Gautam Mahajan Rev 3 SPEECH Fine Chemicals

8/3/2019 Gautam Mahajan Rev 3 SPEECH Fine Chemicals

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Why India is Important for theEuropean Fine Chemicals

Industry

Gautam Mahajan

Inter-Link Services Private [email protected]+91 9810060368


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Fine Chemicals Pharma Intermediates

Active Pharma Intermediates (API) Contract biopharma

Agrochemical intermediates

Others


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The changing business

dynamics in India Europe and India: dynamics

Opportunities to invest in, sell to and buy

from in India India and China competition Using India to balance supply constraints

The changing business dynamics in

India India Trade The growth of the chemicals business

and trends in India Using India as a supply base for other

countries


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First, well discuss: Europe and India: Dynamics

Opportunities to invest in, sell to and buyfrom in India

India and China competition

Using India to balance supply constraints


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Fine Chemicals: Market Size US: 17.18 billion in 2005

23.10 billion in

2011 est.

Europe: 8.43 billion in 2005

10.46 billion in

2009 est.

India: > 1 billion


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EU Chemicals In 2004, 29% of EU chemicals exported

compared to: 19% for the USA and19% for Japan

Only 18% of the EU chemicals demandwas imported from the non-EU regions*

*In 2003, India-China imports were 8%,estimated to increase to 30% in 2008-

09


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European Fine Chemicals

profitability under pressureProfitability eroding:

Intense Asian competition New chemical entity (NCE) approvals

rate reduced


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Threats and Opportunities

Globalisation

Higher Exports from Asia India China Symbiosis

Asia driven acquisitions could be

exit option offer services across the value chain


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Indian Fine Chemicals

Growing number of Indian suppliers:

lower prices than American/Europeancompanies, often 50% compliant with

current good manufacturing practices(cGMP)

70 in India alone: second largest after USA inworld

intellectual property rights (IPR)


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Active Pharma Intermediates

Indian API 3rd largest in world (1.6 bnin 2005) and will

grow to 3.63 bn by 2010, CAGR 19.3%

India will become second largest APImanufacturer (overtake Italy) by 2010*

* Italy's Chemical Pharmaceutical Generic Association (CPA) report


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Indian Advantage

Low labour and environmental costs,

Size and dynamism of its economy,

Incentives provided by the Indiangovernment,

In long term, threatens dominance of China as

top API producer R&D, Knowledge base & IPR

Quality

Cash rich: entering Europe


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Lower Costs

Lower Costs due to:

Lower fixed (lower capital)

Labor and

Maintenance costs prevalent in Asia

Lower overheads

translates to 10.0 percent of the expenditureincurred by North American/Europeanmanufacturing plants

And Entering Europe


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Examples of Indian

Acquisitions Nicholas Piramal

Avecia Pharmaceutical Pfizer, Inc. (Morpeth, UK)

$350 mn supply agreement with Pfizer

7 year agreement for process development and

scale-up services to Pfizer

Rhodia's (Paris) inhalation anesthetics business


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Examples of Indian

Acquisitions Shasun Drugs and Pharmaceuticals Rhodia

Pharma Solutions

Kemwell Pfizer Uppsala, Sweden contract APIin Sept. 06

Dr Reddy Betapharm, Germany for 450mn

United Phos crop protection chemicals co.Cequisa, Spain; Reposo, Argentine; Advanta seeds,Holland; Cropserve, S. Africa; AG Value, US and nowa new 111 m acquisition of Cerexagri in Europe

announced 13 Nov 06


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Examples of Indian

Acquisitions

Dishman Pharmaceuticals and Chemicals

CarbonGen and AMCIS, Switzerland for high-potency actives

I03S, Ltd. ( ozone chemistry),

Synprotec, a contract research company


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Backward Integration in China

Indian producers backwardintegratingin China

Example: Dishman has two projects:

a $10-million investment for producingquaternary compounds and intermediates and

an API plant


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Example: Matrix Labs

Matrix Laboratories Concord Biotechspecializing in fermentation and biocatalytic

backward-integrate into China, acquired a 58% stakein Mchem Group

43% stake in Swiss API technology firm ExploraLaboratories

Ventures with South Africa's Aspen Pharmacare Belgium generics company Docpharma NV

BUT

US generic drugmaker Mylan: 573.4mn to acquire a

controlling stake in Matrix


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Indian Companies setting up in

Europe/America Denisco

Nancy, France, API

Dallas, Texas customer support office

Customers in North America face tight margins andfierce competitive pressure for time-to-market. Our

ability to quickly, safely and efficiently producepharmaceutical lab samples, and then rapidly rampup for commercial-level volumes, will help lightenthese pressures, said Venkat Ram, president of

Denisco Chemicals.


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Indian Companies setting up in

Europe/America

G Amphray in Holland and now in

Mexico Bilcare, India's largest research-based

pharmaceuticals packaging company,has bought UK-based clinical trialsservices provider DHP in Sept. 2006


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Other Indian Companies

Hikal, Jubilant Organosys, Matrix, and

Suven have the benefit of the 'high-skill and low-cost advantage' plus the

leadership and financial muscle

according to a Swiss Consultant


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Example: SST USA

SST USA: ..European-based producersstill account for the majority of supplier

base, producers from India and Japannow represent an important minority ofthe company's suppliers," says Gary

Vassallo, president of SST, who took overin March

India makes up one-quarter of the 23manufacturers represented by SST.


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Therefore,

Supplies from India and China forcing US andEuropean companies to redefine theirbusiness models:"Apart from the issues of quality, speed, and value,the two key requisites for success are a position inIndia or China (a manufacturing subcontractingarrangement is good and an affiliate company isbetter) and an attractive toolbox of technologies,"

Degussa custom manufacturing j. v.with Lynchem in China

*says Pollak.


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Fine Chemicals Economics

Fine chemicals production economics

favor China and India based operations.Annual unit labor costs are a fraction of the

Wests:

3,000 in India

4,000-6,100 China

versus 40,400 in West Europe or

15,300 in Poland, a good proxy for the Central

and Eastern European region


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Unit Labor Costs*

0

10

20

30

40

50

60

70

Swiss. Italy Poland India China

Coastal

China

Inner

K Euro/p/y

65

42

15

2.5 4.5 3

Includes fringe/other benefits

*Source: Arthur D. Little


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Productivity Ratio*

0

12

3

4

5

6

7

8

West India China

This ratio is calculated dividing value added (net sales less raw material costs )-- by total

direct labor wage costs. Note that even with lower labor costs, productivity is higher inAsia *Source: Arthur D. Little

2.5 - 4

7-9

6-8


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Transformation Costs*

0

2

4

6

8

10

1214

16

18

20

Swiss Italy Poland India China

Coastal

China

Inner

~20~18

~15

~7 ~8 ~6.5

Euro/Kg

*Source:

Arthur D. Little


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Economics in Asia

Lower Labor cost/Higher Productivity

Lower administrative costs

Investment cost lower (maybe 40%), or

India: 40,000/m3

W. Europe: 160,000 to 400,000+/m3

Lower environmental costs

In China, cost of capital considered asunk cost


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Economics in Asia

Raw materials maybe higher in India and China

Higher solvent loss due to climate

Higher energy costs Higher costs due to logistics, infrastructure and other

inefficiencies

Overall: Cost advantage of Asian suppliers increaseswith the complexity of the molecule, the longer and more complex the synthesis,

and the higher the manpower and reactor volume

requirements.


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Economics

But changing:

Higher inflation in India/China

Environmental costs catching up Risks

Quality

Supply chain disruption

Communications Time

Potential impact of REACH regulations

That is why penetration has not been higher


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Conventional Solution

Industry restructuring and consolidation in EU, Production restructuring

Reduction of overcapacity More Imports Enhance quality Collaborate with Asian firms to maintain a stable position Confidentiality, reputation, documentation, product quality

important Hitech segments such as contract biopharma, high

potency active pharmaceutical ingredients (HPAPI) &Hazardous Chemistry

Undervalued pharmaceutical intermediaries and APIare investment/consolidation opportunities


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Opportunities for European

Companies Take advantage of Globalisation

Acquire/update Asian companies

Import from/Export to Asia

Distribute in Europe, Asia and NorthAmerica

Use REACH regulations to advantage

To import

To buy time to restructure


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Acquire/Update Indian

Companies Degussa long-term agreement Hikal

Solvay Pharma got FDA approval for Bavlafacility

Expanded its facilities in Naroda, India, for cGMPmanufacture of quaternary ammonium and

phosphonium compounds and certain bulk drugs.


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Acquire/Update Indian

CompaniesAlbany Molecular Research USA expanding

Indian R&D center, + scale-up lab for APIsand intermediates.

Aceto Corporation USA (a distributor) to buyor build its pharma quality assurance, and

analytical labs, and to be Indian logisticscenter.

Sigma-Aldrich Corporation USA building a

manufacturing plant in Bangalore


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Galaxy Surfactants Ltd.


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The changing business

dynamics in India Europe and India: dynamics

Opportunities to invest in, sell to and buy from inIndia

India and China competition Using India to balance supply constraints

The changing business dynamics in India

India Trade

The growth of the chemicals businessand trends in India

Using India as a supply base for other countries


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India

Purchasing power parity 3rd largest inworld of 3 trillion

10th largest GDP at > 600 bn (2006)

2nd fastest growing major economy,with a GDP growth rate of 8.9% (1st

quarter 20062007)

Growth in industrial output of 11.4% forSeptember 2006 and 12.7% for the year


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Growth in other Industries

Car sales up 22% in September

Indian Engineering & Construction industry8.5% CAGR in 5 years, increasing rapidly

Manufacturing to grow from 39 bn in 2003to 242 bn in 2015

Telephones grew from 14.5 million in 1997to 120 million in 2006

IT industry has had 29% CAGR in 5 years


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India

India:

FTA with Thailand

Trading partner status Asean

Working on EU special relation

NAFTA?

India as a base for value added marketinginto Asia and Middle East/Africa

India as a source of manufactured goods, not

just services and knowledge (and R&D)


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India Sustained High Growth

India adds: 36 billion in incremental output (around a tenth of the

levels of the US) to world Annual contribution will rise to 282 billion by 2025 and 1.8

trillion by2050

By 2050, 1/3 of global economic growth from India India and China together will account for 2/3

India's economic growth will bring several benefits toWestern economies R&D facilities in India will help reduce costs and improve

productivity Low cost geography and its scientific talent pool, India will

provide value added services, globally Special Economic Zones to give distinct thrust to exports

Tax benefits, export incentives etc.


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India Merchandise Trade

with World


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India Merchandise Trade

with EU25


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Indo EU Trade

Total 2 way trade expected to be 80BN in 2011

EU-India trade has grown from 4.4 billion in 1980 to40 billion in 2005

Trade with the EU represents more than 20% ofIndian's exports and import and

EU is India's largest trading partner

The EU is also India's largest source of foreign direct

investment.However, India accounts for just 1.8% of total EU

trade. India attracts only 0.3% of the EU's world-wide investments


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Indian Chemical, Pharma

& Petrochemicals Industry

Indian Chemical Industry : Segments

Others, 3%Soaps & Toiletries,

11%

Organic Chemicals,

10%

Synthetic Fibres,

16%

Polymers, 6%Inorganic Chemicals,

10%

Pharmaceuticals,

15%

Agrochemicals, 3%

Paints, 3%

Dyes, 5%

Fertilisers, 18%


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0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1999-00 2000-01 2001-02 2002-03 2003-04 2005-06

Exports

Imports

In Million Euros

Exports & Imports

Chemicals (India-World)


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India: Chemicals

Organic Chemicals:

1.53% of EU organic chemicals exported to India which

are 18.63% of Indias needs China, EU are top suppliers to India.

India is 11th ranked importer from EU

Inorganic Chemicals:

1.54% of EU inorganic chemicals exported to Indiawhich are 6.26% of Indias needs

Inorganic Chemicals suppliers Morocco, South Africa

India ranks 11th as importer from EU


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46* These figures include production from unorganized sector, which is

estimated at 26% of the production.

Currently 6.5 Bn;Growing at 10-15%, 4th largest inworld and to be 9.7bn in 2008

About 60% of production exported to about 65countries

1/20th the cost of developed countries

Estimated market size of 20 Bn by 2010

Average spend on R&D is 5-6% of sales 3000 API units; 5000 Formulation units and 2000other units (intermediates etc.)

Indian Pharma Industry


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Exports are over 3.8 billion. India among top five bulk drug makers.

Indian owned companies are 65% increased from25%

Exports growing by 20% Medicinal plants trade > 725M. 170 biotechnology companies in R&D and

manufacture of genomic drugs, business growingexponentially.

Sequencing genes and delivering genomicinformation for big Pharmaceutical companies is

the next boom industry in India.


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India's bulk drug and pharmaceutical industrygrown into a highly sophisticated one, meeting

the International standards of Production,Technology and Quality Control

The progress of the Drug industry has renderedthe country self-sufficient in National HealthCare, has reversed the trend of Indian foreigntrade profile from a predominantly importingcountry to a highly visible exporter to globalmarketing


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Indian pharmaceutical companies: filed 104 out of251new Drug Master Filings made in the US in April- June2006, largest number of DMFs by any country

India has largest contract research business in pharmaindustry (2005: $100-120 Mn) and growing at20-25per cent per year. About 35 per cent is new drugdiscovery and 65 per cent is in clinical trials.

Cost saving for a multinational company moving R&Dto India is 30-50%

Indian domestic Pharma companies are going globalwith a direct presence in multinational locations in theworld.


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Pharma Industry

Bulk Drugs, 1.6 bn, growing at20%

Formulations, 5.5 bn, growing at 15%

Imports > 1.4 bn

Exports 2.5 bn in 2003, 40% of Indiaspharma manufacturing Now 3.8 bn


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Indias Pharma Intermediates

Distinctive focus on: Late stage Intermediates

Complex Synthetic APIs

Move Towards:

Custom Synthesis Low delivered prices

Increasing technical & managerialsophistication


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Performance of Chemicals during 2001-02 to 2004-05 (000 MT)

Group

2001-

02

2002-

03

2003-

04

2004-

05

Growth(%)

CAGR

Total major Chemicals

Capacity 8012 8334 8750 8933 3.69

Production 5963 6612 7066 7375 7.34

Capacity Utilisation (%) 74.4 79.3 80.8 82.6

Imports 743 724.6 930 914 7.15

Exports 277 435 478 721 37.56

Consumption 6429 6902 7518 7568 5,59Source: Report 2005-06 Ministry of Chemicals & Fertilizers Govt. ofIndia

Chemicals Industry


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2001-02 to 2004-05(000 MT)

Group 2001-02 2002-03 2003-04 2004-05 Growth(%) CAGR

Total major Petrochemicals

Capacity 7017 7162 7423 7915 4.1

Production 6235 6553 7006 7348 5.63

Capacity Utilisation (%) 88.9 9 1.5 94.4 92.8

Imports 669 691 830 841 7.93

Exports 698 969 1039 1257 21.66

Consumption 6206 6275 6797 6932

3.76Source: Annual Report 2005-06 Ministry of Chemicals & Fertilizers (Govt. ofIndia)

Indian Petrochemicals


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Year Production Imports Exports Demand

2001-02 9,808 1,157 1,150 9,815

2002-03 10,932 997 871 11,058

2003-04 11,269 875 918 11,226

2004-05 13,546 728 844 13,430

2005-06 13,574 - - -

Organic Pigments000 Tons


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Indian Specialty & Fine Chemicals Industry > 4 Billion/Year Will be one of top-two exporters in low cost countries 2002: Exports valued at 1.6 Billion

Growing @15%-20% annually Manufacturing hub for technology intensive production Better than China in product quality & R&D facilities Specialty chemicals as antioxidants, food additives, and pigments Pharmaceutical and Agrochemical Industries consume more than

70% of the fine chemicals produced Performance chemicals being developed in India. Growing

demand from manufacturers of products such as sunscreens andBiocides

Manufacturing for Fine & Specialty chemicals shifting from

developed countries to developing countries such as India.

Indian Specialty & Fine

Chemicals Market


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Why India is Important for the

European Fine Chemicals IndustryThe changing business dynamics in India

The growth of the fine chemicals businessand trends in India: Knowledge and R&D base

Opportunities to invest in, sell to and buy from inIndia

India and China competition

Using India to balance supply constraints

Using India as a supply base for other countries


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Confused European

Dynamics* Some European Companies: GrowingGrowing Others: On the FenceOn the Fence

And Some: ExitingExiting

Understand and React toChangeCos. Trading at Low MultiplesFew Customers for Used Plants

* Marc Hannebert


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European Growth Drivers Generics

New Molecules (R&D)

Speed of Generisation

India is great at these


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Who is your Customer?Taking Pharma Intermediate Cos. as an

example:

Consumer Final Drug Producer

Some one else

Insurance Companies?

Provide Value Added solution to end CustomerMove down and up Value Chain, convert

commodities to specialties through softfactors (Roger LaForce)


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Lessons European Fine Chemicals Cos. have

Customer Base

Change Production Base to India

Source

Contract

Buy someone Use India for R&D: REACH labs in India


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Lessons Build Global Strategy: USA, Asia, and

the world

Understand and react to change

Try to Europeanise India

Upgrade

As economy grows

Insurance companies


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LessonsIndian Companies

Use Production & R&D base to your

advantage Get closer to Customer

Buy someone close to the customer, or with acustomer base

Buy a distribution co.

Manage expensive European logistics

Globalise: Backward/Forward Integration

Indianise Europe


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Drivers in India India low Cost

Driven by Government to deliver lowcost health care solutions to the poor

Low cost/affordable drugs

Avoid Insurance company syndrome

Lobby of people vs.

Lobby of insurance companies/drugcompanies

Example: AIDS drugs


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India and Specialties Opportunity for European companies to

sell

For Indian companies to develop lowcost alternatives


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We conclude, India is

important: Very cheap source of fine chemicals

Growing & important R&D centre

Growing market for European companies to tap

India is Entering Europe

Growing competitor

Opportunity for European manufacturers to re-locate and source from India and to sell in India

Sub contract

Or source and sell through specialists like Azelis


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Therefore, understanding

India, build a Global Strategy Used to be in many industries:

What is your China Strategy?

It is not only that but your Indianand Asian strategy, and your Global

strategy

Ignore India at your own risk!


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THANK YOU

Gautam Mahajan

Inter-Link Services Pvt. Ltd.

K 185 Sarai Jullena New Delhi [email protected]

+91 98100 60368, Fax +91 11 26929055

Gautam Mahajan Rev 3 SPEECH Fine Chemicals

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