0.33%

Ferroalloys $425,428,575.86 0.30%

Petroleum Coke $422,967,798.09 0.30%

Acyclic Alcohols $406,744,680.11 0.28%

Nitrogenous Fertilizers $361,071,017.09 0.25%

Hot-Rolled Iron $308,268,455.74 0.22%

Coal Briquettes $297,510,799.35 0.21%

Ammonia $169,403,767.67 0.12%

Drilling Platforms $165,302,458.00 0.12%

Acyclic Hydrocarbons $136,282,212.50 0.095%

Aluminium Oxide $113,557,958.85 0.079%

Aluminium Wire $106,030,308.55 0.074%

Cold-Rolled Iron $70,469,853.85 0.049%

Crustaceans $64,767,128.42 0.045%

Cruise Ships $61,357,665.81 0.043%

Hot-Rolled Iron Bars $59,548,418.57 0.042%

Table 4

Page | 32

3.2 Venezuela Import

Refined Petroleum $10,098,460,144.86 33%

Crude Petroleum $687,977,144.67 2.2%

Iron Ore $622,871,489.07 2.0%

Other Sea Transportaion $542,686,492.00 1.8%

Soybean Meal $493,419,815.87 1.6%

Bovine $481,323,785.75 1.6%

Soybean Oil $478,319,594.38 1.6%

Frozen Bovine Meat $451,801,480.61 1.5%

Raw Sugar $424,752,773.33 1.4%

Raw Aluminium $412,361,426.58 1.3%

Acyclic Alcohols $401,485,783.32 1.3%

Poultry Meat $352,644,716.18 1.2%

Ferroalloys $350,165,749.92 1.1%

Petroleum Gas $348,026,292.24 1.1%

Laboratory Reagents $327,785,064.05 1.1%

Hot-Rolled Iron $315,379,828.82 1.0%

Concentrated Milk $310,603,416.77 1.0%

Human or Animal Blood $309,159,476.08 1.0%

Nitrogenous Fertilizers $264,156,650.10 0.86%

Drilling Platforms $252,180,515.00 0.82%

Table 5

Page | 33

3.3 Venezuela Export To

United States $39,114,624,192.61 27%

LAIA $28,397,379,600.00 20%

North America and Central America $16,434,395,100.00 11%

Other Asia $12,671,092,683.00 8.9%

Areas $11,166,812,248.00 7.8%

China $9,857,863,681.81 6.9%

India $5,196,483,972.00 3.6%

Other Europe $3,412,392,300.00 2.4%

Singapore $3,052,261,273.84 2.1%

Brazil $1,176,194,293.44 0.82%

Dominican Republic $1,118,783,305.23 0.78%

Belarus $984,673,900.65 0.69%

Germany $924,080,352.82 0.65%

Ecuador $905,612,541.83 0.63%

Belgium-Luxembourg $727,444,181.66 0.51%

Spain $725,411,841.36 0.51%

Nicaragua $722,712,659.24 0.50%

Canada $693,581,227.13 0.48%

Colombia $594,025,741.13 0.41%

United Kingdom $578,641,711.67 0.40%

Table 6

Page | 34

3.4 Venezuela Import From

United States $7,377,342,191.79 24%

China $4,605,671,759.76 15%

Brazil $2,996,059,645.12 9.8%

Spain $1,596,644,189.56 5.2%

Colombia $1,419,758,249.73 4.6%

Ecuador $1,158,126,072.96 3.8%

Argentina $915,456,927.81 3.0%

Chile $823,326,096.57 2.7%

Mexico $793,685,288.36 2.6%

Bolivia $774,936,985.45 2.5%

Dominican Republic $655,930,319.93 2.1%

Canada $590,048,967.27 1.9%

Peru $580,455,607.56 1.9%

Germany $551,055,713.19 1.8%

Italy $464,983,688.13 1.5%

Netherlands $437,825,374.56 1.4%

Panama $419,782,656.36 1.4%

United Kingdom $322,657,553.55 1.1%

Table 7

Venezuela’s trade involves several restrictive processes and heavy documentation.

Moreover, foreign exchange is not available in the nation freely. This implies that all

trading transactions need to be administered by a bank managing the

documentation process, in collaboration with the nation’s government agency,

Comisión de Administración de Divisas. The agency has complete discretion to

permit or refuse a bank foreign exchange to trade.

Page | 35

Venezuela Trade, Exports and Imports Agreement

Imports in Venezuela are subject to customs duty, which is levied on the basis of the

Andean Pact. The Andean Pact is a regional trade agreement between Venezuela,

Bolivia, Columbia, Ecuador and Peru to setup a common external trade tariff

structure. Transit duties are also applicable on certain goods, which include coffee,

cocoa and cotton. Additionally, the Government of Venezuela has complete

authority to levy export duties if it deems fit.

The US was, for a large portion of the first decade of the 21st century, Venezuela’s

biggest trading partner, accounting for as much as 60% of its exports. However,

trade relations between the two nations have weakened gradually since Hugo

Chavez was elected President. This was a result of Chávez's public friendship with

Fidel Castro, leading to close trade ties with Cuba.

3.5 Products and Shipment Data of Cipla Limited

Export Shipments

Description Foreign Country Quantity

Naproxen China 3000

Topiramate Harmless Drug New York 520

DanazolUsp 26 Harmless Drug New York 30

AlbendazoleUsp 24 China 1000

50 Ml Type 1 Amber Empty Glass Bottles United States 56

Sion Noa412 Proflox 400mg Tab(Pefloxacin

400mg) No Inputs Used Kuala Lumpur 12500

Pumps (Dispensers Optifix Solvent 500ml

Fortuna For Dosing Of Fra 26

Harmless Drug Lamotrigine Dhaka 10

Harmless Medicine Sterile Water For Injection Tegucigalpa 200000

Page | 36

UspFfs Vial

Harmless Drug Pantoprazole Sodium

Sesquihydrate Miami 49

A-152 Harmless Drugs Cloxacillin Sodium Bujumbura 25

Harmless Drug Thiamine Hydrochloride Bujumbura 1

SionSr No:a412 Cipadur 250 Dt Tabs Cefadroxil

(No Cape Town 2374

Enrovet 10%injection (Enrofloxacin) (V-exp) Hanoi 400

SionSr No A-412 Danogen 200 (Danazol

Capsule Usp Maputo 330

Alendronate Sodium Trihydrate Singapore 0

Harmless Medicine Beclate N Cream

(BeclimethasonDipropionate +neomycin) Aden 60000

Famotidine Usp 25 Kuala Lumpur 5

Meloxicam Harmless Drug Basel 5

Clarithromycin Usp 24 China 350

Micogel Cream(Miconazole Cream Bp2% W/w) Accra 2475

Cipladanogen 200mg(Danazol)harmless

Medicine.(30's Per Pac)sionNo.a 412 ( Bogota 1000

Harmless Medicine Ciplox 0.3% Eye Ointment

(Ciprofloxacin) Tirana 500

Table 8

Page | 37

Import Shipments

Description Foreign Country Quantity

I-methyl-3-phenyl Piperazine. China 50

Naproxen China 3000

Sulphadiazine China 35

AlbendazoleUsp 24 China 1000

AlbendazoleUsp 24 China 300

50 Ml Type 1 Amber Empty Glass Bottles United States 56

Pumps (Dispensers Optifix Solvent 500ml

Fortuna For Dosing Of Fra 26

Permethrin Tech Dur 50

Harmless Drug Pantoprazole Sodium

Sesquihydrate Miami 49

Glycerol Formal Stab Switzerland 75

Harmless Drug Thiamine Hydrochloride Bujumbura 1

Erythromycin Base Usp Malaysia 25

Sion No.a412 Duessa Tablets (Tamoxifen

Citrate 20mg) Guatemala City 100

SionSr No:a412 Cipadur 250 Dt Tabs

Cefadroxil (No Cape Town 2374

Enrovet 10%injection (Enrofloxacin) (V-exp) Hanoi 400

OndansetronHclDihydrate Singapore 0

Meloxicam Harmless Drug Basel 5

Clarithromycin Usp 24 China 350

Cipladanogen 200mg(Danazol)harmless

Medicine.(30's Per Pac)sionNo.a 412 ( Bogota 1000

Page | 38

Banner Of Cipla Muscat 2

Calcium Carbonate Prec Light Fine Powder

Usp 26 Germany 800

Gabapentin China 100

Ciprofloxacin HclHarmelss Drug (Sion No A

139) Casablanca 385

Estramustine Sodium Phosphate Bp 93

Harmless Drug Madrid 14

Sion No.a412 Dilvas 5mg Tabs (Enalapril

Maleate) Maputo 550

Table 9

Page | 39

4. Policies and Norms of India

4.1 Policies and Norms of India for Import or Export to the Venezuela

General provisions of India regarding imports and exports

Exports and Imports

Exports and Imports shall be free, except where regulated free unless regulated by

FTP or any other law in force. The item wise export and import policy shall be, as

specified in ITC (HS) notified by DGFT, as amended from time to time.

Import of rough diamond from Cote d’Ivoire shall be prohibited in compliance to

Paragraph 6 of UN Security Council Resolution (UNSCR) 1643(2005).The

import/export of rough diamond (HS Code 710210, 710221 or 710231) from / to

Venezuela shall be prohibited in view of voluntary separation of Venezuela from the

Kimberley Process Certification Scheme (KPCS).

No Kimberley Process Certificate shall be accepted/ endorsed/ issued for import and

export of rough diamonds from / to Venezuela.

Direct or indirect export and import of all items, materials, equipment, goods and

technology which could contribute to Iran’s enrichment-related, reprocessing or

heavy water related activities, or to development of nuclear weapon delivery

systems, as mentioned below, whether or not originating in Iran, to / from Iran is

prohibited:

Compliance with Laws

Every exporter or importer shall comply with the provisions of FT (D&R) Act, the

Rules and Orders made there-under, FTP and terms and conditions of any

Authorisation granted to him. All imported goods shall also be subject to domestic

Laws, Rules, Orders, Regulations, technical specifications, environmental and safety

norms as applicable to domestically produced goods. No import or export of rough

Page | 40

diamonds shall be permitted unless accompanied by Kimberley Process (KP)

Certificate as Specified by Gem & Jewellery EPC (GJEPC).

Interpretation of Policy

If any question or doubt arises in respect of interpretation of any provision

contained in FTP, or classification of any item in ITC (HS) or HBP-v1 or HBP-v2, or

Schedule of DEPB Rates (including content, scope or issue of an authorization there

under) said question or doubt shall be referred to DGFT (Directorate General of

Foreign Trade) whose decision thereon shall be final and binding.

Procedure

DGFT may, specify procedure to be followed for an exporter or importer or by any

licensing or any other competent authority for purpose of implementing provisions

of FT (D&R) Act, the Rules and the Orders made there under and FTP. Such

procedures shall be published by means of a Public Notice, and may, in like manner,

be amended from time to time.

Exemption from Policy

DGFT may pass such orders or grant such relaxation or/ Procedure relief, as he may

deem fit and proper, on grounds of genuine hardship and adverse impact on trade.

DGFT may, in public interest, exempt any person or class or category of persons from

any provision of FTP or 18 any procedure and may, while granting such exemption,

impose such conditions as he may deem fit. Such request may be considered only

after consulting committees as under:

Principles of Restriction

DGFT may, through a notification, adopt and enforce any measure necessary for: -

Protection of public morals.

Protection of human, animal or plant life or health.

Page | 41

Protection of patents, trademarks and copyrights and the prevention of

deceptive practices

Prevention of use of prison labour.

Protection of national treasures of artistic, historic or archaeological value.

Conservation of exhaustible natural resources.

Protection of trade of fissionable material or material from which they are

derived; and

Prevention of traffic in arms, ammunition and implements of war.

Restricted Goods

Any goods, export or import of which is restricted under ITC(HS) may be exported or

imported only in accordance with an Authorisation or in terms of a public notice

issued in this regard.

Terms and Conditions

Every Authorisation shall be valid for prescribed period of of a licence / Certificate

/validity and shall contain such terms and conditions as Permission / Authorisation

may be specified by RA which may include:

(a)Quantity, description and value of goods;

(b)Actual User condition

(c) Export obligation;

(d)Value addition to be achieved; and

(e)Minimum export / import price.

Page | 42

Penalty

If an Authorisation holder violates any condition of such Authorisation or fails to fulfil

export obligation, he shall be liable for action in accordance with FT (D&R) Act, the

Rules and Orders made here under, FTP and any other law for time being in force.

State Trading

Any goods, import or export of which is governed through exclusive or special

privileges granted to STE(s), may be imported or exported by STE(s) as per conditions

specified in ITC (HS). DGFT may, however, grant an Authorisation to any other person

to import or export any of these goods.

Trade with Neighbouring Countries

DGFT may issue instructions or frame schemes as may be required to promote trade

and strengthen economic ties with neighbouring countries.

Transit Facility

Transit of goods through India from / or to countries adjacent to India shall be

regulated in accordance with bilateral treaties between India and those countries

and will be subject to such restrictions as may be specified by DGFT in accordance

with International Conventions.

Actual User Condition

Capital goods, raw materials, intermediates, components, consumables, spares,

parts, accessories, instruments and other goods, which are importable without any

restriction, may be imported by any person. However, if such imports require an

Authorisation, actual user alone may import such goods unless actual user condition

is specifically dispensed with by RA.

Page | 43

Second Hand Goods

All second hand goods, except second hand capital goods, shall be restricted for

imports and may be imported only in accordance with provisions of FTP, ITC (HS),

HBP v1, Public Notice or an Authorisation issued in this regard. Import of second

hand capital goods, including refurbished / re-conditioned spares shall be allowed

freely. However, second hand personal computers / laptops, photocopier machines,

air conditioners, diesel generating sets will only be allowed against a licence. Import

of re-manufactured goods shall be allowed only against a licence.

4.2 Taxation Policies of India for Import or Export to the

Venezuela

Import duty & taxes when importing into India

Import duty and taxes are due when importing goods into India whether by a private

individual or a commercial entity. The valuation method is CIF (Cost, Insurance and

Freight), which means that the import duty and taxes payable are calculated on the

complete shipping value, which includes the cost of the imported goods, the cost of

freight, and the cost of insurance. Duty in particular is calculated on the sum of the

CIF value and landing charges (explained below). Some duties are also based on

quantity measurements. In addition to duty, imports are subject to other taxes and

charges such as landing charges, countervailing duty, CESS, and education CESS.

Duty Rates

Duty rates in India can be ad valorem (as a percentage of value) or specific (rupees

per unit). Duty rates vary from 0% to 150%, with an average duty rate of 11.9%.

Some goods are not subject to duty (e.g. laptops and other electronic products).

Sales Tax

There is no sales tax in India for imported goods.

Page | 44

Minimum thresholds

There is no minimum threshold in India, i.e. all imports regardless of their value are

subject to duty and taxes.

Other taxes and custom fees

Landing charges: (1% CIF)

Countervailing duty (CVD): (0%, 6% or 12% (CIFD + Landing charges))

CESS (Education + Higher Education): 3% (Duty + Countervailing duty)

Additional CVD: 4% (CIFD + Landing charges + Countervailing duty + CESS)

Local Customs office and contacts

More information on import declaration procedures and import restrictions can be

found at the Indian Customs website.

Import duty & taxes when importing into Venezuela

Import duty & taxes when importing into Venezuela

Import duty and taxes are due when importing goods into Venezuela whether by a

private individual or a commercial entity. The valuation method is CIF (Cost,

Insurance and Freight), which means that the import duty and taxes payable are

calculated on the complete shipping value, which includes the cost of the imported

goods, the cost of freight, and the cost of insurance. In addition to duty, imports are

subject to sales tax.

Duty Rates

Duty rates in Venezuela vary from 0% to 40%, with the average duty rate at 16.95%.

Some products can be imported free of duty (e.g. books).

Page | 45

Sales Tax

VAT is levied on imports at a standard rate of 12%, or a reduced rate of 8% on some

products, on the sum of the CIF value and duty.

Minimum thresholds

Imports with a FOB value, i.e. product value, up to US$100 are exempt from duty.

However, VAT is applicable.

Other taxes and custom fees

There are no other taxes applicable to imports into Venezuela.

Local Customs office and contacts

More information on import declaration procedures and import restrictions can be

found at the Venezuelan Customs website.

4.3 Trade Barriers for Import or Export to the Venezuela

TRADE SUMMARY

The U.S. goods trade deficit with Venezuela was $30.9 billion in 2011, up $8.8 billion

from 2010. U.S. goods exports in 2011 were $12.4 billion, up 16.0 percent from the

previous year. Corresponding U.S. imports from Venezuela were $43.3 billion, up

32.2 percent. Venezuela is currently the 26th largest export market for U.S. goods.

U.S. exports of private commercial services (i.e., excluding military and government)

to Venezuela were $5.0 billion in 2010 (latest data available), and U.S. imports were

$729 million. Sales of services in Venezuela by majority U.S.-owned affiliates were

$3.9 billion in 2009 (latest data available), while sales of services in the United States

by majority Venezuela-owned firms were $806 million.

Page | 46

IMPORT POLICIES

Venezuela officially withdrew from the Andean Community (AC) in April 2006.

President Chavez stated publicly that the reason for the withdrawal was the entry of

other AC member countries into free trade agreements or negotiations with the

United States, which, according to the Venezuelan government, changed the essence

of the pact.

Under AC rules, following a member‟s formal withdrawal, only tariff-related

decisions and resolutions remain in force, and they expire after a period of five years

from the date of withdrawal. For Venezuela, this five year period ended on April 22,

2011. Over the years, AC norms, which cover a wide range of disciplines, have been

incorporated into the Venezuelan legal framework. Although the Venezuelan

government has yet to officially clarify the legal impact of leaving the AC, to date

Venezuela has continued to follow AC norms. In November 2006, Venezuela‟s

Supreme Court accepted a petition requesting an interpretation of the current

validity of AC norms. As of December 2011, the court had not issued a ruling on the

matter.

Nontariff Measures

A Law of Fair Costs and Prices was promulgated on July 14, 2011, and entered into

effect on November 22, 2011. The law gives the Venezuelan government broad

authority to regulate the prices of almost all goods and services sold to the public,

including imported products. A new bureaucracy has been empowered to decide

whether prices are “fair” and to identify businesses that make “excessive profits.”

At the time of writing, businesses are providing the cost and other data requested by

the government, despite the fact that detailed implementing regulations have not

been released. The law will initially be applied to foodstuffs, personal care and

household cleaning products, and construction materials.

Currency controls introduced in 2003 continue to pose a significant barrier to most

trade with Venezuela, with the possible exception of food and agricultural goods and

Page | 47

health and pharmaceutical products. There are currently two entities through which

importers may seek foreign exchange: (1) the Foreign Exchange Commission, or

Comision de Administracion de Divisas (CADIVI); and (2) the Transaction System for

Foreign Currency Denominated Securities (SITME), which falls under the supervision

of the Central Bank of Venezuela (BCV).

The official exchange rate was fixed at 2.15 bolivars (Bs)/$1 from March 2005

through January 10, 2010. On January 11, 2010, the government devalued the

currency and set 2 exchange rates, 1 at 2.6 Bs/$1 (which applied to certain priority

imports such as food, healthcare, science and technology products, capital goods,

and public sector imports) and 1 at 4.3 Bs/$1 (which applied to non-priority imports

and most other categories of foreign exchange requests). On December 30, 2010,

the government announced the devaluation of the currency as of January 1, 2011,

eliminating the 2.6 Bs rate and creating a single official exchange rate of 4.3 Bs/$1,

which remains the official rate of exchange. SITME operations since June 2010 have

had an implicit exchange rate of approximately 5.30 Bs/$1.

Importers who wish to use the CADIVI system must first 47nrol in its Registry of

Users of the System of Administration of Foreign Exchange (RUSAD). Importers who

receive pre-approval may import goods and then apply for CADIVI approval to

purchase dollars at the relevant official rate to pay for the imports. The CADIVI

system is available for importers in sectors classified as strategic, including food,

health products, machinery and equipment, commerce, chemicals, and metals.

Authorizations for foreign currency through CADIVI are not expeditious, and can

require the submission of significant numbers of supporting documents by the

Venezuelan importer with the support or collaboration of the exporter.

When oil prices fell sharply in the latter half of 2008, the Venezuelan government

reduced overall CADIVI approvals from an average of $187 million per working day in

October 2008 to a daily average of $118 million for 2009. In the period from January

to September 2011, CADIVI approved a total of $22.9 billion in foreign exchange

disbursals, averaging $128 million per working day. This included $14.8 billion in

approvals for imports (not including imports under the Latin American Integration

Page | 48

Association Agreement). Import sectors receiving the greatest exchange flows were:

food (22.7 percent), healthcare (23.3 percent), automotive (13.1 percent),

commerce (8.5 percent), machinery and equipment (5.2 percent), and chemical (8.5

percent).

In addition, Venezuela also appears to protect some industries within its agricultural

sector through the use of licenses and sanitary permits that restrict imports.

Services barriers

Venezuela maintains restrictions on a number of services sectors, including

professional services, audiovisual, and telecommunications services. In any

enterprise with more than 10 workers, foreign employees are restricted to 10

percent of the work force, and Venezuelan law limits foreign employee salaries to 20

percent of the payroll.

Professional services

Foreign equity participation in professional firms is restricted to a maximum of 19.9

percent. Only Venezuelan citizens may provide accounting and auditing services to

government institutions and related institutions, such as banks and hospitals. In

addition, only Venezuelan citizens may act as accountants for companies in which

the government has at least a 25 percent ownership interest. A foreign lawyer

cannot provide legal advice on foreign or international law without being fully

licensed as a lawyer in Venezuela. Foreigners are required to establish a commercial

presence for the provision of engineering services. Foreign consulting engineers

must work through local firms or employ Venezuelan engineers.

Financial services

The insurance law, approved in July 2010, establishes that for all insurance

companies, at least half of the members of the board must be of Venezuelan

nationality. In addition, all members of the board must be living in and have resident

status in the country.

Page | 49

5. Global Strategy Problem of the Cipla

Cipla Ltd. India’s second largest drug maker by market share, planned to go global on

the back of its reputation as a maker and supplier of affordable generic drugs to

some of the world’s poorest people.

Big challenges stare at India’s biggest drugmaker by domestic sales. Foremost among

these are key amendments to India’s Patents Act passed by Parliament in 2005,

which put the lid on ‘reverse engineering’ practised by most pharmaceutical

companies in India, including Cipla. That means the process of copying the formula

of a global innovator drug and manufacturing it at a fraction of the global cost will

stop.

Cipla has been a champion of generics. A decade ago, Yusuf KhwajaHamied, its

Chairman and Managing Director who is almost as old as the company, had jolted

the global pharma industry with his offer to sell anti-AIDS drugs at less than four per

cent of the price charged by international drugmakers. Against $12,000 needed for a

year’s AIDS treatment in the West, Cipla’s HIV drugs cost $300 annually – less than a

dollar a day. The drugmaker followed this up by going beyond reverse engineering to

come up with products like the equally affordable Triomune – a cocktail of three

drugs in one tablet – which remains the top-selling drug of its kind across Africa.

Cipla has protested the 2005 amendments, pointing out they will make key drugs

prohibitively expensive. But the writing is on the wall: the amended Patents Act,

whose impact will be felt from 2015, will put an end to the gravy train many Indian

drugmakers have been riding.

To be sure, the change in law will affect Cipla less than its smaller peers, but it is

padding up. There are new areas it has only lately entered: joint ventures in

biotechnology and stem cell research, neurology, and biotech-based drugs,

especially for the treatment of cancer. Hamied is particularly enthusiastic about

combating cancer. “I’m not young any more, but this is a crusade I’m planning to

take on,” he told BT in an interview in August 2010.

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A second concern, at least for analysts tracking Cipla, is the lack of clarity on its

second line of leadership. A successor to its high-profile former managing director

Amar Lulla, who died in April this year, has not yet been appointed. Hamied, along

with Wholetime Director S. Radhakrishnan, is seen leading the show.

Hamied is a non-resident Indian and spends at least six months a year outside the

country. (He spoke to Business Today on the phone from Spain for this story.) Ask

him who runs the company and he says: “It is a team effort.” Radhakrishnan is

equally cryptic. “The company has smoothly transitioned through major changes at

the top,” he says. “This is mainly due to our senior and middle level management

which has risen to take up additional responsibilities.”

There are whispers in the market, however, that KamilHamied, 31, who is Yusuf

Hamied's nephew, may take up the top job after the chairman. However, Cipla

executives refuse to utter a word on the subject. (Yusuf himself inherited Cipla from

his father Khwaja Abdul Hamied, who died in 1972.)Kamil, a graduate of New York

University, is already part of the management.

A third curious feature of Cipla is the manner in which it has chosen to expand

overseas. It has consciously refrained from setting up its own direct presence in

markets abroad and prefers to sell its products through partnerships with local or

established pharmaceutical companies. This practice may well have cost Cipla both

brand value and profits. "The rule of thumb is that presence in the front end

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overseas yields 30 to 40 per cent more value for the company than partnerships of

the Cipla kind," says a senior official in a rival pharma company. Hamied has no

doubt that this is the right strategy. "If I have my own establishment abroad, you will

see an increase in the top line but not in the bottom line," he says. "My marketing,

establishment and infrastructure costs will eat up everything."

But some experts say that a direct presence abroad helps - especially for niche

products - with partnering as an "also-have" strategy. SarabjitKourNangra, Vice

President, Research, Angel Broking, for instance, says: "What makes Cipla unique is

that it has banked entirely on this partnership model. Now, other companies have

also started doing the same, such as AurobindoPharma with international giant

Pfizer, or Dr Reddy's with GlaxoSmithKline."

Cipla, which has about 40 factories today and spends liberally on research,

meanwhile, has invested more than Rs 3,000 crore in the last five years to scale up

capacity, setting up units at Indore, Patalganga and elsewhere.

Another concern that Cipla needs to address is the return it is giving investors. "Early

investors benefited tremendously from the Cipla stock," says RajendraNaniwadekar,

an investment strategist and Director of Kellton Financial Services, Hyderabad. "But

the same cannot be said about those who buy Cipla shares at the current market

price." The company has given out bonus shares seven times since 1980 - going up to

a 5:1 ratio on one occasion - even as it lowered the face value of its shares from Rs

100 to Rs 10 and then down to Rs 2 in 2004.

Shares of Cipla have mostly been trading at around Rs 320 for nearly a year, while

the BSE Healthcare sectoral index has appreciated 13 per cent. Still, "a 15 to 20 per

cent appreciation in Cipla's share price can be expected over the next year or so,"

says Naniwadekar. "But the rise may be limited unless it comes up with major

product innovations."

Expectations around this as well as other concerns, especially over succession, may

well be responsible for the occasional market rumour that Cipla may change hands.

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"Whenever there is talk of an acquisition in pharma, there are rumours of a possible

stake sale in Cipla," says Nangra of Angel Broking.

But Hamied has always maintained that he is not selling. "I'm looking for

partnerships," he says. "I do not mind a joint venture."

Sale of emergency pregnancy termination pills over-the-counter:

In August 2007, Cipla launched pregnancy termination pill 'i-pill'. The morning-after

pill was sold as the easiest way to avoid unwanted pregnancies) but drew criticism as

it was sold over-the-counter (hence not requiring a medical prescription) and for the

probable side effects. The drug contained twice the amount of main ingredient

‘levonorgestrel’ as compared to similar drugs such as Norlevo (Win Medicare) and

Ecee2 from German Remedies. One industry specialist noted that there was no

evidence across the world of the drug being safe for females below 16 years of age.

An industry insider, who also has products in oral contraception, said the amount of

active ingredient in the pill could cause problem in women with high blood pressure,

heart disease. The same analyst noted that the drug was not safe for people with

problems such as liver disease, diabetes, migraines or asthma. Hence, if the drug was

distributed over the counter then there was no practical way to prevent people with

aforementioned issues or people below 16 years from buying the tablet.

Cipla's stock has been gaining since the company sweetened its offer to gain 100 per

cent stake in South Africa-based CiplaMedpro. It saw good gains over a period of

time, as the company received the approval of CiplaMedpro's shareholders for the

revised offer. Over the time, the company's efforts towards changing the landscape

of its international business, seen growing faster versus domestic business, should

lead to better performance.

Investors had been concerned and were watchful of the developments on the

CiplaMedpro acquisition. The acquisition is of strategic importance,as it will help

Cipla have its own front-end in South Africa, as well as improve margins. While Cipla

was manufacturing 80-85 per cent of the products marketed by CiplaMedpro, it was

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earning only the manufacturing and part of marketing profits. After the acquisition,

it will earn both production and distribution profits.

CiplaMedpro is now South Africa's third-largest pharmaceutical company with strong

presence in cardiovascular, anti-retroviral, respiratory and neuropsychiatric

categories.

The MedproPharmaceutica was the biggest foreign acquisition by Cipla and will give

it greater access to an important export market.

In the US, too, the company's move on filing Abbreviated New Drug Applications

(ANDAs) is seen in positive light. In Europe, the launch of combination inhalers

should provide further triggers. Thus, investors can utilise any correction to

accumulate the stock.

Medpro

Cipla would be investing around $500 million (Rs 2,750 crore) for acquiring 100 per

cent stake in CiplaMedpro, formed as a strategic joint venture between Cipla and

South Africa-based Medpro Pharmaceuticals. It has become South Africa's third-

largest pharmaceutical company, with strong presence in the cardiovascular,

antiretroviral, respiratory and neuropsychiatric categories.

Cipla was formed in 1935 by Khwaja Abdul Hamied (German educated chemist and

entrepreneur).

Helped British with drugs during World War II to create goodwill so that after war we

India can request for freedom.

1970’s Cipla established itself as a respectable small pharma company.

1972 Cipla reign passed to Dr. Yusuf Hamied.

By 2002 Cipla was growing at rate of 30.3% YOY basis and 22% profit margin.

Still market was not very positive of their future.

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This is because they have not build/researched any knowledge based assets i.e. drug

molecules.

Cipla didn’t follow R&D path for development but used reverse engineering for drug

discovery.

They were in generics segment.

India acceptance of TRIPS (Trade Related Aspects of Intellectual Property Rights) will

make many of their reverse engineered products withdrawn from market.

Cipla was known in World form because it reversed engineered the AIDS drug and

told that cost of producing it will be appx $ 200 and they were ready to supply

affected nation the drug at that price.

Considering AIDS was a pandemic declared by WHO support to provide drug at $200

vis-à-vis market availability of same drug at $10,000 created ripples in society.

This caused the drug prices to go down.

Currently issue faced with Cipla is “What they should do as a strategy to combat with

multinational players and India’s acceptance of TRIPS by 2005”?

Post 2005 (Case is set in 2003) many of the drugs by Cipla came under TRIPS scanner

and removed from market.

Previously Cipla’s used low cost strategy to succeed in market, but post TRIPS they

had to decide on the strategy and intangibles in terms of knowledge base.

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How does Cipla’s business model differ from those of the traditional

pharmaceutical companies?

Cipla Other Pharma Co.

Low Cost Medication development

though ‘Reverse Engineering / Process

Research’. 0.2% Cost in R&D

Small product development lifecycle

Medication development through

molecule R&D, patenting, clinical tials

and drug manufacturing( 12-15% R&D

cost)

Small product development cycle i.e.

Revenue period long

Long product development lifecycle ( 10

– 13 years). Revenue period small but

monopoly status

Based on India patent laws focus on

process patenting

More focus on product patenting and

molecule discovery

Focus on generic drugs Focus on branded/patented drugs

Focus on developing countries /

countries with similar patenting laws

as India

Focus on developed countries with

strong patent laws

Generics: avoid clinical trails Clinical trails must

Significant cost on manufacturing and

raw material i.e. technology and raw

material restraints

Significant cost on selling and

administration i.e. focus on brand

building

Table 10

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What are the key drivers and challenges to Cipla’s success?

Drivers Challenges

Cost difference : Of the patented drug and

actual manufacturing cost, coz this is where

Cipla can use its distinctive advantage

Legal cover : India law of the land didn’t

recognise product patents which helped

Cipla to reverse engineer drugs and

produce them at low cost

Government Support : Dr. Hamied can

influence government decision while

considering regulations for generics

manufactures.

Change in Regulation making business

model Government accepting Trade

Related Aspects of Intellectual Property

Rights ( TRIPS) implementation by 2005,

wherein India accepted to enforce

international patents.

Foreign Governments : in order to protect

local pharma company interests, foreign

govts have resorted to non-tariff trade

barriers which will make life difficult for

generic drug manufacturers in India

Future Value Impact: Do not have truly

research products hence they will not be

able to sell their reverse engineered

products after 2005.

Building Research Capability :Time taking

process and required large initial capital

how to fund the same.

Table 11

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Do Cipla’s practices constitute unfair competition?

Fair(+) Unfair(-)

Humanitarian

• Heath care is a basic need vis-à-vis

hence needs to be affordable & of

quality

• Monopoly gives rise to greed and

arbitrary pricing. For a non-basic good

that may be ok but for necessity

service its dangerous

• Ensure reward is not infinite /

greed.

• Build pressure on big phama co. to

reduce the price of drug manufacturing

Piracy Aspect

• Getting the Free Ride (0.2%

investment in R&D vis-à-vis average

investment of 15%)

• Pre Tax profit of 22% (Questions

intention) / 30% YOY growth while

other pharma co. were 1% growth

• Violation of Intellectual property

rights.

• It discourages reward of doing

research

Groups View: For pandemics and mass effecting diseases or for ones where no

other alternative available having such kind of Robin Hood's is beneficial for the

society. This can be seen when even developed countries invited Dr. Hamied to

know actual cost of drug knowing that his drugs are reverse engineered.

Otherwise this type of behavior should not be encouraged and constitute for

unfair competition.

Cipla transformed the global HIV-AIDS treatment landscape by offering its copycat

anti-retroviral combination drug at one-fortieth the price charged by multinational

drug makers, making the life-saving drug accessible to millions of poor patients in

Africa and other markets.

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Looking to establish a direct presence in all its key overseas markets, it has now put

in place a top management team with strong expertise in the international drugs

market to lead the change.

Although it has exported pharmaceutical ingredients and finished products all over

the world for decades, Cipla hasn’t had its own manufacturing and sales presence

outside of India—until it made its first foreign acquisition in South Africa.

The company’s strategy is to turn many of its existing overseas partnerships in

manufacturing, sales and marketing, and technology into its own entities or

subsidiaries through equity deals or joint ventures.

It is also open to acquiring small businesses and brands abroad. Cipla’s new growth

focus, crafted by the new top management team, is expected to help transform it

from a promoter-driven to a professional-driven company.

Apart from Saxena and Garg, the team comprises head of international business

Christos Kartalis. The newly posted heads of the US and European businesses, Frank

Pieters and Tim Crew; global legal head MuraliNeelakantan; global 58iological head

Steven Lehrer; and the CEO of the newly acquired overseas subsidiary CiplaMedpro

South Africa Ltd—Paul Miller—have also been drafted in.

The new team brings in varied corporate experience. While Saxena headed global

product strategy and commercialization at multinational drug maker Novartis AG,

Garg comes in with 20 years’ experience in financial administration at multinational

companies including Cadbury, Procter and Gamble Co. And General Electric Co.

Across Europe, North and South America, and Asia. The other top executives are

from global generic drug makers such as Teva Pharmaceutical Industries Ltd and

Mylan Inc.

Cipla bought an additional 14.5% stake in Quality Chemical Industries Ltd (QCIL) of

Uganda for $15 million, taking its total stake in the pharmaceutical company to

about 51.05%. Cipla’s subsidiary in Uganda, Meditab Holdings Ltd, already owned a

36.55% stake in QCIL.

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In the domestic market, Cipla is open to partnering global companies looking for

expanding into India through product licensing agreements and joint ventures.

Generic drugs or low-cost copycat versions of formerly patented drugs are the

preferred option not only in poor countries. Some generics have found an

opportunistic market in developed countries such as Germany and the UK, where

governments are looking at ways to cut their healthcare budgets.

Cipla’s push comes at a time when most major multinational drug companies,

including Pfizer Inc., Novartis, Sanofi SA and GlaxoSmithKline Plc, which largely

depended on blockbuster drugs from their discovery pipelines, are exploring growth

opportunities in emerging markets by partnering generic drug makers.

Recent years have seen a decline in the number of new blockbuster drugs, which

typically have a minimum sales turnover of $1 billion a year, because expensive

discovery line-ups of many of the top researchers have narrowed.

Some observers said Cipla’s new strategy could have come earlier.

“Many of its peers in India have already established strong footprints in the global

markets through organic growth as well as acquisitions. Setting up a strong business

infrastructure overseas takes time,” said an industry executive from a rival drug

maker. He declined to be named.

Indian drug makers, including Ranbaxy Laboratories Ltd, Sun Pharmaceuticals Ltd

and Dr Reddy’s Laboratories Ltd, as well as many mid-size companies, began their

global journey years ago.

Cipla, which exports to around 170 countries, has identified key regions, including

the US, South America, Europe, Japan, Australia and developing markets in Asia, and

India, in its new growth strategy.

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As far as the business and therapeutic expansion is concerned, the company plans to

focus on the respiratory segment, one of its key earners, and over-the-counter (OTC)

business, which is a missing link in its current portfolio.

However, its research and development activities will remain focused on generic

drugs. It will also streamline its research pipeline in generics by rationalizing some

low priority segments.

Cipla New Ventures, the company’s newly formed technology investment unit, will

look at acquiring technology start-ups, mainly in the biological space.

“The company will be again debt-free, after the funding of Cipla-Medpro acquisition

(in South Africa), in the next fiscal year with a healthy cash flow on the cards. We will

be at a comfortable level for these small deals and other investments that it requires

to expand the markets,” said Garg.

“It’s never too late for Cipla to leverage its brand reputation in the world generic

drug market,” said Dilip G. Shah, a former director at Pfizer, and secretary general of

the Indian Pharmaceutical Alliance, an industry lobby. “The company has always

believed in making its drugs accessible to as many patients in the world as possible,

and the new growth focus should take the legacy forward.”

It was on this day in 2001 when he jolted the global pharmaceutical industry with his

offer to sell anti-AIDS drugs at a fraction of the price charged by multinational drug

makers in Africa. At the time, global drug makers were charging as much as $12,000

for a year’s dose of AIDS drugs in the West. Cipla priced its Triomune – a

combination of three generic medicines – at $300 a year, or less than one dollar a

day.

“The whole course of Cipla’s destiny and history changed on that day when we took

the lead in AIDS drugs,” Hamied told BT shortly after the February announcement.

“At that time hardly 2,000 people in the whole of Africa could afford treatment for

AIDS. Today, there are over eight million being treated. That gives a lot of

satisfaction.”

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Hamied, arguably the most combative CEO in Indian pharmaceutical industry, has

always maintained that he believed in making affordable medicines. Cipla has been

among the few to voice concerns over alleged attempts by big multinational

pharmaceutical companies to extend patent rights over products by making minor

modifications, a practice called “evergreening” in industry jargon. The company was

among those who welcomed the Supreme Court of India’s April 1 decision to reject a

plea by Swiss drug maker Novartis seeking a patent for its cancer drug Glivec.

Building a commercial presence and hiring the right people cannot be done

overnight but Cipla is surely making progress”

The Hamied family’s role has been reoriented as well. M.K. Hamied, Yusuf’s younger

brother, has been elevated to Managing Director from Joint Managing Director

earlier, though he is also likely to retire soon. While Yusuf Hamied has no children,

both of M.K. Hamied’s children have taken up leadership roles. M.K. Hamied’s son,

Kamil, who has been with the company for the past few years, has been named Chief

Strategy Officer and will report to Saxena. He will be responsible for strategic

alliances and evaluation of licensing deals as well as mergers and acquisitions.

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Kamil’s sister, SaminaVaziralli, will work with Cipla New Ventures, the company’s

venture capital unit set up in April this year. Vaziralli has previously worked with the

investment management division of Goldman Sachs. The idea behind setting up the

unit is to build new business streams of the future without the distraction of the

current business.

Figure 1

The company is changing the way it deals with its strategic partners while developing

a product. Cipla will now "proactively decide" what it wants its portfolio to look like,

instead of making whatever its partners want. For example, respiratory is an area

where Cipla has unique capabilities and where they will develop a rich pipeline over

the next five years.

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However, Cipla would have to position itself on the lines of global generic majors

such as Teva or the US-based Mylan. That again may not be easy, as these generic

companies have grown in size mainly through acquisitions while Cipla has rarely

adopted this route.

As in every revolution, the question of power, about who really rules the house, was

posed in Cipla and Interfibras by the November 2002 strike; wages in arrears, debts

with the State (10 years without contributing to the Social Security system) and lack

of investments while production continued and orders kept coming in as normal led

to the strike. During all this, after a struggle that mobilised the whole of the working

class in Joinville against the government's lack of initiative and the attacks from the

police and the judges, the workers occupied the factories and started up production

again, making enormous sacrifices.

The trade unions' initial position did not help either. Their position was to close the

factories and later open them up again as co-operatives and to take on responsibility

for the owner's debts. As Castro, a leading member of the Strike Committee, recalls

"that would have meant the end. You could not pay off a debt like that

($180millions) even if you were to live three lives". Only the pressure from the

workers won union support for the strike.

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Global Strategy Problem of Cipla with reference to Venezuela

India also has a strong presence in the pharmaceutical sector in Venezuela. Cipla has

120 medications approved to sell in Venezuela, and expects $15 million in revenue

this year. In 2006, half of all HIV patients in Venezuela received at least one Cipla

drug. Five years ago, 4,000 HIV patients were treated at a cost of $14,000 per patient

a year. This year, 26,000 patients were treated at a cost of $800 per patient a year.

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6. Winning Strategy

Domestic pharma major Cipla may extend its “affordable and humanitarian” pricing

strategy on other anti-cancer drugs in its portfolio, even as domestic generic

companies are still trying to grapple with the huge cuts and evaluate their pricing

options.

Cipla, the second largest pharma company in India by value, fired the first salvo by

reducing prices of its three key anticancer drugs between 59 to 76%, used in treating

brain, lung and kidney cancer, on Thursday. Industry experts said Cipla’s move will

trigger a re-evaluation of portfolio and prices in the oncology segment for all

companies competing in this space. It will also help more generic companies to

penetrate the market. While Cipla will examine the impact’’ of its move on doctors

and the market, before it slashes prices of more cancer drugs, most players in the Rs

1,500 crore oncology market like Glenmark, NatcoPharma and Hetero Drugs said

that they would take a decision over the next few days.

“It may not trigger a price war but definitely there will be some changes. The

oncology market in India has had price wars taking place irrespective of official

slashing of MRPs, since approximately 70% of business is driven through institutions

which have tenders as a pre-requisite”, experts say.

Cipla, which has 23 oncology drugs in its portfolio, has been able to offer the price

advantage because of backward integration and reverse engineering, its chairman Dr

YK Hamied told TOI, adding it is hoping to launch biosimilars like Roche’s Avastin and

Herceptin used in cancer, at cut-throat prices in the next two years. However, a

section of the industry feels that price is not the only determinant in the oncology

market, and quality becomes more important especially in critical care products.

Cipla Ltd, India’s second largest drug maker by market share, is planning to go global

on the back of its reputation as a maker and supplier of affordable generic drugs to

some of the world’s poorest people.

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Cipla transformed the global HIV-AIDS treatment landscape by offering its copycat

anti-retroviral combination drug at one-fortieth the price charged by multinational

drug makers, making the life-saving drug accessible to millions of poor patients in

Africa and other markets.

The company’s strategy is to turn many of its existing overseas partnerships in

manufacturing, sales and marketing, and technology into its own entities or

subsidiaries through equity deals or joint ventures,

The operational synergies not only would allow the company to grow faster but also

help improve margins. Margins have been one crucial concern for the market. Even

the management in the conference call post December 2012 quarter results had

guided for margins of just 22-23 per cent. Thus, the Street’s concerns on margins,

too, are getting addressed,

Cipla has also changed its strategy towards the US markets the benefits of which will

accrue in the longer run. The company has filed for four products in the last six

months in the US market. The company also has a basket of inhalation (respiratory)

products pending approval from regulators in various developed markets. Analysts

expect the approvals over a period of one to two years to materially drive revenues

thereafter.

Management Changes

While the launch of the AIDS drug in Africa was a defining moment for Cipla,

Hamied’s decision to function as non-executive chairman from April 1 and other

management changes are equally significant. The move is part of a major

transformation aimed at propelling the company into a new orbit. Over the past few

months, Cipla has appointed a chief executive for the first time and hired several

other professionals to lead its businesses in overseas markets. The company is also

tweaking its business model and gearing up to benefit from the opportunities of the

future. In short, it is seeking to reinvent itself.

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New Ventures

Cipla now has a ‘new ventures’ business under a separate head that evaluates

opportunities in the over-the-counter (OTC), consumer-health, bio-similars and

animal health segments. As these ideas develop into sustainable businesses for Cipla,

the parallel plan for the domestic market is to build on its strengths and improve its

reach across the country, so people can get easy access to a Cipla product.

Medpro

Cipla would be investing around $500 million (Rs 2,750 crore) for acquiring 100 per

cent stake in CiplaMedpro, formed as a strategic joint venture between Cipla and

South Africa-based Medpro Pharmaceuticals. It has become South Africa’s third-

largest pharmaceutical company, with strong presence in the cardiovascular,

antiretroviral, respiratory and neuropsychiatric categories.

Cipla follows an excellent marketing strategy

Strategic Tie-UpsCipla has set up a wholly owned subsidiary, Cipla FZE

situated at Jebel Ai Free Zone inDubai, United Arab Emirates. This is the part of

strategy to explore the growing markets inMiddle East countries through exports.

Cipla entered agreement withPentechPharma of USAfor marketing a range of

generic products for American market. Pentech is involved indeveloping therapies

for lifestyle and quality of life conditions. This will further boost its export

performance

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Low-risk business model

Robust partnership model – CIPLA has entered into global tie-ups with

various generic players (like Watson, Mylan, Barr and Ivax) for supplying its generic

products. This strategyenables Cipla to leverage local market knowledge of

its partners and utilize its own R&D, product development, and

manufacturing skills. Cipla ’s offer to sell anti- aids drugs at one-third the

price to developing countries like South Africa or any other country. The

questionswere raised against the strategy the company follows but Cipla is not

committing any illegalor unethical act as it is entitled to sell anti - aids drugs

in any country that does not have therequisite patent protection. Cipla is not

using pirated technology since India does not have a product patent regime.

Therefore, Cipla has the right to develop and reverse engineer

any pharmaceutical product not protected by the country’s laws.

Therefore, the issue is whether Cipla is selling its products below its costs

or is it able to sell cheaply because it has not i n c u r r e d a n y r e s e a r c h

a n d d e v e l o p m e n t ( R & D ) e x p e n s e s l i k e m u l t i n a t i o n a l s i n c u r

i n d e v e l o p i n g d r u g s .

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7. Future Projections of Trade

Overall future projections of Cipla

On December 5th 2013 Cipla announced that it had purchased, for an undisclosed

sum, 100% of Celeris, a Croatian drug distributor. Cipla’s management says that the

acquisition will serve as a platform to market the Indian company’s products in

Europe. Celeris is already the sole distributor of Cipla’s products in Croatia.

This is Cipla’s third overseas deal this year. In July 2013 it completed, for around

US$500m, the acquisition of CiplaMedpro South Africa, its distribution partner in

South Africa and that country’s third-largest pharma company. And in November

Cipla increased its stake in Quality Chemicals Industries Ltd of Uganda, paying

US$15m to buy a further 14.5% in the company. This takes its holding in QCIL, which

was formed in 2005 as a joint venture with a Ugandan partner, to 51%.

Market position

Graph showing rise in Cipla’s annual revenues and net profits Mumbai-based Cipla

was founded by Khwaja Abdul Hamied in 1935 and now produces prescription drugs,

over-the-counter medicines, active pharmaceutical ingredients and intermediates,

and animal health products. The company reported sales of Rs82.8bn (US$1.5bn) in

the year to end-March 2013, up 18% year on year. Sales 69ndustr Rs50.0bn in the six

months to end-September, a 19% increase on the same period 12 months earlier.

The company forecasts double-digit revenue growth for this year as a whole.

Exports accounted for 59% of Cipla’s total sales in the last fiscal year, with the

company exporting to around 170 countries. Cipla is India’s third largest drug

company by worldwide sales, after Ranbaxy, in which Daiichi Sankyo of Japan took a

controlling stake in 2008, and Dr Reddy’s Laboratories. However, Cipla has the

second largest share of the Indian drug market of any company, foreign or domestic,

according to IMS Health, with 4.9% of the total in the 12 months to July 2013. This

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put it behind Abbott Laboratories of the US (which acquired Indian company Piramal

Healthcare in 2010) and ahead of Sun, another domestic firm.

Cipla’s strong domestic position reflects the sheer’s size of the company’s product

range—it has more than 2,000 products in its portfolio—rather than reliance on top-

selling brands. The company is perhaps best known for its HIV/AIDS drugs. It was the

first company in the world to offer generic HIV/AIDS treatments, a strategy that

helped many emerging market patients but has also brought Cipla into conflict with

the research-based pharma industry because of the company’s disregard for patent

rights. Other areas in which the company is strong include respiratory drugs and

devices.

Corporate strategy

Cipla’s chairman, Yusuf KhwajaHamied (the son of its founder), has been stepping

back from day-to-day management in recent times, having handed over the role of

chief executive officer to SubhanuSaxena in February 2013. MrSaxena, who has

considerable international experience and most recently held a senior position at

Swiss drug giant Novartis, is one of a number of new management appointees at the

company. Others include chief financial officer Rajesh Garg, who has worked at

multinational firms including Procter and Gamble (US).

Under its revamped executive team Cipla is looking to establish a direct

manufacturing and sales presence in the key overseas markets in which it operates.

This may involve turning its existing partnership deals in manufacturing and sales

and marketing into joint ventures or subsidiaries. The company has also expressed

an interest in acquiring overseas businesses and brands.

And in the domestic market Cipla has said it is interested in partnering with global

firms through licensing arrangements and joint ventures. Several big

pharmacompanies, such as Pfizer (US) and GlaxoSmithKline (UK), have formed

partnerships with generic players in recent years in a bid to broaden their product

offerings.

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Cipla has mean while formed a venture capital unit to invest in start-ups in areas

such as biotechnology, and is developing its bio 71ndustr business (producing

generic versions of biotech-derived drugs) though in-house research and

collaborations. In April the company launched in India a bio similar version of

blockbuster drug Enbrel (generic name etanercept), for the treatment of rheumatoid

arthritis and psoriasis, through an alliance with Shanghai CP Guojian Pharmaceutical

of China.

What to watch for

As a well-established player in the field, Cipla stands to benefit from the growing

market for generic drugs, which are generally much cheaper than their branded

counterparts. Generics are gaining ground not only in poorer regions of the world

such as Africa and South America but also in 71ndustrialized countries like Germany

and the UK that are keen to control healthcare costs. The IMS Institute for

Healthcare Informatics recently forecast that spending on generic medicines will rise

from 27% currently to 36% of total global drug expenditure by 2017.

News article:

“Future of Indian pharma lies beyond generics”-The Hindu

The Indian pharmaceutical industry’s emergence on the global landscape as a strong

generics player was due, in no small measure, to the Indian Patents Act, 1970, which

allowed only process patents in pharmaceutical products. This was aimed at keeping

the cost of medicines at affordable levels by enabling domestic pharma players to

build technical expertise in reverse engineering of existing medicines by modifying

the manufacturing process and, thus, become efficient producers of generic drugs.

Although India shifted to the product patent regime in 2005, the capabilities

developed during the past two decades became a competitive advantage for the

Indian pharma industry in the 1990s, when the rising healthcare costs in many

developed countries forced them to seek the cheaper generic drug option. Thus, the

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Indian pharma industry was able to exploit the enormous generic opportunity that

was spawned.

The share of Indian pharma companies in the total pie of approvals for generic drugs

(called abbreviated new drug applications (ANDA) approvals in the U.S.) has risen

steadily. In 2011 itself, more than a third of the ANDA approvals were by Indian

firms. As a consequence, formulation exports from India, essentially generic drugs,

have grown at 21 per cent compounded annual growth rate (CAGR) between 2005-

06 and 2010-11. With about $150 billion worth of drugs set to lose patent exclusivity

between 2010 and 2015, Crisil Research expects the growth momentum in exports

to continue over the next five years, with exports growing at 14-16 per cent CAGR.

In the near-term, the generic opportunity will continue to lure more companies. And,

with competition intensifying, generic drugs will see greater price erosion.

Along with higher competition, the global generic market is set to face another

hurdle in the longer term. Already, R&D productivity of large global pharmaceutical

players (innovators) has slowed considerably over the past few years. R&D

productivity, a function of cost of new drug development and returns from those

new drugs, is of critical importance as global players invest heavily in R&D (about 20

per cent of revenues). First, the average cost of developing a new drug has more

than doubled in the past five years to $1.5 billion. Second, R&D activities by global

players have resulted in only a handful of new molecules.

Further, returns from these few novel drugs have not reached the scale seen in the

previous decade. Unlike highly successful launches in the past, such as Lipitor, most

patented drugs launched over the five years have not been able to garner sales in

excess of $1 billion. The slowing down of new drug launches will mean that the

generic opportunity set to open up in the next decade (post 2020) is likely to be

significantly lower.

For sustaining growth, Indian drug-makers will, therefore, be forced to look at newer

avenues such as entering niche segments, building relationships with global pharma

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for joint research and development and widening distribution networks through

marketing alliances. Other potential thrust areas include bio-pharmaceuticals,

contract research and manufacturing, and new drug research.

The Indian bio-pharmaceutical industry is in its emerging stage and is sized at about

$1.4 billion as of 2010-11. However, Indian bio-pharmaceutical players largely

market vaccines and are yet to make inroads into U.S. and Europe. With the looming

patent expiry of many bio-pharmaceutical products globally, Indian firms will look to

build capabilities to capitalise on the opportunity that will arise.

The low cost of manufacturing renders India as an attractive destination for contract

research, and the availability of a large patient pool makes it appealing for clinical

trials, which contributes the most, in terms of revenue, to the contract research

segment. An increased presence in contract research will also help them build

expertise to move up the value chain and engage in new drug development.

Indian industry’s R&D capabilities currently lie in reverse engineering drugs and in

process chemistry. With limited experience and high costs associated with bringing a

drug to the market, Indian players have traditionally shied away from drug discovery,

or in a few cases, out-licensed molecules to multinational companies at early stage

of development.

At present, only a handful of Indian companies (leading the pack are: Piramal Life

Sciences, Glenmark and Sun Pharma) are engaged in new drug research;

consequently, there are only 70-80 molecules in the pipeline from Indian players, of

which more than two-thirds are still in early clinical phases. Amid slower growth in

the generics space, large Indian players will look to enhance their focus in this area.

The high-risk high-return field of new drug research holds tremendous potential for

Indian players.

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Cipla Venezuela Trade Potentials

Generic Deals – the next decade

• Generic-Generic M&A

–Consolidation

–Market Expansion

•Generic Product/Service Expansion

–Niche Products

–Biosimilars

–Novel R&D

–CRAMS

•Big Pharma in Generics

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Figure 2

Figure 3

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Figure 4

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Figure 5

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Figure 6

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8. Resources required to tap the business opportunity

R&D

R&D has always used a popular method like the Tap Test because it’s quick, easy to

perform, and the data may give a picture of potential flow problems. However, this

particular test is more an indicator of compaction density for the powder and not

flowability in gravity discharge from a hopper.

The pharmaceutical industry spends more on research and development, relative to

its sales revenue, than almost any other industry in the United States. According to

various estimates, the industry’s real (inflation-adjusted) spending on drug R&D has

grown between threefold and sixfold over the past 25 years— and that rise has been

closely matched by growth in drug sales. Despite those increases, there has been

little change in the number of innovative new drugs approved for use each year,

even though the federal government has streamlined its drug-approval process. Only

about one-third of the drugs approved annually in the United States are new

compounds; the rest represent modified forms of—or new uses for—existing drugs.

Firms develop new drug products in response to various factors. Those factors relate

not only to likely demand in a given drug market—which is influenced by available

health insurance coverage, doctors’ prescribing practices, and demographic

changes—but also to government policy toward drug safety and innovation and to

the pace of scientific advances in the understanding and treatment of disease.

Quality human resources

The following steps are being suggested for developing quality human resources in

pharmacy:

1. A comprehensive programme requires to be put into place after judging the

present societal need from the pharmacists.

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2. A well thought out pharmacy course curriculum, to cater to the needs of the

industry and the clinical establishment requires to be implemented

throughout the country uniformly.

3. Industries should frame some sort of evaluation system, may be credit

earning points like prevalent in other parts of the world.

4. AICTE and PCI need to be more vigilant to ensure required infrastructure and

quality manpower of the educational institutions.

5. Pharmacy Council should impart training to pharmacists, or they must

recognise training imparted by other organizations and allot credit points

considering the effectiveness of the course curriculum/ training module.

6. PCI should frame suitable legislation to make training mandatory for renewal

of registration.

7. Pharmacy practice in our country is regulated by two major Acts, which are

Drugs & Cosmetics Act and Pharmacy Act, but unfortunately there is no

harmonisation between these Acts, resulting in ineffective control over the

pharmacy practice. A co-ordination between the two are needed

immediately.

8. Necessary steps require to be taken for proper utilisation of the potential of

pharmacists in pharmacy practice.

9. Sufficient quality manpower needs to be created for advanced research in

the field of pharmacy.

Financial Managers in Strategy and Implementation

Financial Management plays an important role in the strategic issues of any

company or organization. The finance team needs to be up to speed with current

trends and issues for successful implementation of strategy.

Capital Resource Management Remains Critical

Businesses need to react quickly and effectively to opportunities for growth.

Securing sufficient capital resources will be a key success factor. To do its job

properly, Finance needs the cooperation of all other functions in the business.

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Profitable Customer Centricity

Loyal customers are more likely to be profitable customers over a long time frame. A

customercentric finance department considers the total net present value (NPV) of

the customer. To do this, the finance team must work hand-in-hand with colleagues

across the organization.

Mergers and Acquisitions to Drive Growth

There are many opportunities to expand through merger and acquisition. However

M&A transactions remain risky for many companies. It is critical to develop this

capability in your finance team when planning M&A activities.

Strategic Alliances

Even the best alliances can be difficult to manage. Your finance team needs to be

able to structure an alliance deal, and to evaluate the performance of the alliance to

be sure value is being created.

Developing Talent in the Finance Department

Developing members of the finance team is an ongoing necessity. Whether your

need is to develop groups of managers, or to follow a more individualised approach,

MCE can help you.

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9. Findings & Suggestions

Cipla has 120 medications approved to sell in Venezuela, and expects $15

million in revenue a year. In 2006, half of all HIV patients in Venezuela

received at least one Cipla drug. Five years ago, 4,000 HIV patients were

treated at a cost of $14,000 per patient a year. Following year, 26,000

patients were treated at a cost of $800 per patient a year. This shows that

Cipla’s product has a good market spread in Venezuela. Year by year cost per

patient has also been decreased. Therefore we can suggest company to

spend more and more in R&D to achieve maximum market share.

Strong competition from international and domestic giants means limited

market share Cipla had faced problems during negative campaign by AHF

Constant price rises in the Indian country is taking its toll and compounding

the problem. The Indian Rupee depreciated as compared to the US Dollar.

Fluctuations in currency exchange rates have a noteworthy impact on the

Company’s operations and financial results.

Increased investment in the budding markets, to push expansion in the global

economy It can venture into Alzheimer’s disease medication. They can use

Viramune generic to achieve higher growth.

Venezuela’s trade involves several restrictive processes and heavy

documentation. Moreover, foreign exchange is not available in the nation

freely. This implies that all trading transactions need to be administered by a

bank managing the documentation process, in collaboration with the nation’s

government agency. The agency has complete discretion to permit or refuse

a bank foreign exchange to trade.

Trade restrictions needs to be reduced to great extent inorder to tap more

opportunities in foreign countries. The procedures and documentations could

be reduced further. The agency intervention could be minimized.

Duty rates in Venezuela vary from 0% to 40%, with the average duty rate at

16.95%. Some products can be imported free of duty (e.g. books). As the

import duty rates are less in Venezuela compared to India, Indian Companies

can target Venezuela for selling the products produced in India.

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The official exchange rate was fixed at 2.15 bolivars (Bs)/$1 from March 2005

through January 10, 2010. On January 11, 2010, the government devalued

the currency and set 2 exchange rates, 1 at 2.6 Bs/$1 (which applied to

certain priority imports such as food, healthcare, science and technology

products, capital goods, and public sector imports. Hence, government

interventions need to be reduced.

Currency controls introduced in 2003 continue to pose a significant barrier to

most trade with Venezuela, with the possible exception of food and

agricultural goods and health and pharmaceutical products.

The law gives the Venezuelan government broad authority to regulate the

prices of almost all goods and services sold to the public, including imported

products. A new bureaucracy has been empowered to decide whether prices

are “fair” and to identify businesses that make “excessive profits.” Here,

government’s intervention is good for the interest of public but it affects the

profit of the company in a long run.

Big challenges stare at India's biggest drug maker by domestic sales.

Foremost among these are key amendments to India's Patents Act passed by

Parliament in 2005, which put the lid on 'reverse engineering' practised by

most pharmaceutical companies in India, including Cipla. That means the

process of copying the formula of a global innovator drug and manufacturing

it at a fraction of the global cost will stop. So it is suggested that Company

should rely more on its own R&D and focus more on innovation rather than

relying on foreign sources.

Another curious feature of Cipla is the manner in which it has chosen to

expand overseas. It has consciously refrained from setting up its own direct

presence in markets abroad and prefers to sell its products through

partnerships with local or established pharmaceutical companies. This

practice may well have cost Cipla both brand value and profits.

Cipla may extend its "affordable and humanitarian" pricing strategy on other

anti-cancer drugs in its portfolio, even as domestic generic companies are still

trying to grapple with the huge cuts and evaluate their pricing options. Cipla,

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which has 23 oncology drugs in its portfolio, has been able to offer the price

advantage because of backward integration and reverse engineering.

Over the past few months, Cipla has appointed a chief executive for the first

time and hired several other professionals to lead its businesses in overseas

markets. The company is also tweaking its business model and gearing up to

benefit from the opportunities of the future. In short, it is seeking to reinvent

itself. the parallel plan for the domestic market is to build on its strengths and

improve its reach across the country, so people can get easy access to a Cipla

product.

Strategic Tie-Ups Cipla has set up a wholly owned subsidiary, Cipla FZE

situated at Jebel Ai Free Zone in Dubai, United Arab Emirates. This is the part

of strategy to explore the growing markets in Middle East countries through

exports.

CIPLA has entered into global tie-ups with various generic players (like

Watson, Mylan, Barr and Ivax) for supplying its generic products. This

strategy enables Cipla to leverage local market knowledge of its partners and

utilize its own R&D, product development, and manufacturing skills.

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10. Business Plan

Executive Summary

Diabetes Mellitus remains the single most worrying hormonal disease as it is

affecting millions of people in the world and numbers are not encouraging as well.

Only in INDIA, prediction is that that 7 out 10 people are going to be affected with

Diabetes Mellitus (DM) by the year of 2025. If it is to be true then it will be the

greatest opportunity for the people who are in to medicine to treat all these patients

as well as to make people aware of the disease and its prevention measures.

Diabetes is a chronic disease that occurs either when the pancreas does not produce

enough insulin or when the body cannot effectively use the insulin it produces.

Insulin is a hormone that regulates blood sugar. Hyperglycaemia, or raised blood

sugar, is a common effect of uncontrolled diabetes and over time leads to serious

damage to many of the body's systems, especially the nerves and blood vessels.

The Cipla Ltd.'s main goal is to provide prescription medications for diabetics at the

lowest prices on the market. We will be able to sell prescriptions at reduced prices

by carefully maintaining efficiencies in our operations and by targeting a specific

niche segment of the market.

REPRIVE is a small, whistle-sized, user friendly and easy to carry inhaler that delivers

powdered insulin to adults with Type I and Type II diabetes. Given the ease of use

compared with regular insulin shots, it has the potential to capture a big share of the

global insulin market. It is more effective than the prior drugs and could cost about

the same as the current injectable insulin “pens”. Insulin Inhalation is a powdered

form of recombinant human insulin, delivered through an inhaler into the lungs

where it is absorbed. Once it has been absorbed, it begins working within the body

over the next few hours.

The pulmonary delivery of insulin can reduce the need for multiple daily

subcutaneous injections of insulin for many patients with diabetes. The lungs

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are an attractive site for delivery of insulin because they are permeable to

proteins and offer a large surface area for drug absorption.

Inhaled insulin offers dose titration capability over a broad range of dose

strengths, in a single inhalation. The inhaler also provides active dose

feedbacks to the patient in an easy to use, pocket-sized device.

The inhaled insulin formulation is safe and effective.

Peak levels of insulin activity can be achieved more quickly following the

inhaled insulin than those from the subcutaneous insulin injections.

Faster onset action then the injected insulin.

The dry powder system is a more stable, less sophisticated device.

Freedom from repeated insulin injections per day.

Way cheaper than the vial or pen in terms of monthly expenses on insulin.

The Cipla Ltd. will operate from one store that will serve both mail order customers

and those who visit in person. We will thrive by employing friendly and

knowledgeable personnel, which, along with our great prices, will drive the repeat

business that we will rely upon. We only expect that as the price of medication

continues to skyrocket, The Cipla Ltd. will appeal more and more to the customer's

sense of value and convenience.

Our advertising, in mainstream media, including infomercial, QVC (Reprive already

under review), 60 second commercial, cable TV, interactive TV, direct mail,

independent sales reps, POP displays, and educational inserts/newsletters., will be

targeted at those who are looking to save money on a pricey but necessary and

regular expense.

Following are the key persons of the company:

1. Kalp Vansia – CEO (M.Pharm, MBA Finance)

2. Daniel Hanney – President, Marketing (M.Pharm, MBA Marketing)

3. Piyush Patel – Vice-President, Finance [CA, CPA(USA), M.Com, DISA]

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We expect to reach profitability by our second year and will generate substantial

sales by year three.

After China, India has the second highest number of people with diabetes in the

world with over 65 million which is expected to increase to 101.2 million by the year

2030 and 109 million by 2035 where as at the globel level, 382 million people have

diabetes in 2013; by 2035 this will rise to 592 million. This counts for the huge

potential market for Cipla’s Reprive Inhaler.

Several drug making companies are involved in making drug for diabetes. Namely,

Pfizer, Novo Nordisk, GlaxoSmithKline, Johnson & Johnson, Sanfoi, Eli Lilly and Co.,

Orban Biotechs, Mannkind, Eli Lilly and Company, Abbott Laboratories, the diabetes

partnership of Bristol-Myers Squibb, AstraZeneca etc. at international level and

Cipla, Piramal Healthcare, Sanofi Aventis, Novo Nordisk India Pvt Ltd, Abbott India

Ltd, Torrent Pharmaceuticals Ltd, Nicholas Piramal India Ltd, Cadila Pharmaceuticals

Ltd, Eli Lilly and Company (India) Pvt Ltd, Cardiovascular (Ranbaxy Laboratories Ltd),

Biocon (India) Ltd, Shreya Life Sciences Pvt. Ltd, Wockhardt Ltd., etc. at national as

well as local level.

We will be focusing on effective marketing and sales strategies as well as the

product’s pre-launch planning.

Since the diabetes mellitus is chronic and incurable dieses it requires highly

standardized and effective medications for the blood sugar level management.

Cipla’s R&D team will never compromise on the quality of the product and its

procedure.

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INTRODUCTION

ENDOCRINOLOGY AND ITS SPREAD OF DISEASE IN HUMAN BEINGS

Endocrinology includes normal hormonal physiology and its function in human body

as well as disease which occurs as a result of metabolic dysfunction and hormonal

irregularization. Most prominent diseases are Diabetes Mellitus (Type I and Type II),

Thyroid disease (Hypo, Hyper, Graves disease, Thyroiditis etc.), Exocrine and

Endocrine Dysfunction as a complication of Pancreatic surgery, Polycystic Ovarian

Syndrome/disease, Dysfunctional Uterine bleeding and so on.

All the above mentioned disease are widespread throughout the world and out of all

these, Diabetes Mellitus remains the single most worrying disease as it is affecting

millions of people in the world and Numbers are not encouraging as well. Only in

INDIA, prediction is that that 7 out 10 people are going to be affected with Diabetes

Mellitus (DM) by the year of 2025. If it is to be true then it will be the greatest

opportunity for the people who are in to medicine to treat all these patients as well

as to make people aware of the disease and its prevention measures.

What is Diabetes?

Diabetes is a chronic disease that occurs either when the pancreas does not produce

enough insulin or when the body cannot effectively use the insulin it produces.

Insulin is a hormone that regulates blood sugar. Hyperglycaemia, or raised blood

sugar, is a common effect of uncontrolled diabetes and over time leads to serious

damage to many of the body's systems, especially the nerves and blood vessels.

There are 2 types of DM. Type I which is Insulin dependent and Type II which is Non

Insulin Dependent.

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Type I Diabetes

Type I diabetes (previously known as insulin-dependent, juvenile or childhood-onset)

is characterized by deficient insulin production and requires daily administration of

insulin. The cause of type I diabetes is not known and it is not preventable with

current knowledge. It usually occurs in young age and they have to take Insulin as a

part of its treatment from the beginning.

Symptoms include excessive excretion of urine (polyuria), thirst (polydipsia),

constant hunger, weight loss, vision changes and fatigue. These symptoms may

occur suddenly.

Type II Diabetes

Type II diabetes (formerly called non-insulin-dependent or adult-onset) results from

the body’s ineffective use of insulin. Type II diabetes comprises 90% of people with

diabetes around the world, and is largely the result of excess body weight and

physical inactivity. Type II occurs in elderly patient (after 30 years of age) and they

can be treated with various medicines available, either in a single regime or in

combination.

Symptoms may be similar to those of Type I diabetes, but are often less marked. As a

result, the disease may be diagnosed several years after onset, once complications

have already arisen.

Until recently, this type of diabetes was seen only in adults but it is now also

occurring in children.

Gestational Diabetes

Gestational diabetes is hyperglycaemia with onset or first recognition during

pregnancy. It occurs when pregnant women without a previous diagnosis of diabetes

develop a high blood glucose level. It may precede development of type II DM.

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Symptoms of gestational diabetes are similar to Type II diabetes. Gestational

diabetes is most often diagnosed through prenatal screening, rather than reported

symptoms.

Other forms of diabetes mellitus include congenital diabetes, which is due to genetic

defects of insulin secretion, cystic fibrosis-related diabetes, steroid diabetes induced

by high doses of glucocorticoids, and several forms of monogenic diabetes

Timely Diagnosis is the single most important factor in the management of DM and

to prevent its complications. Why it is so important? Because undetected DM can

lead to severe complications such as Cardiac disease, Microvascular Angiopathy

which involves, cardiac arteries, renal arteries as well as retinal arteries.

Both types of Diabetes are chronic and cannot be cured so it is very important to

treat them and manage it in a way that blood glucose remains in control.

TREATMENT AND MANAGEMENT

The usual ways of treating diabetes are; Oral, Insulin Injection and Insulin Pumps.

Oral Drugs

Currently, six classes of oral antidiabetic drugs (OADs) are available: biguanides (e.g.,

metformin), sulfonylureas (e.g., glimepiride), meglitinides (e.g., repaglinide),

thiazolidinediones (e.g., pioglitazone), dipeptidyl peptidase IV inhibitors (e.g.,

sitagliptin), and α-glucosidase inhibitors (e.g., acarbose).

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Injectable Insulin

There are two types; Vila and Pen.

Figure 7

The Insulin Pump

Figure 8

Insulin pumps are small, computerized

devices (about the size of a small cell

phone) that you wear on your belt or

put in your pocket that allow for a

continuous flow of a rapid-acting

insulin to be released into your body.

The pumps have a small, flexible tube

(called a catheter) with a fine needle

on the end, which is inserted under

the skin of your abdomen and taped in

place.

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The insulin pump is designed to deliver a continuous amount of insulin, 24 hours a

day according to a programmed plan unique to each pump wearer. The user can

change the amount of insulin delivered. Between meals and overnights, a small

amount of insulin is constantly delivered to keep the blood sugar in the target range.

This is called the basal rate.

The Types of Insulin

1. Rapid- acting insulin starts working within a few minutes and lasts for a

couple of hours.

2. Regular- or short-acting insulin takes about 30 minutes to work fully and lasts

for 3 to 6 hours.

3. Intermediate-acting insulin takes 2 to 4 hours to work fully, and its effects can

last for up to 18 hours.

4. Long-acting insulin takes 6 to 10 hours to reach peak levels in the

bloodstream, but it can keep working for an entire day.

These are the usual treatment regimes which are available to patients and they are

being treated with it. What else we can do to enhance the treatment efficacy as well

as patient’s comfort?

One way is to give insulin in other forms so that patient does not have to take so

many oral medications as well as not to inject themselves every day. What it can be?

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PRODUCT/SERVICE

THE INSULIN INHALERS

Insulin inhalation is the new method of delivering insulin, a drug used in the

treatment of diabetes, to the body. It is a rapid-acting form of human insulin that is

inhaled through the mouth. It works by lowering levels of glucose (sugar) in the

blood. Insulin inhalation is used to treat type I (insulin dependent) or type II (non-

insulin dependent) diabetes in adults.

The basic appeal of oral hypoglycemic agents is that most people would prefer a pill

to an injection. However, insulin is a protein, which is digested in the stomach and

gut and in order to be effective at controlling blood sugar, cannot be taken orally in

its current form. The potential market for an oral form of insulin is assumed to be

enormous; we can attempt to devise ways of moving enough intact insulin from the

gut to the portal vein to have a measurable effect on blood sugar.

The Past Failure

Pharmaceutical companies have been working on inhalable insulin for a long time on

the theory that diabetics would prefer to puff on an inhaler than give them a shot.

Several companies have tried to introduce it but it was not well received with

patients.

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The first such product to be marketed was Exubera by Pfizer, announced that it

would be discontinuing the production and sale of Exubera due to poor sales and its

huge size. It was a failure because it appears to be as effective, but no better than

injected short-acting insulin. The additional cost is so much more that it is unlikely to

be cost-effective. It was withdrawn from the U.S. market in 2007 due to lack of

consumer demand for the product, lack of confidence in the product, safety

features, high costs, trustworthiness and of course psychological notions of trying

something so different for such a chronic disease.

Exubera never gained traction, largely because insurers wouldn’t pay for it, saying it

was too expensive and didn’t work for many patients. Eli Lilly & Co. (LLY) and Novo

Nordisk (NVO) both ended inhaled insulin research programs in 2008. Still there are

a few companies continuously engaged in research and development of the same

product from which Mankind has come up with a lot better results and seeking for

FDA of US permission to reintroduce it in the market.

There are no company in India have had worked on the same or similar product in

the past or in recent times. That can be as a huge potential for Cipla to give this

product a try and introduce it in Indian market as it has many advantages.

Advantages are patient will not have to suffer niddle exposure daily plus it is easy to

use. They just have to inhale the certain dose of insulin as it is required and they

don’t have to rely on other as still so many patients rely on other to give them

subcutaneous insulin.

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REPRIVE INHALER

Figure 14

REPRIVE is a small, whistle-sized, user friendly and easy to carry inhaler that delivers

powdered insulin to adults with Type I and Type II diabetes. Given the ease of use

compared with regular insulin shots, it has the potential to capture a big share of the

global insulin market. It is more effective than the prior drugs and could cost about

the same as the current injectable insulin “pens”. Insulin Inhalation is a powdered

form of recombinant human insulin, delivered through an inhaler into the lungs

where it is absorbed. Once it has been absorbed, it begins working within the body

over the next few hours.

It is taken before a meal with a small inhaler causing peak insulin levels to be

reached in 12 minutes to 14 minutes, matching the insulin release in non-diabetics

when they eat. The drug is also expected to be used by those suffering from Type I

diabetes, in which the body produces no insulin.

From all the failures by other pharmaceutical companies, we have been able to

research and develop a new technology to turn insulin into a concentrated powder

with particles sized for inhalation. Through this technology the inhaled insulin can

effectively reach the lung capillaries where it is absorbed.

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Unlike other forms of insulin, REPRIVE is a balanced mix of Rapid-acting, Short-

acting, Intermediate-acting and Long-acting insulin to dispose the correct amount of

insulin as per the requirement of type I and type II diabetics.

The Dose

The dose of insulin by Exubera was prescribed in milligrams, which was not the

correct amount for the diabetic patients to intake. 1 mg of Exubera is equivalent to 3

units of insulin; however, the increment is not linear. 3 mg of Exubera is equivalent

to 8 units of insulin and not 9 units as might be expected, and the prescriber is

strongly advised to refer to the manufacturer's conversion table before prescribing.

Furthermore, because of retention of blister contents, three consecutive doses of

1 mg blisters of Exubera results in a higher dose of insulin than a single 3 mg blister

of Exubera, further complicating prescribing calculations.

To avoid these calculation complications and serious risk of dosing errors as well as

overdosing of the insulin, the dose of REPRIVE Insulin is prescribed in international

Units as it is traditionally. Generally, one unit of rapid-acting insulin will dispose of

12-15 grams of carbohydrate and REPRIVE keeps this measure intact with each dose,

hence there are next to impossible chances of dosing errors.

Exubera was considered a short or rapid acting insulin. In clinical studies, Exubera

reached peak concentration levels faster than some insulins administered by

injection. Thus, this form of insulin would begin working within the body faster than

those forms of injected insulin. But Type I and 2 diabetics will still need an injection

of longer acting insulin to maintain a basal level for a 24 hour period.

To avoid this complication, we have developed a combination formula which will

compensate the longer acting insulin need of both types of diabetes to maintain the

blood sugar level throughout the day.

2 blisters are equal to 1.2 mg of insulin in inhalation form that is equivalent to 3 IU

(International Unit) Sub Cutaneous dose of insulin. For instance; if a patient having

random sugar level of 200, he/she will require 1.2 mg of insulin per meal, at the

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regular interval of 8 hours in a day which makes 3.9 for a day and 108 mg/216

blisters for a month.

The Cipla’s Reprive Inhaler will consist 130 mg/260 blisters of insulin powder so as to

fulfill the requirement of the patient for a month without compromising the quantity

of the insulin he/she needs as per his/her blood sugar level incase in need of a little

more than 108 mg.

STRENGTH AND ADAVANTAGES OF PEPRIVE

Several strengths and advantages of using REPRIVE are as follows;

The pulmonary delivery of insulin can reduce the need for multiple daily

subcutaneous injections of insulin for many patients with diabetes. The lungs

are an attractive site for delivery of insulin because they are permeable to

proteins and offer a large surface area for drug absorption.

Inhaled insulin offers dose titration capability over a broad range of dose

strengths, in a single inhalation. The inhaler also provides active dose

feedbacks to the patient in an easy to use, pocket-sized device.

The inhaled insulin formulation is safe and effective.

Peak levels of insulin activity can be achieved more quickly following the

inhaled insulin than those from the subcutaneous insulin injections.

Faster onset action then the injected insulin.

The dry powder system is a more stable, less sophisticated device.

Freedom from repeated insulin injections per day.

Way cheaper than the vial or pen in terms of monthly expenses on insulin.

PATENT

Being the next-generation inhaler unlike other old school types, the drug is an ultra

rapid acting form of inhalable insulin with peak plasma concentrations that mimic

physiologic mealtime response at 12–14 minutes. It is a drug-device combination

product, consisting of REPRIVE Inhalation Powder pre-metered into single use dose

cartridges and the light, discreet and easy to use REPRIVE Inhaler. Administered at

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the start of a meal, REPRIVE dissolves immediately upon inhalation and delivers

insulin quickly to the blood stream. Peak insulin levels are achieved within 12 to 14

minutes of administration, mimicking the release of mealtime insulin observed in

healthy individuals.

As compared to the other inhalers it assesses "performance characteristics, usage,

handling, shipment and storage.” Hence, it will be easy to get a patent for the

product because of its unique features to control hyperglycemia.

MANAGEMENT TEAM

Director and Officers

A board of directors will be developed in the near future. The chief responsible

persons are as follows;

Kalp Vansia – CEO (M.Pharm, MBA Finance)

Daniel Hanney – President, Marketing (M.Pharm, MBA Marketing)

Piyush Patel – Vice-President, Finance [CA, CPA(USA), M.Com, DISA]

Profit and loss responsibilities are shared by the officers.

The officers are primary key employees. Other key employees include:

Key Employees

Jaya Chandran - bookkeeper and office manager - known by management for 5

years and described as "a dedicated innovator with a true grasp for details." She has

experience supervising 20 employees in the accounting department of Indian Airlines

and has worked as an independent bookkeeper for several companies in Delhi, India.

Julia Allen - administrative assistant - known by management for 6 years and

described as "having people and problem-solving skills and works incredibly well

under pressure." Her background includes sales in a successful business which

included business consulting.

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The Management

Mr. Kalp (CEO) is 40 years old and has a 14-year history in Pharmacy. His deep study

of medicines started in 1995 and included studies in diabetes management and

treatment. Mr. Kalp has been invited to sit on a newly-formed FDA committee

addressing the growing national interest in diabetes.

Mr. Daniel Hanney has 10 years of experience in retail and direct sales as well as

marketing and sales management. He has been a senior sales director and sales

trainer for Mankind Pharmaceuticals Ltd., he has managed a 15 person, $1 million

department for a major chain retailer. He also has some banking experience. He will

also be the chief pharmacist for research and development department.

Vice-president Mr. Piyush Patel has 8 years of experience as Dy. General Manager in

internal audit department of Garden Silk Mills Ltd. He has managed internal audit at

Reliance Industries Ltd. at Hazira for 4 years. Having a good exposure in finance and

forex, he suits the best as the head Finance in the firm.

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MARKET ANALYSIS: TARGET MARKET

World

382 million people have diabetes in 2013; by 2035 this will rise to 592 million.

The number of people with type II diabetes is increasing in every country.

The greatest number of people with diabetes are between 40 and 59 years of age.

In 2004, an estimated 3.4 million people died from consequences of high fasting

blood sugar.

More than 80% of diabetes deaths occur in low- and middle-income countries.

WHO projects that diabetes will be the 7th leading cause of death in 2030.

Healthy diet, regular physical activity, maintaining a normal body weight and

avoiding tobacco use can prevent or delay the onset of type II diabetes.

India

After China, India has the second highest number of people with diabetes in the

world with over 65 million which is expected to increase to 101.2 million by the year

2030 and 109 million by 2035 besides one of the study conducted in Punjab by

Christian Medical College (CMC) estimated the prevalence of diabetes mellitus (DM)

to be 20.0% (urban) and 11.0 % (rural) population of industrial city Ludhiana which

appeared to be the highest reported in the country, this was informed during the

National Diabetes Summit-2013 held under the aegis of Public Health Foundation of

India (PHFI).

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In India, the types of diabetes differ

considerably from that in western

world. Type I is considerably rarer,

and only about 1/3 of type II

diabetes are overweight or obese.

Diabetes is also beginning to appear

much earlier in life in India, meaning

that chronic long term complications

are becoming more common. The

implication for the Indian healthcare

system is enormous. So India is

genuinely facing a healthcare crisis.

And this will be the huge prospect market for REPRIVE as people would definitely

prefer inhaling insulin over injections.

1. If seen globally, the current market size is of 382 million i.e. 38.2 crores and

by 2035 it will rise upto 592 million i.e. 59.2 crores.

2. If considered the current statistics of India, the REPRIVE has the market

potential of 65 million people only in India, i.e. 6.5 crores. And the no is

increasing so fast that by 2035 the market size of India will become nearly

double i.e. 10.9 crores (109 million).

3. The case with Gujarat is, it may be the capital of the silent killer disease

diabetes in India but many people in the state continue to silently suffer the

disease without actually knowing it. According to conservative figures, out of

6.38 crores of total population, 10 to 12 per cent adult population in the state

suffers from diabetes. In urban areas, the incidence is as high as 16 to 18 per

cent. The problem is getting more serious by the day as more and more

young people are being diagnosed with the disease.

4. In Surat, 15 to 18 percent of people of total population suffer from diabetes,

which are again only the diagnosed cases.

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The catch here is that most people are either not diagnosed or diagnosed

accidentally! Over 50 per cent of diabetes cases are not diagnosed in the state. Of

those which are, 50 per cent are diagnosed accidentally when the patient gets fever,

goes for surgery after accidents, after heart problem and even during pregnancies.

Hence, in accordance with above statistics, we can say that there is a huge potential

market available for REPRIVE to penetrate, starting slowly with local market i.e. Surat

city and district to state level and then national as well as international level after

the successful establishment of the product.

Another strong reason which can contribute to REPRIVE’s success is that, there is no

such product available in market after the failure of Pfizer’s Exubera. Hence, the

advantage for REPRIVE to stand different amongst all is very likely to earn it a fair

share of the prevailing market.

Venezuela is among the 50 countries with the highest rates of obesity and

overweight. According to WHO, diabetes – mostly type II diabetes – is the fourth

cause of death in Venezuela behind heart disease, stroke and violence. Diabetes is

responsible for 7% of total death, and is expected to rise dramatically over coming

decades. As a result, Venezuela and other Latin American countries are facing a

growing multiple-disease burden, as health authorities strive to protect populations

from non-communicable as well as infectious diseases. There were 1.2 million cases

of diabetes in Venezuela in 2013.

DIABETES IN VENEZUELA – 2013

Total adult population

(1000s) (20-79 years)

18,646.42 Number of deaths in adults due

to diabetes

9,966

Prevalence of diabetes in

adults (20-79 years) (%)

6.61

Mean healthcare expenditures

due to diabetes per person with

diabetes (USD)

808

Total cases of adults (20-79 years) with diabetes (1000s)

1,232.04 Number of cases of diabetes in adults that are undiagnosed (1000s)

396.30

Table 11

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COMPETITION

Several drug making companies are involved in making drug for diabetes. Namely,

Pfizer, Novo Nordisk, GlaxoSmithKline, Johnson & Johnson, Sanfoi, Eli Lilly and Co.,

Orban Biotechs, Mannkind, Eli Lilly and Company, Abbott Laboratories, the diabetes

partnership of Bristol-Myers Squibb, AstraZeneca etc. at international level and

Cipla, Piramal Healthcare, Sanofi Aventis, Novo Nordisk India Pvt Ltd, Abbott India

Ltd, Torrent Pharmaceuticals Ltd, Nicholas Piramal India Ltd, Cadila Pharmaceuticals

Ltd, Eli Lilly and Company (India) Pvt Ltd, Cardiovascular (Ranbaxy Laboratories Ltd),

Biocon (India) Ltd, Shreya Life Sciences Pvt. Ltd, Wockhardt Ltd., etc. at national as

well as local level.

All of these pharma companies are engaged in manufacturing insulin in liquid

injection form like vial or pen.

Amongst these, Pfizer, Novo Nordisk, GlaxoSmithKline, Eli Lilly and Co., Johnson &

Johnson, Sanofi & Sanfoi Aventis are ruling the international as well as Indian

markets, hence are the greatest competitions for REPRIVE.

They are also the largest in market cap and market share, therefore, penetrating in

such highly competitive market is a Hercules’ task.

KEY ISSUES AND CHALLENGES FOR PHARMACEUTICAL COMPANIES

Figure 10

Page | 105

The rising prevalence of diabetes has resulted in an increase in the demand for

diabetes drugs and the entry of a number of pharmaceutical majors in these

markets. Despite the increasing demand and huge business potential, companies

have struggled to make profits in these markets.

The problem can be traced to the low affordability to health-care treatment in these

countries. For example, the annual average spend on a diabetic patient in China is

$194 per year, which is significantly less than the global average of approximately

$1,274. Further, a lower per capita income in these countries has a direct bearing on

affordability, which limits their expenditure on drugs.

These markets are also very price-sensitive due to high share of out-of-pocket

payments in health care spending. With, Indian, Brazilian, and Chinese governments

looking to impose strict pricing control on essential medicines, pricing strategies of

pharmaceutical companies are likely to be impacted. As pharmaceutical companies

do not have the liberty to sell their branded products at low prices due to high R&D

costs, they are likely to shift their focus to generic products and curb their R&D

expenses on diabetes care. This might impact the overall quality of health-care

services and lead to reduced innovation in this disease segment.

Further, as rural population constitutes a major part of the total population in these

developing countries, lack of product knowledge and low access to new drugs

(specially related to insulin and diabetes type I) are other major constraints. This

section of the population is not only largely unaware of new diabetes treatments

and drugs, but live in areas where availing treatment and drugs is immensely

difficult.

Other key challenges in these markets include—counterfeit drugs, extensive

competition from domestic players and an intricate drug approval process.

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MARKETING AND SALES

MARKETING STRATEGIES

Market penetration strategy

The market for diabetes treatment is so immense and it’s growing so rapidly. The

inhaled insulin market has seen high-profile commercial failure in the past. Pfizer Inc

withdrew Exubera in 2007 due to poor sales. The large size of the device and a high

price were blamed for its failure.

REPRIVE, on the other hand, is a small whistle sized, user friendly and easy to carry

inhaler, hence, unlike other failed devices, REPRIVE has the potential to mark its

presence in the market with its completely unique blend of all four types of insulins

to deliver the right amount to diabetics.

Since maintaining profitability is a huge task for pharmaceutical companies in these

low-margin markets, a few strategies that we are about to adopt include the

introduction of innovative product, rapid penetration into vast rural markets,

partnerships with health insurers to provide financing on diabetes care, and low-cost

manufacturing.

We are developing a low-cost, innovative product for the emerging market which

will help us gain competitive advantage over other companies (who rely on

traditional products). The regular injectable insulin costs around $25 to $ 35 for Vial

and $ 30 to $50 for Pen, which is nearly around INR 1500 to 2000 for Vial and INR

1800 to 3000 for the Pen per month, which is way more for a middle class and lower

middle class as well as poor people to afford, as they hardly have INR 1000 to 15000

income per month. On that note, the PEPRIVE will be available around $15 i.e. nearly

INR 900 to 1000 in the market with a minimal profit margins and obviously the relief

from the painful shots of injections.

Page | 107

Increase market share by reducing market share of competitors. This strategy will

capitalize on the market development to date and capture a share of markets held

by existing injectable insulin providers.

This strategy requires extensive advertising in mainstream media, including

infomercial, QVC (Reprive already under review), 60 second commercial, cable TV,

interactive TV, direct mail, independent sales reps, POP displays, and educational

inserts/newsletters. One objective of planned controlled studies on the effectiveness

of Reprive is to use scientific evidence to help bridge the narrowing gap between

natural and conventional medicine for diabetes. Product studies will support this

marketing strategy. In this context, the company will pursue preliminary inquiries

from a favored vendor to use Reprive in the workplace to study any reduction of lost

work time and/or medical costs precipitated by repetitive use of this inhaler.

Growth Strategy

To seize the opportunities in the emerging countries, REPRIVE is ready overcome the

above mentioned hurdles, execute successful product launch and boost the revenue

growth.

In most developing countries, consumers’ insurance reimbursement schemes

exclude high-cost drugs for chronic diseases. To overcome this challenge, we will

consider partnering with insurers (to include branded chronic disease drugs in

insurance terms) to increase and sustain margins. We will also be indulge in talks

with leading health insurers of the country to provide this exclusive service to their

existing customers. A positive outcome of this venture may result in a grand success

of REPRIVE launch.

We also have plans to export this product in other geographies as well.

A product localization strategy through local partners will also be considered.

We have developed the understanding and importance of local market

knowledge, as it will allow us to customize the product according to

demography and needs of local patients.

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Local branding of the product and generation of employment with a strong

sales force can be translated into a high market penetration in a very little

time.

Development of production, sales and marketing infrastructure in rural areas

is another essential element of our pharmaceutical marketing strategy.

Another strategy is to set up product counsellors and educators to create

awareness about the product and its different features to treat diabetes in

rural and remote areas. They will provide counselling services to patients.

We will launch a campaign to raise awareness about the diabetes condition

and its pharmaceutical offering to create the market share. The people will

be provided with comprehensive clinical data and product samples to key

opinion leaders and physicians.

We will also invite medical professionals to attend the seminars and

campaigns to learn more about treatment and establish close relations with

them. This will result in a strong brand image for the company in the whole

country.

PRODUCT PRE-LAUNCH PLANNING

Launch success is integral to a brand’s overall success, and the company’s

continuing viability. How? By ensuring a proper launch that establishes a

brand, that creates awareness and need before the actual sales begin, that

drives it to peak sale and effectively meets initial and new competition, the

brand can avoid crisis that often occur during a product’s lifecycle.

With a pre-launch planning period, REPRIVE will build a thorough

understanding of the customers, market and competition, the brand is in a

unique position to take on any challenges and push past obstacles.

We have identified the right strategy mix of cost optimization and innovation

to penetrate the markets to sustain and boost our top and bottom lines.

Moreover, strategizing have become more relevant now, as governments are

increasingly becoming concerned about making cost-efficient, health-care

services available to their citizens. In line with this, we will be exploring viable

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options, such as low-cost manufacturing or outsourcing the sales functions

while entering into these markets, to lower the op-ex and in turn their

product cost.

SALES STRATEGY/FUNCTION

The sales strategy will be based on generating long-term relationships with

customers. To facilitate that, we will provide medications at superior prices,

have inhalers in stock for both quick shipment and store front pick up, and provide

superior customer service. All sales agents will be trained to provide friendly,

knowledgeable customer service. By keeping to these simple, yet effective, business

practices, we expect that our customers will make the REPRIVE Inhaler by Cipla their

exclusive source for daily insulin intakes. Diabetes medications are an integral part of

their lives, so establishing long-term relationships will ensure a large, loyal customer

base.

Retail

Utilize a sales organization enabling direct-call coverage on the top 25

customers, which generally account for 80% of retail sales, and broker-

managed coverage for the remainder. Launch plan would include a national

sales meeting and all necessary materials. Moreover, Cipla, in India, already

have a strong market positioning which will encourage the customers to

respond positively for the trustworthy name.

Professional

Concentrate on the pharmacist community via co-operate direct mail.

Pharmacist recommendation at the purchase counter does affect sales.

Sales Forecast

During the first month we will focus on setting up the store front and generating

both local and national visibility. Sales activity will begin in month two. Sales during

months three through five there will mainly consist of local business through the

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store front. In month six we expect to see a jump in sales from mail order. Sales will

grow steadily from month six on.

Figure 11

Sales By Year

Figure 18

0100002000030000400005000060000700008000090000

Sales Forecast

Walk-in Customers Mail Order Customers

0

500000

1000000

1500000

Year 1 Year 2 Year 3

Sales By Year

Walk-in Customers Mail Order Customers

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Sales Forecast

Year 1 Year 2 Year 3

Sales

Walk-in customers $195000 $400000 $800000

Mail order customers $136000 $350000 $700000

Total Sales $331000 $750000 $1500000

Direct Cost of Sales Year 1 Year 2 Year 3

Walk-in customers $78000 $160000 $320000

Mail order customers $54400 $140000 $280000

Subtotal Direct Cost of Sales $132400 $300000 $600000

Table 12

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BUSINESS SYSTEM AND ORGANIZATION

RESEARCH AND DEVELOPMENT

The inhaler consists of blisters containing human insulin inhalation powder. Human

insulin produced by Recombinant DNA technology utilizing a non-pathogenic

laboratory and strain of Escherichia coli (K12). It has got amino acids in its chemical

structure. Per 1.7 mg of powder you get 1 mg of nominal insulin dose. While using as

an inhaler emitted dose is 0.53 and fine particle dose which patients will get is 0.4

mg. So doctors have to advise how and in what amount patient has to take that

inhaler, like how many seconds one has to inhale to get the maximum dose.

The patient has to take the dose as per their body weight.

Patient Weight in KG Patient Weight in LB Dose

30 to 39.9 kg 66 – 87 lb 1 mg per meal

40 to 59.9 kg 88 – 132 lb 2 mg per meal

60 to 79.9 kg 133 – 176 lb 3 mg per meal

80 to 99.9 kg 177 – 220 lb 4 mg per meal

100 to 119.9 kg 221– 264 lb 5 mg per meal

120 to 139.9 kg 265 – 308 lb 6 mg per meal

Table 13

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PRODUCTION

The production process does not require any specialized or proprietary machinery.

The critical factors in the production process are the highest quality of raw materials

and the incubation process, which assures a stable finished product.

The production process will take place in the standard laboratory of Cipla where raw

materials are blended to develop the effective formula for insulin inhaler. There are

no significant health or safety risks involved. Production orders are processed by

purchase order for finished product. Some raw materials are usually on hand but

more are ordered against purchase order requirements.

The inhaler instrument manufacturing will be carried out by company only in a

separate manufacturing unit and will be sent to the laboratory to be filled, packaged,

and shipped to Cipla Ltd., where fulfillment is done.

The Cipla laboratory has the capacity to fill all projected orders. As orders increase,

Reprive of Cipla management will consider using a fulfillment service and more drop-

shipping to wholesale customers. Cost of goods is estimated at 18% of gross sales.

This figure has been consistent throughout production to date and is based on the

complete production cycle.

There is no backlog.

MARKETING AND SALES

Walk-in

Customers

Mail Order

Customers

Year 1 195000 136000

Year 2 400000 350000

Year 3 800000 700000

Table 14

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Break-even Analysis

The Break-even Analysis calculates what will be needed in monthly revenue to reach

the break-even point.

Figure 13

Break-even Analysis

Monthly Revenue Break-even $52000

Assumptions:

Average Percent Variable Cost 40%

Estimated Monthly Fixed Cost $30000

Table 17

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

Walk-in Customers

Mail Order Customers

Total Sales(in '000)

Fixed Cost

Total Cost

BEP

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ORGANIZATION

Personnel Plan

The company will employ the following people:

CEO, President and Vice-President: day one.

Pharmaceutical technicians: one at month two.

Bookkeeper : one at month one

Sales agents/phone representatives: one at month three, an

additional person at month sixth.

Administrative assistant: one for month one

Order fulfillment agents: two for month five, a third for month eight.

Counter person/phone representative: one at month three.

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Year 1 Year 2 Year 3

CEO $48,000 $52,000 $60,000

President $55,000 $60,000 $60,000

Vice President $45,000 $60,000 $60,000

Pharmacist technician $27,500 $30,000 $30,000

Bookkeeper $19,200 $23,040 $23,040

Administrative Assistant $19,200 $23,040 $23,040

Sales agent $11,520 $23,040 $23,040

Sales Agent $14,400 $17,280 $17,280

Counter person/phone rep. $14,400 $17,280 $17,280

Order fulfillment $14,400 $17,280 $17,280

Total People 10 10 10

Total Payroll $268,620 $322,960 $330,960

Table 18

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IMPLEMENTATION SCHEDULE

1. PROCUREMENT

Procurement would be basically in house. The formation of the blister form

insulin powder is made from the Recombinant DNA present in the E.coli bacteria.

E.coli bacteria are found in different animal species and end number of samples

regularly comes in the laboratory for the research and development purpose.

The E.coli bacteria will be scrapped from those animal samples and can serve us

as the input to extract the Recombinant DNA and that is mixed to make the

Insulin Powder for the Inhalers. Hence, our raw material input will be the

byproduct from the animal samples received by the laboratory of Cipla.

2. RECRUITMENT

CEO, President and Vice-President: Day one.

Pharmaceutical technicians: One at month two.

Bookkeeper: One at month one

Sales agents/phone representatives: one at month three, an

additional person at month sixth.

Administrative assistant: One for month one

Order fulfillment agents: Two for month five, a third for month eight.

Counter person/phone representative: One at month three.

3. PRODUCTION

Since the procurement of the raw material for insulin will be in-house only, the

production process will not take longer to transform the Recombinant DNA into

Insulin Powder. Also the inhaler instrument manufacturing will be carried out by

company only in a separate manufacturing unit and will be sent to the laboratory

to be filled, packaged, and shipped to Cipla Ltd., where fulfillment is done.

Complete production cycle will take no longer than a week.

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4. DISTRIBUTION AND SALES

Distribution of the product will be done through sales agent and mail orders will

be fulfilled by FastForward Agency. The distribution will start from month two.

Initially first five month we will be focusing on walk in customers as awareness of

the product is less likely to get the mail orders of the product. After sixth month

we will be hiring FastForward agency for distribution of our mail order.

5. MARKETING

Marketing of this product will require extensive advertising in mainstream

media, including infomercial, QVC (Reprive already under review), 60 second

commercial, cable TV, interactive TV, direct mail, independent sales reps, POP

displays, and educational inserts/newsletters. Marketing campaigns will take

place from the very first day of the operations under the name of Cipla Ltd.

Milestones

Cipla Ltd. wants to achieve revenue $1500000 from the sales of Reprive Inhaler

at the end of third year.

Financial projections after fifth year of successful sales and increased market

share will be $5000000.

And this is just the beginning, as Cipla’s Reprive Inhaler will be a milestone itself

in the history of insulin for Diabetics. There are no flaws in this.

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OPPORTUNITIES AND RISK

OPPORTUNITIES

1. Increasing No. of Patients

As it is shown earlier, the no of patients of diabetes are increasing rapidly. Some of

the statistics are as follows for the same.

In the whole world 382 million people had diabetes in 2013; by 2035 this will

rise to 592 million.

After China, India has the second highest number of people with diabetes in the

world with over 65 million which is expected to increase to 101.2 million by the year

2030 and 109 million by 2035.

There were 1.2 million cases of diabetes in Venezuela in 2013.

2. Increasing Per-capita Income

The per capita income of the population of whole world including India and

Venezuela is increasing continuously. Hence, people can now afford a proper

treatment for the diabetes. And with a minimal price than that of the substitute

products patients will be encouraged to buy the product seeing its benefits and low

cost of treatment.

3. Unique Product

As the concept of the product itself is so unique that there will be very less likely to

arise competition for the product. Even with the existing competition, the product

has such unique and incompetable feature and results that the preference will be

given to the inhalers then the injections for insulin. Which is a great opportunity to

capture the huge market share for Cipla’s Reprive.

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RISK FACTORS

1. Limited Operating History

Even though management feels that the company is at first-stage expansion, it is

definitely still an early-stage company. Two obvious risks inherent in early-stage

companies are undercapitalization and poor liquidity. Management has capitalized

the business operations to date well enough to have developed the product and

identified penetrable market segments. The current proposed financing will provide

enough capital to handle the anticipated growth.

2. Limited Resources

An anticipated increase in sales through advertising media such as QVC,

regional/national catalogues, retail outlets, and some European distribution can be

financed by factoring. These "bootstrapping" approaches will sustain the company to

date and will accommodate slow growth. Management believes, however, that more

rapid expansion is desirable in order to penetrate its identified market segments.

More rapid expansion requires more resources.

3. Dependence on Key Management

At present, CEO, Mr. Kalp Vansia is considered the primary key manager/officer. His

knowledge of the product ingredients, his history of public appearances promoting

the product, his increasing recognition by the health community as an expert in

diabetes management, and his charisma as a business professional highlight his key

role. Managerially, the other officers are thoroughly competent and could manage

the company and market its products without Mr. Kalp Vansia. At this critical early

stage, however, the product needs an identity and a market position before the loss

of any key managers could be overcome. Once the premier product is securely

launched and the product is established, the loss of any officer could be absorbed by

continued proper management of the company. Management believes that such a

development is not far off, once the company is properly capitalized. Until such time,

key person life insurance will be purchased.

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FINANCIAL ANALYSIS

Start-up Summary

The company will incur the following start-up equipment costs:

Office equipment including chairs, file cabinets, and desks.

Front counter, storage bins, cash register.

Three computer terminals.

Main computer server with a laser printer, and back-up system.

Software: Microsoft Office, QuickBooks Pro, drug interaction software,

Physician Desk Reference software detailing side effects and other

information pertinent to the customer.

Assorted bottles, boxes, envelopes, etc. for dispensing and shipment.

Scales for shipping.

Telecom system.

Storefront build-out.

Start-up inventory.

Rent, utilities, insurance.

Please note that these items will be used for more than one year and will

therefore be labeled long-term assets, depreciated using Indian GAAP (Generally

Accepted Accounting Principles) approved straight-line depreciation.

Page | 122

Start-up Requirements

Start-up Expenses

Legal $1,000

Rent $2,000

Utilities $400

Telecom System $400

Insurance $300

Storefront Build-out $15,000

Expensed Equipment $4,000

Website development $1,000

Total Start-up Expenses $24,100

Start-up Assets

Cash Required $140,500

Start-up Inventory $10,000

Other Current Assets $0

Long-term Assets $8,500

Total Assets $159,000

Total Requirements $183,100

Table 17

Page | 123

Start-up Funding

Start-up Expenses to Fund $24,100

Start-up Assets to Fund $159,000

Total Funding Required $183,100

Assets

Non-cash Assets from Start-up $18,500

Cash Requirements from Start-up $140,500

Additional Cash Raised $0

Cash Balance on Starting Date $140,500

Total Assets $159,000

Liabilities and Capital

Liabilities

Current Borrowing $0

Long-term Liabilities $0

Accounts Payable (Outstanding Bills) $0

Other Current Liabilities (interest-free) $0

Total Liabilities $0

Capital

Planned Investment

Seed Funding $50,000

Partnership Capital $51,000

Friends and Family $50,000

Additional Investment Requirement $32,100

Total Planned Investment $183,100

Total Funding $183,100

Table 18

Page | 124

PROJECTED PROFIT AND LOSS

Particulars Year 1 Year 2 Year 3

Sales 331000 750000 1500000

Direct Cost of Sales 132400 300000 600000

Gross Margin 198600 450000 900000

Expenses

Payroll 268620 322960 330960

Sales & Marketing Expenses 8400 8400 8400

Depreciation 1850 1850 1850

Utilities 4800 4800 4800

Insurance 3600 3600 3600

Rent 24000 24000 24000

Total Expenses 311270 365610 373610

Total Operating Income -112670 84390 526390

Tax Incured 0 25317 157917

Net Profit -112670 59073 368473

Table 21

Page | 125

PROJECTED CASH FLOW

The following table displays the projected cash flow.

Particulars Year 1 Year 2 Year 3

Incomes

Cash Received from Sales 331000 750000 1500000

Expenses

Cash Spending 268620 322960 330960

Bill Payments 150000 400000 580000

Subtotal Spent on Operations 418620 722960 910960

Net Cash Flow -87620 27040 589040

Cash Balance 52880 79920 668960

Table 20

IMPORTANT ASSUMPTIONS

The following table details important financial assumptions.

General Assumptions

Year 1 Year 2 Year 3

Plan Month 1 2 3

Current Interest Rate 10.00% 10.00% 10.00%

Long-term Interest Rate 10.00% 10.00% 10.00%

Tax Rate 30.00% 30.00% 30.00%

Other 0 0 0

Table 21

Page | 126

PROJECTED BALANCE SHEET

Particulars Year 1 Year 2 Year 3

Assets

Long Term Assets

Long Term Assets 8500 8500 8500

Depreciation 1850 1850 1850

Total Long Term Assets 10350 10350 10350

Current Assets

Cash 52880 79920 668960

Inventory 30000 80000 50000

Other Current Assets 7200 116903 0

Total Current Assets 90080 276823 718960

Total Assets 100430 287173 729310

Capital

Paid in Capital 183100 183100 183100

Earnings -112670 59073 368473

Total Capital 70430 242173 551573

Current Liabilities

Accounts Payable 30000 45000 177737

Total Current Liabilities 30000 45000 177737

Total Liabilities 100430 287173 729310

Table 22

Page | 127

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