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Target 2010 The Toyota of Pharma

Target 2010 The Toyota of Pharma. Tom van Laar Head of Global Technical Operations Novartis Pharma AG. Agenda. Novartis Global Technical Operations. 24 Chemical, Pharmaceutical and BioPharma Plants 350 brands, 20,000 finished product SKUs 8 major 3 rd parties 9,000 employees worldwide.

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Target 2010 The Toyota of Pharma

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  1. Target 2010The Toyota of Pharma Tom van LaarHead of Global Technical OperationsNovartis Pharma AG

  2. Agenda 2 | Novartis TechOps | May 31, 2007

  3. Novartis Global Technical Operations • 24 Chemical, Pharmaceutical and BioPharma Plants • 350 brands, 20,000 finished product SKUs • 8 major 3rd parties • 9,000 employees worldwide 3 | Novartis TechOps | May 31, 2007

  4. Markets Customers Pharmaceutical Operations Europe Pool Asia Pacific Pharmacy Novartis: UK, DE, FR, ES, IT, TR, CH, 3rd party: CH, FR, North America Pool Novartis: US, 3rd party: US, CA Wholesaler Europe LatAm Pool Novartis: MX, BR 3rd party: AR North America Hospital Nationalplants United Kingdom Ireland Novartis: MA; EG, ID, JP 3rd party: many locally managed Latin America Agents Switzerland Other Countries Patient Supply Chain Structure – Pharma worldwide Pharma Chemical Operations DS Stock 4 | Novartis TechOps | May 31, 2007

  5. Agenda 5 | Novartis TechOps | May 31, 2007

  6. Key Challenges Facing Big Pharma • Positive demographic change • Unmet medical needs • Growth in biologics • Growth in emerging markets • Time to market • Pricing pressure, generic competition, shortening patent lives • Increased FDA/EMEA scrutiny • Increased role of non-physician stakeholders / channel change (direct distribution) Opportunities Challenges 6 | Novartis TechOps | May 31, 2007

  7. Development of TechOps Vision / Target 2010 • Why Change? • Novartis TechOps already strong in 2005 (low costs, high quality, etc.) relative to other Pharma companies. • Prepare for the future, 5+ years from a position of strength. • Learn from other industries, e.g. Toyota. 7 | Novartis TechOps | May 31, 2007

  8. Vision: “TOYOTA of Pharma” Operationsperformance “TOYOTA of Pharma Industry” From weak to top-of-class Supply Chain • 75% Lower Cycle Time • Lower COGS/Inventory when industry trends are increasing cost pressures • Toyota is leader in their business and major contributor is Toyota Production System (TPS) Getting Production under control • 23 sites • Operational COGS = 13.1% • 45 sites • Operational COGS = 16.0% Past 2005 Future (Target 2010) 8 | Novartis TechOps | May 31, 2007

  9. Three Strategic Pillars ofTechOps Operational Excellence Process-Oriented Organization (POO) “Toyota of the Pharma Industry” Enhanced Business Process Re-engineering (eBPR) LEAN Manufacturing 9 | Novartis TechOps | May 31, 2007

  10. Pillar 1: LEAN Manufacturing • Synchronisation of manufacturing • Driven by demand rather than forecast • Continuous flow of work and people • Logical rhythm through the supply chain • Moving forward via downstream signals • Elimination of waste • Non-value adding steps removed • Value adding steps broken down and linked • Problems solved at root cause (eliminate “rocks in water”) 10 | Novartis TechOps | May 31, 2007

  11. Eliminate “Rocks in the Water” Support low Throughput Time (TPT) Raw Materials Finished products to customers SEA OF INVENTORY LINE IMBALANCE LACK OF HOUSE KEEPING QUALITY PROBLEMS LONG SET-UP TIME POOR SCHEDULING MACHINE BREAKDOWN LONG TRANSPORTATION ABSENTEEISM COMMUNICATION PROBLEMS VENDOR DELIVERY 11 | Novartis TechOps | May 31, 2007

  12. Cycle Time Reduction for a major brand in Novartis 421 days 322 days 248 days 215 days 50-75% reduction in cycle time Target: 174 days Most Companies don’t “Connect the Dots” 12 | Novartis TechOps | May 31, 2007

  13. Pillar 2: Process Oriented Organization (POO)Cultural Change & Leadership TRADITIONAL: Functional Organization POO: Process Oriented Organization Target 3 Levels Align with Speed of Lean 13 | Novartis TechOps | May 31, 2007

  14. Pillar 3: enhanced Business Process Re-engineering (eBPR) Process before eBPR 14 | Novartis TechOps | May 31, 2007

  15. Pillar 3: enhanced Business Process Re-engineering (eBPR) Process after eBPR  >50% reduction in work  Lower cost, faster, more effective 15 | Novartis TechOps | May 31, 2007

  16. PharmOps • BioPharmOps • CPO • ChemOps • PharmOps • BioPharmOps • CPO • ChemOps Moving to the next phrase: Lean Link(Connect the Dots) “Toyota of the Pharma” Masterplan Local LEAN Operations LEAN Link by Brands 16 | Novartis TechOps | May 31, 2007

  17. Key Lean/POO/eBPR Learning Points 17 | Novartis TechOps | May 31, 2007

  18. Agenda 18 | Novartis TechOps | May 31, 2007

  19. Pharma Supply Chain Environment • Heavily regulated with strict operating guidelines • Improving supply speed & reliability in addition to reducing cost • Improving availability in addition to reducing inventory • Complex global supply chain networks & long supply chain cycle time (typically > 1 year) • Traceability and counterfeits • Balancing valuable capacity allocation for mature products with new product launches 19 | Novartis TechOps | May 31, 2007

  20. Drug Substance Drug Product Finished Products Customer Pharma Production Steps: Long Cycle Time Production  Steps Timeline  2-3 m. 2 w 9 - 12 months ChemOps/ BioPharmOps PharmOps Markets Organization  20 | Novartis TechOps | May 31, 2007

  21. Pharma Supply Chain Trends • “Leaner” supply chains to reduce costs and improve flexibility • Increased manufacturing in low cost countries • Accelerated product development time means that manufacturing could be locked in at an earlier point in the product life cycle • New technologies: processes, biological, IT • Devices and service items for new products • Wholesalers adopt a forward integration strategy to own pharmacy chains • Direct distribution to patients & pharmacies 21 | Novartis TechOps | May 31, 2007

  22. Major Risk 1: 100% supply of life saving drugs and high margin brands Supply comes 1st before low inventory level • Different from many other industries. E.g. People can probably wait for a new PC model, but not a life saving drug. • Availability of top brands affect profitability due to high gross margins and relatively low COGS in Pharma industry, esp. the substitution in high value markets. • Revenue from major blockbuster drugs financially feed the R&D engine & drive further innovation 22 | Novartis TechOps | May 31, 2007

  23. Major Risk 2:Quality & Compliance Strategies • From fire-fighting to proactive mindsets • Play a key role in eliminating “rocks in water” • Process Analytical Technology (PAT) align with Lean to improve process capabilities with real time release(build in Quality-Quality by Design) 23 | Novartis TechOps | May 31, 2007

  24. Major Risk 3:Speed to Market; Responsive to Market Changes Time: speed to market New launches uncertainties & risks • FDA approval timing and dosages • Variable demand forecasting • Complexity sourcing with devices and biologics • Technical manufacturing process Quality Cost Planned launches in Novartis in 2007 24 | Novartis TechOps | May 31, 2007

  25. Building speed-to-market capabilities to support new launches • Cross functional teams (with Marketing, sales, development, regulatory, BD&L departments) create and implement global and integrated launch plans • Comprehensive risk & sensitivity analysis for up/down side scenarios from both drug demand and supply • Building robust and responsive & flexible supply during and after product launch (Lean / POO / eBPR / 6 Sigma) TPT > 300 Days => Can’t Respond Fast 25 | Novartis TechOps | May 31, 2007

  26. Operational Centers (Process Unit Head)… Brand Supply Teams… • own end-to-end brand performance • align operational centers • link to Global Marketing • set collaboratively global and local brand targets • have fullRESPONSIBILITY end-to-end • have AUTHORITYthroughINFLUENCING Operations(PU Heads, SCM, etc.) • own operational step • collaborate up- and downstream • have fullRESPONSIBILITY and AUTHORITYwithin step • are INFLUENCEDbyHeadGlobal Brand Supply Team (on ALL aspect of Operational Excellence) Sourcing ChemOps PharmOps BioPharm- Ops CPOs ? PU Head Head (local) SCM Head Global Brand Supply Team PU Head Major Risk 4: Change/Transition Management Global Disruptive Supply Chain Organizational Change without disruption of operations 26 | Novartis TechOps | May 31, 2007

  27. Key Change Management Learning Points 27 | Novartis TechOps | May 31, 2007

  28. Major Risk 5:Manufacturing Investment Risks and Strategies Strategies • When to build is a key factor for risk mitigation • “Time, cost, control and flexibility” (Lean) • Key factors: company portfolio, pipeline, volume growth, compliance, profitability, labor skills and cost, equipment (dedicated vs. multipurpose), IP, etc. Risks • It takes 2-5 years & hundreds of millions of $s to bring on new capacity • Highly variable demand forecasting • Supply chain and manufacturing processes for untested drug must be put into place while managing the risk of a drug’s failure to receive FDA approval • Wrong investment decisions • Plants idle when the drug fails to receive FDA approval • Stock out, delayed launches 28 | Novartis TechOps | May 31, 2007

  29. After “Vision 2010”, what next?? Transforming Pharmaceutical Manufacturing to Continuous • the ultimate stage of LEAN 29 | Novartis TechOps | May 31, 2007

  30. Q & A 30 | Novartis TechOps | May 31, 2007

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