Sun pharma- A complete company review, analysis of crisis and realistic recommendations

Sun pharma has been the most talked about Indian pharma company for being in the news several times for its unresolved issues with the US FDA regarding the Halol and Mohali plant.
This presentation has analysed the situation and it suggests various solutions for the same.

1. Tag line :-
Leadership through focus on research.
Mission :-
To give impetus to research and develop in
India.
Vision :-
To develop medical research in the
upcoming future.
Goal :-
Good health to all.

2. WHY SUN PHARMACEUTICALS Ltd.?
Sun pharma is a leading [ #1]
brand when it comes to
pharma industry.
It all started in 1983 when
Mr. DilipShanghvi, who was
the son of a drug wholesale
dealer suddenly thought that
instead of dealing in drugs,
why don’t we produce it?
He started his own
pharmaceutical company
with 5 people, 5 products
and just 1 DREAM –‘TO
MAKE INDIA GREAT AGAIN’
The company he started with
only a miniscule amount of
Rs. 10,000 as capital now has
an asset valuation of Rs.
9816 crores!

4. TIMELINE:-

6. COMPANY
OVERVIEW:
Pharmaceutical Giant SUN PHARMACEUTICALS LIMITED (NET PROFIT OF ₹ 2,828 CRORE IN FY14-
15) has topped as No.1 Pharmaceutical Industry in India in 2015 against its best rivals :
CIPLA LABORATORIES (NET
PROFIT OF ₹ 1,181 CRORE),
LUPIN LABS (NET PROFIT OF
₹ 2,397 CRORES)
DR.REDDY’S LABORATORIES
(NET PROFIT OF ₹ 1,679
CRORES)
The company offers formulations in various therapeutic areas such as cardiology, psychiatry,
neurology, gastroenterology and diabology. It also provides APIs such as warfarin, carbamazepine,
etodolac, and clorazepate, as well as anticancer, steroids peptides, etc.
SUN PHARMACEUTICALS LTD is a multinational Pharmaceutical company headquartered in
Mumbai, Maharashtra that manufactures and sells pharmaceutical formulations and Active
Pharmaceutical Ingredients (API) primarily in India and in United States.
COMPANY
OVERVIEW

7. COMPANY OVERVIEW:-
Cardiology products were
introduced in 1987 followed
by Gastroenterology
products in 1989.
01
Today it is the largest chronic
prescription company in
India and a market leader in
psychiatry, neurology,
cardiology, orthopaedics,
ophthalmology, and
gastroenterology and
nephrology.
02
At present, SUN PHARMA
has a net income of ₹2,828
crores and with Total Asset
value of ₹9816 crores
03

8. BOARD OF DIRECTORS :-
CHAIRMAN
Israel Makov
MANAGING DIRECTOR
Dilip Shanghvi
EXECUTIVE DIRECTOR
Sudhir Valia
EXECUTIVE DIRECTOR
Shailesh

9. NON EXECUTIVE INDEPENDENT
DIRECTORS:-
Hasmukh S. Shah
Ashwindani
Keki M. Mistry
S. Mohanchand Dadha

14. INDIA’S PHARMA INDUSTRY REVIEW

18. FUN FACTS
The pharmaceutical industry in India ranks 3rd in the world terms of volume and 14th in terms
of value. India contributes 10-13% of total world pharma production.
Labour costs are 50–55 per cent cheaper than in Western countries. The cost of setting up a
production plant in India is 40 per cent lower than in Western countries
India has a skilled workforce as well as high managerial & technical competence in comparison
to its peers in Asia
India has the 2nd largest number of USFDA-approved manufacturing plants outside the US
India has 2,633 FDA-approved drug products. India has over 546 USFDA-approved company
sites, the highest number outside the US
Growing per capita sales of pharmaceuticals in India offers ample opportunities for players in
this market
Per capita sales of pharmaceuticals expanded at a CAGR of 17.6 per cent to US$ 33 in 2016

21. Market Share Of Sun Pharma throughout the years:-

23. SWOT
ANALYSIS

24. No. 1 pharmaceutical company in India.
No. 1 Indian pharma company in US.
Over 2$ bn dollars in sales in US
Products sold in over 150 countries across 5 continents.
Past years growth rate is twice the growth rate of the pharma
industry as a whole.
5
th
largest global specialty generic pharma company.
No. 1 in generic dermatology and no. 3 in branded drugs globally
Listed among TOP 100 MOST INNOVATIE COMPANIES IN THE
WORLD by Forbes in 2014
STRENGTHS

25. MAJOR M&A’s
Knoll pharmaceuticals & MJ pharma –1996
Tamil Nadu Dadha pharmaceuticals Ltd. –1997
Caraco pharmaceuticals –1997
Natco pharma –1998
Milmet labs & Gujarat lyka organics –1999
Pradeep drug company –2000
Phlox pharma –2004
Able labs –2005
Chattem chemicals –2008
TARO pharmaceuticals –2010
MSD labs -2011
Dusa pharmaceuticals -2012
Ranbaxy laboratories –2014 -$4Bn
GSK opiates –2015
Insite vision -2015

26. WEAKNESS
Limited presence in emerging
markets and lack of presence in
European countries.
The company is more into
acquisition based growth and this
might lead to a stage of financial
crunch as it has already happened in
the case of Caraco pharma.
Sun pharma provided debt to
Caraco and is facing problems due
to the losses made by the latter.
New restricted pricing policies in
developing countries is restricting
growth in emerging markets.

27. OPPORTUNITIES
They can leverage their
acquisitions to further
increase the growth
They can increase their
presence in contract
manufacturing
Increasing healthcare
awareness in India
Can venture into
animal/pet health care
sector through either
R&D or Mergers

28. THREATS Major competition from
many Indian and other
global brands means
limited market share
growth
Increased price sensitivity
of consumers due to the
growing competition in
generics market.
Stringent patent
regulations have to be
followed for entering
other countries

30. 1.Inorganic
growth couldn’t
help company
dodge sectoral
headwinds.

31. What really
happened?
Sun Pharma has had a successful track
record of turning around distressed assets.
It bought Caraco, Taro and Ranbaxy, apart
from companies such as Dusa, URL and
Insite Vision to ramp up its specialty
business.
However, this strategic inorganic expansion
could not insulate the company’s product
portfolio from the price erosion in Taro as
well as non-Taro businesses in the US.

32. Why it happened?
This problem can be narrowed down to an issue in PLANNING & DECISION MAKING.
The top level management is involved in all the m&a deals along with a group of top
level analysts.
The decision of acquiring 69% stake in Taro pharmaceuticals was not very beneficial for
them followed by a series of mergers of distressed companies like Caraco and Ranbaxy.
Sun pharma viewed these companies as profitable while the whole world saw them as
a failure, soon enough sun pharma stood corrected.

33. 2.Faced with price collusion charges in United States.

34. What really
happened?
One of the overhangs on the Sun Pharma stock
is the uncertainty surrounding the outcome of
the Department of Justice enquiry on the drug
price collusion case in the US.
Sun is one of the Indian companies facing
enquiry and an adverse verdict may potentially
hit its prospects.
While the company had maintained that the
results of the enquiry may not have material
impact on the company’s financials, the Street
is nevertheless apprehensive, given the current
political scenario in the US.

35. 3.Dilip Sanghavi’s
investment in non
core areas put
investors on the
edge.

36. What really happened ?
DilipShanghvi’s investment in unrelated areas
such as oil, coal and wind energy in his personal
capacity had also put investors on the edge.
There had been concerns about the cash
generated by the pharma business being deployed
to fund the new capital-intensive ventures. In
2015, facing concerns from investors, Sun Pharma
had to shelve its plans to invest in wind energy
project in the US through its subsidiary ..

37. Why it happened?
This problem can be narrowed down to an issue in PLANNING, DECISION MAKING &
ORGANISING as to where and how much should the resources (capital) be allocated.
These moves by Sanghavi comes off as unnecessary investments and abuse of power which
has made stakeholders sceptic and angry.
This move depicts that the top level management is experimenting with their funds, but
their failure to disclose the reasons for the same to the investors has backfired on them.
Sun pharma did not plan for such a situation and neither have they justified their reasons
for doing so…

38. 4.INORDINATE DELAY IN
RESOLUTION OF THE
USFDA ISSUES AT KEY
PLANT HALOL.

39. Sept 2014
•Halolwas inspected for the first time by US FDA.
•Next day company receives form 483 with 23 observations
Dec 2015
•Halolgets a warning letter with 6 observations.
•All new approvals were banned from this date by US FDA
Nov 2016
•Halolwas reinspectedby US FDA
Dec 2016
•Halolgets another form 483 with 9 observations.
Feb 2018
•Halolwas again reinspected.
•Next day company receives a form 483 with 3 observations.
Aug 2018
•Sun pharma called back 5125 units of injections from the US market.
•This triggered another inspection at Halolfollowed by a form 483 with 6 observations.

40. Why is Halol plant so important for Sun
pharma?
Halolcontributes 8-10% of the company’s overall
revenue.
Largest plant of Sun Pharma, making it the most
valued plant for the company.
The facility at Halol, holds the key to its US
formulation business. Sun Pharma gets about half
of its revenue from the US market and the Halol
unit contributes a majority of its drug filings.
Regulatory issues at Haloldirectly affects US
revenue.

46. 1. Have our own dedicated legal body/counsel as a defence mechanism .
There are two professionals any business has to have –an accountant and a lawyer(s).
Accountant to manage your money and lawyer to safe guard it.
A good business attorney will provide vital assistance in almost every aspect of your business, from basic zoning
compliance and copyright and trademark advice to formal business incorporation and lawsuits and liability.
This appointment of legal body will help us in understanding the laws of the regulatory better and keep us updated
with the amendments if any.
This US FDA issue started because of lack of communication/understanding by the company about the regulatory’s
laws and acts.
Having our own legal counsel will protect us from having furthermore regulatory issues and definitely help in
resolving any ongoing problems.

47. TOP 5 LAW
FIRMS IN INDIA

48. Top Law Firms In United States
SPECIALITY: COMPLIANCE WITH REGULATORY LAWS, ACTS & POLICIES

49. 2. Quality control measures
We know that Sun Pharma has faced quality control crisis several times over the past 4 years.
The USFDA, while conducting inspections of the Halolplant, found the following problems:
Halolplant in Gujarat had failed to meet good manufacturing standards.
The drug-maker’s testing programmes were inadequate.
Failure to report contamination issues on time.
That’s why we need a fool proof quality control plan to counter this issue.

50. There are three ways of ensuring quality
control standards are maintained
1. Outsourcethat function to a well-reputed firm that specializes
in Industrial Cleaning Services.
2. Internal improvement by motivating the employees to
increase their efficiency.
3. Seeking external guidance by the way of holding informative
seminars/ workshops attended by renowned industrialist.

51. OUTSOURCING
Milestone Manpower -Vadodara
Allied Services –Vadodara
MeePlant Evaporator Cleaning Service -Halol
Hydro Jetting Services –Halol
These are the some of the top notch agencies in Gujarat.
The main and only major problem that is involved with outsourcing is the risk of leak
of company and trade secrets. So this could be a very good breakthrough for the
company or it could be anotheraddition to its misery.

52. INTERNAL IMPROVEMENT
Such problems as in cleanliness only arise when the employees aren’t
satisfied and motivated enough to care about the job.
Implementation of PHASE II, PHASE III & PHASE IV of HAWTHORNE
STUDIES can come into play for making the employees feel cared about.
So, to make this happen, the employees must be made to feel welcome
and comfortable. They must be offered incentives, bonuses, overtime
payments, loyalty bonuses, free meals, free health check-ups and be
given a few complementary treatments in case of any illnesses.
Since money is not the only motivator, this plan may/may not work
efficiently in a real life scenario.

53. AS
PROPOSED
BY Mr.
PETER
DRUCKER

54. EXTERNAL GUIDANCE
Inviting any professional personality from India or
abroad who understands the rules and is a major
influencer in his profession.
Preferably, Sun Pharma could ask someone from the
USFDA itself to come and deliver a workshop on
how to maintain perfect cleanliness in a
manufacturing industry.
The Health Ministry and Central Drug Standards
Control Organisation (CDSCO) are jointly planning to
study the guidelines of global health regulators.

55. 3. MARKETING & ADVERTISING TO REGAIN
TRUST OF CONSUMERS IN AMERICAN
MARKETS
Sun Pharmaceuticals has not been playing a major role in advertising
and has only deployed few promotional advertisements including
Revitaland Pepmelt, leaving their other products non promoted
People have started showing a lack of trust towards the products of
Sun Pharmaceuticals due to the claim of US drug regulators of the
company's plant not being up to the mark.

56. MARKETING MIX STRATEGIES
(4P’S &4C’S)
AS SUGGESTED BY Mr.
PHILIP KOTLER, Marketing
Management Leader.

57. McGarry Bowen -NYC
Zimmerman partners –Miami, Florida
72&sunny –LA, California
Mullen Lowe –Boston, Massachusetts
Martin Agency –Richmond, Virginia
These are some of the most influential ad agencies in United States.
They should minimize the R&D cost and incur advertising expenses of at least 5℅
of their total revenue. Out of this 5℅ or more, more than half should go towards
the advertising in the US.
Using trusted personalities/figures in advertisements has proven to have a positive
impact on consumers. Eg: Sensodyne/colgateuses dentists to advertise.

58. 4. VENTURE
INTO M&A’s IN
EUROPEAN
AND CHINESE
MARKETS TO
MAKE UP FOR
THE LOSSES
Since the main aim for the company as of now
is to maintain the same level of revenue as it
did before is crucial to keep the investors
invested in their business.
European and Chinese markets has the
potential to give the company more than what
US has to offer by their sheer population
growth.

60. Potential pharma companies in CHINESE market for M&A

61. FUNDING
REQUIREMENTS

62. This ensures that the company is in a position to
raise funds through a bank loan or a FPO
The total equity share capital is INR 381005.6
and total borrowings (long term + short term)
is INR 97517.9. Therefore the debt to equity
ratio is 0.2559 which is less than 1. A lower
percentage means a company is using less
leverage and it has a strong equity position.

63. WHAT IS THE BEST
SOLUTION?

64. HERBERTSIMON’S BOUNDED RATIONALITY MODEL OF
DECISION MAKING

65. SOLUTION 1 +
SOLUTION 2
APPOINTMENT OF LEGAL COUNSEL & QUALITY CONTROL
MEASURES.

66. STEP 1: examine external environment
STEP 2: examine internal environment
STEP 3: background check of cases/customer base/charges
STEP 4: preliminary interview.
STEP 5: reference/ past experience
STEP 6: selection of firm(s)
STEP 7: 2
nd
round of interview
STEP 8: final interview
STEP 9: Job offer
STEP 10: negotiations
STEP 11: final offer
STEP 12: contract (terms & conditions) drafting
STEP 13: signing bonus
HIRING PROCESS WILL TAKE
APPROXIMATELY 9-11
MONTHS

67. BUDGET
Cost of hiring:
Interviews with international firms can be held on skype and/or
secured telephone lines (any secured video conference services)
which will drastically reduce the cost of hiring, instead of asking
them to fly down to India.
Interviews with Indian firm can be held at the headquarters in
Mumbai.
Minimum budget of 2-3 lakhs which includes first class tickets, pick
up and drop services, refreshments, hi tea and lunch for all three
rounds of interviews within India.

68. BUDGET
Fees of contract drafting given to a CA and/or local Lawyer will be approximately 55-60 thousand.
Package of approximately 3 crores (407,714.51 USD) for a contract of 1 years. (figures may vary
depending upon the negotiation and final deal)
A signing bonus of 35% given at the time of entering the contract.
Cost of hiring 2,50,000
Cost of Contract Drafting 60,000
Package for 1 years 3,00,00,000
Signing bonus (35% of 3 Crores) 1,05,00,000
TOTAL COST 4,08,10,000

69. Quality control
measures:-
Industrial cleaning agencies:
Full plant cleaning function to be outsourced to a reliable
agency.
They’ll work not full time but only 2-3 times a month.
Approximate budget of 50,000 per month should be allotted.
Workshop practise from guest speakers:
Workshops should be held once every 3 months to keep our
staff updated with the cleaning standard requirements.
Approximate budget of 40,000 –50,000 per speaker should
be allotted.

70. THANK YOU