competitive api strategies presentation nov28(1)
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Competitive API Strategies
Gurmeet SinghNovember 30, 2011
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Devising effective API
pricing strategies to
compete with domestic
and international
players and overcome
price volatility issues
Competitive API Strategies
India Shining
India Shining Story Numbers at variance
video_4.wmv
‘People think India is a land of billion problems but India is a land of billion opportunities. India is ready to take off’
- Mukesh Ambani at IES WEF Nov13-14 2011
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US DMF Filings by API Manufacturers: 2000 – 10
Source: Newport Horizon Premium™
0
50
100
150
200
250
300
350
400
450
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
India USA China Italy Japan
India : > 100 USFDA approved manufacturing sites
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Sourcing Geographies: Key Differences-APIs
Cost
Technology
API
RMI
Regulated Market Focus
Compliance
Source: UBS + IH
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Presentation Flow
Understanding the current supply-demand gap in the domestic API industry, and to identify the core reasons for recent excessive price reductions
Establishing new strategies to maintain prices whilst increasing the production yield and managing costs
Applying learnings from the strategies adopted by Chinese players to effectively compete on price and ensure sufficient ROI
Analyzing the next steps for Indian API manufacturers to sustain their market position and effectively compete on a global scale
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Demand - Supply Analysis
API supply side – Excess Capacity; Intense Competition
Capacity Increase: impacting Margins e.g 7ACA,
Cephs
EU Capacities contained – shift to Asian sub-continent
e.g Clavulanic Acid
8Over capacity pressurizing prices to soften
Company Capacity p.a (in Mts)
Livzon (Joincare) 1,800
Youcare* 2,000
CSPC 1,500
Zhuhai United 1,200 (Captive Use )
NCPC 1,000 + 2,000 (by 2011)
Fukang 1,000
Shandong Lukang 900
Harbin 750
Weiqida 1,000
Sandoz 1,000
Lihairun 1,000 (pending)
Kelun 2,000 (pending)
Tonglian 1,000 (pending)
Price in last 1 year: Oct 2010: 850 rmb+ Oct 2011: 450 rmb+
The actual cost is approx. 500-550 rmb
Strategic tie-up is the waySupply Securitization, Fair & Stable prices
7 ACA – China - a Supply Side Review
* suspended due to unfavorable market situation* suspended due to unfavorable market situation
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Potassium Clavulanate (Clavulanic Acid)
Margins slipped after the generic launch in US – 2003
Competition intense after new API manufacturers
Big opportunity in combination formulations
Innovator
Slovenia Korea Austria
PortugalChina + 4 TurkeyExited in 2009
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Understanding the current supply-demand gap in the domestic API industry to identify the core reasons for recent excessive price reductions
Establishing new strategies to maintain prices whilst increasing the production yield and managing costs
Applying learnings from the strategies adopted by Chinese players to effectively compete on price and ensure sufficient ROI
Analyzing the next steps for Indian API manufacturers to sustain their market position and effectively compete on a global scale
Presentation Flow
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Mindset Change – De-commoditize
Decision PointsConsistency
Technical SupportTimely Delivery
Sales Contact Frequency Price
API’s RMI’sAPI’s RMI’s
SteelSteel
Paper
Paper
Bulk Chem
Bulk Chem
Know your customer beyond the database
What factors ??? API Price
Innovator Market SizeNo. of API Players P/SComplex, Hz, GreenSpecs, Imp levels Recoveries Enzymatic Vs SyntheticCompeting therapies
Integration B/FAPI+ DossierTech CompetitionIP/RA edgeBasket Approach
Do NOT leave MONEY on the table
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LT API Supply Agreement – Price protection 2010: Orchid – 10 year API agreement with Hospira
Contract manufacturing for Innovator companies for NCE APIs for their Generic Launch & for branded generics
2011: Abbott licenses 24 Zydus products for EMs
2010: Torrent – AZN – Lic. & Supply Agreement
2011: Merck & Sun – Novel FDFs & Combos in EMs
Strategies to maintain prices & margins
GSK- DRL; Pfizer – Strides, Aurobindo; Mylan - Matrix
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Strategies to maintain price & margins contd..
Vertical integration e.g SMZ - Virchow Technology Barriers: Sterile API manufacturing APIs for non-conventional drugs / Niche APIs/
unmet medical needs e.g orphan drugs etc
Optimize costs through large batch manufacturing
Establishing manufacturing units in SEZ areas or make JV/ M&A in low tax countries
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Understanding the current supply-demand gap in the domestic API industry to identify the core reasons for recent excessive price reductions
Establishing new strategies to maintain prices whilst increasing the production yield and managing costs
Applying learnings from the strategies adopted by Chinese players to effectively compete on price and ensure sufficient ROI
Analyzing the next steps for Indian API manufacturers to sustain their market position and effectively compete on a global scale
Presentation Flow
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China – a formidable force
Largest API player
70% market share 1,200 API Mfrs >5,000 local
pharma Cos.
Exports> $18bn
China Exports to India> $3bn
India Exports to China
$0.5bn
Govt invst$125bnby 2020
GDP on healthcare
4.7%
MNCs investing – Long Term;MS < 2.5%
Scale - Large Capacities Pricing – is the KEY Red carpet welcome Learning attitude
Fixed-asset investment in pharma in Jun-11:$19.7 bn; ↑ 38%
3rd largest Pharma market
by 2013-14
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China – A Proactive Approach
IPR protection improving; enforcement - an issueM&As – way to move forward
Merck KGaA Beijing Skywing Technology GSK Nanjin Meirui
‘Aligning with Locals’ – a winning strategy Pfizer & Shanghai Pharmaceuticals
Two-way business investments & sourcing Shanghai Pharma –> $3 bn contracts - over 60 MNCs
Holistic strategies – entire Life Style medicationIncreasing collaboration; MNCs & local Universities
Trust is building up with local companies
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Learnings from China
Economies of Scale : Leverage on strengths
Highly Supportive Government Investment Plans - US$ 760 mn for APIs Mfrs Healthcare Reform Plan-2009 – basic medical coverage,
modernize health infra & improve grassroots healthcare Highly favorable currency exchange policy By 2020, entire population to be covered under public
medical insurance NCMS-2003 – largest public health insurance programs
New Rural Cooperative Medical Scheme – Premium sharing between household & Govt. in the ratio of 1:2
Learning Attitude
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India – China – a Comparison
Total Trade - Sino India US$ 20 bn US$ 40 bn
Export of API, Intermediate & Chemicals
~US$ 500mn US$ 3.3 bn
% of GDP spent on Healthcare 4.5% 4.7% (↑5.5%)
Pharma Sales in 2010-11 US$ 12.6 bn US$ 50 bn
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Understanding the current supply-demand gap in the domestic API industry to identify the core reasons for recent excessive price reductions
Establishing new strategies to maintain prices whilst increasing the production yield and managing costs
Applying learnings from the strategies adopted by Chinese players to effectively compete on price and ensure sufficient ROI
Analyzing the next steps for Indian API manufacturers to sustain their market position and effectively compete on a global scale
Presentation Flow
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SMZ – Largest Manufacturer ~ 10,000 TPA
Vertical Integration – JVs – Long Term Gain
Volumes – Economies of Scale – contain COGS/ OHs
Solvent Recovery – large volumes – efficient recovery
Process Development & Equipment – upgrade
Batch Size Enhancement – 20/50 KL ( China – 100 KL)
Cost Control – multi level – Techno Commercial Audits
Ethical + Cheap is NOT Sharp; Sharp + Cheap is NOT Ethical
Ethical + Sharp is Never Cheap, BUT most Effective
Only US DMF Source
Under Patent Perfect Competition Oligopoly Duopoly Monopoly
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Green Technologies – Cost Effective Opportunity
LT strategic cooperation with Shandong Xinhua 2009: Sustainable development of China Pharma
industry through Green Technology DSM India – Green Ampicillin enzymatic process
– Significant lower levels of waste
– Enzymatic Amoxicillin
DSM PureActives: Cephalexin; biocatalyses Safer, Purer, Cost-effective
DSM PureActives: Cephalexin; biocatalyses Safer, Purer, Cost-effective
2006 – Euro 1.5 bn (18% of T.O) from biotech products
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Carbon Credits: Profits – Way NeXT
Navin Fluorine
Flurochemicals HCFC22 – 8000MTA
By-product HCFC23 – Green House Gas
Kyoto Protocol – Carbon credits for reducing GH
1MT HCFC22 = $ 3500 Approx $ 25 Mn profits Y- O- Y after factoring tech payments
Innovative additional source of Profits – investment in Green Technology
Evolving Business Models
.
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Export Oriented Business CRAMSCipla, DRL, Dishman, GVK
LICENSING – In & Out
Franchising
Partially or Wholly Owned
subsidiaries
Joint Ventures
Into IndiaPfizer, GSK, Novartis
From IndiaDishman, GlenmarkOrchid, Aurobindo
Elder – EnzymotecElder – DaiwaLupin- Ital Farmaco
Ethypharm- SolvayGlenmark – ForestGlenmark - Teijin
Novamax- CadilaNovatech – ETI Klinical
Fortis HealthcareMedicine ShoppeSource : PricewaterhouseCoopers
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Next Steps for API manufacturers – Sustainability
Dossier selling; API sales & Price stability
Benchmarking – revisit R&D, Tech & Business Processes
Decommoditize your matured/maturing products
Packaging; Large Bx Sizes – Logistics & QC edge
Novel drug delivery systems
Combination drugs – relook at old drugs
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Co-Opetition - Collaborative competition Indian Pharma collaborating on best practices Evaluate common ‘pooled’ RM purchase
negotiation to get Price efficiencies EHS becoming a critical parameter
India is ahead ; Need to consolidate – Green Tech Resource pooling - Pharma SEZs – Vizag Park Govt support on EHS front ; facilities to neutralize
Next Steps for API manufacturers – Sustainability
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Way Forward - to Summarize
Green Technologies – an Opportunity
Keep benchmarking – Tech & Business Processes
Collaborative Competition – Co Opetition
Resource Pooling
Scale & Vertical Integration
EHS – Carbon Credits
BI/CI Agility in the face of volatility
Learn to do more with less
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Competitive & Business Intelligence- Securitize WWII Poster
‘Loose Lips might sink ships’
Over 100 yearsOver 35 years
Imovation: Imitation + Innovation
‘Its smart to take an Idea & Enhance It’ – Steve Jobs
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Bibliography http://www.chemanager-online.com/en/topics/pharma-biotech-processing/pharma-sourcing-india-and-china http://saffron.pharmabiz.com/article/detnews.asp?articleid=56312§ionid=50&z=y Tracking API demand and supply; Patricia Van Arnum, Jan. 2010, Pharmaceutical Technology Europe http://www.contractpharma.com/contents/view_expert-opinions/2011-06-01/china-vs-india-in-the-api-race-/ http://www.contractpharma.com/contents/view_expert-opinions/2011-09-19/when-the-unexpected-happens/ http://www.contractpharma.com/issues/2011-04/view_india-report/niche-play/ https://www.mckinseyquarterly.com/Energy_Resources_Materials/Chemicals/Innovation_in_chemicals_An_interview_with_Dow_Cornings_
CEO_and_CTO_2805 http://www.pharmabiz.com/ArticleDetails.aspx?aid=65147&sid=9 http://www.marketresearch.com/GBI-Research-v3759/Active-Pharmaceutical-Ingredients-API-Asia-6444687/ http://www.indiainfoline.com/Markets/News/Pharmaceuticals-market-in-India-by-2020-A-Healthy-Decade/5251255933 http://www.merck.com/newsroom/news-release-archive/corporate/2011_0411.html http://www.abbott.com/global/url/pressRelease/en_US/Press_Release_0856.htm http://articles.economictimes.indiatimes.com/2010-03-12/news/28448023_1_torrent-pharmaceuticals-torrent-group-licencing http://www.in-pharmatechnologist.com/Materials-Formulation/India-set-to-overtake-Italy-in-API-production http://www.in-pharmatechnologist.com/Product-Categories/Ingredients-excipients-and-raw-materials/AstraZeneca-plans-Chinese-manufact
uring-facility-to-meet-local-demand http://www.in-pharmatechnologist.com/Product-Categories/Ingredients-excipients-and-raw-materials/FDA-awards-35m-to-improve-US-dru
g-production http://www.in-pharmatechnologist.com/Product-Categories/Ingredients-excipients-and-raw-materials/DSM-and-Sinochem-s-anti-infective-
ingredients-JV-gets-green-light http://www.indiainfoline.com/Markets/News/Pharmaceuticals-market-in-India-by-2020-A-Healthy-Decade/5251255933 http://www.defchem.com/html_news/fine-chemical-8.html http://www.frost.com/prod/servlet/cpo/243036823 http://www.prlog.org/10970225-market-report-china-pharmaceuticals-healthcare-report-q4-2010-published.html “China’s Pharmaceutical Industry – Poised for the giant leap”; Report by KPMG http://www.chinadaily.com.cn/usa/business/2011-10/28/content_13997107.htm “The Global Generics Market,” CPHI Preconference, Frankfurt, 24-Oct-11 Discussions and inputs from Industry players and friends which include MSN Laboratories, Megafine, Virchow etc etc
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Orchid’s API Facilities, INDIAwww.orchidpharma.com
Thank You! Merci! Danke! どうもありがとうGurmeet Singh
[email protected]@orchidpharma.com+ 91 95000 34345
Manufacturing - Alathur, ChennaiManufacturing - Alathur, Chennai R&D - Sholinganallur, ChennaiR&D - Sholinganallur, Chennai Manufacturing - AurangabadManufacturing - Aurangabad
Questions welcome