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Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals Producers of India and Vice Chairman & Managing Director, Novartis India Limited 2 October 2009
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Page 1: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

Pharmaceuticals Outsourcing & Offshoring Opportunities - India

Ranjit ShahaniPresident, Organisation of Pharmaceuticals Producers of India andVice Chairman & Managing Director, Novartis India Limited2 October 2009

Page 2: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

2 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

India – Opportunities for Pharmaceuticals

Page 3: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

3 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

– but only –

2% of world wide GDP

1% of world HEALTHCARE INVESTMENT

Disease Burden in India

16% of world wide POPULATION

18%18% of world wide MORTALITYof world wide MORTALITY

20%20% of world wide MORBIDITYof world wide MORBIDITY

3

Page 4: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

4 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

• Indian Pharmaceutical Industry

Globally Indian Pharma Industry ranks 4th in volume and 14th in valueTotal size of the Indian Pharma market is ~INR 35,000 crore (~USD 7 bn)

Highly fragmented with 5,000+ units; predominantly branded generics market with ~25,000 brands

ORG – IMS tracks 432 companies

MNCs account for ~ 19% (USD 1.6 bn) of Pharma market

Prices controlled but gradually de-regulated from 347 in 1979 to 74 at present

World class manufacturing facilities :over 110 US FDA approved facilities – largest number outside of USA

Page 5: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

5 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Industry has a Strong Value Proposition

Mortality improvement

Mortality improvement • Saving lives

Morbidity reduction

Morbidity reduction

Improved quality of lifeImproved

quality of life

Positive economic

impact

Positive economic

impact

• Innovative treatments

• Shortened duration of disease

• Decrease in chronic disability

• Improved efficacy / side effect profiles

• Reduction in overall healthcare costs

• Improvement in worker’s productivity

Page 6: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

6 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Two Sides To IndiaFace 1 – an emerging giant

Large Population base with fast growing income and aspirations

Fourth largest economy in PPP terms

IT Hub for the world, Largest Milk producer, Largest Aluminium manufacturer, Automobile leader, fastest growing economy….many others

2nd fastest growing large economy after China

Per capita income growth up from $120 in 1991 to $960 in 2007

44% population < 21 years of age : potential consumers who have global aspirations with good disposable income

Important destination as a future market for global companies

Page 7: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

7 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

80% live on less than USD 3/day (50% at < USD 1/day)

25% live below poverty line (2005)

65% have limited/no access to medicine; mostly among poor rural/ ‘bottom-of-the-pyramid’1

Education, infrastructure and access to quality healthcare are key hurdles in national development

Lowest healthcare spend (per capita p.a. in USD): India 47 / China 90 / South Africa 255

Significant effects of poverty on health and vice-versa

30% have access to potable water; Only 19% have access to sanitation

Only 34% of child deliveries attended by trained person

49% of children fully vaccinated with 47% still undernourished

Two Sides to IndiaFace 2 – ‘not-so-privileged India’

1 Source: WHO – Diseases of poverty and the 10/90 Gap, International Policy Network, November 2004)

Page 8: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

8 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Industry spends more to get less

0

20

40

60

80

100

120

19911992199319941995199619971998199920002001200220032004200520062007

Global Pharma R&D expenditures (in $ bn)

Source: FDA CDER & CBER; Evaluate

# NMEs approved by FDA

CAGR~17%

Page 9: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

9 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Pharma Industry Operates in a Challenging Environment

R&D productivity ? new technologies

commercialization costs

Demanding financial markets

Intensified competitionIndustry consolidationIntensified competitionIndustry consolidation

Shorter life cycles, patent threats,regulatory issues,

healthcare cost containment

Globalization, political pressures,

NGOs

Page 10: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

10 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Growth in new markets and access

to talent

Companies offshore initially for cost, Companies offshore initially for cost, but stay and expand for but stay and expand for

quality and enhanced competitivenessquality and enhanced competitiveness

Benefit of Scale

Enhance operative

agility

Introduce new services

Reduce Costs

Reduce Risk

Operational Excellence

Reducing existing costs is only one of the drivers for companies offshoring activities to India

Page 11: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

11 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Outsourcing and Offshoring offer many strategic benefits

Example Levers Description

• Lowered support costs 80% by moving to India and Malaysia

1. • Vendor often guarantee savings of 10-20% (onshore) to 40-60% (offshore) from current cost base

Cost savings

• Reduced critical “code line” errors on checks to 4 defects/million

3. • Vendors/managers are process experts and can often deliver superior performance

Quality/ performance improvement

• Avoided $20+ million HRIS capital outlay by outsourcing HR

2. • Permits customers to leverage vendor infrastructure (e.g., IT systems, faculties) and variabilisecost

Capital cost avoidance

• Provides live customer support for $40 application

5. • Cost structure permits service offerings that were earlier infeasible

New products and services

• Now has 25% of development team in China, India, Hungary, and other offshore sites

6. • Enables reach into broader talent pools

Resolve skills shortage

• £50 million/year through revenue audits -- interline, agent, and used tickets

4. • Lower factor costs permit more aggressive revenue accounting, auditing, and collections

Revenue generation

Top software provider

Page 12: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

12 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Countries offshoring Pharma Development

Countries Providing Services

Dev expenditure outsourcedUS$ 1.2 Billion

Amount of outsourced drug development to IndiaUS$ 0.25 Billion

Dev expenditure outsourcedUS$ 2.6 Billion

Rising costs are compelling organizations in the US and EU to look for new emerging destinations such as India

Note:1. Drug Development Outsourced Market Size based on Outsourced Market Size of Clinical Trials, Medical Writing and CDM & Bio-Statistics

Page 13: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

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India preferred destination for offshore manufacturing

Annual Indian graduatesin chemistry outnumberthose in the US by over five times at the bachelor’s level and by over three times at themaster’s level

India has the second largest number (75) of FDA approved plants after US, Set up of US FDA approved plants in India is possible at 50% of the cost as in US/Europe

Largest talent poolcoupled with the low-cost labor makes India the favored destination foractivities outsideUS/Europe

Labour wages are 1/7th of the levels in developedcountries.Cost savings across thevalue chain of thepharmaceutical industryCMO: 40-45%

Talent Availability Cost Benefit Quality & Economical Infrastructure

Large Talent Base Low Overheads Low Cost Skilled Work Force

Low Capital Cost

KnowledgeAdvantage Cost Benefit

Higher Profitability

Page 14: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

14 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Business Process Outsourcing and Offshoring(BPO&O) has undergone exponential growth

• Encouraging track record of early movers

• Demanding U.S market environment

• Successful track record of I/T offshoring

Supply-side enablers

• Telecom costs down by 90% in the last 3 years; world-class reliability

• Over 2.5 million low-cost talented workers in countries such as India and Philippines

• Emergence of a credible vendor community

• Favorable regulatory environment

Demand side forcesBPO total revenues- India example

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003E

USD billion

Page 15: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

15 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Sources: McKinsey BPO&O Initiative, Nasscom-McKinsey Report, 2002

Indian IT industry growth and estimated growth potential$ billion

Pharmacos have started to pursue O&O opportunities later than other industries

0

5

10

15

20

25

1993 1995 2000 2005 2008

Page 16: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

16 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

But Pharmacos have been particularly active over the past two years

Note: Novartis projects not includedSource: Press search, Forward PO team analysis

2006 2008

• Research collaboration

• China • Finance

• Global

• Clinical data and document management

• India • IT outsourcing

• China

• IT app and infrastructure management

• India

• Clinical data management

• India

• Production

• China

• R&D Lab

• India

• R&D center

• China

Out

sour

ced

Cap

tive

• Joint Research

• India

Page 17: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

17 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

India remains most attractive shared services destination Best alternative is China, followed by several Tier 2 destinations

Overall

Mexico

ThailandBrazil

Country stability

Turkey

Vendor capability

Talent Cost efficiency

Business environment

RussiaVietnam

Philippines

MalaysiaChinaIndia

Low

High

•Source: AT Kearney Global Services Location Index, 2007, AM Best country risk rating, Transparency Internations

Page 18: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

18 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Multidimensional Benefits of Offshoring & Outsourcing

Growing pool of well educated and ambitious talent in emerging markets, particularly India and China

Opportunities to improve efficiency and effectiveness through centralization, standardization and process improvement

Greater flexibility to respond to changes in market and business demand

Lower cost both to improve margins and free up resources to invest in other areas

Flexi-bility

Processimpro-vement

Lowercost

Talents

Outsourcing&

Offshoring

Page 19: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

19 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Offshoring Model

Source: Forward PO team

• Activities off-shored to own sites in low-cost locations

Captive Outsourcing Joint venture

Description • Activities outsourced to 3rd-party vendors offshore

• Activities off-shored in a joint venture setup

• Hyderabad (Pharma) for – Development – M&S

Major Novartis offshore projects

• Maxima/Polaris (Pharma, NCH) for Transactional FRA

• None

• Kolshet (Sandoz) forDevelopment

• IT application development and maintenance (ADM)• Shanghai campus

(NIBR) for Research

Ownership model

• OTC R&D Centre Thane

Page 20: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

20 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Novartis is today offshoring / outsourcing activities along its entire value chain

Source: Forward PO team

Function

IT

Research

Development

M&S

Business support

functions

CNIBR (Shanghai campus) Contract research organization

Hyderabad captive development siteKolshet generic development site

Hyderabad captive marketing services M&S outsourcing

IT ADM

Maxima/Polaris – Transactional Finance outsourcingCaptive Finance analytics in Hyderabad

IT Infrastructure

1

2

3

4

5

Key activities

Sourcing / Procurement (both outsourced and captive)

Page 21: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

21 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

* ADM: Application Development / MaintenanceSource: Forward PO team

With a main focus on India

MexicoFinance Maxima

China

R&D• CNIBR• WuXiFinance Maxima

IndiaDevelopment

• Hyderabad (Pharma)• Kolshet (Sandoz)• IT ADMFinance

• Maxima• Polaris• Reporting/analysis (Pharma)

Marketing & sales• Hyderabad• OTC customer relationship center• M&S outsourcing (Pharma)

Eastern

Europe

IT helpdesk/server monitoringFinance MaximaFinance PolarisScientific software development

Own and 3rd-party FTEs

81%

xx% % of total offshoredworkforce

9%

9%

1%

Page 22: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

22 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Hyderabad is part of the Global Novartis footprint

ManufacturingDevelopment

Basel

Horsham

Cambridge

Rueil

Shanghai

TokyoE. Hanover Changshu

Commercial140 countries

Hyderabad

Orleans

Page 23: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

23 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Vision 2020: Global availability of human resource Potential surplus / shortage in working age group across the world (2020) in millions

Shortfall

Surplus

Philippines

Japan

Australia

India

UK

Germany

Spain

France

4747

-9-9

-0.5-0.5

5

Indonesia55

Malaysia11

China-10-10

Russia-6-6

-3-3

-3-3-2-2

-3-3

Brazil33

Mexico55

US

-X-X

XX

-17-17

Notes: Working population is defined at the 15 – 59 years age group. Ratio of working population to total population is assumed to be constant.Labour numbers are based on assumptions of interventions by respective governments.

Source: US Census Bureau. BCG. 2002.

Page 24: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

24 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

While other industries like the financial services sector have moved to global sourcing, the pharmaceutical industry is at the off shoring evaluation stage

Pharmaceutical companies

Global operations:Offshoring an integral part pf

business model

Activities performed where optimal resources available globally

Strategic suppliers:Few strategic vendors with

enterprise-level relationships and off shoring

Value-based off shoring:Multiple vendors and

business unit -level off shoring

Offshoring evaluation:Small, one-off offshore pilots

occurring independently

Capacity addition:Offshore contract labour to supplement on-site labour

Financial Institutions: GE,

American Express, Citibank, HSBC

Automobile manufacturers: Ford, GM, Toyota

FMCG marketers: P&G, Nestle,

Unilever

Utilities: Southern Company, AEP

Offshoring maturity

Page 25: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

25 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Partnering Opportunities

Bulk Drugs&

FormulationsManufacturing

BioinformaticsBiostatistics

SoftwareDevelopment

ContractMarketing &

Sales

International Clinical

Trials

Technical Services

ContractR&D

Partnering Opportunities in a Changing Landscape

Page 26: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

26 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Generic Opportunity for India

• Highest number of US FDA approved manufacturing facilities outside USA

• Well Trained Scientific and Technical Manpower

• Cost Competitiveness

• Over 400 APIs (Active Pharmaceutical Ingredients)

• Out of total DMFs filed with U.S. FDA in last quarter 2007, India accounted for 47.6%

Page 27: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

27 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

Advantage India• An abundance of English speaking scientific and

technological brainpower• Large and diverse patient base for conducting

international clinical trials• Strong base of bulk drug manufacture (400 APIs)

• 15-16% R&D scientists in U.S. Pharmaceutical Industry are of Indian origin - hence strong networking

• World class entrepreneurial skills

• Cost effectiveness (Intellectual Capital per USD)

• Well developed ancilliary industry

Page 28: Pharmaceuticals Outsourcing & Offshoring Opportunities - India · Pharmaceuticals Outsourcing & Offshoring Opportunities - India Ranjit Shahani President, Organisation of Pharmaceuticals

28 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |

The Outsourcing ImperativeDrug Discovery cost ballooning to U.S.$ 1 Bn per molecule

R&D productivity is declining. Only 36 new molecules approved by U.S. FDA in 2004

In past 10 years R&D cost is tripled but output is stagnant

Effective patent life is reduced to just one or two years

Consumer pressure on pharmaceutical pricing is on the increase

Unprecedented wave of patent expiration in next few years (estimated U.S.$ 80 Bn)

Governments all over the world are reducing healthcare costs

Demographic changes – increase in life expectancy

Cost containment has become a core issue for Pharmaceutical Industry

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29 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |


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