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Pharmaceuticals Outsourcing & Offshoring Opportunities - India
Ranjit ShahaniPresident, Organisation of Pharmaceuticals Producers of India andVice Chairman & Managing Director, Novartis India Limited2 October 2009
2 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |
India – Opportunities for 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
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
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
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
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)
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%
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
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
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 $40 application
5. • Cost structure permits service offerings that were earlier infeasible
New products and services
• Now has 25% of development team in China, India, Hungary, and other offshore sites
6. • Enables reach into broader talent pools
Resolve skills shortage
• £50 million/year through revenue audits -- interline, agent, and used tickets
4. • Lower factor costs permit more aggressive revenue accounting, auditing, and collections
Revenue generation
Top software provider
12 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |
Countries offshoring Pharma Development
Countries Providing Services
Dev expenditure outsourcedUS$ 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
13 | Pharmaceuticals Outsourcing & Offshoring Opportunities - India | 02 October l 2009 |
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
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
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
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
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
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
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
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)
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%
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Hyderabad is part of the Global Novartis footprint
ManufacturingDevelopment
Basel
Horsham
Cambridge
Rueil
Shanghai
TokyoE. Hanover Changshu
Commercial140 countries
Hyderabad
Orleans
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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.
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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
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Partnering Opportunities
Bulk Drugs&
FormulationsManufacturing
BioinformaticsBiostatistics
SoftwareDevelopment
ContractMarketing &
Sales
International Clinical
Trials
Technical Services
ContractR&D
Partnering Opportunities in a Changing Landscape
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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%
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
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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