Contract Manufacturing In India

Kaushik SampathkumarProject Manager, Business DevelopmentInogent Laboratories (GVK BIO company)India

Market Overview Reality check

▪ Generic surge▪ Laws of diminishing returns▪ Innovators losing ground▪ Pipeline choke▪ Global R&D spend▪ Indian CMO growth

Indian Players – Aligning for Growth Strengths

▪ Cost of operations, API expertise, Regulatory & FDA understanding, Infrastructure & Market economics

Weakness▪ Quality practices & compliance, Logistics

Opportunities▪ TRIPS agreement, Early mover advantage, Government subsidy (Pharma SEZ),

Domestic market Threat

▪ China






Opportunities▪ Early mover advantage, Government subsidy (Pharma SEZ), Domestic market

Threat▪ China

• Next year, 2011, will be the toughest for the top 50 pharma companies who have $31b coming off patent

• Generics erosion is highest in the US, average erosion is 95% observed in the 3rd quarter following first entry

• Competition and cost cutting are driving down margins in the industry leading to consolidation

Sales exposed to generic erosion for the top 50 pharma companies through 2014

Source: Datamonitor, PharmaVitae Explorer, November 2009

• The R&D spend increases by 100% while the approvals tumble down by 80%

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Source: Datamonitor. Pharmaceutical Company Outlook to 2014. Dec 2009.

The 2002-08 CAGR was 10.5%...highlighting the challenges pharma is facing today……

Prescription sales growth rate is stalled at about 1.2% - largely due to the much discussed ‘patent cliff’

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Patent cliff is nearly 6x that in 2002-2008

Pfizer’s Lipitor comes off patent in 2011 and had $12.4b in 2008 sales

Core sales also highly impacted by indirect generic competition

Source: Datamonitor. Pharmaceutical Company Outlook to 2014. Dec 2009.

CAGR : 11.0%CAGR : 11.0%

Revenue : $54.7 bn

Revenue : $80.6 bn

Source: Frost & Sullivan

Revenue : $5.31 bn

Revenue : $2.31 bn







Opportunities▪ TRIPS agreement, Early mover advantage, Government subsidy (Pharma SEZ),

Domestic market Threat

▪ China

API costs account for around 30 per cent of the total cost of a generic drug. This does not impact patented products as much as cost competitive generic medications. The price of a generic formulation is highly dependent upon the cost of APIs and companies attempt to determine firms, which can provide APIs with stable costs. This has resulted in a growing demand for contract manufacturers who produce pre-determined products at prices fixed in advance.

The contract manufacturing market comprises of bulk drugs as well as formulations. However, the bulk drug contract manufacturing contributes to 77 per cent of the total contract manufacturing market. India has emerged as one of the prime destinations for contract manufacturing due to its low cost and high efficient manufacturing processes. Many international companies have invested in contract manufacturing assets in India.

India has a cost advantage unrivalled by many countries, while offering state-of-the-art manufacturing facilities. Considering the advantages offered by India, innovator companies are opting India for contract manufacturing. This is further strengthened by the fact that many innovator companies have in recent years focused on cost cutting and thereby have closed down or sold their manufacturing units.

In recent years contract manufacturing has emerged as a major revenue source for Indian companies. Contract manufacturing is a growing industry in the country. As more and more innovator companies are reducing manufacturing spend, there would definite increase in the companies that offer contract manufacturing services.

The US Senate has approved the Healthcare Bill, which entails expanding the insurance coverage to citizens either employed with smaller companies or unemployed. It is estimated that around 3.2cr US citizens would now receive additional healthcare access. This development augurs well for Indian CMO industry

Adding capacities and capabilities Partnerships

Ranbaxy – Eli Lilly, Lupin –Cynamid, Cadila –Byk Gulden, Aurobindo – Pfizer, Dr. Reddy’s – GSK Plc, Strides Arcolabs – Pfizer, Claris Lifescience – Pfizer

M&As Dr Reddy's Laboratories (DRL) acquired betapharm from

Germany for €480 million Sun Pharma acquired US-based Able Laboratories and the

manufacturing facilities of ICN in Eastern E Shasun acquired Rhodia’s contract manufacturing operations Detailed list

Microsoft Office Word 97 - 2003 Document

Cost advantage Capital efficiency: Indian companies are able to reduce the upfront capital cost of

setting up a project by 25-50 percent due to access to locally fabricated equipment and high quality local technology/engineering skills. This benefit can be passed on to customers.

Labor cost in India is typically in the range of 10-15 percent of similar costs in the US.Resource

India has the world's second biggest pool of English speakers and a strong system of higher education

115,000 scientists with Masters degrees and 12,000 with PhDs every yearAPI process development expertiseRegulatory & FDA

Indian players jumped from around 14 per cent in 2000 to 46 per cent in 2008 (January-June)

India has recorded 1,671 DMF filings, China shows a tally of 520, the second largest number of DMF filings after India. Even in 2008 (January-June), India's DMF filings were around 3.5 times that of China - l8l and 51, respectively

Market Economics The industry received investments worth Rs 21.4 bn in the form of FDI between April

2007 and April 2009. Out of 36 countries that contributed to FDI in India, 5 countries, led by Mauritius (56.4%), Singapore (11.2%), USA (5.8%), UAE (4.7%) and Canada (4.0%), accounted for over 82% of FDI in drugs and pharmaceuticals1.

According to the Ministry of Commerce and Industry, domestic investment in the industry is estimated at Rs 31.34 bn.

Quality practices & compliance▪ Recently major bulk drug companies of India have come under FDA

scanner▪ September 08 - Ranbaxy's PAONTA SAHIB & MANESAR mfg unit were

under the FDA scan & 30 drugs banned in US .▪ October 08 - Sun Pharma's Carcao mfg. unit ( Detroit ) - was the victim of

FDA rage . ▪ April 09 - Cipla has been questioned for deviation from US FDA mfg.

process .

Logistics▪ The market size of Indian pharmaceutical logistics was $ 199.5 million in

2006 and the industry has been growing at an average annual growth rate of four percent since 2002

▪ Logistics and distribution has been Outsourcing companies’ most perceived risk area

▪ Latent information asymmetry; loss of logistics innovative capacity; hidden costs; dependence on the third party logistics (3PL) providers; loss of control over the 3PL providers;

Early Mover Advantage Estimated USD 103 bn worth of global generic drugs are at the risk of losing their

patents by 2012. India is significantly ahead in chemistry services such as analogue preparation,

analytical chemistry and structural drug design, which will provide the country with ample avenues in the field of contract manufacturing approved facilities and 200 cGMP manufacturing facilities

TRIPS agreement The introduction of the new patent regime in India from January 2005 has boosted

the confidence of multinational companies looking to outsource the manufacturing of branded drugs with the protection of intellectual property rights (IPRs).

Amendment to Schedule Y to allow parallel phase clinical trails

Government Subsidy 15 per cent capital subsidy for manufacturing facility investment and equipment

projects. SEZ – Pharmaceutical exclusive setups : Vizag and Himachal Pradesh

Domestic Market The growing domestic market with TRIPS agreement in place presents opportunity

for direct investments of Pharma MNCs in India

China and India together account for 7% of world pharmaceutical industry in value terms with revenues of US$28 billion.

FDI in pharmaceutical sector in China is more than 20 times than in Indian sector

18 of world top 20 companies have setup their manufacturing and R&D facilities in China GSK, Novo Nordisk, Boheringer Mannheim, Merck, Aventis all have

their largest R&D China competing as bulk drug-sourcing base for MNC’s and

global generic majors, by developing patent non-infringing processes for drugs on which the patent is set to expire

India has strong chemistry and regulatory skills, which have helped it emerge as a top

destination for Research and Development. India’s cost of manufacturing , highest number of US FDA approved plants outside the USA have been and continues to be advantageous .

Pfizer AstraZeneca, Merck, GSK, Solvay, Eli Lilly and others are very much part of India outsourcing story. MNCs are likely to scale up operations gradually as they get more experienced with Indian partners.

Over the years, Chinese companies have been aggressive in filing DMFs. Chinesecompanies have filed over 60 DMFs in 2005 as compared to 40 in 2004. Over the

next 2-3 years,Chinese companies are likely to move up the value chain by venturing into high-endintermediates and formulations

India is likely to account for 3-4 percent of the global contract outsourcing industry. From the

above estimates, it is evident that the Indian CRAMS story has just scaled the ‘tip of the iceberg’ and ‘sky is the limit’ for the companies that have ventured into this space.
