strategies and opportunities of outsourcing -product development and manufacturing services from...

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Strategies and Opportunities for Outsourcing of Product Development and Manufacturing Services

from Latin America

Daisy Rivera-Muzzio, R Ph, MS, MBA Senior Director, EP Product Licensing Portfolio Development Established Products Business Unit Pfizer, Inc

Drug Development Latin America March 9-10, 2009

Miami, Florida

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Business Opportunity Latin America has the potential to become a key global outsourcing hub for the development and manufacturing of pharmaceutical products in 5-10 years

Working together for a healthier world

•  Benefits / Outcomes –  Industry Growth –  Innovation –  Robust low cost Product

Development capabilities –  Infrastructure to address local

health needs in Latin America

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Key points to discuss

•  Global Outsourcing Drivers and Opportunities

•  LA Strengths / Capabilities

•  Expectations vs Gaps

•  Concluding Thoughts

4

0

20

40

60

35

2006

6

47

52

2011

Packaging

Bulk and dosage form drugs

$B

4

31

Global pharma contract manufacturing revenue forecast1

~30% of manufacturing output produced by third parties by 20102

Total

21

24

24

24

20

29

35

26

33

30

0 10 20 30 40

Generic

Branded

Medical devices

Biotech

Total

2007 2010

Manufacturing output produced by third parties (%)

1BCC research; 'Contract Pharmaceutical Manufacturing, Research, and Packaging,' August 2007 2AMR Healthcare Value Chain Survey 2007, Q: What percentage of your company's manufacturing output is produced through third

parties today? What percentage of your company's manufacturing output is produced through third parties in 2010?, n=275 companies

Outlook: Steady increase in Pharma Contract Manufacturing Services

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Growing product portfolio complexity è Increased need for flexibility

and specialized capabilities

Growing technological complexity è Increasingly diverse

technology and need to increase internal expertise

Severe pressure on margins è Increased need to reduce COGS

and justify capex investments

More stringent and complex regulatory requirements è Upgrades/investment required to

meet compliance audits

More dynamic market environment è Develop/launch products quickly;

Respond to pricing, supply changes

Source: The Boston Consulting Group

Challenges Facing Pharmaceutical Manufacturing Operations

Pharma Operations

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Key Drivers for External Sourcing Cost

advantage

R&D

Expertise Market presence

Pipeline maintenance

Facilities/ network

availability

Manu- facturing

Sales

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Pharmaceutical

Consumer products and

retail Automotive

Financial institutions

Stage 1 capacity

augmentation

Stage 2 proof of concept

Stage 3 value

realization

Stage 4 strategic supplier

management

Stage 5 global operating

model

Adoption stage

Source: Pharmaceutical Technology. Outsourcing Resources issue. 2005

Pharma External Sourcing Trend Follows Other Industries

External sourcing industry lifecycle curve: Pharmaceutical versus other industries

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Latin American Strengths and Capabilities

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Latin America Country Attractiveness Assessment AT Kearney / Destination Latin America: a Near Shore Alternative

Country Argentina Brazil Chile Mexico Colombia Costa Rica

Cost attractiveness

Availability of skilled labor

Language capabilities

Political and economic stability

Government support

Cultural affinity

Total attractiveness

Key highlights (pros and cons)

• Lowest wages for skilled labor in the region

• Political and economic stability for a relatively short time compared to neighboring countries

• Significantly outnumbers country peers in call center and ITO industries, though it has a strong domestic focus

• Limited number of English and Spanish speakers

• Remarkable stability of political and business environment

• Limited availability of professionals fluent in English

• Closest to the United States

• More developed market for BPO in the region, especially in finance and accounting

• Key costs (salary, real estate) are higher than most peers

• Stable economy with available labor

• Reputation impact although crime rates in Bogotá are lower than in São Paulo, the country’s reputation reduces the inflow of investments

• Very good bilingual skills

• Strong presence of large international (captive) service centers and vendors

• Limited workforce availability given population size and potential saturation

Sources: A.T. Kearney’s 2007 Global Services Location IndexTM, Datamonitor, ADI Argentina, Invest@Chile, CINDE, best cities ranking by America Economia, Mercer Global Pay Summary, Colliers International, Gartner Group and A.T. Kearney analysis.

Least Attractive

Most Attractive

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Latin America Pharmaceutical Market Value

$25,898$29,782

$34,773

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2005 2006 2007Years

($ US MM)

Reference IMS Health

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Latin American Pharmaceutical Market Characterization - 2007

Reference IMS Health

Mexico (36.6%)

Argentina (15.3%)

Venezuela (8.4%)

Colombia (5.8%) Chile (2.9%)

Peru (1.8%) Others (0.8%)

Brazil (28.4%)

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Key Latin American Markets

aThe World Factbook, Central Intelligence Agency, bLead Discovery c2008 IMS Market prognosis in LA : Brazil update dRefers to 2008 spent on clinical trials only

Characterization of Pharmaceutical Industry in LA

Brazil Mexico Argentina

Total Population 190,010,647a 108,700,891a 40,677,348a

Total Pharmaceutical Market

US$ 9,870 MM US$ 12,730 MM US$ 3,600 MM

Units 1,660 MM units 984 MM units 500 MM units (24% OTC, 76% Ethical)

Laboratories ~252 labs 19% foreign owned, 81% domestically owned including 12 state owned labsc

224 labs Mostly foreign companies with a few domestics labsb

254 active labs 64% domestic firmsb

R&D Spent US$ 200 MM/year US$ 78 MMd US$200 MM/year (US$100MM - by CRO’s)

Importation US$ 4,200 MM US$ 52 MM US$ 1,096 MM

Exportation US$ 961 MM US$ 1,300 MM US$ 700 MM (63% to LA; 37% rest of the world)

Estimated Growth Rate 2007-2012

9.7% 7.2% 4.5%

Comparative growth rate in R&D spent USA 9.5% , LA 13%

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Process and Product Development

Which opportunities of the Product Development & Manufacturing Cycle can be captured in LA

Clinical Trials Safety and Efficacy

Commercial scale Manufacturing

Brazil

Drug Discovery NCE (Biotech)

Mexico

Argentina

Opportunities for Process and Product Development

•  Reformulations

•  Line Extensions

•  Combination Products

•  Prescription to OTC

•  Packaging Presentations

Process and Product Development

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Highlights Biotech Industry in LA

•  Brazil is a gene rich country, host to 24% of known primate species, between 10 and 15 million of species of insects and 22% of the world higher plant species.1

–  Government Investment: •  Annual spent on biotech drugs US $95MM •  National Biotechnology Policy -10 billion Brazilian reais investment over the next

ten years on both biomedical and agricultural biotechnology –  Major Research Centers

•  Amazonian Technology center – research center supported by the Ministry of Science and technology

•  Butantan Institution in Sao Paulo – dedicated to production of vaccines –  Dengue vaccines expected by 2010 –  4 year project to develop a vaccine against HIV (US$15.3 million investment)

1 Medicinal plant genetic resources and international cooperation : The Brazil Perspective Journal of Ethnopharmacology, April 1996,vol.51 no.1-3

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Highlights Biotech Industry in LA

•  Brazil is a gene rich country, host to 24% of known primate species, between 10 and 15 million of species of insects and 22% of the world higher plant species.1

•  Mexico2

–  November 2008 – Probiomed Biotechnology Complex, the largest biotech plant opened in Latin America. 100% Mexican owned, benefited from an investment of more than US$100 million.

–  The Mexican Council for Science and Technology (Conacyt) – country's top institution for the funding of scientific research projects

•  2002, US$44 million fund to support 200 national biotechnology projects; •  2008 funding 38 billion pesos (US$3.5million).

1 Medicinal plant genetic resources and international cooperation : The Brazil Perspective Journal of Ethnopharmacology, April 1996,vol.51 no.1-3

2 Global insight 2008-IHS Global Insight Report: Mexico (Healthcare and Pharma)

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Expectations vs Gaps

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Changing Dynamics in Mfg Outsourcing What is the industry looking for?

Changing industry dynamics... Approach to creating value

Contract manufacturing

Traditional Drivers • Capacity: companies unwilling/unable to

hold capacity to buffer demand surges • Risk: new drug attrition; manage risky

investments in production facilities • Flexibility: shorten time to market

New Drivers • Operating Costs: Increasing price pressure

forcing lower operating costs • Regulations: Increasingly complex mfg

regulatory and documentation issues • Emerging markets: Need to establish

presence in growing markets • Virtual companies: Small biopharma

companies (R&D only capabilities)

•  Depth of experience

•  Proprietary / specific technology (process or drug delivery system)

•  Confidentiality

•  Cost effective network

•  Highly qualified organization (project managers, technical capability)

•  Complexity management capability

Source: BCC Inc. – Pharmaceutical Contract Manufacturing and Research

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Comparison for a typical manufactured product (%)

Cost Differences Drive Focus on Outsourcing Typical China / India landed costs ~60% US and ~70% LA

5

37

100%

30

10

4

Labor

Direct material

Supplies Utilities Tooling

Repair & maintenance Depreciation

Overhead/support/GA

4 5 5

8

21

4 3

4 6

US (typical manufacturing cost elements)

China/India (combined estimate)

57%–62%

Landing costs to US/Western Europe (transportation, taxes,

add'l logistics, ...)

5–10

Latin America (combined estimate)

3

3

19

25

3 2 2 3 3

5 10

72%

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External Sourcing Is Not A Panacea Savings Reduced by Additional Costs and Risks

Savings of conv cost (%)

Risks Additional costs

Country related risks •  Foreign exchange •  Expropriation •  Catastrophe/Stability •  Taxation/Regulation •  Infrastructure

Product related risks

•  Intellectual property •  Technology transfer •  Regulatory re-registration •  EHS standards •  Quality •  Supply assurance •  Price stability •  Vendor viability

Risks and mitigation approaches must be investigated and integrated into strategy

42 7 2

2 2

2 27

0

10

20

30

40

50

Gross Savings

Residual plant cost

Logistics costs

QA costs Duties and taxes

Product support

Net savings

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Gradual Improvements in the Regulatory

Environment in Latin America

News Release FOR IMMEDIATE RELEASE

Contact: HHS Press Office

Wednesday, January 7, 2009 (202) 690-6343HHS

•  Opening of First FDA office in Latin America

–  President’s Action Plan on Import Safety

•  Key trade partners for the United States

–  Costa Rica is the first in Region

–  South America and México in 2009

•  “An HHS/FDA presence in the region will improve

collaboration, strengthen our partnership and hasten the flow

of quality goods to our markets.”

–  Secretary Leavitt

•  Paul Seligman, M.D., M.P.H.

–  Director of the FDA Latin America Regional Office for OIP

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•  Document of the Americas

–  Clinical practice guidelines

•  Regulatory agencies

•  Investigators

•  Ethics committees

•  Universities

•  Businesses

•  Latin America clinical trials*

–  1993, 2.1%

–  1997, 5.1%

–  2000, 7.5%

•  Establish harmonized criteria for

clinical practice

*IMS Health

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BIO Jan 2008

• Argentina- – Bioequivalence requirements for drugs with narrow therapeutic index.

• Brazil – Introduction of bioequivalence and bioavailability testing requirements

for all new drugs, branded copies and similars

–  BIO firmly believes it is in the long term interests of Brazil to

adopt stronger intellectual property standards and practices

including enforcement patent protection to encourage

development of its indigenous biotechnology industry.

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• Mexico 1995- Article 376 Ley General de Salud

•  Compulsory bioavailability studies for all

medicines produced in the country

•  Bioequivalence requirement in all new drugs

and renewal of licenses – Program to be

completed by 2010

1998 Introduction of interchangeable generic

designation

2003 COFEPRIS – (Comission Federal para

la Proteccion de Riesgos Sanitarios)

• Does not grant approval for products

that infringe patents issued by the

Mexican Institute of Industrial

property (IMPI)

2012 Government program

Universal health care coverage

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Is Latin American pharmaceutical manufacturing industry ready to be a global competitor? Some Leaders Perspective “I agree with your vision about Latin America’s potential to be a key global competitor of outsourcing pharmaceutical services in the next decade. We bring a number of strengths such as excellence in service, quality and a significantly lower cost than the one from developed countries. …Two key areas of opportunities to strengthen our global competitiveness are production infrastructure and process controls...”

JP Bago, President Laboratorios Bago- Argentina “I see a tremendous effort in Latin America to improve the regulatory environment and improve global competitiveness of the region A tangible result of these efforts is the creation of the "Good Clinical Practices: Document of the Americas' from PAHO/PANDRH .”

P Seligman, MD Director of the FDA Latin America Regional Office

“The two key challenges that LA is facing to improve its global competitiveness are : 1. Sub optimal scale of manufacturing plants that prevents them from yielding globally competitive costs. 2. Lengthy, complex, people dependant regulatory approval process that is not aligned with the agility required to meet current emerging market dynamics.”

Carlos del Rio, VP /TL Pfizer, PGM, Latin America and Puerto Rico

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Is Latin American pharmaceutical manufacturing industry ready to be a global competitor? Some Leaders Perspective “I agree with your vision about Latin America potential to be a key global competitor of outsourcing pharmaceutical services in the next decade. We bring a number of strengths such as excellence in service, quality and a significantly lower cost than the one from developed countries. “Two key areas of opportunities to strengthen our global competitiveness are production infrastructure and process controls..”

JP Bago, President Laboratorios Bago- Argentina

“I see a tremendous effort in Latin America to improve the regulatory environment and improve global competitiveness of the region A tangible result of these efforts is the adoption of the "Good Clinical Practices: Document of the Americas' from PAHO/PANDRH .”


“The two key challenges that LA is facing to improve its global competitiveness are : 1. Sub optimal scale of manufacturing plants that prevents them from yielding globally competitive costs. 2. Lengthy, complex, people dependant regulatory approval process that is not aligned with the agility required to meet current emerging market dynamics.”


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Is Latin American pharmaceutical manufacturing industry ready to be a global competitor? Some Leaders Perspective “I agree with your vision about Latin America potential to be a key global competitor of outsourcing pharmaceutical services in the next decade. We bring a number of strengths such as excellence in service, quality and a significantly lower cost than the one from developed countries. “Two key areas of opportunities to strengthen our global competitiveness are production infrastructure and process controls..”

JP Bago, President Laboratorios Bago- Argentina “I see a tremendous effort in Latin America to improve the regulatory environment and improve global competitiveness of the region A tangible result of these efforts is the creation of the "Good Clinical Practices: Document of the Americas' from PAHO/PANDRH .”


“The two key challenges that LA is facing to improve its global competitiveness are : 1. Sub optimal scale of manufacturing plants that prevents them from yielding

globally competitive costs. 2. Lengthy, complex, people dependant regulatory approval process that is not aligned with the agility required to meet current emerging market dynamics.”


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Is Latin American pharmaceutical manufacturing industry ready to be a global competitor? Some Leaders Perspective “In Argentina, we need to address our scale as well as our technological capabilities. In response, there is an ongoing effort to build a state of the art laboratory supported by private investment of 13 domestic firms and the Argentinean Ministry of Science and Technology. It is a collective effort to provide advanced analytical and product development technology to promote innovation that otherwise could not be afforded by individual companies.”

Dr. Marcelo Carlos Nacucchio, Professor- Academia Nacional de Farmacia y Bioquímica, BA, Argentina

“Each country in LA brings different capabilities to offer outsourcing services of pharmaceutical development and commercial manufacturing. Argentina in particular is prepared to offer product development services specially in the development of innovative drug delivery systems. There are not enough incentives to invest in commercial scale manufacturing to compete globally. Key challenges to become a global competitor: Need to strengthen public policy to enforce Intellectual Property Laws and Regulatory controls.”

Dr. Rodolfo Rubio-Garcia, Associate Director, BioEliga Consulting, Argentina

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Is Latin American pharmaceutical manufacturing industry ready to be a global competitor? Some Leaders Perspective “In Argentina, we need to address our scale as well as our technological capabilities. In response, there is an ongoing effort to build a state of the art laboratory supported by private investment of 13 domestic firms and the Argentinean Ministry of Science and Technology. It is a collective effort to provide advanced analytical and product development technology to promote innovation that otherwise could not be afforded by individual companies.”

Dr. Marcelo Carlos Nacucchio, Professor- Academia Nacional de Farmacia y Bioquímica, BA, Argentina

“Each country in LA brings different capabilities to offer outsourcing services of pharmaceutical development and commercial manufacturing. Argentina in particular is prepared to offer product development services specially in the development of innovative drug delivery systems. There are not enough incentives to invest in commercial scale manufacturing to compete globally. Key challenges to become a global competitor: Need to strengthen public policy to enforce Intellectual Property Laws and Regulatory controls.”

Dr. Rodolfo Rubio-Garcia, Associate Director, BioEliga Consulting, Argentina

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Key Considerations to achieve global competitiveness •  Manufacturing Scale

–  Challenge to align scale with global markets requirements

•  Cultural transformation –  Quality and technical perspective

•  Embrace conceptual global regulatory/ technical advances on PAT, ICH, QbD

•  Regulatory standards harmonization FDA, EMEA, ICH

•  Enforcement of Regulatory and IP laws •  Local Salary taxes (Brazil)

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Addressing the gaps for an effective contract manufacturing relationship •  Due diligence

–  Risk assessment –  Cost/benefit

•  Collaborative relationships to address technical and regulatory gaps

•  Mutual accountability

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Concluding thoughts •  Latin America has potential capabilities to capture global outsourcing

opportunities for product development and pharmaceutical manufacturing –  Brazil and Mexico - Biotech –  Argentina - Development of drug delivery systems

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opportunities for product development and pharmaceutical manufacturing

•  Commercial manufacturing scale needs to be developed to produce cost that are competitive at a global scale however the currently available scale could be used –  a) to serve emerging markets requiring similar volume as LA markets –  b) to capitalize product development capabilities to enable post LOE

strategies

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opportunities for product development and pharmaceutical manufacturing

•  Commercial manufacturing scale needs to be developed to produce cost that are competitive at a global scale however the currently available scale could be used

•  Ongoing efforts to harmonize regulatory standards, active collaboration between FDA and local regulatory agencies will have a positive effect on the LA global competitiveness

•  Synergistic collaboration of regulators, industry leaders, academia and government is required to address the gaps and promote the use of LA capabilities to provide outsourcing pharmaceutical manufacturing services

•  Promotion of Low Cost pharmaceutical R&D is required to address unmet needs of neglected regional diseases.

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? Questions?

Preguntas?

Perguntas?