China Healthcare and Life Sciences 2020

China Life Sciences 2020
Your Corporate Platform – Globally Competitive or Obsolete for Tomorrow’s World?
Global Strategy
Global Challenges
Executable Solutions
France Houdard
Managing Partner
Phone US: 1 (917) 285.6528
Phone China: (00 86) 135.8591.0838
france.houdard@exolus.com
September 2014
-- UPDATED --

2
Copyright © 2014 Exolus. All rights reserved..
This Report is about Opportunities and Challenges around …
Revenues … Costs … Efficiency
2. Supply Chain
COSTS
Sales
Engineering
R&D
Sourcing
Production
Distribution
Marketing
Shared Services
IT HR
F&A Procure
1. Market
3. Innovation
DRIVING Shareholder Value
Research & Development
Shared Service Centers
Virtually Integrated Models
Production / Sourcing
Sales / Marketing

3
As well as Next Generation Operating Models …
Virtually Integrated Models + Shared Service Centers (SSC)
Supply Chain
Sales
Engineering
R&D
Sourcing
Production
Distribution
Marketing
Market
Innovation
Sales / Marketing
Shared Service Centers (SSC)
Virtual Integration
SSC
IT HR
F&A Pro’c

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China Market 2020

5
Source: World Bank
GDP* 2013
6,4 trillions de $
3,6 trillions de $
$6.8 tr
$4.2 tr
$16.2 tr
$17.3 tr
US
China
India
$16.8 tr
India
Japan
GDP* 2020
$30.0 tr
$13.4 tr
$28.8 tr
$6.8 tr
$29.6 tr
US
India
China
Japan
EU-27
France
UK
Germany
GDP* PPP-adjusted
GDP* PPP-adjusted
EU-27
France
UK
Germany
1. Future Market: Projected to be #1 Largest Economy in World by 2020

6
Already World’s 2nd Largest Pharma Market
Pharmaceutical Market Size Country Ranking (USD billion)
Sources: IMS Health Market Prognosis, 2013; Exolus
1. Future Market: Tracking to be US$ 245 bn Market by 2015
2000 Top 7
USA
150
Japan
58
Germany
17
France
17
UK
11
Italy
11
China
6.8
Brazil
6.7
Canada
6.3
Spain
6.2
2005 Top 7
USA
262
Japan
65
Germany
24
France
21
UK
16
Italy
15
China
13
Brazil
10
Canada
10
Spain
9.8
2010 Top 5
USA
441
Japan
75
Germany
48
France
39
China
34
UK
32
Italy
28
Brazil
24
Canada
22
Spain
21
2015f Top 2
USA
506
China
245
Japan
130
Germany
82
Brazil
64
France
49
UK
38
Russia
35
India
33
Italy
32

7
15%
39%
24%
32%
10%
2011
China
North America
Europe
Japan& South
Korea
Others
25%
33%
19%
13%
10%
2015
China
North America
Europe
Japan& South
Korea
Others
Source: SFDA (State Food and Drug Administration of China)
China a MUST for Future Competitiveness
1. Future Market: China Tracking to 25% of Global Drug Sales by 2015
Pharmaceutical Sales by Geography

8
1. Market Drivers: Explosive Growth in Middle Class
China’s Middle Class: 400 million (2010) … 756 million (2020)
Middle Class Income Bands (Measured against Urban Population)
Urban Population (millions)
Urban Household Income (US$ – PPP-Adjusted)
Global > US$107,800
Affluent US$3,800 - 107,800
Upper Middle US$21,501 – 53,900
Lower Middle US$13,500 – 21,500
Poor < US$13,500
607
684
822
239
255
157
106
73
53
170
355
461
525
90
99
0
100
200
300
400
500
600
700
800
900
2005
2010
2015F
2020F
2025F
531
756
Upper Middle Class
Lower Middle Class
Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008

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1. Market Drivers: Driven by an Explosion in Urbanization
China’s Urban Population: 600 million (2010) … 822 million (2025)
China’s Urban Population (Measured against Total Population)
1.4 billion
1.3 billion
1.2 billion
1 billion
245
381
531
684
822
822
833
782
705
624
0
200
400
600
800
1,000
1,200
1,400
1,600
1985
1995
2005
2015
2025
1.45 billion
Urban Population (million)
Rural Population (million)
Source: World Urbanization Prospects 2007
Urban Population (millions)

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1. Market Drivers: Changes in the Demographics and Economic-Geography
Mega-City Profile: 60 Million Population + World-Class Infrastructure
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
Mountains
China’s Emerging MEGA-CITIES
Mega-Cities
Mega-Corridors

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1. Market Drivers: Disease Acceleration through Lifestyle Changes
Disease Acceleration
Lifestyle Changes
Lifestyle-related disease accelerating -- e.g., obesity, diabetes, cardiovascular, chronic respiratory diseases
China will have 38 million diabetic patients by 2025, almost double projections of diabetes for the US
840,000 known AIDS/HIV victims largely between 20 and 39 years of age
1/3 of world’s smokers are Chinese
Source: Dr. Jean-Paul Rodrigue

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1. Market Drivers: Aging Population and Unique Demographic Structure
87 MM 65+Year Old in 2000 … 112 MM in 2010 … 340 MM in 2050
Source: Dr. Jean-Paul Rodrigue; Exolus
Population over 65 Years Old (% of Total Population)
Population under 14 Years Old (% of Total Population)
36%
28%
25%
21%
19%
18%
17%
16%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1980
1990
2000
2010
2020
2030
2040
2050
5%
5%
7%
9%
12%
15%
19%
23%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1980
1990
2000
2010
2020
2030
2040
2050

13
Production / Supply Chain: Opportunities and Challenges

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2. Supply Chain: Big Pharma Aggressively Expanding in China
Investment focused in Yangtze River Delta, Bohai Rim, Pearl River Delta
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
Pharma Manufacturing Operations
Mountains
Mega-Cities
Mega-Corridors
Sources: Company Websites, Publically Available Information

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Production Operations
2. Supply Chain: What is Big Pharma Producing in China?
AstraZeneca
•Four business units in China: cardiovascular, diabetes and metabolism, cancer and central nervous and digestive / respiratory / anesthesia.
•AstraZeneca (China) supply base in Suzhou provides cardiovascular, digestive, respiratory, central nervous system, cancer and anti-infective products.
•Taizhou supply base produces OST for hypertension and asthma, i.e. Metoprolol and Bricanyl.
Source: All Publically Available Information, Company Websites
Bristol-Myers Squibb
•Sino-American Shanghai Squibb Pharmaceuticals Ltd., (SASS) manufactures: Antibiotics, Cardiovascular, Multi-vitamin Supplements, Analgesics, Metabolics and Topicals.
•Joint Venture with 3 product lines : Ostomy care, skin care and advanced wound care.
Eli Lilly
•Plant focused on a wide range of products such as cancer, mental disorders and diabetes.
•Production aside, Eli Lilly has set up a sourcing center in China, which it uses to actively source products from China and as part of a broader strategy to increasingly “outsource” active pharmaceutical ingredient (API).
GSK
•Shanghai plant engaged in producing prescription drugs and vaccines
•Suzhou plant focused on compounding, filling and packaging Drugs for Hepatitis B.
•Shenzhen plant focused on the development and production of seasonal influenza and pandemic influenza vaccines.
•Nanjing plant engaged in the diagnosis and treatment of urinary system diseases related products.

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Production Operations
2. Supply Chain: What is Big Pharma Producing in China?
Source: All Publically Available Information, Company Websites
Wyeth
•First plant set up in 1991 for OTC and ethical products such as antibiotics, woman healthcare, multi-vitamin & calcium supplements.
•Two nutrition plants produce infant formula.
Novo Nordisk
•Tianjin plant supplies diabetes products to China as well as global market.
•It is the only insulin injections durable equipment suppliers for Novo Nordisk, as well as the world's largest insulin formulation and filling production base except Denmark.
Roche
•Two Business Units in China: Roche Pharmaceutical and Roche Diagnostics
•Shanghai plant focused on anti-tumor, anti-viral, transplantation and other key areas
•Diagnostics product portfolio : Blood glucose meter, bedside diagnostic devices, high- throughput analyzer. Advanced life science research instruments and reagents.
Pfizer
•Established four manufacturing bases since1980‟s, with total investment nearly USD 1 billion.
•Put into China‟s market over 50 products, covering prescription drugs, vaccines and health care products.
•Dalian Pfizer Pharmaceuticals is the first facility that received GMP certificate in China.
•Hisun Pfizer Pharmaceutical, established in 2012, serves both Chinese and international markets.
Novartis
•Novartis Beijing focuses on cardiovascular diseases, immunology and transplantation, rheumatism/bone metabolism, oncology, central nervous system, dermatology, and ophthalmology.
•Novartis Suzhou produces intermediate products for exports -- drugs for leukemia, epilepsy, hypertension and other diseases.
•Sandoz Guangdong, a subsidiary of Novartis China, mainly produces tablets and capsules.

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2. Supply Chain: China Still Provides Major Labor Arbitrage Opportunity
Major Labor Cost Differential
Manufacturing Labor Costs (2003 - 2012)
Source: National Bureau of Statistic of China; U.S. Bureau of Labor Statistics, International Labor Comparisons, August 2013
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
China
United States
Singapore
Brazil
Philippines
China
USA
US$ per month

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2. Supply Chain: Labor Costs Significantly Lower in West (35%)
Intersection: Low Cost Bands + Emerging Mega-Cities
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
Mountains
Wage Bands / Mega-City Overlay (Normalized to Highest Wages)
Wage Bands
Mega-Cities
Mega-Corridors
1.0
1.0
1.0

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2. Supply Chain: Where are Pareto Optimal Deployment Envelopes?
Low Cost Bands + Emerging Mega-Cities + High-Income Geographies
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
Per Capita Income / Wage Band Overlay
1
1
1
Mountains
Per Capita Annual Income
(USD, PPP-Adjusted)
> 40,000
30,000 - 40,000
25,000 - 30,000
20,000 -25,000
17,500 - 20,000
0 - 17,500
Wage Bands
Mega-City
Mega-Corridors

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2. Supply Chain: Major Opportunities, but Significant Risks
China Investment Process – Key Challenges
Strategy
Transaction Execution
Investment Strategy Development
Zone Screening
High Level Due Diligence
Zone & Site Evaluation & Ranking
Negotiate Investment Agreement
Detailed Due Diligence
Business Registration
Land Auction/ Construction Contracts
Zone Screening Challenges: Given that China has 8,000 zones, the process of filtering through to a suitable zone and site represents significant complexity, time commitment and high risks rooted in: wide-ranging and ambiguous regulations, hidden land quotas, unclear ownership/ zoning, investment hurdles, utility infrastructure, tax regimes, etc.
Due Diligence: Most information presented during DD unreliable as representations tend to be made by (promotion) officials pushing to hit their quotas, rather than by the broad array of officials with actual authority and responsibility for all aspects of planning, land ownership, utility availability/extensions/upgrades, geotech and so forth.
Negotiations: Negotiations involve significant counterparty risk, as representations tend to be made by those without actual authority to implement agreements. Further, there is a tendency for legal advisors to lack engineering expertise; agreements thus often lack relevant contractual terms – exposing projects to significant potential costs, delays and even failure.

21
R&D / Innovation: Opportunities and Challenges

22
3. Innovation: Where is Big Pharma Migrating R&D Functions in China?
“R” of R&D Seeks Universities … “D” Seeks Markets & Production
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
1
1
1
Mountains
Wage Bands
Mega-Cities
Mega-Corridors
> 800
> 1,500
> 2,000
R&D Centers
(# Operations)
Pharma R&D Operations
Source: Company Websites; Exolus Research

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R&D Operations
3. Innovation: Companies Migrating up R&D Value Chain? For What?
AstraZeneca
•Shanghai Innovation Centre China (ICC) focuses on the value of innovative medicines for Chinese patients, initially concentrating on cancer through the development of knowledge about Chinese patients, biomarkers and genetics (translational medicine).
•AstraZeneca Asia and Emerging Markets Innovative Pharmaceutical R&D Department is committed to the development of drug candidates in areas of oncology.
•Zhangjiang Park R&D center actively develops new drugs for the treatment of liver and stomach / esophagus disease.
Amgen
•Amgen has signed a contract with Shanghai University of Science and Technology in 2013 to set up Amgen China R & D Center next to the university‟s two major life science research institutes. The new R&D center aims to become a world leading R&D center for of bio-pharmaceuticals.
Bristol-Myers Squibb
•Bristol-Myers Squibb China R&D Center focuses on three major areas: liver disease, cardiovascular and diabetes, cancers (stomach, esophagus).
Eli Lilly
•Lilly‟s China R&D operation, its largest overseas operation, focuses on neuropathy, diabetes, and cancer.
•Eli Lilly partnered with ChemExplorer and PharmExplorer, who provide for pharmaceutical and biology early-stage development services. Eli Lilly also has a partnership with China‟s Hutchinson MediPharma for pre-clinical targeting work in oncology and inflammation.
Source: All Publically Available Information, Company Websites, genengnews

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R&D Operations
3. Innovation: Companies Migrating up R&D Value Chain? For What?
Pfizer
•R&D center responsible for biological and chemical research and development and clinical trials for its global business.
•Total investment in R&D is over USD150 million.
Novartis
•Novartis is building a $100 million R&D center in the Zhangjiang Hi-Tech Park in Shanghai. The center will initially focus its research on diseases particularly common in China (e.g., esophageal and liver cancer, hepatitis B and C).
•Suzhou R&D center focuses on biochemistry R&D for drugs used to treat leukemia, epilepsy, hypertension and other diseases.
Novo Nordisk
•First R&D center established in China by international bio-pharmaceutical companies with the focus on biotech. Currently, the center has three research departments: Molecular Biology, Protein Chemistry, and Cell Biology. The center is strongly focused on research within therapeutic proteins.
•Beijing R&D center focused on diabetes, a serious and growing problem in China.
Roche
•Set up first fully functional China clinical drug R&D center (RRDCC) in 2004.
•The R&D center focused on oncology, metabolic drugs, medicinal chemistry and genetic epidemiology in the Chinese population.
GSK
•R&D center in Shanghai focused on the areas of neurodegeneration and neuroinflamation with the objective of creating new medicines for such severe disorders as multiple sclerosis, Parkinson‟s disease, and Alzheimer‟s disease. The center will eventually direct the global discovery and development activities within its therapeutic area from drug-target identification to late-stage clinical studies.
Source: All Publically Available Information, Company Websites, genengnews

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3. Innovation: Driven by Rapid Increase in Educated Workforce
China Science and Engineering: 1.2 Million Graduates per Year
Thousands
University Natural Sciences & Engineering Degrees (1985 – 2010)
Sources: National Science Board, Science & Engineering Indicators 2014
0
200
400
600
800
1,000
1,200
1,400
U.S.
China
UK
Japan
South Korea
Germany
China
USA

26
3. Innovation: Organization Models for Foreign R&D in China
Satellite Laboratories (Bottom-up Approach to R&D)
Mostly “adaptive” – adapting existing products to better fit local market conditions
Usually do not work on “innovation” as part of global teams
That is, they act more as listening posts for parent company/ business unit -- helping detect new ideas and product innovations based on the unique characteristics of the local market
Vulnerable to budget cuts
Contract R&D (Top-Down Approach to R&D)
More focused on “innovative” research
Usually support global team in carrying out specific module as part of global research project -- closely interacts with R&D teams at headquarters & other affiliates
Used to exploit lower cost engineers, capabilities and infrastructure
Has dense information flows, but unequal knowledge exchange -- Requires tight mechanisms to control IPR leakage
Integrated Global Partnerships (Balanced/Integrated Approach to R&D)
The China R&D Center has regional and/or global product innovation mandate
Equal participant in all corporate decisions, R&D work, & other global corporate activities
No barriers to full-fledged knowledge exchange between China R&D center and the company‟s headquarters and the company‟s other global R&D centers
Models Vary Considerably in China

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3. Innovation: Migrating Upstream to Innovative and Global Models
China-Adaptive Focus  Global-Innovative Focus
R&D centers designed to support production and adapt technologies; be near customers; cooperate with local partners; access markets; improve the local “image” of a company; launch a product simultaneously; facilitate rapid scale-up in manufacturing; and overcome protectionist barriers against imports.
As national markets become regionally more integrated, some countries may become the preferred base for adaptation, not only for the local market but for the region as a whole.
Adaptive R&D has evolved into more advanced forms of innovation, with the local market serving as a test-bed for new products for regional or even global markets.
Facilities able to do both R&D with output aimed at global exploitation by parent company.
May evolve out of locally integrated laboratories & retain tight links with production in host economy, or
Set up independently of local production to tap local innovation clusters and skills
CHINA FOCUS
ADAPTIVE
REGIONAL / GLOBAL FOCUS
INNOVATIVE

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3. Innovation: Footprint Drivers Vary for Innovative and Adaptive R&D
Functional Objectives Drive Platform Decisions for R&D
Adaptive R&D Center
Primary Drivers
Customer Locations & Business Opportunities
Proximity to Inter-Company Production Operations
Skills Availability
Fresh graduates and mid-level engineers
Experienced management (secondary)
Local Government Support
Local Resources at Universities
Secondary Drivers
Living Environment
Facilities
Utilities
Transportation
Incentives
Innovative R&D Center
Primary Drivers
Skills Availability (experienced engineers)
Local Resources at Universities
Low Labor Costs
Secondary Drivers
Living Environment
Facilities
Utilities
Transportation
Incentives

29
3. Innovation: Where are Key Nodes for Structuring R&D Platforms?
“R” of R&D Seeks Universities … “D” Seeks Markets & Production
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
Mountains
Wage Bands
Mega-Cities
Mega-Corridors
> 800
> 1,500
> 2,000
R&D Centers
(# Operations)
Research & Development Centers (Number of Operations in Select Cities)
Source: National Bureau of Statistics, 2nd R&D Census, 2009
1
1
1

30
Platform Structuring: Where are Pareto Optimal Deployment Envelopes?
Spatial Framework for Platform Optimization Decisions
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
1
1
1
Mountains
(USD, PPP-Adjusted)
> 40,000
30,000 - 40,000
25,000 - 30,000
20,000 -25,000
17,500 - 20,000
0 - 17,500
Wage Bands
Mega-Cities
Mega-Corridors
> 800
> 1,500
> 2,000
R&D Centers
(# Operations)

31
Contract Outsourcing Models & Shared Service Centers

32
This Section is about Next Generation Operating Models …
Virtually Integrated Models + Shared Service Centers (SSC)
Supply Chain
Sales
Engineering
R&D
Sourcing
Production
Distribution
Marketing
Market
Innovation
Sales / Marketing
Shared Service Centers (SSC)
Virtual Integration
SSC
IT HR
F&A Pro’c

33
FIPCO MODEL  VIPCO MODEL (CSO, CMO, CRO, PC-CRO, INSTITUTIONS)
4. Virtual Integration Models: Outsourcing Core Functions
FIPCO (Fully Integrated Pharma Co.)
Research
Technology
Manufacturing
Clinical &
Regulatory
Sales &
Distribution
CSOs
CMOs
CROs
Partnerships
Academia, Scientific, Institutions
R&D
Preclinical
Support
Clinical
Development
Manufacturing
Sales &
Distribution
Preclinical CROs
VIPCO (Virtually Integrated Pharma Co.)
Source: G. S. Burrill, „Biotech 2008: A 20/20 Vision to 2020‟, The Burrill Indiana Life Sciences Meeting, October 2008.

34
MIGRATION to ADVANCED OPERATING MODELS in CHINA: CSO, CMO, CRO
4. Virtual Integration Models: Big Pharma Adoption in China
Sources: Goldman Sachs: Healthcare Services: CROs, December 2007; Exolus Research
Boehringer Ingelheim (CSO)
First Big Pharma to have entrusted a sole distributor for all of its products in China: Sinopharm.
Sinopharm is China‟s largest pharmaceutical distributor by sales and the only China distributor to cover the entire PRC.
Boehringer Ingelheim‟s sales spiked upward by 45% from 2006 to 2007; Sinopharm saw an annual growth rate of 32%.
AstraZeneca (CSO)
In a recent move, AZ licensed Cubicin, an antibiotic for skin infections, for development and commercialization on the Chinese market.
Pfizer (CRO)
Outsources to Wuxi PharmaTech: synthetic chemistry, parallel medicinal chemistry, and bio-analytical services. It also has a 3-year CRO contract with Wuxi PharmaTech to provide services in the areas of: in-vitro Absorption, Distribution, Metabolism and Excretion (ADME) services.
GSK (CRO)
Outsources to Shanghai Institute of Materia Medica (SIMM) chemistry requirements.
AstraZeneca (CRO)
Invested USD14 million in Wuxi Pharma Tech for the synthesis of 150,000 compounds.
AZ has contracted WuXi Pharmatech, a Chinese CRO, for the synthesis of collections of drug candidates, and signed an agreement with Shanghai‟s Jiao Tong University for research on the genetics of schizophrenia.
CSO/CRO Extended Cases
China’s CRO Market
0
2
4
6
8
10
12
14
16
18
Clinical
Development
Preclinical
Development
US$ billion

35
4. Shared Service Centers: Opportunity Map for China
Efficiencies … Economies of Scale … Knowledge Sharing … Standardization
Source: KPMG “A new Dawn: China‟s Emerging Role in Global Outsourcing”, 2009
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
Mountains
1
1
1
Shared Service Center Hubs
Wage Bands
Mega-City
Mega-Corridors
Shared Services

36
Platform Structuring: Where are Pareto Optimal Deployment Envelopes?
Spatial Framework for the Range of Platform Optimization Decisions
Heilongjiang
Jilin
Liaoning
Hebei
Beijing
Inner Mongolia
Shandong
Jiangsu
Shanghai
Zhejiang
Fujian
Guangdong
Guangxi
Hunan
Jiangxi
Anhui
Hubei
Henan
Guizhou
Yunnan
Sichuan
Chongqing
Gansu
Ningxia
Shaanxi
Shanxi
Qinghai
Xinjiang
Tibet
Tianjin
1
1
1
Mountains
(USD, PPP-Adjusted)
> 40,000
30,000 - 40,000
25,000 - 30,000
20,000 -25,000
17,500 - 20,000
0 - 17,500
Wage Bands
Mega-Cities
Mega-Corridors
> 800
> 1,500
> 2,000
R&D Centers
(# Operations)
Shared Services

37
China Economic Health Report

38
5. Health: Senior Executives Select China as Most Attractive in World
Investor Confidence in China #1 in World
Source: World Investment Prospects Survey 2013 - 2015
Top 14 Most Attractive Destinations for Future Investment (2013 – 2015)
Percent of Responses
0
10
20
30
40
50
60
70
%

39
Source: China Statistical Yearbook
Record FDI of USD118 billion in 2013
0
20
40
60
80
100
120
140
USD billion
Foreign Direct Investment Inflows (1990 – 2013)
5. Health: Foreign Direct Investment Continues to Soar in China

40
Source: World Investment Report 2014 by UNCTAD
China Ranks #2 for Inbound FDI … or #1 when HK Included
USD billion
Foreign Direct Investment Inflows (2013)
0
20
40
60
80
100
120
140
160
180
200
220
Hong Kong Portion of FDI
5. Health: China and US Top Global Destinations for FDI

41
5. Health: Balance Sheets – Banks, Enterprises, Households
USD4 trillion in Foreign Reserves … Insulation of Financial System … Clean Balance Sheets
China’s Financial System Healthy, Benefits from Insulation, Abundant Liquidity
China banks cleaned up in 1990s: Non-performing loans in 1997 averaged 40 – 50%; only 1% in 2014.
Financial institutions extended approximately USD1.44 tr in new loans in 2013; and USD1.32 tr in 2012, USD 1.21 tr in 2011.
Forex Reserves Achieve Record High in 2013
The Central Bank has accumulated over USD 4 trillion in foreign reserves.
The accumulation of large external surpluses means financial system enjoys abundant liquidity.
Clean Balance Sheets for Enterprises and Households
State Owned Enterprise net profits as share of GDP has grown from (-1%) in 1997 to (+3.34%) in 2013.
Record corporate profit growth over past 5 years (industrial profits rose 100%); liability ratios declined.
Urban incomes have quadrupled in past 10 years.
Source: Deutsche Bank; Standard Chartered; UBS; IMF; Other

43
About Us: Leading Transaction Advisory Firm
Global Scale: Established in 1931 • 3,000 Employees • 250 Offices Worldwide
Leading Expertise: Acquisitions • Dispositions • RE Funds • Agency • Structuring
Real Estate Advisory: Industrial, Office, Residential, Retail
Business Advisory: Strategy, Targeting, Due Diligence, Structuring, Negotiations
Investment Formats: Greenfield, JV's, Acquisitions, Dispositions, Outsourcing Multi-Disciplinary Expertise: Legal-Tax, Supply Chain, Engineering, HR, Real Estate
Investment Advisory: Financial Advisory, Capital Raising, Fund Structuring Investment Sectors: Automotive, Life Sciences, Manufacturing, Technology, Real Estate Geographic Focus: Greater China and US
Leading Global Investment Advisory Firm

44
Services: Align Directly with China (M&A) Investment Process
Strategy
Client
Approval
LOI
Term
Sheet
Purchase
Agreement
Ownership
Transfer
Acquisition Strategy Development
Target Screening
Evaluation & Ranking
Negotiate LOI
Structure & Negotiate Transaction
Transaction Closing
Exolus Group
China
Expertise
Life Sciences
Expertise
Facility & Engineering
Expertise
Structuring & Negotiating Expertise
Due Diligence
Expertise
Client Involvement
Targets & Counterparties
Mergers & Acquisitions
Acquisitions & JV’s

45
Exolus Group
China
Expertise
Life Sciences
Expertise
Facility & Engineering
Expertise
Structuring & Negotiating Expertise
Due Diligence
Expertise
Services: Align Directly with China (Greenfield) Investment Process
Strategy
Client
Approval
Investment
Agreement
DD
Findings
Legal
Entity
Land/Facility
Ownership
Investment Strategy Development
Zone Screening
Zone & Site Evaluation & Ranking
Negotiate Investment Agreement
Business Registration
Land Auction/ Construction Contracts
Client Involvement
Targets & Counterparties
Direct Investment
Greenfield Investment

46
Philosophy: Provide Holistic Solutions that Benefit Entire Organization
Establish Manufacturing Operations
Research & Development (R&D) - Marketing, Sales & Distribution
Sales & Marketing
Shared Services
Solutions Rooted in Multi-Disciplinary Expertise:
 Real Estate, Facilities, Engineering
-Facilities, construction, geotechnical, environmental, utilities, critical paths, permitting
 Supply Chain, Sourcing, Distribution, Transportation - Logistics, distribution, taxes, modes, physical transportation, rates, providers
 Labor-Force Dynamics - Structure, laws, trends, skills, costs, quality, scalability, sustainability
 Financial Analysis & Structuring (Tax, Legal)
-Legal structures, tax structures, financial analysis, feasibility, business case, incentives
Corporate Stakeholders
Corporate Real Estate, Engineering, Manufacturing
Supply Chain, Logistics
Human Resources
Finance, Tax, Legal
Exolus
Client
China Solutions Require a Multi-Disciplinary Approach
New Entity

47
Exceeding our Clients’ Expectations
Representative Clients: Serving World’s Leading Companies

2014 48
For a Comparative Perspective with the other BRIC Countries Please Refer to the Following Research Reports
Found on Slideshare @
http://www.slideshare.net/Exolus/india-2020-what-india-will-look-like-in-the-future
http://www.slideshare.net/Exolus/brazil-2020-what-will-brazil-look-like-in-the-future
http://www.slideshare.net/Exolus/russia-2020-what-will-russia-look-like-in-the-future
http://www.slideshare.net/Exolus/bric-2020-what-will-the-brics-look-like-in-the-future
Download Reports @
www.exolus.com/en/knowledge/research.html
Brazil 2020
Russia 2020
India 2020
BRIC 2020

China Healthcare and Life Sciences 2020

China Healthcare and Life Sciences 2020

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