Novartis Analysis

Novartis India Analysis Analysis of the Pharmaceutical Sector and the Business Analysis of Novartis India Swathi Velisetty MMS -1 107

Novartis India

Contents Introduction....................................................................................................3 History....................................................................................... .....................3 Board Members..............................................................................................3 Subsidiaries....................................................................................................4 Business Model.............................................................................. .................5 Business Segments.................................................................................... .....5 Pharmaceutical................................................................................. ...........6 Generics......................................................................................................9 OTC................................................................................................... .........12 Animal Health............................................................................................13 Research And Development..........................................................................14 Financial Analysis....................................................................................... ...16 Income Statement.....................................................................................16 Quarterly Results.......................................................................................18 Ratio Analysis............................................................................................20 The way ahead.............................................................................................25

Novartis India

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Introduction The name Novartis is derived from the Latin "Novae Artes" which means new skills. Novartis in India is a leading provider of innovative solutions to improve health and well-being through products and services in the areas of pharmaceuticals, over-the-counter products, nutrition, eye care and animal health. The Group has a presence through three entities namely, Novartis India Limited, Novartis Healthcare Private Limited and Sandoz Private Limited and employs more than 2000 people across the country. Sandoz Private Limited houses all the four manufacturing facilities which are located at Thane, Kalwe, Turbhe and Mahad. It is a 51% subsidiary of Swiss based Novartis AG. Novartis International AG is a multinational pharmaceutical company based in Basel, Switzerland Novartis owns Sandoz, a large manufacturer of generic drugs. History

Board Members • Dr Erwin Chillinger ,Chairman • Ranjit Shahani ,Vice-Chairman & Managing Director • Asha Mirchandani ,Executive Finance Director • Dr Rajen Mehrotra ,Director Novartis India

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• •

Sudhakar D. Kulkarni ,Director Dr Jesus Acebillo ,Director

Subsidiaries • • • • • • • • • • • • • • • • • • • •

Hexal Pharma Private Limited Novartis (Bangladesh) Limited, Bangladesh Novartis (Singapore) Pte. Limited, Singapore Novartis (Thailand) Limited, Thailand Novartis Animal Health GmbH, Austria Novartis Animal Health Services AG, Basel, Switzerland Novartis Animal Health Australasia Pty. Limited, Australia Novartis Consumer Health S.A., Basel, Switzerland Novartis Healthcare Philippines, Inc., Philippines Novartis Healthcare Private Limited Novartis International AG, Basel, Switzerland Novartis Pharma AG, Basel, Switzerland Novartis Pharma Services Inc., Basel, Switzerland Novartis Pharmaceuticals (HK) Limited, Hong Kong Novartis Pharmaceuticals Corporation, USA Novartis Farmaceutica S.A., Spain Novartis South Africa (Pty.) Limited, South Africa Novartis Vaccines and Diagnostics Inc., USA Sandoz Private Limited Shanghai Novartis Animal Health Co., Limited, China

Novartis India

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Business Model

Raw material is brought to the manufacturing plant; usually the entire manufacturing occurs in the small location by Novartis Itself. In some cases, pre- processed materials are bought. Packaging is very essential in drugs due to stringent laws about information they carry and the quality packaging is what differentiates a brand from another.All the finished drugs are stored in the central warehouse. From here they are transported by road to the various locations .depending upon type of drug, it is accordingly distributed in pharmacy outlets or directly sold to customers.

Business Segments The businesses comprise Pharmaceuticals, Generics, OTC and Animal Health. The operational performance of the business is reviewed by the management based on such segmentation. (i) The Pharmaceuticals segment comprises a portfolio of prescription medicines which are provided to patients through healthcare professionals. These are mainly products of original research of the Novartis Group. (ii) The Generics segment comprises Retail Generics products. The business unit primarily focuses on the therapeutic segments such as Anti-TB, Anti-DUB (Gynaecology), Antihistamines, Antibiotics, Anti-ulcerants, Anti-diabetes and Cardiovascular. (iii) The Animal Health segment has a presence primarily in the cattle, poultry and aquaculture market segments. Novartis India

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(iv) The OTC segment is mainly in the VMS (vitamins, minerals and nutritional supplements) and CoCoA (cough, cold and allergy) market segments. Pharmaceutical The Domestic pharmaceutical market is going through a transformation, led by strong underlying growth drivers and has witnessed robust growth over the last couple of years. While this growth was driven mainly by an increasing spend on healthcare, on account of rising disposable income, increasing penetration of Health insurance and changing disease profile, regulatory reforms also provided a significant boost.

Growth Drivers •

Strong economic growth

The rise in disposable income has a positive impact on healthcare spend. In 2005, 6.2 percent of disposable income was spent on healthcare as compared to 2.8 percent in 1995. •

Improving healthcare infrastructure

At present, organized players account for a meagre 2 percent share of the pharma retail market. It is expected that with the advent of modern retailing in India, increasing investments in this space will multiply the availability and accessibility of pharma products. •

Increasing penetration of health insurance

At present, only 4 percent of the healthcare costs are borne by the insurers in India as against 80 percent in developed economies. With increasing health insurance penetration in India, this is set to change and forward, a larger proportion of expenses will be paid by insurers and consumption of sophisticated drugs is likely to become more affordable. •

Changing therapeutic mix

The existing therapy mix is tilted towards acute diseases. However, in the medium to long run the domestic pharmaceutical market will be largely driven by the increasing prevalence of the chronic segment. Increasing urbanization, changing lifestyles and ageing population will drive the growth of this segment. In most cases, ailments in the chronic segment are recurring in nature, which ensures regular consumption of medicines for the lifetime of the patient. Going forward, therapies for treating cardiovascular diseases and diabetes are expected to have one of the highest growth rates. •

Growth across regions

In terms of the geographical distribution of the Pharma market, 23 Metro cities account for approximately a quarter of the market. Class I towns— comprising 300 towns altogether— account for about one-third of the market. Rural markets which account for 21 percent of the total market have been increasingly becoming an important market for big pharma companies. •

Government initiatives

The National Rural Health Mission (NRHM), introduced by the government to provide basic healthcare amenities in the rural areas, is expected to increase the access to drugs in the rural Novartis India

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areas. In Budget 2007-08, the budgetary allocation to health was increased by 22 percent to INR 1, 52,910 million. •

Launch of patented drugs

After the product patent regime was introduced in India in 2005, the domestic pharma industry has witnessed the launch of around 11 patented products by multinational companies. This number is expected to grow, as MNC pharma companies are already planning significant patented launches over the next few years. Various industry estimates suggest that by 2015, patented drugs will account for 10-15 percent of the domestic pharma market. Key considerations •

PPP

70 percent people in this country do not have access to modern medicine. 700 million people in a population of 1 billion. That is a problem that the government needs to solve. There has to be a public private partnership to reach medicines to these 700 people •

Spurious drugs

According to the Mashelkar committee report, the industry faces a loss of around INR 40 billion due to substandard drugs and a WHO report suggests that 35 percent of spurious drugs of the world are being produced in India. Spurious and counterfeit drugs are a major public health hazard. •

Price control

Uncertainties regarding the Draft Pharmaceutical Policy 2006, which proposes to bring 354 essential drugs under the purview of Drug Price Control Order (DPCO) continues to be an area of acute concern for the industry. The pharma industry feels that regulation should try to simulate the "effects of competition" and price control should not be imposed on drugs where the "effects of competition" already exist. The proposed policy would significantly increase DPCO’s span of control from the existing 25 percent to approximately 50-60 percent of all medicines produced. •

High fragmentation

A report by the Institute for Studies in Industrial Development (ISID), a national level policy research organization in the public domain, mentions that in 2000-01 there were approximately 2872 pharma units in India and out of these 91 percent were small manufacturing enterprises. Challenges •

Uncertainty about price control regime looms Large

•

Changes in regulatory environment e.g. VAT,MRP based Excise, Service Tax etc.

•

Evolution and enforcement of IPR

•

Continuing problem of counterfeit/spurious drugs

Planned Actions •

Market Access Initiatives

•

Life cycle management initiatives

Novartis India

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•

In-licensing opportunities

•

Likely consolidation in the highly fragmented industry

2007

2006

Segment Revenue

3,834,495

3,642,732

Segment Result

819,767

913,981

Segment Assets

1,047,613

939,521

Segment Liabilities

585,280

479,739

Capital Expenditure

20,132

27,953

Depreciation/Amortisation

15,341

5,748

•

The Pharmaceuticals business registered a growth of 5% over the previous year with sales of Rs 3835 million.

•

Higher sales of the Voveran® range, the No. 1 Non-Steroidal Anti-Inflammatory drug in India, due to the epidemics of chikungunya and dengue fever partially offset by a price reduction in Tegrital™.

•

An initiative branded ‘Project Orchid’ launched to build on Diversity and Inclusion received Novartis Group recognition

New products and line extensions introduced during the period under review were: –

Pain & Inflammation , Voveran Plus

–

Epilepsy ,Epitril MD

–

Ophthalmology ,Vitalux Plus

The business continues to hold leadership position in major therapeutic areas such as: –

Gynaecology, Methergin and Syntocinon

–

Transplantation & Immunology, Sandimmun Neoral

Novartis India

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Generics Indian companies are increasingly advancing beyond domestic boundaries and are aggressively focusing on making their mark in the global generics space. In order to reduce their dependence on the U.S. market, Indian pharma companies are now entering new and underserved generics markets across different geographies such as Japan, South Africa, European and Commonwealth of Independent States(CIS) countries and Latin America. While the global generics industry continues to remain under severe pricing pressure, the Indian generic drug makers continue to spread their wings across different international markets. Growth Drivers •

Increasing use of generics

Globally, the generics industry is expected to grow at a Compound Annual Growth Rate (CAGR) of 11 percent between 2006 and 2010 and touch USD 94 billion by 2010. At present, India has only 10 percent market share in this industry. •

Regulated markets

U.S. - The world’s largest generics market, European Union (EU) – regulatory reforms to drive growth and Japan – Low generics penetration and Government legislation to drive growth

•

Emerging markets

Emerging markets such as Russia and the CIS nations, Eastern Europe; Brazil and other Latin American countries and South Africa are increasingly being viewed as highly remunerative markets. •

India’s competitive position

In order to remain competitive and maintain their dominance, Indian players have realigned and restructured their operating paradigms reflected in lean cost structures, vertically integrated models, geographically diversified presence, vast product baskets and increasing presence in niche segments. •

Enhanced focus of niche specialities

•

Consolidations

Today, the top 10 global generics companies collectively have a market share of over 50 percent of the global generics market. This is likely to have a positive effect and reduce pricing pressure in the global generics market, to some extent. Key consideration •

Pricing pressure

Novartis India

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the generics market will expand. It is a growing market and opportunities still exist. The severe pricing pressure will continue and eventually it will become a volume game. The key factors that will become very important to succeed in the generics business will be the ability to differentiate oneself in terms of technological development and cost optimization. •

Multiple markets

The success of companies in these markets will depend on factors such as: • Entry strategy • Ability to comply with regulatory complexities • Building product portfolio based on disease profile of each country. •

China competition

China is emerging as a strong competitor on the back of its cost competitiveness, strong government support (in the form of incentives), implementation of GMP norms, aggressive focus on exports and the soaring consolidation drive to build large Chinese pharma giants •

Integration problems

Some of the key concerns of the integration process involve people management, managing cultural differences and aligning the goals and ambitions of the staff members with the vision of the merged company. Challenges •

Anti-TB business continues to move towards tender

•

Government imposed price reduction of Anti-TB products

Planned Actions •

Restructured Field Force to improve Productivity

•

Promotional plan to keep loyal customers

•

Use initiatives like ‘JEET’ to differentiate

•

Special promotional thrust for REGESTRONE 2007

2006

Segment Revenue

432,834

551,629

Segment Result

117,646

176,488

Segment Assets

148,995

162,341

Segment Liabilities

72,612

98,328

Capital Expenditure

0

13

Depreciation/Amortisation

3,188

-1,848

The business continues to operate in a challenging environment. Novartis India

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•

The business recorded sales of Rs 433 million decline of 22% over the previous comparable period.

•

The business decided not to participate in the tender business due to

•

–

very low margins.

–

lower volumes in certain products due to competitive pressures

–

de-stocking in certain States due to impending VAT regime

The TB segment witnessed a marginal growth of 4% as compared to the previous year.

Top Products •

Foristal

•

PZA CibaÒ

•

Regestrone

Novartis India

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OTC Challenges •

Announcement of a Government policy for the OTC segment continues to be delayed

•

Sustained investment in brand building

Planned Actions •

New global brands to be introduced in India

•

Continue to grow business faster than market

•

New variants in Calcium range 2007

2006

Segment Revenue

795,750

720,649

Segment Result

111,052

93,871

Segment Assets

177,337

146,656

Segment Liabilities

116,091

105,082

Capital Expenditure

1,874

816

Depreciation/Amortisation

3,570

2,974

•

The OTC business registered sales of Rs 796 million with a growth of 10%.

•

The Calcium Sandoz® range of products consolidated its position as the leading OTC brand in Calcium with significant growth by –

Calcium Sandoz® Softchews

–

Calcium Sandoz® Woman

•

Otrivin®, which enjoys a leadership position in the Nasal Decongestant category maintained its market share under intense competitive pressure.

•

The T-minic™ range of products in the CoCoA (Cough, Cold and Allergy) category posted good growth albeit on a small base.

•

Segment profits were up primarily because of –

higher sales

–

Adoption of effective cost control initiatives.

New products and line extensions introduced during the period under review were: •

Gastrointestinal –

Gascidity® powder, liquid and tablets

Novartis India

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Animal Health Challenges •

Volatility of poultry industry –

Bird flu

–

Price sensitivity

•

Unorganised Dairy business with heavy dependence on Monsoon

•

Cheaper imports & generics dominated market

Planned Actions •

Tiamutin Leadership Marketing

•

Shift of focus to Cattle segment

•

Sales Force Optimisation project

•

Customer and Consumer Excellence initiatives to continue 2007

2006

Segment Revenue

359,291

344,206

Segment Result

30,771

46,393

Segment Assets

180,774

157,258

Segment Liabilities

63,383

45,164

Capital Expenditure

1,576

1,553

Depreciation/Amortisation

2,102

188

•

Animal Health business achieved sales of Rs 359 million with a 4% growth over the comparable previous period despite bird flu which impacted our key poultry brands.

•

This growth was mainly in a product Natuzyme, an enzyme used in feed.

•

Tiamutin® was also another contributor to growth through

•

–

successful implementation of the Tiamutin Leadership marketing initiative

–

upgradation of technical skills of the field force

–

provision of technical services to farmers.

The growth in the cattle segment was primarily due to higher sales of the Calcium range of products.

New product introduced during the year was: –

Antibiotic to treat bacterial infections in cattle , Petromox™

Novartis India

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Research And Development 1. Specific areas in which R&D is carried out by the Company: The scope of activities covers process development in Drugs and Pharmaceutical formulations. 2. Benefits derived from R&D: • Productivity and quality improvements • Improved process performance and better cost management • Enhancement of safety and better environmental protection 3. Future plan of action: Relevant R&D activity in the areas of business operations of the Company will continue with a view to adapt products and processes to improve performance and better meet the end user’s needs. 4. Expenditure on R&D: 1. Efforts in brief made towards technology absorption, adaptation and innovation: Novartis AG, Switzerland continues to provide basic technology and technical know-how for introduction of new products and formulation development. These are adapted, wherever necessary, to local conditions. 2. Benefits derived as a result of the above efforts: New product development, productivity and quality improvements, enhanced safety and environmental protection measures and conservation of energy are the benefits derived. 3. Technology Imported: Novartis AG, Switzerland has provided technical know-how and technology relevant to the areas of business of the Company, as and when required, relating to products, quality, marketing and so on. This on-going process involves visits by employees of both companies to each other’s office sites for discussions and training. Novartis is considered to have one of the best pipelines in Pharma sector.

Novartis India

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Novartis India

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Financial Analysis Income Statement Income

Mar '03

Mar '04

Mar '05

Mar '06

Mar '07

Mar’0 8

Sales Turnover

478.85

511.58

478.35

529.16

548.38

563.85

Excise Duty

6.8

5.79

5.86

2.9

7.32

7.53

Net Sales

472.05

505.79

472.49

526.26

541.06

556.32

Other Income

37.44

38.12

33.52

54.32

47.17

60.61

Stock Adjustments

17.49

-23.17

14.62

2.33

5.24

5

Total Income

526.98

520.74

520.63

582.91

593.47

65.61

Expenditure

Mar '03

Mar '04

Mar '05

Mar '06

Mar '07

Mar ‘08

Raw Materials

266.59

240.32

243.2

260.85

249.25

250

Power & Fuel Cost

12.08

11.01

11.85

1.89

1.87

1.88

Employee Cost

43.62

43.77

44.51

50.15

55.18

57

Other Manufacturing Expenses

2.39

2.22

2.83

8.01

9.1

9.3

Selling and Admin Expenses

75.27

80.35

83.79

85.53

100.47

100

Miscellaneous Expenses

30.3

32.72

32.43

34.68

47.88

45

Preoperative Exp Capitalised

-3.72

-4

-4.62

-1.02

-6.47

-4

Total Expenses

426.53

406.39

413.99

440.09

457.28

459.18

The overall sales figures areon a growing trend and shall grow at a fasterpace in the coming years. with the reduction in excise duties , income should improve considerably. But the expenses which have been more or Novartis India

Page 16

less constant. The sharp decrease in power and fuel expense is due to sale of assets in 2006.

Novartis India

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Quarterly Results Dec '06

Mar '07

Jun '07

Sep '07

Dec '07

Mar ’08

Sales Turnover

148.7 2

123.8 6

138.8 3

147.8 8

136.1 8

140.96

Other Income

9.79

20.78

12.11

16.09

16.41

16.00

Total Income

158.5 1

144.6 4

150.9 4

163.9 7

152.5 9

156.96

Total Expenses

124.8 5

109.0 2

114.8 6

114.2 3

116.1 5

115.08

Operating Profit

23.87

14.84

23.97

33.65

20.03

25.88

Gross Profit

33.66

35.62

36.08

49.74

36.44

41.88

Interest

0.15

0.2

0.14

0.14

0.24

0.24

PBDT

33.51

35.42

35.94

49.6

36.2

41.64

Depreciation

0.65

0.66

0.68

0.71

0.73

0.71

PBT

32.86

34.76

35.26

48.89

35.47

40.93

Tax

11.79

10.89

12.42

18.5

13

15.16

Net Profit

21.07

23.87

22.84

30.39

22.47

25.77

sales have recovered after march last year and also other income has come in.the quarter 3 showed lesser sales due to animal health segment being hit. But considering the renewed focus on cattle, this segment will be able to catch up and a profit will be observed.

Novartis India

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Balance Sheet Mar '03

Mar '04

Mar '05

Mar '06

Mar '07

Mar ’08

Total Share Capital

15.98

15.98

15.98

15.98

15.98

15.98

Reserves

227.6

239.8

268.39

321.62

372.6

461.19

Net worth

243.58

255.78

284.37

337.6

509.13

Secured Loans

5.51

2.01

2.99

2.41

388.5 8 4.5

Unsecured Loans

3.22

4.06

3.91

3.9

4.7

4.7

Total Debt

8.73

6.07

6.9

6.31

9.2

9.2

Total Liabilities

252.31

261.85

291.27

343.91

397.7 8

527.57

Gross Block

155.49

155.55

152.76

22.41

23.17

23.17

Less: Accum. Depreciation Net Block

53.46

129.79

131.17

12.55

13.53

13.53

102.03

25.76

21.59

9.86

9.64

9.64

Capital Work in Progress Investments

0.45

0.57

0.39

0.21

0.03

0

36.88

106.4

47.53

7.08

3.77

16.52

Inventories

71.98

50.79

65.86

61.32

67.4

70

Sundry Debtors

47.59

68.67

41.59

39.61

42.42

52

Cash and Bank Balance Total Current Assets

32.19

8.58

6.16

4.4

2.9

3

151.76

128.04

113.61

105.33

125

Loans and Advances

76.43

109.63

167.47

232.88

Fixed Deposits

12.7

0.09

58.59

121.46

112.7 2 359.4 3 2.41

Total CA, Loans & Advances Current Liabilities

240.89

237.76

339.67

459.67

577.41

95.28

66.11

74.67

69.28

474.5 6 68.2

Provisions

32.67

42.53

43.24

63.64

22.01

22

Total CL & Provisions

127.95

108.64

117.91

132.92

90.21

90

Net Current Assets

112.94

129.12

221.76

326.75

501.41

Total Assets

252.3

261.85

291.27

343.9

384.3 5 397.7 9

Sources Of Funds

Application Of Funds

Novartis India

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4.5

460 2.41

68

527.57

Ratio Analysis Liquidity

Year Curre nt Ratio

Dr Reddy`s Laboratorie s ‘0 ‘0 ‘0 7 6 5 4. 6

3. 5

Glenmark Pharmaceu tical ‘0 ‘0 ‘0 7 6 5

3. 7

4. 0

5. 3

Matrix Laboratorie s ‘0 ‘0 7 6 05

5. 1

1. 6

1. 7

1. 9

Novartis India ‘0 ‘0 ‘0 7 6 5 5. 3

3. 5

3. 3

Sun Pharmaceu tical ‘0 ‘0 7 6 ‘05 6. 5

6. 0

7.7

The current ratio for top pharmaceutical companies is high due to high current assets in the form of inventories and high loans and advances. The sudden leap in Novartis India’s current ratio is due to reduction in current liabilities by approximately 55% in ’07. Leverage

Year Debt/Equ ity LTD/NW

Dr Reddy`s Laboratori es ‘0 ‘0 ‘0 7 6 5 0. 0. 0. 1 4 1 0. 0

0. 0

0. 0

Glenmark Matrix Sun Pharmaceu Laborator Novartis Pharmaceut tical ies India ical ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 ‘0 7 6 5 7 6 05 7 6 5 7 6 ‘05 2. 2. 1. 0. 0. 0. 0. 0. 0. 0. 1. 1 7 8 2 2 1 0 0 0 4 2 1.7 1. 1

1. 9

0. 4

0. 0

0. 0

0. 0

0. 0

0. 0

0. 0

0. 4

1. 2

1 6.4

The debt/equity ratio is low because of comparatively low debt of these companies. most of their debt is long term secured loans. the ratio for Novartis tends towards 0 due to a very low debt. But there has been an upward trend in the last 3 years. Company

Industry

Sector

S&P 500

Quick Ratio (MRQ)

1.32

1.47

2.16

1.18

Current Ratio (MRQ)

1.65

2.06

2.88

1.7

LT Debt to Equity (MRQ)

0.01

0.24

0.33

0.47

Total Debt to Equity (MRQ)

0.12

0.34

0.41

0.57

Novartis India

Page 20

By comparing the financial strength of Novartis with others we realise that, as the ratios are low there is potential to increase current assets and also to raise debt.

Novartis India

Page 21

Profitability Dr Reddy`s Laboratories

Glenmark Pharmaceuti cal

Matrix Laboratories

%

‘07

‘05

‘07

‘06

‘05

‘07

‘06

05

‘07

‘05

‘07

‘06

‘05

RONW

2 7.1

9.5

3.2

3 1.2

2 3.9

2 5.6

1 0.2

2 1.0

2 0.9

2 3 2 2.8 2.0 2.9

2 5.9

3 2.0

2 8.3

Tax/PB T

1 2.8

8.9

0.0

4.7

9.7

1 8.4

1.8

7.1

2 3.8

3 2 3 5.5 8.3 1.5

1.1

1.8

2.1

Gross Profit

3 9.9

1 6.1

1 1.7

2 8.0

2 0.1

2 5.2

1 9.5

3 4.0

2 9.1

1 2 1 7.9 1.0 6.4

2 5.8

2 6.5

2 9.2

Net Profit

3 1.1

1 0.5

4.2

1 7.2

1 2.5

1 3.7

1 3.3

2 7.3

2 0.5

1 2 1 6.3 0.5 3.8

2 8.7

2 8.1

2 6.3

‘06

Novartis India ‘06

Sun Pharmaceuti cal

Profitability improved in ’06 but slumped in ’07 due to Animal Health division affected by bird flu and change in employee benefits policy in ’07. the Tax margin is affecting the bottom line. Lower R&D and depreciated assets have resulted in higher tax. Company

Industry

Sector

S&P 500

Gross Margin (TTM)

71.67

71.28

67.32

44.14

EBITD Margin (TTM)

22.18

28.24

24.15

23.2

Operating Margin (TTM)

17.41

21.95

19.37

19.48

Pre-Tax Margin (TTM)

19.22

21.92

19.04

17.89

Net Profit Margin (TTM)

16.79

16.95

13.93

13.18

High non operating income and low depreciation are the peculiarities seen in Novartis India. Activity Dr Reddy`s Laboratorie s

Glenmark Pharmaceut ical

Matrix Laboratorie s

Days

‘07

‘06

‘05

‘07

‘06

‘05

‘07

‘06

05

‘0 7

‘0 6

RM Inv

15 4

23 8

21 6

25 0

21 6

14 9

19 6

15 4

17 3

7

6

FG Inv

10

18

19

38

35

50

5

10

13

5 0

4 7

Novartis India

Page 22

Novartis India ‘0 5 1 4 5 0

Sun Pharmaceutica l ‘07

‘06

‘05

16 0

-158 0

-234 1

19

17

19

Recv.

99

10 1

94

18 9

17 4

13 1

10 0

10 7

75

2 8

2 7

3 2

50

55

71

Credito rs

88

11 2

92

80

62

58

10 7

97

73

4 2

4 1

4 7

15

23

36

The very low inventories of raw materials is due to actual production being done in subsidiaries abroad, which also causes higher Finished goods inventory considering longer lead times. Low receivables and creditors reflect the efficiency of the staff. Company

Industry

Sector

S&P 500

Revenue/Employee (TTM)

396,609

444,977

588,984

922,822

Net Income/Employee (TTM)

66,599

75,343

96,608

115,491

Receivable Turnover (TTM)

6.08

6.09

7.06

10.3

Inventory Turnover (TTM)

2.22

2.87

4.05

12.15

Asset Turnover (TTM)

0.54

0.64

0.78

0.96

The turnover ratios are low reflecting the efficiency but the per employee ratios are reflecting low productivity. It seems that excess employees are affecting the turnover ratios.

Valuation Dr Reddy`s Laboratories %

‘07 70

EPS

‘06 27

‘05 8

Glenmark Pharmaceuti cal

Matrix Laboratories

Novartis India

Sun Pharmaceutic al

‘07

‘06

‘05

‘07

‘06

05

‘07

‘06

‘05

‘07

11

5

5

6

11

8

27

33

20

1 5.0 105

Div /share

3.8

5.0

5.0

0.8

0.7

0.8

0.0

1.2

1.2

1 0.0

Book Value

259

289

267

36

23

20

63

56

41

121

‘06

‘05

32

24

16

1 0.0

6.7

5.5

3.8

89

125

77

58

Book Value and EPS are at considerably good in contrast to others. the payout ratio is high for Novartis and they had announced 200% dividend in the past 2 years. Novartis India

Page 23

Company

Industry

Sector

S&P 500

P/E Ratio (TTM)

18.21

22.74

25.17

19.72

Beta

0.49

0.61

0.77

1

This reflects the security of investing in the firm and the potential for P/E to increase.

Novartis India

Page 24

The way ahead Considering that Novartis was unsuccessful in getting patent for Glivec , it was a setback for them. They are now reconsidering their decision about setting up research infrastructure in India. They may now concentrate on China instead. The 500 Cr Hyderabad campus shows the importance Novartis is giving India as an emerging country. The pharmaceutical companies are expecting an excise duty cut from 16% to 8%. This will be beneficial to the consumer and organizations. Also the patent regulations should be sorted in India soon for MNC companies to develop their products in India. Consolidation of Indian firms and high number of unregulated players in this sector is a threat to Novartis in the future. Also CRAMS is going to be a threat to subsidiaries like Novartis India. But the fact remains that Novartis has one of the best pipelines, which shows their commitment towards research. This also implies their future potential in releasing new drugs.

Novartis India

Page 25