1. Indian Pharma Industry - At The Helm
Presentation by Ganesh Nayak, COO and Executive Director, Zydus Cadila

2. Challenges for healthcare system
Expectation of high quality healthcare
Facilities and infrastructure
High quality affordable medicines
Demographic changes
more people will require prolonged care
Lifestyle changes
Increased prevalence of chronic diseases (substantial part of overall healthcare costs)
Rising healthcare costs

3. Pharmaceutical spending
Pharmaceutical spending, as % of total health spending
Pharmaceutical spending, as % of total health spending 10 20 30 40 50 60 70
South Africa
Argentina
Jordan
Tunisia
Thailand
Indonesia
China
Egypt
India
Lithuania
Slovenia
Estonia
Poland
Croatia
Hungary
Czech Rep.
Bulgaria
Norway
Netherlands
United States UK
Denmark
Spain
France
Italy
Germany
Greece
Developed countries
(7 - 20%)
Transitional countries
( %)
Developing countries
( %)
In developing countries drugs are largest household and second largest public expenditure for health
Source: WHO statistics

4. How to control pharmaceutical spending?
“Generics” are the key to reducing pharmaceutical expenditure by offering a low cost alternative to expensive “Brands”

5. Generics
Generics are pharmaceutical products that contain already marketed and well established drugs, they are
Intended to be interchangeable with originator products
Usually manufactured without a license from original manufacturer or originator
Marketed after patent validity or any other market exclusivity of original product is over
Marketed under a non-proprietary name (INN or other approved name) or under brand names (branded generics)
Generics makes government or household spend less without any compromise on quality or safety
Depending on the market prices of generics could be 30%-90% lower than originator products
US even provides 180 days market exclusivity to a generic product that challenges an existing granted patent

6. Role of Generics
Introduction of generic products reduced cost of antiretroviral therapy by as much as 95% in just three years
UN Drug Access Initiative
Domestic production
Accelerated access initiative ??
Generic offers
Source = UNAIDS, B. Samb, 2000

7. Emergence of India
Unavailable
(23)
Sophisticated industry, significant research
(10)
Innovative capability
(17)
Active ingredients & finished products
(13)
Finished products from imported ingredients
(84)
No pharmaceutical industry
(42)
In early nineties India was recognized as an insignificant player in terms of pharma manufacturing capabilities
Source: UNIDO: The world's pharmaceutical industries. an international perspective on innovation , competition and policy. 1992

8. Transformation in less than 10 years
Unavailable
(23)
Sophisticated industry, significant research
(10)
Innovative capability
(17)
Active ingredients & finished products
(13)
Finished products from imported ingredients
(84)
No pharmaceutical industry
(42)
In less than ten years India is ranked at par with US, Japan and many European countries in terms of manufacturing and innovation capabilities but with an “EDGE”

9. The Indian Pharma Evolution
Phase II
Government Control
Indian Patent Act –1970
Process patents
Drug prices capped
Local companies begin to make an impact
Phase III Development Phase
Process development
Production infrastructure creation
Export initiatives
Phase IV
Growth Phase
Rapid expansion of domestic market
International market development
Research orientation
Phase V
Innovation and Research
New IP law
Discovery Research
1970
1980
1990
2000
2010
Phase I
Early Years
Market share domination by foreign companies
Relative absence of organized Indian companies

10. The Indian advantage Large skill base Vast talent pool
Experts in process chemistry
Long history of reverse engineering
Vast talent pool
Sheer number of scientists
Motivated & English speaking
Large number of trained Indians returning home from North America and Europe
Unmatched cost competitiveness
Lower cost of infrastructure and skilled manpower
Vertical integration

11. The Indian advantage Strong local industry Speed
Growing expertise with international regulatory compliance
High quality manufacturing with abundant capacities
Speed
Very strong entrepreneurial spirit
Hungry for growth and recognition
Quick learners and fast movers
Availability of capital
Stock market has seen unprecedented growth in the last decade
Continues to be bullish on the pharma industry

12. India - Value proposition
Process chemistry skills
Vast talent pool
Lower costs
World class manufacturing base
Globally harmonized regulations
Innovation
Quality
Price
Compliance
This is how the India Advantage transforms into four critical components of value proposition for the customer “INNOVATION”. “QUALITY”, “PRICE” and “COMPLIANCE"

13. India - Building capabilities
Values in US$ Mio
Huge investments in building USFDA plants
Capex
Net Fixed assets
Indian companies have taken combined total capex of over US$2.60 Bn between FY05 and FY09
The net fixed assets have grown by about 50% to US$1.6 Bn between this period
Most of the capex have been in USFDA approved plants in anticipation of huge generic opportunity
Source: Company Reports, CLSA Asia Pacific
Highest number of USFDA approved plants
India has the highest number of USFDA approved plants outside US
Low cost manufacturing and huge capacities are likely to put severe pricing constraints
Capabilities are being built across the spectrum of dosage forms
Source: USFDA, Internal Analysis, Industry Reports

14. India - Building capabilities
High Backward Integration Capabilities
Annual
Cumulative
Number of API facilities approved between 2000 and 2009 quadrupled
More than 170 API facilities approved by USFDA existed till 2009
Number of these projects were backward integration projects
Largest number of DMF filings
DMF Filings from India
% of total filings
Gaining dominance in global API business by filing almost 40% of all DMFs filed with USFDA (share of only 2% in 1996)
Cumulative filings at the end of 2009 stands at 1200 and significant number of filings have happened till date
Source: USFDA, Internal Analysis, Industry Reports

15. India - Building capabilities
More companies entering global markets
Large contribution in ANDA filings
Significant increase in the number of companies directly filing ANDAs
Each company has been filing around on an average ANDAs every year including niche dosage forms
Host of these companies are vertically integrated and have strong domestic business to manufacturing scale
Indian companies are filing close to 250 ANDAs compared to in 2001 (this is 32% of total filings with USFDA)
Many of these filings are for niche dosage forms where Indian companies had not be traditionally strong
ANDA Filings from India
% of total filings
Source: USFDA, Internal Analysis, Industry Reports

16. India - Leading pricing revolution
Indian drug prices are lowest in the world
Brand
Generic
Company
US Price (US$ per unit) per unit
Indian Price (US$ per unit)
Indian Price as % to US Price
Lipitor
Zocor
Norvasc
Celebrex
Zyprexa
Paxil
Vioxx
Zoloft
Pravachol
Fosamax
Atorvastatin
Simvastatin
Pfizer
Celecoxib
Olanzapine
Paroxetine
Rofecoxib
Sertraline
Pravastatin
Alendronate
Merck
Eli Lilly
Glaxo
BMS
3.10
3.80
1.30
2.40
8.30
2.44
2.47
2.21
2.50
15.3
0.35
0.11
0.18
0.24
0.26
0.33
0.70
11.30
9.30
8.50
4.60
2.10
9.90
4.40
11.90
13.20
Source: CLSA Asia Pacific-Markets

17. Cumulative impact (costs are lower by 30%-40%)
India - Where the cost advantage comes from?
Cost advantage extends well beyond labour cost
Cumulative impact (costs are lower by 30%-40%)
Upfront capital costs of setting up a project 25%-50% lower than in other developed markets
Easy access to locally fabricated cost effective equipment
High quality technology & engineering skills
Continuous process improvement by the Indian companies due to highly competitive local market and low pricing
This Achieved through either an efficient manufacturing process or through better yields
Huge talent pool of scientists and skilled workforce available
Average labour costs are approximately one-fifth of costs in developed countries
Quality at par with the international standards
Cost of developing an ANDA is lower due to lower input costs and lost cost of scientific & intellectual capital
Cost of filing DMFs and ANDAs is 50%-60% lower than in US, Europe and many other regulated markets
Capital Efficiency
Filing Costs
Process Engineering
Manpower Costs

18. R&D spend on Generics (US$ Mio)
Product development costs - A case example
R&D spend on Generics (US$ Mio)
ANDAs Filed
Spend/ANDA (US$ Mio)
Teva
247 53
4.70
Mylan 69 17
4.10
Alpharma 81 10
8.10
Ranbaxy 39 29
1.30
Dr.Reddy’s 33 14
2.50
Zydus Cadila 17 12
1.40
Indian companies spend significantly lower than amount their global counterparts in developing ANDAs due to lower upfront capital investments in building R&D infrastructure and low cost talent pool of high quality scientists
Indian companies can derive good returns even on products where market size is small and not of much interest to larger companies (this is evident from increasing trend to file DMFs for off-patent products
Source: Annual Reports, CLSA Asia Pacific-Markets

19. India – Presence across value chain
Indian companies have strong presence across the pharma value chain thus increasing scope of areas where India advantage can be successfully leveraged
Contract manufacturing and outsourcing of the APIs and commodity generics is attractive option to leverage costs advantage of Indian companies
Product development & marketing alliances, custom synthesis, contract research and clinical trails are good options to leverage both cost and skills
NCE
Leverage Skills
NDDS
Specialty Formulations
Commodity Generic Formulations
Leverage Costs
High end APIs
Commodity bulk actives
Chemicals & intermediates

20. Thank You