Indian Pharma Industry: Picking up the fallen pieces and riding the next wave

The Indian pharmaceutical sector has been one of the key sectors contributing to India’s growth and overall economic development and has steadily expanded to leave a significant footprint on the world map and is one of the largest and the fastest growing markets globally. The Indian pharma sector has reached USD 38 bn in 20181. We are now the world’s third largest drugs manufacturing by volume but tenth largest in terms of value2. The industry generates over USD 11 billion of trade surplus every year and is amongst the top five sectors contributing to the reduction of India’s trade deficit2. The Indian pharmaceutical industry as attracted more than USD 2 billion in FDI inflows over the last three years, making it one of the top eight sectors attracting FDI2.

Indian pharma companies satisfy a large component of global demand

  • 40% of generic US drug demand1
  • 60% of global vaccine demand2
  • 25% of all medicine sold in UK1
  • 22% of all US FDA approved plants worldwide1

Given the strong foundation, Indian companies are uniquely positioned to build on their strengths and capture the growth and share in the global markets. The sector has contributed tremendously in improving public health outcomes worldwide. Despite a few hiccups on the way, Indian pharmaceutical sector is going strong and the need of the hour is to build momentum from hereon. We see opportunities for Indian pharma companies to take advantage of global markets through collaborations with global companies in the form of Joint Ventures, Technical Collaborations and Contract Manufacturing opportunities amongst others.

One such case is where we were involved in assisting a global leader in excipient manufacturing in helping them integrate the acquisition of a closely held Indian company and delivering an ROI which was significantly high.

Client Background

Client is a European manufacturer and a global leader in excipient solutions. It develops, produces, and markets excipients for oral solid dose and dry powder inhalation formulations. Its customers are leading global pharmaceutical companies. The company had taken over a closely held Indian company (target company) with manufacturing facilities in South India and needed Practus to manage the Post Merger acquisition as their India CFO.

Problem Statement

  • Target company operating on disparate ‘stand-alone’ systems: legacy systems hampered a real time, shared view of operations
  • Non-alignment of performance metrics between client and target company
  • Define agreed mechanisms to measure progress against integration plans
  • ERP implementation in target company needed across all modules
  • Expense authorization, budgets and forecasts
  • Institute risk management frameworks and internal controls
  • Setting up monthly reviews and profit centre accounting
  • Completing acquisition accounting

Solutions Implemented

  • Defined and implemented SOPs as a precursor to the ERP implementation
  • Standardized performance metrics across the organization to enable a common shared basis for performance measurement and enhancement
  • Conducted a base line analysis by reviewing the ‘As Is’ data
  • Built a Gannt based integrated transformation plan and roll out strategy
  • Managed transition to client’s ERP (Navision), including project management, India customization, report design, master clean up, cut over data sign off, key user training, and post-production support
  • Authorized and tracked expenses in the first 100 days of the Closing Date
  • Liaised with the auditors for accounts finalization, setting the India budgets, managing and forecasting cash flows
  • Defined and implemented compliances, risk management frameworks, systems and internal controls in line with the acquiring company’s standards
  • Setting up monthly reviews with the India CEO & Group CFO and measuring business performance by setting up profit center accounting & reporting
  • Ownership for finalizing Opening Balance Sheet, including Companies Act compliance with purchase of business, quantification of intangible assets and implementing ways to obtain tax deduction on the amortization of intangibles

Impact Delivered

  • Legacy issues resolved pertaining to clean up of accounts and compliance within 4 months of taking over role
  • High visibility to supply chain requirements
  • Improved demand planning and execution
  • Reduced monthly reporting time from 8 weeks to 1 week
  • Implemented smooth Go-Live of ERP system within 6 months from the start date
  • Discontinued non–profitable products by developing robust costing systems
  • Reduction of debtors’ collection cycle from 120 days to less than 45 days within 4 months of taking over role

The Way Ahead

Indian pharma companies need to respond positively, look towards the next areas of growth and work towards capturing a greater share of the market globally.

This can be done by following, not the familiar and beaten path, but exploring new avenues. Focusing on developing new markets like Japan and China for starters, making a deeper push in US markets with a record number of drugs going off-patent in the next few years will require some amount of ingenuity, coupled with lots of perseverance and consistency in the systems, processes and controls adopted. Automation and technological innovation, if adopted early, can be a real game changer.