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

1. Gurmeet Singh
February 21-23 2012
Global Sourcing

2. 2
Where are the ‘New’
regions for growth and
how sustainable are
they??
Global Sourcing

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. Economic Scenario
4
In Germany the Economy hums
and the Euro Crisis is elsewhere
Dec 25 2011/ Aaron Wiener, Los Angeles Times

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. 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. 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. Searching Questions…
Will there be another Drug
like LIPITOR ??
8

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. 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. 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. 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. 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. 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. 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. 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
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. API Manufacturer Rating
18
API Manufacturers Number of Companies
Established 168
Less Established 267
Potential Future 304
Local 1500
Source : Thomson Reuters

19. 19
US DMF Filings by API Manufacturers: 2000 – 10
Source: Newport Horizon Premium™
India : > 100 USFDA approved manufacturing sites

20. API Manufacturers Spread
20
API Manufacturers supplying to Regulated Markets
The
Geographical
Shift
FDA Inspections 2000 2009
India & China 08 70

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

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
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
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. 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. 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. 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. 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
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. 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. 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. 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
Key Factors to Drive Innovation
Winning Strategy
Amongst Companies,
Companies with Universities
Necessary Condition
Support: Affordability
Stable Currency

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
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
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
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. 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. 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. 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. 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. 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. Its fable time
Slow and Steady wins the race?
The story still hasn't ended …
Version #1

45. Its better to be fast and reliable
Identify Core competency and change the playing field
Version # 2
Version # 3

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
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
Think Beyond
Stay
Ahead
‘Interdependence is a higher value than independence’
- Stephen Covey

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
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