Gurmeet SinghFebruary 21-23 2012

Global Sourcing

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Where are the ‘New’

regions for growth and

how sustainable are

they??

Global Sourcing

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‘...the greatest threat to the drugs industry is not a lack of innovation, because there will always be plenty of problems to solve….the biggest problem is the trouble the government and society will have in providing the healthcare for an ageing population with greater and greater need. The economics of the provision of healthcare is the big problem, and if the Industry doesn’t see that, then it is looking down the wrong end of the telescope…’

Looking Back to take a step forward…..

‘Merck Vs Glaxo The Billion Dollar Battle’ by Mathew Lynn 1991

Economic Scenario

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In Germany the Economy humsand the Euro Crisis is elsewhere Dec 25 2011/ Aaron Wiener, Los Angeles Times

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Presentation Flow

How the changing structure of the Pharma industry is affecting ingredients sourcing

Are India and China still the places to go ( and for how long) – does the Cost - Benefit stack –up?

Supplier Innovation and Potential gains

Analyzing the Asian Pharma market – a generics hub with a competitive skill base

The KODAK Moment – Picture Perfect ?

The Company which gave the world its 1st Digital Camera in 1975 and had the

MC of US$ 28 Bn in 1997 crashed to US$ 100 Mn in 2010

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The ‘Patent Cliff’ Challenge

2012 PE

Sourcing efficiencies + Collaborative approach – is the Key

2006 PE 2006 PE 2011 PE

2021 PE 2016 PE

What Strategy do we Employ to keep ourselves in the reckoning

Challenge the Status Quo

Organizations need to keep pace with the Rate of ChangeRun in order to remain in place

World is Flat – New set of rules for New Challenges

Keep Strategizing, Keep Benchmarking

Searching Questions…

Will there be another Drug

like LIPITOR ??

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The Answer is ….

May be … may be not !!!

or is it a qualified NO!•Fundamental shift in understanding of Biology•New drugs - compete with Super generic versions•8 on 10 prescriptions are for generics•Focus on higher priced specialty products for patients- not helped by existing options•New Tech – u/standing Bio and Genetics – easier cheaper and faster to develop new medicines

9One - size - fits - all is on the way out

Patent Protection - Patent Cliff Vs Innovation

Improved & extended lives – controversies – profits ahead of people’s well beingPatent protection leading to Innovation?! – financial crisis, less margins – lowerR&D spend – fewer new drugs, block busters Vs urgently needed medicinesEver greening of Patents PE impacts $160 Bn -2015

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Innovation – thrive w/o patents – who owned the Polio vaccine patent – there is no patent – could you patent the Sun ? – Jonas SalkEarly 1900s- Swiss chemical companies Ciba, Geigy & Sandoz – began Aspirin developed by German Bayer 1977 – Swiss introducedpatents on medicines

Patent system should benefit society through Innovation

What Next - survival after the Patent Cliff

Proactive Management of Patent Expiry can prevent leaving valuable profits on the table

What will happen after Patent Expiry Get your house in order & streamlined for

success Understand when and how you can compete

and develop tactical plans accordingly

11 Pfizer - best performing Pharma stock in 2011 closed 24% higher compared to beginning 2011

Mkt Cap $166 Bn

Actavis -

Western Generic drug makers need to adapt to

cope with the rapid changes in Pharmaceuticals

markets that are blurring the distinctions between

innovator companies and makers of cheaper

generic versions.

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--- views of Mr Claudio Albrecht CE Actavis

Sign of the Times – Read them well !

Emerging Patent Cliff- decline in revenue growth & Margins reduced Shareholder returns ---- force companies to ADAPT and therefore a compelling reason for Increased Collaboration

Servicing drugs for 2020 would require New Skills, Technologies and Channels Infrastructure – Uneconomic for any Co. on a

stand-alone basis

Economic Compulsion to Collaborate – a necessity

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Alliances Partnerships and Acquisitions

Collaboration amongst Big Pharma e.g GSK – Pfizer;

BMS - AstraZeneca & BMS - Pfizer BMS String of Pearls Strategy – innovative alliances

partnerships and acquisitions with small and large companies –

BMS – AstraZeneca Saxagliptin and Dapagliflozin

BMS – Pfizer Apixaban – an IV anticoagulant

examples of Co- development and

Co-commercialization agreements 14

What Next ….Patent Cliff - India

15Strategy Vs Execution

Strategy with Execution is a slow road to success,Execution w/o Strategy is the Noise before Defeat-

Pharma Trends …

Profit alone Vs Profiting TogetherManage Networks Vs Scientific ExpertiseProducing Medicines to Managing OutcomesIndustry Architecture under transition

- who does what - who takes what ??2020 – No Pharma Co will be able to Profit aloneCollaboration would be Do or Die requirement for the Pharma companies

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Economic Rationale for Collaboratio

n

APPLE redefined Music sector- retained itunes Software

Creating & Orchestrating Networks of Relationships- by Controlling rather than Owning

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Presentation Flow

How the changing structure of the Pharma industry is affecting ingredients sourcing

Are India and China still the places to go ( and for how long) – does the Cost - Benefit stack –up?

Supplier Innovation and Potential gains

Analyzing the Asian Pharma market – a generics hub with a competitive skill base

API Manufacturer Rating

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API Manufacturers Number of Companies

Established 168

Less Established 267

Potential Future 304

Local 1500

Source : Thomson Reuters

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US DMF Filings by API Manufacturers: 2000 – 10

Source: Newport Horizon Premium™

India : > 100 USFDA approved manufacturing sites

API Manufacturers Spread

20API Manufacturers supplying to Regulated Markets

The Geographical

Shift

FDA Inspections 2000 2009

India & China 08 70

Sourcing Complexities & Strategies

• Growth in Pharmerging – sustainable till reliable and cost competitive

• Stricter adherence to GMP compliance

• New Technological developments – may act as threats / speed breakers to sustained growth

• Innovation – uphill task for India & China

• Innovators – reluctance to transfer new and complex technologies

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Sourcing Geographies: Key Differences-APIs

Cost

Technology

API

RMI

Regulated Market Focus

Compliance

Source: UBS + IH

India China – Balance Scorecard

India ChinaAPI to FDFs Engg and Scientists

FDA approved Units Infrastructure

IP Protection IP Environment

In Process Engg US FDA Units on increase

Cost Advantages Quality Up Grades

Basic Research to CTs Fermentation & Basic RMs

Talent Pool Scale & Capacity

Government Support

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India – China – a Comparison

Total Trade - Sino India US$ 20 bn US$ 40 bn

Export of API, Intermediate & Chemicals

~US$ 500mn US$ 3.3 bn

% of GDP spent on Healthcare 4.5% 4.7% (↑5.5%)

Pharma Sales in 2010-11 US$ 12.6 bn US$ 50 bn

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Demand - Supply Analysis

API supply side – Excess Capacity; Intense Competition

Capacity Increase: impacting Margins e.g 7ACA,

Cephs

EU Capacities contained – shift to Asian sub-continent

e.g Clavulanic Acid

26Over capacity pressurizing prices to soften

Company Capacity p.a (in Mts)

Livzon (Joincare) 1,800

Youcare* 2,000

CSPC 1,500

Zhuhai United 1,200 (Captive Use )

NCPC 1,000 + 2,000 (by 2011)

Fukang 1,000

Shandong Lukang 900

Harbin 750

Weiqida 1,000

Sandoz 1,000

Lihairun 1,000 (pending)

Kelun 2,000 (pending)

Tonglian 1,000 (pending)

Price in last 1 year: Oct 2010: 850 rmb+ Oct 2011: 450 rmb+

The actual cost is approx. 500-550 rmb

Strategic tie-up is the waySupply Securitization, Fair & Stable prices

7 ACA – China - a Supply Side Review

* suspended due to unfavorable market situation* suspended due to unfavorable market situation

Return to the West – Reverse Swing

Quality issues in the East – China e.g Heparin

India Companies for FDFs – APIs from EU API Mfgrs

Technologies in West - Manufacturing Efficiencies

Niche Segment - Facilities and Technical Capabilities

US government hospitals insist that FDFs from Asian

countries to use APIs sourced from US/EU countries

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Return to the West – Reverse Swing

Investment in Continuous Mfg and Micronization

HPAPIs - Sigma Aldrich expansion $18 Mn Israel (‘07) - Novasep > $ 12 Mn in France

- Dishman - Carbogen Amcis in India

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Sourcing Trends - a Mixed Bag

Pharmerging markets - BRIC substantial growth

API manufacturing - China+ India > Brazil & Russia

India focus on FDFs - Excess Capacities

- dependence on China APIs

China emphasis on GMPs - Costs & Consolidation

2015 - Oncology and Orphan drugs - Niche APIs

- Advantage European Manufacturers

29Reverse Swing based on Green Tech, Niche & HPAPIbalanced manufacturing base

Diminishing Cost Advantage

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Presentation Flow

How the changing structure of the Pharma industry is affecting ingredients sourcing

Are India and China still the places to go ( and for how long) – does the Cost - Benefit stack –up?

Supplier Innovation and Potential gains

Analyzing the Asian Pharma market – a generics hub with a competitive skill base

Innovation and Potential Gains

• Innovation / Nanovation – the differentiator in 2nd/3rd generation molecules• Sustainable innovation – how long ? Competitive

advantage – but need to review • Process innovation capabilities – Big scope of gain• Spiraling competitive knowledge - greed to

outperform – downfall• 'Co-opetition’- Ray Noorda (the founder of Novell)

a mind-set that combines cooperation and competition. Indian Context – LAZORR

31 Innovation – a Must to keep afloat

Key Factors to Drive Innovation

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Economies of Scale - Sustainability

Essential for Economic Viability

Value Add, Absorb and Implement

Enables Companies to experiment

Better ways to reduce Costs

Improvise through Value Addition & Execution

Key Factors to Drive Innovation

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Essential Growth Driver

Strategic Tie-Up an enabler

Region Specific

Close working with Govt. Advantage – Policy frame-work

Breed Cross Organization Synergies

Flexibility to use the Key Value Driver through Geographies

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Key Factors to Drive Innovation

Winning Strategy

Amongst Companies, Companies with Universities

Necessary Condition

Support: Affordability

Stable Currency

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China – a formidable force

Largest API player

70% market share 1,200 API Mfrs >5,000 local

pharma Cos.

Exports> $18bn

China Exports to India> $3bn

India Exports to China

$0.5bn

Govt invst$125bnby 2020

GDP on healthcare

4.7%

MNCs investing – Long Term;MS < 2.5%

Scale - Large Capacities Pricing – is the KEY Red carpet welcome Learning attitude

Fixed-asset investment in pharma in Jun-11:$19.7 bn; ↑ 38%

3rd largest Pharma market

by 2013-14

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China – A Proactive Approach

IPR protection improving; enforcement - an issueM&As – way to move forward

Merck KGaA Beijing Skywing Technology GSK Nanjin Meirui

‘Aligning with Locals’ – a winning strategy Pfizer & Shanghai Pharmaceuticals

Two-way business investments & sourcing Shanghai Pharma –> $3 bn contracts - over 60 MNCs

Holistic strategies – entire Life Style medicationIncreasing collaboration; MNCs & local Universities

Trust is building up with local companies

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Learnings from China

Economies of Scale : Leverage on strengths

Highly Supportive Government Investment Plans - US$ 760 mn for APIs Mfrs Healthcare Reform Plan-2009 – basic medical coverage,

modernize health infra & improve grassroots healthcare Highly favorable currency exchange policy By 2020, entire population to be covered under public

medical insurance NCMS-2003 – largest public health insurance programs

New Rural Cooperative Medical Scheme – Premium sharing between household & Govt. in the ratio of 1:2

Learning Attitude

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Presentation Flow

How the changing structure of the Pharma industry is affecting ingredients sourcing

Are India and China still the places to go ( and for how long) – does the Cost - Benefit stack –up?

Supplier Innovation and Potential gains

Analyzing the Asian Pharma market – a generics hub with a competitive skill base

Way Forward – Paradigm Shift

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Improve R&D productivity

• Selling Medicines to Managing Networks and Outcome - Controlling Vs Owning

• Tap potential of EM

Co-Opetition - Collaborative competition

India Pharma Figures 2011 Vs 2010

Year Indian Pharma Market

2010 52000 Cr US$ 10 Bn 2011 60000 Cr US$ 11.75 BnGrowth 15 %

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Growth % -Anti-Diabetic- 25, Vitamins - 19 , Cardiovascular- 17, Derma - 17, Anti Invectives - 11

Company Growth (%) Company Growth (%)

Sun Pharma 24 Cipla 12.3

Lupin 19 DRL 8.5

Ranbaxy >17 Aristo 7.8

Mankind >17 Pfizer 26

Alkem >17 Sanofi Aventis 24

Top 10 Pharma Coy – 38% MS; Pfizer & Sanofi – MS >2%

Evolving Business Models - India

.

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Export Oriented Business CRAMSCipla, DRL, Dishman, GVK

LICENSING – In & Out

Franchising

Partially or Wholly Owned

subsidiaries

Joint Ventures

Into IndiaPfizer, GSK, Novartis

From IndiaDishman, GlenmarkOrchid, Aurobindo

Elder – EnzymotecElder – DaiwaLupin- Ital Farmaco

Ethypharm- SolvayGlenmark – ForestGlenmark - Teijin

Novamax- CadilaNovatech – ETI Klinical

Fortis HealthcareMedicine ShoppeSource : PricewaterhouseCoopers

Greed to Good

Capitalism in the past to now Responsible Capitalism

Co-Opt Capitalism - community does matter

The idea of collaboration may be a better organizing principle than competition is, in a new economic idea but what makes successful companies and economies succeed , we have been learning that collaboration is an incredible tool..….all success in technology over the past decade – from Wikipedia to group purchasing via the internet to open source – are all collaborative models

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Noreena Hertz

Alienation Vs Interdependence

We need to think more seriously than ever about how we encourage people to focus on productive outcomes that advance and unite civilizations- peaceful imaginations that seek to “minimize alienation & celebrate interdependence rather than self sufficiency, inclusion rather than exclusion” openness, opportunity and hope rather than limits, suspicion and grievance

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- Irving Wladawsky- Berger – IBM

The World is Flat by Thomas Friedman

‘Interdependence is a higher value than independence’ - Stephen Covey

Its fable time

Slow and Steady wins the race?

The story still hasn't ended …

Version #1

Its better to be fast and reliable

Identify Core competency and change the playing field

Version # 2

Version # 3

letting the person with the relevant core competency for a given situation take the baton

Version # 4

Distributive leadership

Collaborate – an Economic Compulsion & a way Forward

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The Pharmaceutical industry thrives on human misery…..

…..but as the providers of healthcare solutions, it would be our responsibility to society to provide a soothing balm and showcase ourselves as partners in leading healthier lives, without the borders of misery ruling the patients lives… …it is here that the collective wisdom of this august group would come to play, in an environment often seen to be as one who profits at the cost of human lives

T h i n k!

- V Vijayendran

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Think Beyond

Stay Ahead

‘Interdependence is a higher value than independence’ - Stephen Covey

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Orchid’s API Facilities, INDIAwww.orchidpharma.com

Thank You! Merci! Danke! どうもありがとうGurmeet Singh

gurmeetsingh144@hotmail.comgurmeetsingh@orchidpharma.com+ 91 95000 34345

Manufacturing - Alathur, ChennaiManufacturing - Alathur, Chennai R&D - Sholinganallur, ChennaiR&D - Sholinganallur, Chennai Manufacturing - AurangabadManufacturing - Aurangabad

Questions welcome

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with_Dow_Cornings_CEO_and_CTO_2805 http://www.pharmabiz.com/ArticleDetails.aspx?aid=65147&sid=9 http://www.marketresearch.com/GBI-Research-v3759/Active-Pharmaceutical-Ingredients-API-Asia-6444687/ http://www.indiainfoline.com/Markets/News/Pharmaceuticals-market-in-India-by-2020-A-Healthy-Decade/

5251255933 http://www.merck.com/newsroom/news-release-archive/corporate/2011_0411.html http://www.abbott.com/global/url/pressRelease/en_US/Press_Release_0856.htm http://www.in-pharmatechnologist.com/Materials-Formulation/India-set-to-overtake-Italy-in-API-production http://www.in-pharmatechnologist.com/Product-Categories/Ingredients-excipients-and-raw-materials/FDA-awards-

35m-to-improve-US-drug-production http://www.in-pharmatechnologist.com/Product-Categories/Ingredients-excipients-and-raw-materials/DSM-and-

Sinochem-s-anti-infective-ingredients-JV-gets-green-light http://www.frost.com/prod/servlet/cpo/243036823 http://www.prlog.org/10970225-market-report-china-pharmaceuticals-healthcare-report-q4-2010-published.html “China’s Pharmaceutical Industry – Poised for the giant leap”; Report by KPMG http://www.chinadaily.com.cn/usa/business/2011-10/28/content_13997107.htm “The Global Generics Market,” CPHI Preconference, Frankfurt, 24-Oct-11 Publications from PWC, Mckinsey, Scrip and host of other magazines and articles . Discussions and inputs from Industry players and friends which include GSK, Ranbaxy, Pinewood, MSN Laboratories,

Signet amongst others