Pharmaceutical Offshoring Landscape A Syndicated Report


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  • Pharmaceutical Offshoring Landscape A Syndicated Report

    1. 1. Pharmaceutical Offshoring Landscape A Syndicated Report September 26, 2008 Zinnov LLC
    2. 2. R&D expenditure off shored USUSD 2.5 Billion R&D expenditure off shored USUSD 8 Billion Amount of off shored R&D moving to India USUSD 0.125 Billion Rising R&D costs is compelling organizations in the U.S. and EU to look for new low cost R&D destinations such as India and China Amount of off shored R&D moving to China USUSD 0.375 Billion Note: 1. Chinese offshored R & D Market Size estimated as a part of Chinese Offshored Pre-Clinical Market Size Note 2: The drug discovery outsourcing market (preclinical and clinical) in China was worth USD 5.9bn in 2006, the preclinical development market was worth USD 2.5bn., the clinical development market was worth USD 3.4bn in 2006 Countries offshoring Pharma R&D Countries Providing Services
    3. 3. Offshoring engagement models in India are predominantly vendor driven whereas China has a hybrid model dominated by captives Parent Company Captive Vendors Parent Company Captive Vendors Vendors Vendors Note: The model shown are the most common engagement models for the companies studied Vendor Dominant Model <ul><li>The captives work on Clinical Trials and CDM </li></ul><ul><li>While the captive and vendor work in tandem , the vendor has higher percentage of workforce employed for as compared to total number of employees in a captive </li></ul>Hybrid Model <ul><li>As a majority of the activities performed are either research or manufacturing, the captives handle these processes due to IP security related issues </li></ul>
    4. 4. One of the key enablers of the phenomenal offshoring/ outsourcing success to India is the availability of large talent pool at a fraction of the cost India – A Potential Pharmaceutical Hub <ul><li>Besides IT and engineering services, India has a large talent pool to cater to the demands of pharmaceutical outsourcing services </li></ul><ul><li>The cost of conducting research in India is about 20–30 percent of the costs in the developed world </li></ul><ul><li>Over the next five years, India is likely to mature further as a provider of services across the drug development spectrum: </li></ul><ul><ul><ul><li>- Discovery, research, pre-clinical, clinical, </li></ul></ul></ul><ul><ul><ul><li>process formulations, and IT among other areas </li></ul></ul></ul>India Czech Republic Ireland Russia China Philippines Infrastructure Educational System Cost Advantage (relative to high cost countries) Overall Language Compatibility Unattractive Evolving Attractive
    5. 5. Enactment of patent protection laws has reposed the confidence of global pharma MNCs in the Indian market <ul><li>Process Patent </li></ul><ul><ul><li>5 yrs. for Food, Drugs, Medicines, etc. & 14 yrs. for other inventions </li></ul></ul><ul><ul><li>Focus on Generics and Neglect of New Drug Discovery </li></ul></ul><ul><ul><li>Development of Expertise in Reverse Engineering </li></ul></ul><ul><li>Product Patent </li></ul><ul><ul><li>20 yrs. for all inventions </li></ul></ul><ul><ul><li>Reversal of Law in case of violation of Patent from Plaintiff to Defendant </li></ul></ul><ul><ul><li>MPCs to enjoy same IPR in India as they enjoyed elsewhere </li></ul></ul><ul><ul><li>Shifting of focus from Generics to Innovative Drug Discovery </li></ul></ul>Patent Act 1970 Patent Act 2005 Impact <ul><ul><li>Implications on Global Pharma </li></ul></ul><ul><ul><li>Capitalize on growing market in India </li></ul></ul><ul><ul><li>Shift/Outsource manufacturing and R&D to India to capitalize on low cost, manpower advantage and existing experience </li></ul></ul><ul><ul><li>Compete with Indian players in the domestic formulation market </li></ul></ul><ul><ul><li>Penetrate the emerging market for lifestyle drugs </li></ul></ul><ul><ul><li>Implications on Indian Pharma Industry </li></ul></ul><ul><ul><li>Reverse engineering no longer an option for Indian market </li></ul></ul><ul><ul><li>Increased competition from global players in domestic formulations </li></ul></ul><ul><ul><li>Need to penetrate further in generics market in regulated countries </li></ul></ul><ul><ul><li>Increase investment in R&D </li></ul></ul><ul><ul><li>Consolidate to compete </li></ul></ul><ul><ul><li>Build / buy facilities abroad to augment market reach and reduce risk </li></ul></ul>Change in Patent Law
    6. 6. The Indian Government is further proposing initiatives to enable growth of the pharma industry… <ul><li>Proposed New System </li></ul><ul><li>The Central Cabinet approved the formation of Central Drug Authority (CDA) in January 2007 </li></ul><ul><li>• Proposed organizational structure of the CDA would be analogous to the US FDA </li></ul><ul><li>• Strong, well equipped, empowered, independent and professionally managed body </li></ul><ul><li>• Expected to facilitate upgradation of the national drugs regulator, uniformity of licensing, and enforcement and improvement in drug regulations </li></ul><ul><li>• Efficiency and efficacy of drug administration is expected to be much higher post this transition </li></ul><ul><li>Responsibilities of Central Drug Regulatory </li></ul><ul><li>- Regulatory affairs and environment </li></ul><ul><li>- New drugs and clinical trails </li></ul><ul><li>- Medical Devices & Diagnostics </li></ul><ul><li>- Organizational services and Training & Empowerment </li></ul><ul><li>- Quality control affairs and Legal & Consumer affairs </li></ul><ul><li>Existing Drug Regulatory System </li></ul><ul><li>India has a bifurcated drug regulatory system. Regulatory functions are divided between the Centre and State authorities </li></ul><ul><li>• The existing infrastructure at the Centre and the State is inadequate to perform the assigned functions of drug administration with efficiency </li></ul><ul><li>and speed </li></ul><ul><li>Main Objectives of this policy were </li></ul><ul><ul><li>Ensuring abundant availability at reasonable prices of good quality essential pharmaceuticals of mass consumption </li></ul></ul><ul><ul><li>Strengthening the indigenous capability for cost effective quality production and exports of drugs </li></ul></ul>
    7. 7. … and Pharma Special Economic Zones (SEZs) are a key step in that direction 2* 3* 2* 1* 5* 1* 1* 3* Discussion <ul><ul><li>Many big pharma companies and biotech players like Ranbaxy, Wockhardt, Dr Reddy's, Lupin, Jubilant, Biocon, Divi's Lab, Zydus and Nicholas Piramal already have their presence in SEZs </li></ul></ul><ul><ul><li>Gujarat with its growth enablers and strong building blocks seems to have all the ingredients to become a global pharma hub </li></ul></ul><ul><ul><li>Dr Reddy’s will be setting up a Special Economic Zone for Active Pharmaceutical Ingredients (APIs) in the Ranga Reddy district with USD 25 million </li></ul></ul><ul><ul><li>In Andhra Pradesh, investments in the biopharma sector could cross USD 450 million during the next three years generating employment opportunity for about 50,000 people </li></ul></ul>*Note: Number of Pharma SEZs
    8. 8. Influx of outsourced work from global pharma companies has given the necessary impetus for creation of Special Economic Zones (SEZ) <ul><li>SEZ setup will provide single window clearance for global pharma companies and initiate speedy approvals for business </li></ul><ul><li>SEZ setup will also encourage foreign direct investment in India </li></ul><ul><li>Sector-specific SEZs offer infrastructure required by the biotech and pharmaceutical companies such as dedicated large scale R&D facilities </li></ul><ul><li>SEZ units have been exempted from the requirement of import licence, import registration and import through notified ports with respect to drugs and cosmetics . </li></ul>SEZ: Benefits to the pharmaceutical industry SEZs are defined as &quot;specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs&quot; II Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. I
    9. 9. India has been witnessing offshoring/ outsourcing of processes under the entire spectrum of drug development value chain Drug registration Data Management, Site Management, etc. Development Pre- clinical Phase I Phase II Phase III Product launch Manu- facture Discovery Lead generation and optimization Research Target/ Lead identification Vendor Landscape in India Commonly outsourced Complexity Level Average Good High Very High Low Marketing/ Phase IV
    10. 10. Offshoring of clinical trials and exploration of opportunities in discovery research is the key trend in pharmaceutical R&D offshoring to India Discovery Research Pre-Clinical Trials Clinical Trials Offshoring Trend Process Trend <ul><li>Most Pharma companies have started work in discovery research with Indian vendors. A few others have already started exploring opportunities </li></ul><ul><li>Yet to pick at mass level because Government of India regulations have restrictions on animal trials of new chemical entity discovered outside India </li></ul><ul><li>This process has been offshored to a large degree and has more or less gained maturity. </li></ul><ul><li>Almost all studied Pharma companies offshore either of the Phases of clinical trials to Indian CROs </li></ul><ul><li>Phase 2 and Phase 3 clinical trials get offshored the most </li></ul><ul><li>The offshored clinical trials are part of the global clinical trials and are multi-centric in India </li></ul><ul><li>Typically 15-50 patients are studied per center depending on disease and trial phase </li></ul><ul><li>Deal size of these clinical trials can vary between USD 0.5 million to USD 1 million or even more </li></ul>
    11. 11. Clinical trials industry in India is set to grow at a CAGR of 31 percent to become a USD 608 million industry by 2012 Growth of Outsourced Clinical Trials Market in India (2005 – 2012) Market Size (in USD million USD) CAGR ~ 31 % Discussion <ul><li>About 80 government and private hospitals in India are participating in international clinical trials </li></ul><ul><li>Drivers </li></ul><ul><ul><li>Conducting clinical trials (such as Phase II & III) cost as much as 60 percent less than in the U.S. </li></ul></ul><ul><ul><li>A large pool of drug-naïve patients, from multiethnic and multiracial backgrounds </li></ul></ul><ul><ul><li>India has about 700,000 hospital beds which along with more than 200 medical colleges makes it an attractive location </li></ul></ul>
    12. 12. CDM* & Bio-Statistics is a growing market in India driven largely by the robust IT talent Growth of CDM and Biostatistics Market, India (2005-2012) Market Size (in USD USD M) CAGR 21 % Drug Development Outsourced Market in India (2007) Total= USD 250 Million * Clinical Data Management
    13. 13. Indian Pharmaceutical M&S* outsourcing market Market Size (USD million) CAGR 36 % Indian Pharmaceutical M&S* outsourcing market is currently a USD 100 million market and is expected to grow at a CAGR of 36 percent till 2012 Year * Marketing and Sales
    14. 14. E & T*’s share of M & S* offshoring market pie will increase though MI*’s share will remain dominant in 2012 Outsourced Pharmaceutical M&S* by Functions (2007) Outsourced Pharmaceutical M&S*by Functions (2012) E & T 13% MI 80 % Sales planning-2.7% E & T 18% MI 78 % Sales planning-1.5% Total = USD 100 Million Total = USD 463 Million * M&S-Marketing and Sales, E & T*- Education & Training, MI*- Market Intelligence M&S Outsourcing Potential (2012) <ul><li>Market Intelligence (PMR/BA/CI) from USUSD 81Mn(2007) to USUSD 363Mn(2012) </li></ul><ul><li>Education & Training from USUSD 13(2007) to USUSD 85Mn(2012) </li></ul><ul><li>Sales Planning from USUSD 2.8Mn(2007) to USUSD 6.8Mn(2012) </li></ul><ul><li>Call Center by USUSD 1.8 (2007) to USUSD 4.5 Mn(2012) </li></ul><ul><li>Events & Promotional from USUSD 0.7(2007) to USUSD 2Mn (2012) </li></ul><ul><li>Contract Structuring USUSD 0.7(2007) to USUSD 1.7Mn(2012) </li></ul>
    15. 15. The legal offshoring industry in India is predicted to grow at a CAGR of 60 percent and is expected to become around USD 600 million industry by 2011 Growth trend of legal Offshoring in India (2006 – 2011) Tapped Offshored IT Industry 11% Market Size (in USUSD Million) CAGR ~60 % Segmentation of Legal Offshoring Market, 2006 Legal Support 10% Legal Research 20% Intellectual Property Research 70%
    16. 16. Pharma Contract Manufacturing in India was a USD 590 million market in the year 2007 and is expected to grow at a CAGR of 15 percent Growth of Indian Pharma Contract Manufacturing (2005 – 2010) Discussion <ul><li>Global Contract manufacturing is estimated to be USD 30 billion by 2012, growing at 10-12 percent </li></ul><ul><li>Contract manufacturing market for global companies in India would touch USD 900 million by 2010 </li></ul><ul><li>Manufacturing costs in India are between 30 and 40 percent lower than those in the United States and Western Europe and labor costs are one-seventh of that in the United States </li></ul>CAGR-15% Market Size (in USD Million)
    17. 17. Basic production cost in India is up to 50 percent lower than that in the U.S. Product Cost Per Unit Discussion <ul><li>FDA approved plants can be constructed </li></ul><ul><li>in India at 30 – 50 percent lower costs </li></ul><ul><li>Higher utilization of equipment due </li></ul><ul><li>to improved processes </li></ul><ul><li>85-90 percent manpower cost savings </li></ul><ul><li>Labor costs in India is typically 10-15 percent of the cost in the USA </li></ul><ul><li>Savings applicable across all hierarchal levels </li></ul><ul><li>(e.g., operators, research scientists, etc) </li></ul><ul><li>Improved, more efficient processes contribute </li></ul><ul><li>to lower labor costs per unit </li></ul>100 50 India’s Cost Arbitrage Production costs in India are 40 to 50 percent less than that in developed markets, primarily due to lower personnel and capital costs
    18. 18. Comparison of Captive set up cost in New Jersey, the pharmaceutical hub in USA… Note: 1. The above costs are for an employee Size of 100 2. The per sq.ft assumption per employee is 150 3. The cost calculated is for the first year of operation Elements Break up of Total Cost in New Jersey USD ‘000 7000 2400 5112 1526.5 943 0 205 1879 140 25.8 19230
    19. 19. … with the Captive set up cost in Mumbai… Note: 1. The above costs are for an employee Size of 100 2. The per sq.ft assumption per employee is 150 3. The cost calculated is for the first year of operation 7000 Elements Break up of Total Cost in Mumbai USD ‘000 2400 669 643 436 243 202 186 140 157 12079
    20. 20. … reveals significant cost advantage coming in vis-à-vis New Jersey, after the operations have been scaled up to beyond 40 employees in Mumbai Note: Cumulative Total Cost is for the first five years Feasibility Analysis Total Cost in ‘000 US USD Cumulative Total Cost-Parent Captive Cumulative Total Cost-Indian Captive Employee Size
    21. 21. Drug registration Data Management, Site Management, etc. Development Pre- clinical Phase I Phase II Phase III Product launch Manu- facture Discovery Lead generation and optimization Research Target/ Lead identification Marketing/ Phase IV <ul><li>There are various kinds of research done which can be broadly classified under- </li></ul><ul><ul><li>Chemistry Research </li></ul></ul><ul><ul><li>Biology Research </li></ul></ul><ul><li>The research work leads to work optimization based on chemistry and biology research </li></ul><ul><li>The pre-clinical and clinical trials are done to validate the efficacy of drugs and also test for other side effects </li></ul><ul><li>This stage also involves site management and clinical data management </li></ul><ul><li>The drugs are tested for their efficacy on higher number of patients as the number of phases increase </li></ul><ul><li>Drug registration involves filing of documents as per the FDA requirements </li></ul><ul><li>Once the product is approved by the regulatory authorities it needs to be </li></ul><ul><ul><li>Manufactured </li></ul></ul><ul><ul><li>Marketed </li></ul></ul><ul><ul><li>Litigation support </li></ul></ul><ul><ul><li>Others </li></ul></ul>0 16 Years We, at Zinnov have deep understanding of the drug development chain and can analyze problems of any complexity level….
    22. 22. … and have helped Top Pharma companies in multiple ways to expand and assess the market opportunity Vendor Evaluations Offshoring Strategy Market Engineering Peer Group Analysis Engagement Strategy Others* Others* include but are not limited to Location Analysis, Talent Analysis, amongst others Zinnov Pharma Expertise
    23. 23. <ul><li>Thank You ! </li></ul>Zinnov Contact [email_address] 69 &quot;Prathiba Complex&quot;, 4th 'A' Cross, Koramangala Ind. Layout, 5th Block, Koramangala Bangalore – 560095 Phone: +91-80-41127925/6 575 N. Pastoria Ave Suite J Sunnyvale CA – 94085 Phone: +1-408-716-8432 21, Waterway Ave, Suite 300 The Woodlands TX – 77380 Phone: +1-281-362-2773