Pharmaceuticals Outsourcing & Offshoring Opportunities - India Pharmaceuticals Outsourcing & Offshoring

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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

  • 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 value Total 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 life Improved

    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 India Face 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 India Face 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

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    20 00

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    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 competition Industry consolidation Intensified competition Industry 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 variabilise cost

    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 outsourced US$ 1.2 Billion

    Amount of outsourced drug development to India US$ 0.25 Billion

    Dev expenditure outsourced US$ 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 graduates in chemistry outnumber those in the US by over five times at the bachelor’s level and by over three times at the master’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 pool coupled with the low-cost labor makes India the favored destination for activities outside US/Europe

    Labour wages are 1/7th of the levels in developed countries. Cost savings across the value chain of the pharmaceutical industry CMO: 40-45%

    Talent Availability Cost Benefit Quality & Economical Infrastructure

    Large Talent Base Low Overheads Low Cost Skilled Work Force

    Low Capital Cost

    Knowledge Advantage 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 forces BPO total revenues- India example

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