Noemie Bisserbie, ET Intelligence Group, Oct-Nov 2006
Supply chain management (SCM) is one of the leading cost saving and revenue enhancement strategies in use today. Pharmaceutical companies are increasingly using this technique to improve the entire functional process. SCM has also helped companies enhance their efficiency in managing resources and improving relationships.
In the case of Nicholas Piramal, SCM has proved to be one of the most powerful engines of business transformation. Since the company’s decision to enter the high growth contract manufacturing and research services (CRAMS) segment, SCM has become key to the company’s strategy. After the acquisition of Avecia (UK) in 2005, and more recently, Pfizer’s UK Morepeth facility, the company’s ability to integrate over seas businesses and ramp up of supplies becomes key to the profitability it’s CRAMS business. Background
Three years ago, India’s fourth largest pharmaceutical company, NPIL, came up with a total restructure plan. Post patent regime, the company identified CRAMS as a major growth opportunity. With a slowdown in patented drugs sales and drying R&D pipelines, global pharmaceutical companies are increasingly exploring low cost options for outsourcing research and manufacturing. According to industry sources, the global pharmaceutical outsourcing market, which currently stands at $24 billion, could reach $53 billion by 2010. Low cost manpower and a large base of FDA approved plants, positions India high on the outsourcing list, Suven Lifesciences, GVK Biosciences, Jubilant Organosys, Nicholas Piramal and Shasun Chemicals & Drugs now featuring among the leading Indian players in this segment. Custom manufacturing for innovator companies stands out as the most attractive outsourcing opportunity for pharma companies. This market could reach, from an estimated $16 billion today, to $25.7 billion by 2010. With the largest number of FDA approved plants after the US, India could potentially capture 10% of this opportunity.
Change was inevitable
Within just three years, NPIL has changed its entire business model. NPIL’s recent buyout of Pfizer’s Morpeth facility, puts it on top of the league of Indian contract manufacturers with expected annual revenues of Rs 900 crore. While its international business accounted for just 3% of revenues in 2002-03, today it represents 50% of NPIL’s business, while domestic revenues account for the remaining 50%. SCM has played a crucial part in this transition. Since its decision in 2003 to enter the contract manufacturing business, NPIL has invested close to $175 million (Rs 806 crore) towards creating capacity in the segment. The company has spent about $100m on greenfield projects in India, and paid up around $25m and $50m towards the acquisition of Avecia and Pfizer’s Morepeth facilities, respectively. The acquisition of Pfizer’s Morpeth facility is a big win for NPIL, as it fulfils its search for a significant acquisition in the contract manufacturing space. The facility comes with a five - year supply contract that could yield revenues of $350 million (Rs 1610 crore) during the tenure. The domestic company also expects to tie up with new customers. Morepeth’s base in Western Europe could enhance its appeal with other global pharmaceutical companies who may be more comfortable about sourcing from a UK-based plant. NPIL is confident that the track record of the company should help it attract new customers. While Nicholas Piramal’s acquisitions have allowed the company to build a critical mass and increase its technology range, the company will need to rationalize costs by synchronizing operations with the Indian assets and by sourcing intermediates from new locations to make the Avecia and Morpeth businesses competitive. NPIL is notably looking at China as an opportunity to reduce sourcing costs significantly. Through these means, NPIL expects to cut costs...