Global Sourcing in Pharma

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This presentation was made in Pharmasource Munich 2012 and covers the aspects of Pharma API and Intermediate sourcing. The presentation covers the following sub topics
1. How the changing structure of the Pharma industry is affecting ingredients sourcing
2. Are India and China still the places to go ( and for how long) – does the Cost - Benefit stack –up?
3. Supplier Innovation and Potential gains
4. Analyzing the Asian Pharma market –
a generics hub with a competitive skill base

i may be contacted at gurmeetsingh144@hotmail.com

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Global Sourcing in Pharma

  1. 1. Gurmeet Singh February 21-23 2012 Global Sourcing
  2. 2. 2 Where are the ‘New’ regions for growth and how sustainable are they?? Global Sourcing
  3. 3. 3 ‘...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
  4. 4. Economic Scenario 4 In Germany the Economy hums and the Euro Crisis is elsewhere Dec 25 2011/ Aaron Wiener, Los Angeles Times
  5. 5. 5 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
  6. 6. 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 6 The ‘Patent Cliff’ Challenge 2012 PE Sourcing efficiencies + Collaborative approach – is the Key 2006 PE 2006 PE 2011 PE 2021 PE2016 PE
  7. 7. What Strategy do we Employ to keep ourselves in the reckoning Challenge the Status Quo Organizations need to keep pace with the Rate of Change Run in order to remain in place World is Flat – New set of rules for New Challenges Keep Strategizing, Keep Benchmarking
  8. 8. Searching Questions… Will there be another Drug like LIPITOR ?? 8
  9. 9. 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
  10. 10. Patent Protection - Patent Cliff Vs Innovation Improved & extended lives – controversies – profits ahead of people’s well being Patent protection leading to Innovation?! – financial crisis, less margins – lower R&D spend – fewer new drugs, block busters Vs urgently needed medicines Ever greening of Patents PE impacts $160 Bn -2015 10 Innovation – thrive w/o patents – who owned the Polio vaccine patent – there is no patent – could you patent the Sun ? – Jonas Salk Early 1900s- Swiss chemical companies Ciba, Geigy & Sandoz – began Aspirin developed by German Bayer 1977 – Swiss introduced patents on medicines Patent system should benefit society through Innovation
  11. 11. 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 11Pfizer - best performing Pharma stock in 2011 closed 24% higher compared to beginning 2011 Mkt Cap $166 Bn
  12. 12. 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. 12 --- views of Mr Claudio Albrecht CE Actavis
  13. 13. 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 13
  14. 14. 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
  15. 15. What Next ….Patent Cliff - India 15 Strategy Vs Execution Strategy with Execution is a slow road to success, Execution w/o Strategy is the Noise before Defeat-
  16. 16. Pharma Trends … Profit alone Vs Profiting Together Manage Networks Vs Scientific Expertise Producing Medicines to Managing Outcomes Industry Architecture under transition - who does what - who takes what ?? 2020 – No Pharma Co will be able to Profit alone Collaboration would be Do or Die requirement for the Pharma companies 16 Economic Rationale for Collaboratio n APPLE redefined Music sector - retained itunes Software Creating & Orchestrating Networks of Relationships - by Controlling rather than Owning
  17. 17. 17 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
  18. 18. API Manufacturer Rating 18 API Manufacturers Number of Companies Established 168 Less Established 267 Potential Future 304 Local 1500 Source : Thomson Reuters
  19. 19. 19 US DMF Filings by API Manufacturers: 2000 – 10 Source: Newport Horizon Premium™ India : > 100 USFDA approved manufacturing sites
  20. 20. API Manufacturers Spread 20 API Manufacturers supplying to Regulated Markets The Geographical Shift FDA Inspections 2000 2009 India & China 08 70
  21. 21. 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 21
  22. 22. 22 Sourcing Geographies: Key Differences-APIs Cost Technology API RMI Regulated Market Focus Compliance Source: UBS + IH
  23. 23. India China – Balance Scorecard India China API 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 23
  24. 24. 24 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
  25. 25. 25 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
  26. 26. 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 way Supply Securitization, Fair & Stable prices 7 ACA – China - a Supply Side Review * suspended due to unfavorable market situation
  27. 27. 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 27
  28. 28. 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 28
  29. 29. 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 & HPAPI balanced manufacturing base Diminishing Cost Advantage
  30. 30. 30 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
  31. 31. 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
  32. 32. Key Factors to Drive Innovation 32 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
  33. 33. Key Factors to Drive Innovation 33 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
  34. 34. 34 Key Factors to Drive Innovation Winning Strategy Amongst Companies, Companies with Universities Necessary Condition Support: Affordability Stable Currency
  35. 35. 35 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 $125bn by 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
  36. 36. 36 China – A Proactive Approach IPR protection improving; enforcement - an issue M&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 –> $3 bn contracts - over 60 MNCs Holistic strategies – entire Life Style medication Increasing collaboration; MNCs & local Universities Trust is building up with local companies
  37. 37. 37 Learnings from China  Economies of Scale : Leverage on strengths Highly Supportive Government  Investment Plans - US$ 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
  38. 38. 38 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
  39. 39. Way Forward – Paradigm Shift 39 Improve R&D productivity • Selling Medicines to Managing Networks and Outcome - Controlling Vs Owning • Tap potential of EM Co-Opetition - Collaborative competition
  40. 40. India Pharma Figures 2011 Vs 2010 Year Indian Pharma Market 2010 52000 Cr  US$ 10 Bn 2011 60000 Cr  US$ 11.75 Bn Growth 15 % 40 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%
  41. 41. Evolving Business Models - India . 41 Export Oriented Business CRAMS Cipla, DRL, Dishman, GVK LICENSING – In & Out Franchising Partially or Wholly Owned subsidiaries Joint Ventures Into India Pfizer, GSK, Novartis From India Dishman, Glenmark Orchid, Aurobindo Elder – Enzymotec Elder – Daiwa Lupin- Ital Farmaco Ethypharm- Solvay Glenmark – Forest Glenmark - Teijin Novamax- Cadila Novatech – ETI Klinical Fortis Healthcare Medicine ShoppeSource : PricewaterhouseCoopers
  42. 42. 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 42 Noreena Hertz
  43. 43. 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 43 - Irving Wladawsky- Berger – IBM The World is Flat by Thomas Friedman ‘Interdependence is a higher value than independence’ - Stephen Covey
  44. 44. Its fable time Slow and Steady wins the race? The story still hasn't ended … Version #1
  45. 45. Its better to be fast and reliable Identify Core competency and change the playing field Version # 2 Version # 3
  46. 46. 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
  47. 47. 47 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
  48. 48. 48 Think Beyond Stay Ahead ‘Interdependence is a higher value than independence’ - Stephen Covey
  49. 49. 49 Orchid’s API Facilities, INDIA www.orchidpharma.com Thank You! Merci! Danke! どうもありが とう Gurmeet Singh gurmeetsingh144@hotmail.com gurmeetsingh@orchidpharma.com + 91 95000 34345 Manufacturing - Alathur, Chennai R&D - Sholinganallur, Chennai Manufacturing - Aurangabad Questions welcome
  50. 50. 50 Bibliography  http://www.chemanager-online.com/en/topics/pharma-biotech-processing/pharma-sourcing-india-and-china  http://saffron.pharmabiz.com/article/detnews.asp?articleid=56312&sectionid=50&z=y  Tracking API demand and supply; Patricia Van Arnum, Jan. 2010, Pharmaceutical Technology Europe  http://www.contractpharma.com/contents/view_expert-opinions/2011-06-01/china-vs-india-in-the-api-race-/  http://www.contractpharma.com/contents/view_expert-opinions/2011-09-19/when-the-unexpected-happens/  http://www.contractpharma.com/issues/2011-04/view_india-report/niche-play/  https://www.mckinseyquarterly.com/Energy_Resources_Materials/Chemicals/Innovation_in_chemicals_An_interview_with_  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

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