low-priced buyouts, cost control & ensuring sustainable revenues, did the trick for sun pharma. what next? STEVEN PHILIP WARNER answers…
There is also the fact that Sun has always remained a cost leader in the generics drugs platform. Sun’s net operating margin is a tremendous (43%) as compared to a modest 10% for the other top ten pharma players. Has it simply a play on the raw material sourcing or is there some critical strategic intent in this situation? Sun claims that this has been because of their focus on costs, which has been the biggest priority for them; and the claim does not come without empirical evidence.
For example R&D! Sun also doesn’t believe in over-investing in R&D. Its R&D budget allocation ratio is only 0.5% of its revenues (for FY2008-09), while that figure for the industry stands at a much higher 14-15%! As per a report by E&Y, “Only 2% percent of projects in the pre-clinical phase are expected to make it to Phase I testing and, of these, only one in five are likely to be approved.” So what’s the average success rate of your primary compound finding a place as a pill in the market? A tiny 0.4%! Rahul Sehgal, President, Nestor Pharmaceuticals also propounds how Sun is taking the right route in this regard as he states, “The R&D which are required, involves a lot of cost. There was never much point in Indian manufacturers spending too much on R&D. R&D spending should now be ratcheted up – significantly and rapidly.”
Surely, Sun seems to have fared better at maintaining the balance between costs and returns during the past year; however the question stands – will this sun continue to shine even in the current year?
For example R&D! Sun also doesn’t believe in over-investing in R&D. Its R&D budget allocation ratio is only 0.5% of its revenues (for FY2008-09), while that figure for the industry stands at a much higher 14-15%! As per a report by E&Y, “Only 2% percent of projects in the pre-clinical phase are expected to make it to Phase I testing and, of these, only one in five are likely to be approved.” So what’s the average success rate of your primary compound finding a place as a pill in the market? A tiny 0.4%! Rahul Sehgal, President, Nestor Pharmaceuticals also propounds how Sun is taking the right route in this regard as he states, “The R&D which are required, involves a lot of cost. There was never much point in Indian manufacturers spending too much on R&D. R&D spending should now be ratcheted up – significantly and rapidly.”
Surely, Sun seems to have fared better at maintaining the balance between costs and returns during the past year; however the question stands – will this sun continue to shine even in the current year?
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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