Opportunities & Challenges in Manufacturing

for Pharmaceutical Industry in India

Shyam BangDirector, Jubilant Life Sciences Ltd, India

Date: 11th

Aug 2011

Siemens Process Automation End User Summit GOA

Jubilant Bhartia Group : Valued over US$ 3BnEmploys 20,000 people across the globe with 1400 in North America

•

Jubilant Bhartia Foundation, a not for profit organisation is a social arm of Jubilant Bhartia Group •

The foundation is engaged in community development work focusing

on primary education, basic healthcare, skill development through vocational training for youth & women

•

Aims at long term sustainable social intervention by empowering communities through 4P model (Public-Private-People-Partnership)

Pharma &

Life Sciences

Integrated pharma & life

sciences player providing

products and services to

global life sciences

companies

Revenues FY2011:

US $ 770 Mn

(Rs. 34,334 Mn)

Leading player in Agri

and Performance

Polymers sectors

Revenue FY 2011:

US $ 124 Mn

(Rs. 5,540 Mn)

Food Jubilant FoodWorks-

a master franchisee of Dominos Pizza and Dunkin’

Donuts in India

Revenues: FY 2011: US$ 152 Mn (Rs. 6,783 Mn)

RetailJubilant Retail business with 4 hypermarket cum malls in Bangalore, India

Jubilant MotorWorks –

sales and service of Audi make cars in Karnataka and Tamil Nadu

Portfolio of 7 blocks in

India and 1 block in

Australia

Producing Asset –

Kharsang

Development Asset -

KG block

AerospaceExclusive representative for sales & marketing of Bell Helicopters and represents other international aerospace companies.

Oil & Gas ServicesConsultant to Transocean-

offshore drilling company

Manning and Marketing services for Tidewater Marine International etc

Agri & Performance Polymers Food & Retail Oil & Gas Services

Jubilant Bhartia Group -

Snapshot

3

International Trade Barriers have disappeared

Indian Industry is competing globally

Evolution of Internet, giving access to whole lot of information

Evolution of mobile phones

Recognition of India’s intellectual capabilities

Remarkable Changes

MOVING UP THE VALUE CHAIN

BULK CHEMICALS

PERFORMANCECHEMICALS

SPECIALITY CHEMICALS

FINE CHEMICALS

API

DOSAGE FORMS

CONTRACT RESEARCH

DRUGDISCOVERY

REVENUE GROWTH

Net Sales -

Company

Drivers of change

Business Models

Customer

Valueproposition

Pharma 1.0Blockbuster drugs

Pharma 2.0Diversified drug portfolios

Pharma 3.0Healthy outcomes

►

Health care reform►

Health IT►

Consumerism►

Value mining

PhysicianPayor

Patient

R&D productivityPatent CliffGlobalizationDemographicsPricing & reimbursement

Changing paradigms for the global pharma market

The global pharmaceutical market is in a state of flux with declining growth rates……..

Market size in USD bn % growth over previous year

….and decreasing R & D productivity

The impact of Generic Erosion on Big Pharma’s revenues

Company

2008 2015 % Change

1

$40,529 $45,714 13%2

$20,595 $20,216 (2%)3

$22,367 $20,537 (8%)4

$22,858 $20,294 (11%)5

$43,177 $36,186 (16%)6

$29,724 $24,428 (18%)7

$21,603 $16,364 (24%)8

$20,275 $15,286 (25%)9

$48,639 $34,075 (30%)10

$31,522 $18,878 (40%)

“Base Revenue Estimates”

(US$ Millions)

Note: These figures show each company’s “base revenues”

from products that are already on the market. They exclude any future pipeline contributions

GLOBAL PHARMA MARKET

Region

Market size Market GrowthMarket Growth

Forecast

Yr 2008 ( USD Billion)

CAGR (2003 -

2008) CAGR (2011 -

2015)

North America 311.8 5.70% -1% to 2%

Europe 247.5 6.40% 3% to 6%

Japan 76.6 2.70% 1% to 4%

China 21.0 20% 23%

India 7.7 14.60% 12.20%

Global Sales 773.2 6.60% 3% to 6%

Strategy of one Global Pharma Company

Manufacturing plants reduced from 96 to 46 in five years by 2008.

Further reduction to 41 by 2010.

Increase outsourcing from 17% current to 30% in next three years.

Result : Country wise DMF filing (2000 to 2007)

Contract Research : Development USD bn

Contract Manufacturing USD bn

Global outsourcing USD bn

CAGR 14%

CAGR 17%

CAGR 19%

CAGR 13%

Growing 3 -4 times faster than the pharma market

Contract Research : Discovery USD bn

The good news is global outsourcing market has grown at a 14% CAGR over the last few years with the development services growing the fastest..

65%

Contract Research : USD bn Contract Manufacturing : USD bn

43%

However India still has only 5-6% of the overall outsourcing market

The Indian market has grown 4-5 times faster than the global outsourcing market ..

Operating Low Cost: an advantage

Detail India US1 RM / PM 75 75

2 Utility Power : India 10c, US 5c per unit 7 8

3 Wages Against USA : India Lobour hr rate 1/15. Chemist 1/10

5 25

4 Infra Structure Project cost US 3 times. Dep load high.

10 28

5 Others 3 3

TOTAL 100 139

Expense Head

Capital cost Operating Cost

Relative Value

Stage-specific R&D cost savings possible to be achieved by outsourcing to Asia

Likely cost saving : up to 60%.

Areas Key challenges

Governance and transparency

► As companies are looking at partnering with /investing in Indian

companies they need to ensure Indian companies adhere to the compliance, regulatory norms such as the FCPA (Foreign Corrupt Practices Act).

Scalability► Indian manufacturers might not have enough spare capacity to cater to the

global MNC demands. This increases the perception of risk in outsourcing such products to Asian companies, especially if the suppliers are seeking assurance of supply for their products

Confidentiality ► High attrition rates in industry increases the risk of transfer of knowledge of the

innovator to competing generic companies that could be possible competition in the future

Time management

► Companies tend to over commit in terms of timelines and are sometimes unable to deliver according to these timelines.

What are the challenges perceived ?

Manufacturing

Turnover to Asset Ratio

Global Pharma Company Ratio

1 0.33

2 0.65

3 0.68

4 0.40

5 0.45

6 0.60

7 0.62

Challenges in Pharma Supply Chain

FDA benchmarks outside the industryWhen ex-FDA commissioner Mark McClellan sought a benchmark for futurepharmaceutical manufacturing performance, he looked outside the industry, andchallenged Pharma.“You need to improve...Other high-tech industries have achieved enormous productivitygains in manufacturing in the last 25 years. We should expect nothing less fromthe Pharmaceutical industry.”

Quality Standards in Manufacturing Improving

Quality sigmaProcess sigma

Internal failure

Failure rateImproving the performance of a production process yields much

greater returns than improving the quality control system

A

–

Most companies are here with process sigma of 2.5 and quality sigma of 5.0, i.e. (2.5, 5.0)B

–

Many companies will invest to improve “quality byinspection”

without changing production processes to gethere, i.e.(2.5, 5.5). This will actually increase the internalfailure rateC –

If a company were to invest to bring process sigmalevels to 4.5 or greater to reach (4.5, 5.0), the impact onfailure rate reduction would be over 1000 times greaterthan that obtained by improving the quality system alone

•

Rather than inspecting the finished product world class manufacturer monitors the production line and predict the variability that may result in defective product.

•

The reject percentage in the pharmaceutical industry ranges from 5 percent to 10 percent (<2 Sigma), compared to 0.0001 (6 Sigma) in the semiconductor industry.

Measurable Leanness

Lean Principles in Pharmaceutical

A common objection “It may work in

Automotive, but we are different”

Pharma Manufacturing -

Quality By Design

PAT (Process Analytical Technology)

PAT consists of four basic components 1) Process understanding, 2) Risk-based approach, 3) Regulatory strategy to accommodate innovation and 4) Real-time release

The primary goal of PAT is to provide processes which consistently generate products of predetermined quality. In so doing, improved quality and efficiency are expected from:

Reduction of cycle times using on-, in-, or at-line measurements and controls

Prevention of reject product and waste

Real time product release

Increased use of automation

Facilitation of continuous processing using small-scale equipment, resulting in improved energy and material use and increased capacity

Automation

Managing Supply Chain Cost

Manufacturing Challenges

Equipment & Technology

Capacity utilization

Unit Operation and Optimization

High Product Changeovers

Yield Losses

Process Capability & Control

Stringent Quality

Energy Cost

Waste Disposable & Effluent Treatment

Solvent Recovery and Reuse Integration

People Challenges

Attrition

Rising Wages

TPM / WCM / Kaizen / OEE / OPE

Capacity Modeling / De-bottlenecking using TOC

Rough Cut Capacity Planning / Scheduling

SMED

Norms Improvement Projects

Six Sigma

Human Error Reduction Program

Energy Audits / Energy Conservation projects

Green Supply Chain Project

Alternate Technology, Raffinate

Reduction projects

Employee Engagement Surveys

Compensation & Benchmarking

Talent Succession Planning

Employee Referral Program

An Inefficient Supply Chain

The Pharmaceutical industry loses 4.5% of revenue on account of:

Complexity of drug supply chain.

Drugs can change owner 6 to 10 times before reaching the customer.

Lack of visibility.

Inefficient processes for conducting recall

Hospitals and retail pharmacies are spending, on average, between $7,00,000 and $8,00,000 per year on excess inventory.

WHO estimates counterfeit drug sales to range $75 billion in 2010

8% to 10% of world wide drug supply is estimated to be counterfeit.

Pressure to Reduce Cost supply chain

Cost effective cold chain distribution management.

Maintenance of humidity, temperature and light for drug during distribution.

Strategies for an efficient distribution system for just-in-

time deliveries and avoid stock out.

Value added services during the documentation process to avoid any delay during the import and export.

Value added services to match the need of clinical trial distribution requirement.

Technology to prevent counterfeit drug from entering into supply chain.

Technology to track and trace the location of drugs in distribution channel.

Thank You