The Emerging Face of kpmg India Pharma Inc. India Pharma Inc- new horizons.pdf · The Emerging Face...

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© 2003 KPMG, the Indian member firm of KPMG International, a Swiss non-operating association. All rights reserved.

- New Horizons

KPMG Consulting Pvt Ltd

Presentation at the PHARMAEXPO 2003

November 14, 2003

Agenda

©2003 KPMG, the Indian member firm of KPMG International, a Swiss non-operating association. All rights reserved | kpmg

Taking StockAdvantage India…emerging opportunities

ChartingFuture Direction Imperatives for success

Advantage India…emerging opportunities

Taking Stock© 2003 KPMG. All rights reserved. | ABCD

©2003 KPMG, the Indian member firm of KPMG International, a Swiss non-operating association. All rights reserved |

Taking Stock… an Industry snapshot

How has the industry grown?

Which therapeutic segments are driving the growth?

Who are the key contributors to the growth?

What is driving growth?

Volumes? Price? New products?


Source: IMS Plus Sep2003

Indian Pharmaceutical market has seen a consistent growthCAGR = 5.81%

15,193

19,042

18,158

15,720

125120

103100

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

MAT ~ 09/2000 MAT ~ 09/2001 MAT ~ 09/2002 MAT ~ 09/2003

Val

ue in

Rs

Cro

res

0

20

40

60

80

100

120

140

% g

row

th

How has the industry grown?


6.94

4.324.00

3.663.15

2.79

2.17 2.021.78 1.78

3.364.33

-4.10

1.15

10.23

18.21

2.210.09-1.20-1.79

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

CEPHAL

OSPORINS &

COMBS

ANTIR

HEUM

ATIC

NON-S

TERO

I

FLUOROQUINOLO

NES

BROAD

SPEC

TRUM PE

NICILLI

ANTIU

LCER

ANTS

ORAL A

NTIDIA

BETIC

S

HAEM

ATINI

CS,IR

ON & CO

MBS

ANTIT

USSIV

ES

VITA

MIN B COMPL

EX

MUL

TIVITA

MINS + M

INERA

LS

% S

hare

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

% G

row

th


Which therapeutic segments are driving the growth?



1297

908855

741675

580551

498 481432

0.90

3.45

-1.17-2.10

4.86

19.68

1.58

-1.37

4.195.25

0

200

400

600

800

1000

1200

1400

GLA

XOSM

ITHKL

INE* CIPLA

RANBA

XY*

ZYDUS C

ADILA

*

NICHOLAS P

IRAMAL

* SUN*

AVEN

TIS PH

ARMA

DR REDDYS

LABS

WOCKH

ARDT-M

ERIND*

ALKE

M

Turn

over

in R

s C

rore

s

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

% G

row

th

• Top 10 Corporations contribute to 37% of the Total market

• 8 out of the Top 10 are Indian Manufacturers.

Who are the key contributors to the growth?



-5.00

0.00

5.00

10.00

15.00

20.00

25.00

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0

% Share

% G

row

th

GLAXOSMITHKLINE* CIPLA RANBAXY* ZYDUS CADILA*

NICHOLAS PIRAMAL* SUN* AVENTIS PHARMA DR REDDYS LABS

WOCKHARDT-MERIND* ALKEM

High

HighLow

Low

Indian Pharma market: Break up of Growth

Total Volume Price New Products1994 15.71995 11.8 7.8 2.4 1.61996 14.9 9.8 3.6 1.51997 13.2 8.3 3.2 1.71998 18.6 14.8 2.1 1.71999 8.5 3.3 3.2 22000 10.5 5.8 2.3 2.42001 9.7 6.4 0.9 2.42002 8.3 6.7 -0.7 2.4

Source: ORG

What is driving growth?

Volumes? Price? New products?


Source: IMS Plus Sep 2003

33

31

25

18

1615

13 13 1312

6.6

10.3

3.6

7.35.6

6.3 5.8

0.7 0.3

3.0

0

5

10

15

20

25

30

35

ZYDUSCADILA*

SUN* INTAS CIPLA RANBAXY* LUPIN LABS AVENTISPASTEUR

MICROLABS*

GALPHALABS

NOVARTISINTL.*

No. of new prod. Value in Rs Crores

• 568 new launches in the last 6 months

• Valued at Rs 129 crs.

• Top 10 new launches contribute 18% of

the total value of the industry new

launches

What is driving growth? New products?


Let us view the industry as it stands today, along different dimensions

The Indian Pharmaceutical Industry

Strengths• Large untapped

domestic market• Fast changing

lifestyles• Low cost

manufacturing• High chemistry

and process reengineering skills

• Quick adoption of new technology

Weaknesses• Lack of pricing

power impacts growth

• Lack of product patents

• Characterised by low margins

• 1/6th of world population, yet accounts for 1% of value

• Highly fragmented industry

Opportunities• Potential to absorb high

priced products• Changing demographic

and socio economic profile

• Opening up of the health insurance sector

• Product patent protection from 2005

• New DPCO• Opening of OTC

segment• Large number of drugs

going off patent• Establish as a global

sourcing hub

Threats• 2005 IPR regime

implies drying up of product pipeline for Indian companies

• China threat• Ambiguity on VAT• Loopholes in the

Patent Bill

Domestic market perspective

Global market perspective


Several forces of change have altered the Indian Pharmaceuticalsbusiness environment

Altered Business Environment

Innovation : a must for survival and growth

Rising R&D spends

Growing generic competition

Exploring new markets

Cost pressure

Marketing & distribution focus

Forces of change

REGULATION & GLOBALISATION

RISING COSTS

INFORMATION TECHNOLOGY

COMPETITION

CONSUMER PREFERENCES

EMERGENCE OF BIOTECHNOLOGY


In this context, success of players will hinge on…

Strength of existingproduct portfolio and pipeline of products

Access to proprietary technology

Focus on research and development with high success rates

Ability to manage costs

Presence in growth markets and segments


Thus striking the right balance between…

Maximize Existing Customers

Attract New Customers

Focus

Existing Product Markets

New Product Markets

vs

Existing Geography

New Geography

vs

Existing Industry Structure

Acquisition/Consolidation/ Fragmentation within Industry

vs

Existing Value delivery systems

Innovation of Value Deliver systems

vs

Existing Products

Innovative Products

vs


Several opportunities exist for India to …

Enhance itsrole

in the global industryIndia as an offshoring

location for R&D

India as an offshoring location for Manufacturing and Other Support

Services

Export of domestically

produced generics


The fast evolving Indian pharma industry has leveraged its strengths to move up along the value chain

VALUE

§ In FY2005 Indian companies expected to file 60 ANDAs

§ Ranbaxy and DRL already filing about 18-20 ANDAs a year, with 37% share of DMFs filed with USFDA

§ FY 02 exports- $2.5 Bn

§ However, earnings affected by:- position in cycle- competition- costs- investment intensity- R& D capability

Chemicals

APIsFormulations

API Exports FormulationExports

Generics in regulated markets

Specialty products

R&D based products

Horizon 2:

Horizon 3:India on the global map

Horizon 1:

Export of domestically

produced generics

TIME


India offers a number of advantages for offshoring of R&D

The Rationale

India advantage

VAST ACCESS TO SKILL BASE

FLUENCY IN ENGLISH

RAPID TIME TO MARKET

COST ADVANTAGE

INCREASING FOCUS

FISCAL & OTHER INCENTIVES

India as an offshoring location for

R&D


Global Pharmaceutical / Biotechnology organisations and leading R&D service providers are targeting India as a resource base…

…for drug development, clinical research and trials

Cases Activity Business Model Location/s Investment Perceptions/Future Plans

GlaxoSmithKline 1) Research programs - Statistical and Data Management Centre

In-houseBangalore

Plans to make India a base for clinical research as well as parts of basic research including contract research

Pfizer Inc

1) Academy for Clinical Excellence2) Provide Clinical Research education and training for professionals to design and execute clinical research

Alliance with Suven Pharma Ltd (Hyderabad) and Bombay College of Pharmacy

Mumbai USD 150,000Plans to set up an R&D subsidiary in India to take up global R&D efforts

Novo Nordisk, Denmark 1) Clinical trials on diabetic drugs Outsourced - Dr. Reddy's Hyderabad USD 10.5 mn

Monsanto1) Research on "drought-tolerant" genes for crops

Alliance - University of Agricultural Sciences (UAS)

Bangalore USD 40,000 -

Gland Pharma, a JV company of Vetter Group, Germany

1) Research on manufacture of ampoules, vials and pre-filled syringes, and packaging needs of the pharma industry

In house Hyderabad USD 600,000Pans to provide cost-effective packaging solutions to global pharmaceutical organisations

Saint Life Bio Pharma Ltd, California

1) Chemical design and synthesis2) Bioassay and the entire pre-clinical activities through two business verticals, offshore research lab (ORL) and offshore informatics lab.

Dedicated research centre -service provider for global Pharma organisations

BangaloreUSD 6 mn, 100 scientists

-

Hoffmeister Pharma GmbH, a German pharma company

1) Research on AIDS drugsJV company in India - plan stage

N/a N/a"India has vast untapped sources of herbal medications, and most important in areas of cannabinoid pharmacology"

Unilever1) Research on Haircare, detergents, etc.

In-house Bangalore N/a N/a

Bayer AGPlans to increase Research activities and undertake clinical Research in India

N/a N/a N/a N/a

Source: KPMG Research & Analysis

India as an offshoring

location for R&D


Further, India offers a unique value proposition for offshore manufacturing and other support services

COST

SCALE

SCOPE

QUALITY

TIME

The Rationale

Cost Savings• 40-50% net savings• Higher productivity• Scalable - workforce size• Wide scope of functions - low to high value skills• Process re-design potential • Shared infrastructure/ cheaper real estate• Government fiscal benefits

Quality• Lower error rate, quicker turnaround• Specialization• Greater quality visibility and enhanced ability to

manage quality

Time• Faster turnaround using time zone differences (US

12 hrs, Europe 4-6 hrs)

Revenue Enhancement• Sales lift/ higher customer retention• Revenue protection/ reconciliation activity


Global corporates are successfully sourcing services from India that span across the value chain

Operations

n Order tracking services

n Order tracking and logistic services

n Claims processing

n Credit card processing

n Ticket reservations

Finance and Accounts

Technology Services

Product Development

Inb

ou

nd

Lo

gist

ics

Man

ufa

ctu

rin

g/

Op

erat

ion

s

Ou

tbo

un

d

Lo

gis

tics

Mar

keti

ng

an

d

Sal

es

Cu

sto

mer

Ser

vice

Human Resource Management

Finance and Accounting

n Back-officen Accounts payablen Accounts

payable/receivable, financial reporting

n Finance accountingn Revenue accounting

HR servicesn Payroll processingn HR services

including payroll, recruitment, HRIS etc.

n Payroll services

Marketing/Sales/Customer service

n Outbound tele-sales support for their consumers

n Computer help deskn Web-based interaction for

answering customer inquiries n Technical support to retail and

business consumers.n Inbound voice to consumersn Inbound and outbound customer

interactionn Customer service

R&D/Product design

n Clinical Research

n VLSI design

n DSP chip design

n Avionics research

n Clinical Research

n R&D and finished goods

n R&D and engineering services

Technology Services

n Software development

n Customizationn Hosting &

maintenancen Customer

technology support

India as an offshoring location for

Manufacturing and Other Support Services

Imperatives for successCharting Future Direction

© 2003 KPMG. All rights reserved. | ABCD


In the context of the global and domestic pharma industry landscape …

VALUE

Horizon 3:Create a positioning for India on the global map

What will it take for India

to create a positioning

on the global roadmap?


A two-pronged approach needs to be taken to enhance the role of India in the global industry

Increase domestic industry size

Enhance contribution to the global industry


Players must adopt specific and measurable action steps to contribute towards growing the domestic market

FINANCIAL

§ Pricing strategy

§ New high potential segments

§ Development & Manufacturing cost optimization

§ Return on selling & distribution expenses

CUSTOMER

§ Untapped customer segments

§ Increase rural penetration

§ Public private healthcare partnerships

INTERNAL PROCESSES

§ Innovation rate

§ Robust marketing strategies

§ Enhanced detailing and targeting strategies

§ Channel effectiveness

LEARNING & GROWTH

§ Sales force effectiveness

§ Competency building

§ Business intelligence


For the two-pronged approach to be successful, industry participants need to work in tandem

§ Increase domestic industry size

§ Enhance the role of India in the global industry

THE GOVERNMENT

REGULATORY BODIES

DEALERS / DISTRIBUTORS

MULTINATIONAL PLAYERS

INDIAN PLAYERS

RESEARCH INSTITUTIONS


Indian players should concentrate their efforts in nurturing international business related capabilities, while exploring opportunities to grow the domestic business

Manufacturing• Adopt global ‘good

practices’ - production, supply chain management

Marketing

• Enter high margin, high growth TCs

• Co market with/in-license products from global Co’s

• Enhance international mktg capabilities

Sales & distribution• Focus on exports• Focus on brand building,

enhancing penetration

Customer management

• Understand customer needs in different markets

Primary Capabilities

Financial management• Focus on improving profit margins,

sales and ROCE• Improve working capital

management

Technology management• Connectivity across all locations• SFE solutions to enhance productivity• Enhance information visibility across

the value chain

People management

• Provide incentives to encourage innovations

Risk management

• Risk diversification through business expansion in multiple geographies

Business intelligence• Awareness of competitor

strategies• Market scanning

Support Capabilities

Registration

• Undertaking R&D • Managing international

registrations• Out license patented

molecules/ delivery systems to MNCs for development

Procurement

• Cost effective sourcing• Backward

integration though raw material

Alliance management• Local acquisitions• Build marketing.

technology and manufacturing tie ups

Enabling Capabilities

Business Management

• Formulate strategy and vision in alignment with global perspective

• Adopt global standards of corporate governance


Likewise, multinational players need to lay adequate emphasis onenhancing capabilities

Primary Capabilities

Marketing

• Continual product portfolio monitoring

• Pricing strategies developed

Sales & distribution• Explore alliances for

distribution of products• Further hone detailing skills

Customer management

• Focus on brand differentiation

Support Capabilities

Business intelligence• Awareness of competitor

strategies• Market scanning

Financial management• Focus on improving profit margins,

sales and ROCE• Improve working capital

management

People management

• Provide incentives to encourage innovations

Technology management

• Connectivity across all locations

Quality & safety management

Business Management

Enabling Capabilities

Research & development• Product introduction

strategies to be carefully developed

Procurement

• Cost effective sourcing• Backward

integration through raw material

Manufacturing• Adopt global ‘good practices’ • Outsource bulk, API and

formulation manufacture and services to Indian Co’s

Alliance management• Build marketing,

technology and manufacturing alliances

Regulator management• Focus on managing

regulatory requirements to obtain fast registrations

• Formulate strategy and vision in alignment with global perspective

• Adopt global standards of corporate governance


Tapping available opportunities through a concerted effort by industry participants will determine …

VALUE

Horizon 3:

Create a positioning for India on the global map

… India’s ability and time frame for moving to Horizon 3


Contact Details

Shalini PillayAssociate Director, Business Advisory Services

KPMG Consulting Private LimitedTelephone: +91 80 227 6000, Extn 2221Direct : +91 80 221 5068Facsimile: +91 80 227 3000Email: [email protected]

Shalini PillayAssociate Director, Business Advisory Services

KPMG Consulting Private LimitedTelephone: +91 80 227 6000, Extn 2221Direct : +91 80 221 5068Facsimile: +91 80 227 3000Email: [email protected]

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