This document discusses competitive API strategies for Indian manufacturers. It begins by analyzing the current supply-demand gap and reasons for price reductions in the domestic API industry. It then establishes strategies for Indian manufacturers to maintain prices while increasing yields and managing costs, such as long-term supply agreements, contract manufacturing, and vertical integration. The document also applies lessons from Chinese API companies' strategies to effectively compete on price. It analyzes the steps Indian manufacturers need to sustain their global market position, such as benchmarking processes, collaborative competition, and focusing on green technologies.

1. Competitive API Strategies
Gurmeet Singh
November 30, 2011

2. Competitive API Strategies
Devising effective API
pricing strategies to
compete with domestic
and international
players and overcome
price volatility issues
2

3. India Shining
 India Shining Story
 Numbers at variance
video_4.wmv
‘ People think India is a land of billion
problems but India is a land of billion
opportunities. India is ready to take
off’
- Mukesh Ambani at IES WEF 3

4. US DMF Filings by API Manufacturers: 2000 – 10
450
400
350
300
250
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
India USA China Italy Japan
Source: Newport Horizon Premium™
4
India : > 100 USFDA approved manufacturing sites

5. Sourcing Geographies: Key Differences-APIs
Cost
Technology
API
RMI
Regulated
Market Focus
Compliance
Source: UBS + IH 5

6. Presentation Flow
Understanding the current supply-demand gap in the
domestic API industry, and to identify the core
reasons for recent excessive price reductions
Establishing new strategies to maintain prices whilst
increasing the production yield and managing costs
Applying learnings from the strategies adopted by
Chinese players to effectively compete on price and
ensure sufficient ROI
Analyzing the next steps for Indian API manufacturers
to sustain their market position and effectively
compete on a global scale
6

7. 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
7

8. 7 ACA – China - a Supply Side Review
Company Capacity p.a (in Mts) Price in last 1 year:
Livzon (Joincare) 1,800  Oct 2010: 850 rmb+
Youcare* 2,000
CSPC 1,500
 Oct 2011: 450 rmb+
Zhuhai United 1,200 (Captive Use )
NCPC 1,000 + 2,000 (by 2011)
The actual cost is
Fukang 1,000 approx. 500-550 rmb
Shandong Lukang 900
Harbin 750
Weiqida 1,000 Strategic tie-up is the way
Sandoz 1,000 Supply Securitization, Fair
Lihairun 1,000 (pending)
Kelun 2,000 (pending)
& Stable prices
Tonglian 1,000 (pending)
Over capacity pressurizing prices to soften 8
* suspended due to unfavorable market situation

9. Potassium Clavulanate (Clavulanic Acid)
Innovator
Slovenia Korea Austria
Portugal Turkey
China + 4 Exited in 2009
 Margins slipped after the generic launch in US – 2003
 Competition intense after new API manufacturers
 Big opportunity in combination formulations
9

10. Presentation Flow
Understanding the current supply-demand gap in the
domestic API industry to identify the core reasons for
recent excessive price reductions
Establishing new strategies to maintain prices whilst
increasing the production yield and managing costs
Applying learnings from the strategies adopted by
Chinese players to effectively compete on price and
ensure sufficient ROI
Analyzing the next steps for Indian API manufacturers
to sustain their market position and effectively
compete on a global scale
10

11. Mindset Change – De-commoditize
API’s
Decision Points RMI’s
Consistency
Technical Support Steel
Timely Delivery
Sales Contact Frequency Paper
Price
Bulk
Chem
Know your customer beyond the database 11

12. What factors ??? API Price
Innovator Market Size
No. of API Players P/S
Complex, Hz, Green
Specs, Imp levels
Recoveries
Enzymatic Vs Synthetic Integration B/F
Competing therapies API+ Dossier
Tech Competition
IP/RA edge
Basket Approach
Do NOT leave MONEY on the table

13. Strategies to maintain prices & margins
LT API Supply Agreement – Price protection
 2010: Orchid – 10 year API agreement with Hospira
Contract manufacturing for Innovator companies
 for NCE APIs
 for their Generic Launch &
 for branded generics
2011: Abbott licenses 24 Zydus products for EMs
2010: Torrent – AZN – Lic. & Supply Agreement
2011: Merck & Sun – Novel FDFs & Combos in EMs
13
GSK- DRL; Pfizer – Strides, Aurobindo; Mylan - Matrix

14. Strategies to maintain price & margins contd..
 Vertical integration e.g SMZ - Virchow
 Technology Barriers: Sterile API manufacturing
 APIs for non-conventional drugs / Niche APIs/
unmet medical needs e.g orphan drugs etc
 Optimize costs through large batch
manufacturing
 Establishing manufacturing units in SEZ areas or
make JV/ M&A in low tax countries
14

15. Presentation Flow
Understanding the current supply-demand gap in the
domestic API industry to identify the core reasons for
recent excessive price reductions
Establishing new strategies to maintain prices whilst
increasing the production yield and managing costs
Applying learnings from the strategies adopted by
Chinese players to effectively compete on price and
ensure sufficient ROI
Analyzing the next steps for Indian API manufacturers
to sustain their market position and effectively
compete on a global scale
15

16. China – a formidable force
3rd largest
Largest API 70% market >5,000 local
1,200 API Mfrs Pharma market
player share pharma Cos.
by 2013-14
China Exports India Exports to MNCs investing –
Exports
to India China Long Term;
> $18bn > $3bn $0.5bn MS < 2.5%
Govt invst GDP on Fixed-asset investment in
$125bn healthcare pharma in Jun-11:
by 2020 4.7% $19.7 bn; ↑ 38%
 Scale - Large Capacities  Pricing – is the KEY
 Red carpet welcome  Learning attitude
16

17. 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
17
Trust is building up with local companies

18. 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
Learning Attitude
New Rural Cooperative Medical Scheme – Premium sharing between household & Govt. in the ratio of 1:2 18

19. India – China – a Comparison
Total Trade - Sino India US$ 20 bn US$ 40 bn
Export of API, Intermediate & ~US$ 500mn US$ 3.3 bn
Chemicals
% of GDP spent on Healthcare 4.5% 4.7%
(↑5.5%)
Pharma Sales in 2010-11 US$ 12.6 bn US$ 50 bn
19

20. Presentation Flow
Understanding the current supply-demand gap in the
domestic API industry to identify the core reasons for
recent excessive price reductions
Establishing new strategies to maintain prices whilst
increasing the production yield and managing costs
Applying learnings from the strategies adopted by
Chinese players to effectively compete on price and
ensure sufficient ROI
Analyzing the next steps for Indian API manufacturers
to sustain their market position and effectively
compete on a global scale
20

21. SMZ – Largest Manufacturer ~ 10,000 TPA
Only US DMF
 Vertical Integration – JVs – Long Term Gain Source
 Volumes – Economies of Scale – contain COGS/ OHs
 Solvent Recovery – large volumes – efficient recovery
 Process Development & Equipment – upgrade
 Batch Size Enhancement – 20/50 KL ( China – 100 KL)
 Cost Control – multi level – Techno Commercial Audits
Under Patent  Perfect Competition  Oligopoly  Duopoly  Monopoly
Ethical + Cheap is NOT Sharp; Sharp + Cheap is NOT Ethical
Ethical + Sharp is Never Cheap, BUT most Effective 21

22. Green Technologies – Cost Effective Opportunity
DSM PureActives:
 Cephalexin; biocatalyses
 Safer, Purer, Cost-effective
 LT strategic cooperation with Shandong Xinhua
 2009: Sustainable development of China Pharma
industry through Green Technology
 DSM India – Green Ampicillin enzymatic process
– Significant lower levels of waste
– Enzymatic Amoxicillin
2006 – Euro 1.5 bn (18% of T.O) from biotech products 22

23. Carbon Credits: Profits – Way NeXT
Navin Fluorine
 Flurochemicals HCFC22 – 8000MTA
 By-product HCFC23 – Green House Gas
 Kyoto Protocol – Carbon credits for reducing GH
 1MT HCFC22 = $ 3500  Approx $ 25 Mn profits Y-
O- Y after factoring tech payments
Innovative additional source of Profits –
investment in Green Technology
23

24. Evolving Business Models
. Elder – Enzymotec
Export Oriented
Elder – Daiwa
Into India Business CRAMS Lupin- Ital Farmaco
Cipla, DRL, Dishman, GVK
Pfizer, GSK, Novartis
Partially or LICENSING
Wholly Owned – In & Out
subsidiaries
Ethypharm- Solvay
From India Glenmark – Forest
Dishman, Glenmark Glenmark - Teijin
Orchid, Aurobindo
Joint Ventures Franchising
Novamax- Cadila Fortis Healthcare
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Novatech – ETI Klinical Source : PricewaterhouseCoopers
Medicine Shoppe

25. Next Steps for API manufacturers – Sustainability
 Dossier selling; API sales & Price stability
 Benchmarking – revisit R&D, Tech & Business
Processes
 Decommoditize your matured/maturing products
 Packaging; Large Bx Sizes – Logistics & QC edge
 Novel drug delivery systems
 Combination drugs – relook at old drugs
25

26. Next Steps for API manufacturers – Sustainability
 Co-Opetition - Collaborative competition
 Indian Pharma collaborating on best practices
 Evaluate common ‘pooled’ RM purchase
negotiation to get Price efficiencies
 EHS becoming a critical parameter
 India is ahead ; Need to consolidate – Green Tech
 Resource pooling - Pharma SEZs – Vizag Park
 Govt support on EHS front ; facilities to neutralize
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27. Way Forward - to Summarize
 Green Technologies – an Opportunity
 Keep benchmarking – Tech & Business Processes
 Collaborative Competition – Co Opetition
 Resource Pooling
Learn to do
 Scale & Vertical Integration more with less
 EHS – Carbon Credits
 BI/CI
Agility in the face of volatility 27

28. Competitive & Business Intelligence- Securitize
WWII Poster
‘Loose Lips might sink ships’
Over 35 years Over 100 years
Imovation: Imitation + Innovation
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‘Its smart to take an Idea & Enhance It’ – Steve Jobs

29. 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_Dow_Cornings_CEO_
 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://articles.economictimes.indiatimes.com/2010-03-12/news/28448023_1_torrent-pharmaceuticals-torrent-group-licencing
 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/AstraZeneca-plans-Chinese-manufacturing-
 http://www.in-pharmatechnologist.com/Product-Categories/Ingredients-excipients-and-raw-materials/FDA-awards-35m-to-improve-US-drug-prod
 http://www.in-pharmatechnologist.com/Product-Categories/Ingredients-excipients-and-raw-materials/DSM-and-Sinochem-s-anti-infective-ingred
 http://www.indiainfoline.com/Markets/News/Pharmaceuticals-market-in-India-by-2020-A-Healthy-Decade/5251255933
 http://www.defchem.com/html_news/fine-chemical-8.html
 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
 Discussions and inputs from Industry players and friends which include MSN Laboratories, Megafine, Virchow etc etc
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30. Thank You! Merci! Danke! どうもありが
とう Gurmeet Singh
gurmeetsingh144@hotmail.com
Questions
welcome gurmeetsingh@orchidpharma.com
+ 91 95000 34345
Orchid’s API Facilities, INDIA
www.orchidpharma.com
Manufacturing - Alathur, Chennai R&D - Sholinganallur, Chennai Manufacturing - Aurangabad
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