Kate Kuhrt, Director, Generics and API Intelligence Thomson ReutersSource: THOMSON REUTERS RESEARCH © THOMSON REUTERS

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Emerging Markets as Opportunities, Rather than Threats MARCH 2008

Backdrop

• Growth Expectations for 2008

– US and EU5: 4-5%

– Japan: 1-2%

– BRIC: 12-13%

• Brand pharma

– Innovation slump

– Blockbusters losing patent protection

• Generics

– Increasing competition, especially from India

– Low cost API coming from India, China

– Margin pressures in U.S., UK, Germany

– Drop in small molecule opportunities post-2011

• Players– Big Pharma

– Generics based in regulated markets

– API manufacturers based in regulated markets

• Areas of opportunity: – Dose and API sales

– R&D and Manufacturing base

Agenda

• Big Pharma– Has been there for years: J&J, Wyeth, Pfizer, AZ, Glaxo,

Lilly, Abbott, others

• Generics– Baxter: Leader in IV solutions market in India

– Mylan: Matrix acquisition motivated only by access to API?

– Teva: Perennial rumors about a major Indian acquisition

Market for Dose: India

Market for Dose: India• Pros

– Double-digit pharma market growth

– Economic boom

– Growing middle-class

– Increasing prevalence of Western diseases

– 2005 product patents

• Cons

– Challenges to product patents• Novartis’s Glivec

– Potential for compulsory licensing• Roche’s Tarceva

– Many people still lack access to pharmaceuticals

– Poor infrastructure

– Large number of backward integrated local generic drug companies

– Dose imports from China

– Low prices

– Restrictive import duty on finished dose products

– Need marketing presence

Markets for API: India~1200 Indian Import Registrations filed since Feb 2003

• EU/US based companies with most IIRs

– DSM

– BASF

– Schering-Plough

– Sanofi

– Novartis

– Pfizer

– Bayer

– E.ON

– Glaxo

• Products with most Euro/US IIRs

– Amoxicillin

– Clavulanate Potassium

– Pancreatin

– Beta Carotene

– Lactulose

Germany10%

USA10%

Italy7%

All Others17%

Japan5%

France4%

Netherlands4%

Switzerland4%

Israel4%

South Korea3%

China32%

Source: Newport Horizon Premium™ © THOMSON REUTERS

Market for API: India

• Pros– Not self-sufficient in all

products• Fermentation

• Steroids

• Prostaglandins

• Polypeptides

– Demand for Intermediates

– Costs rising in China and India

– Opportunities in high-quality API for export dose

• Cons– Abundance of locally

manufactured API

– Many local facilities FDA approved

– Extensive importing from China

– Local API manufacturers enjoy cost advantage

– Restrictive duty on API imports

R&D and Manufacturing Base: India

• Big Pharma– Many have R&D and manufacturing sites in India: Novo

Nordisk, Merck, Pfizer, others

• Generics– Sandoz: a number of units

– Teva: small API/intermediates plant and R&D facility

– Apotex: manufacturing and R&D facilities

– Mylan: Matrix acquisition

• API Manufacturers– Trifarma: Alchymars ICM

– Albany Molecular: FineKem, Ariane Orgachem

R&D and Manufacturing Base: India• Pros

– Scientific talent

– Significant cost saving opportunities

– Proven abilities in IT arena

– Product patents introduced in 2005

– 100% Foreign Direct Investment permitted

– Huge treatment-naïve patient population

– A number of sites with experience with submitting data to FDA

– Large English-speaking population

• Cons

– Costs increasing

– IP Issues

– Long-distance management

– Infrastructure

– FDA-approval doesn’t necessarily mean consistent quality and cGMP compliance

Markets for Dose: China

• Big Pharma– Has been there for years: Abbott, AstraZeneca,

Boehringer Ingelheim, Eli Lilly, J&J, Novartis, others

• Generics– Baxter

– Actavis: Actavis (Foshan) Pharmaceutical Co., Ltd.

– Stada: Health Vision Enterprise, Stada Pharmaceuticals (Beijing)

– Sandoz: Guangdong Sandoz Pharmaceutical Company

– Teva: Tianjin Hualida Biotechnology Pharmaceutical (Sicor), Kunming Baker Norton (Ivax)

Markets for Dose: China• Pros

– Expected to be the 5th largest pharma market by 2010

• Growing middle class• Increasing life expectancy

– Increasing awareness of diseases and treatments

– Increasing prevalence of Western diseases

– Demand for cardiovascular, dermatological, oncology, pediatric drugs

• Cons

– Size of the country

– Fragmented market

– Many people still lack access to medicines

– Many government regulations that can slow down registration

– Competition from local players

– Must partner with local companies to get access to distribution channels

– Many Chinese companies active in individual provinces only

– Not all drugs currently sold in China

• Generics may need to conduct clinical trials

Markets for API: China

• Pros– Rising costs in China

– Demand for difficult to manufacture APIs

• “nibs”

– Demand for high-quality API from dedicated facilities

• Newer cephalosporins

• Cons– China has manpower,

intellect and raw materials to manufacture most products locally

– Heavy focus on cost

– Importing from low-cost countries

– High-value of Euro

R&D and Manufacturing Base: China• Big Pharma

– AstraZeneca, Novo Nordisk, Glaxo, BMS, Schering, Novartis, others

• Generics

– Perrigo: Zibo Xinhua-Perrigo Pharmaceutical Company

– Watson: R&D and manufacturing in Changzhou City

– Sandoz: Guangdong Sandoz Pharmaceutical Company

– Teva: Hualida Biotech

– Baxter: at least four manufacturing facilities

• API Manufacturers

– DSM: R&D, manufacturing

– Esteve: Zhejiang Huayi Pharmaceutical

– Lonza: R&D, manufacturing

– Hovione: Zhejiang Hisyn

R&D and Manufacturing Base: China• Pros

– Talented pool of scientists, engineers

– Lower cost base

– Base for selling into other emerging markets

– Improving intellectual property protection

– Infrastructure

– Government support for R&D

– Large treatment-naïve population

• Cons– Increasing prices

– Need for handholding and close monitoring

– FDA-approval doesn’t necessarily mean consistent quality

– Risk of technology theft

– Environmental issues

– Language barriers

Markets for Dose: Russia

• Big Pharma/Small Innovators– Roche, Sanofi-Aventis, Novartis, Nycomed, Pfizer,

Menarini, Servier

• Generics– Lek, Gedeon, Krka – for decades

– Stada, Pliva, Polpharma, Actavis

Markets for Dose: Russia• Pros

– Growing middle class

– Demand for treatments for chronic diseases

• No alternative therapies

– Obligatory health insurance

– Few local dose companies with cGMP experience

– Market dominated by imports

• Cons

– Size of the country

– Poor infrastructure

– Fragmented distribution network

– IP enforcement

– Counterfeiting

– Controlled pricing

– Gov’t debt to pharma cos

– Red tape

– Protectionist measures by government

Markets for API: Russia

• Pros– Almost all API is imported

• Little local production

• Little local expertise outside of supplements

• Local products w/ inconsistent quality

– Large number of local dose companies

• Cons– A lot of the API is coming

from India, China

– Many local dose companies buy from offshore distributors

• Suspect quality

– Red tape

R&D and Manufacturing Base: Russia

• Innovators:– Servier: dose plant near Moscow

– Nycomed, Glaxo, Pfizer?

• Generics:– Stada: Nizhpharm, Makiz group (Makiz, Skopinpharm and

Biodyne Pharmaceuticals)

– Actavis: ZiO Zdorovje

– Krka: Production facility in near Moscow

– Polpharma/Gedeon: Akrihin

R&D and Manufacturing Base: Russia

• Pros– Low-cost production

– Platform for launching into CIS, E Europe

– Biotech and immunology experience

– Large clinical trial population

– Physicians eager to participate in trials

– Low cost of clinical trials

• Cons– Erosion of formerly strong

scientific base

– Poor enforcement of IP rights

– Counterfeiting

– Limited number of sites with GMP experience

– Red tape

– Economic and political risks

– Language barriers

Markets for Dose: Brazil

• Big Pharma– Abbott, Boehringer Ingelheim, BMS, Pfizer, others

• Generics– Sandoz: only foreign generic co in top five

– Apotex: exiting the Brazilian market

– Teva: future plans?

Markets for Dose: Brazil• Pros

– Largest population in Latin America

– Rapid market growth

• Ageing population

– Gov’t efforts to improve health care

– Gov’t efforts to increase generics’ uptake

– Opportunities with high-value specialty products

• Cons

– Price controls

– Frequent, abrupt changes of rules

– Lack of transparency

– Views toward IP

• Efavirenz CL

– Generic market highly concentrated

• Top four players: 80%

• Domestic players dominate

• Fierce competition

• Need local manufacturing to be viable

Markets for API: Brazil

• Pros– Most of API is imported

– Low import taxes

– Dose companies becoming more quality minded

– Regulatory environment becoming tougher

– Dose exports into neighboring countries

– Opportunities in• High-quality hormones

• Controlled substances

• Cons– Currently most API imports

from India and China

– Still heavy focus on cost rather than quality

– Strong Euro

R&D and Manufacturing Base: Brazil

• Big Pharma– Manufacturing base: Novartis, Roche, GSK, Janssen, Eli

Lilly, Abbott

– Ongoing clinical trials: BMS, Pfizer, Roche

• Generics– Sandoz: upgrading its manufacturing plant in Sao Paulo

– Apotex: looking to sell the plant in Sao Paulo

• API Manufacturers– Italfarmaco

– ACS Dobfar

– DSM

R&D and Manufacturing Base: Brazil

• Pros– Biotech legislation

– Biodiversity and phytotherapeutics

– Platform for exporting into rest of Latin America

– Large treatment-naïve population

– Seasonal diseases 6-months out-of-synch with North America/Europe

• Cons– Historically not strong in

R&D

– Frequent, abrupt changes of rules

– Slow administrative processes

– Weak local API industry

– Language barrier

Markets for Dose: Japan

• Big Pharma– Abbott, AstraZeneca, Boehringer Ingelheim, others

• Generics– Mylan: Merck Kgaa

– Sandoz: Hexal

– Hospira: agreement with Taiyo

– Teva: aggressive plans for 2008

Markets for Dose: Japan• Pros

– World’s second largest pharma market

– Ageing population

– All manufacturing can be done outside Japan

– Government aims to increase the market share of generics

• Incentives

• New Rx form

– Increasing use of OTC drugs

• Cons

– Slow approval process

– Price cuts/reduced reimbursement

– Slow overall growth of market

– Low image of generics

– Generics must provide every dosage/formulation

– Requirement for a nationwide distribution network

– Difficult for foreign companies to do it alone

– Underdeveloped framework for patent challenges

Markets for API: Japan~2000 JDMFs filed since Feb 2005

• EU/US based companies with most JDMFs

– Sanofi-Aventis

– Cambrex

– Schering-Plough

– Novartis

– DSM

– Pfizer

– BASF

– Merck & Co

– Erregierre

– FIS

• Products with most Euro/US JDMFs

– Heparin

– Mesalamine

– Terbinafine

– Omeprazole

– Itraconazole

USA8%

Italy7%

South Korea

6%

China5%

Israel3%

India3%

All Others18%

Japan50%

Source: Newport Horizon Premium™ © THOMSON REUTERS

Markets for API: Japan• Pros

– Most dose companies do not make their own API

– Introduction of JDMFs

– New DMF and accreditation system discouraging certain players from less regulated markets

– Harmonization of rules

– CTD can be used as the basis for a DMF

• Cons

– Different standards

– Relatively small volumes

– JDMF system still new

– Reliance on agents and well-established relationships

– Language barrier

– Many Japanese generics buying from India, China, South Korea

– Competition from Japanese fine chemical companies

Main Opportunities for Regulated Market Players

Pharma: Dose

Generics: Dose

API Sales R&D Manufacturing

India

China

Russia

Brazil

Japan

? ?

Thank you!

Kate Kuhrt

Director, Generics and API Intelligence

Thomson Scientific

215 Commercial Street

Portland, Maine 04101

USA

+ 1 (207) 871-9700 x26

kate.kuhrt@thomson.com

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