A Ringside View of the Pharma Industry by Ranjit Shahani

A Ringside View of the Pharma Industry
Ranjit Shahani, Country President, Novartis India
Presentation at ValuexIndia
Mumbai, November 7, 2011

Agenda

1. A quick look back

2. Key trends shaping the future

3. Major Challenges

4. Emerging Markets

5. Opportunities & Questions

2 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only

Pharma outperformed the S & P 500 for
over 20 years
Total returns to shareholders
Index; 1985 = 100
2,000

Pharma*
1,500

1,000 S&P 500

500

0
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
* Market-cap weighted average
Source: Standard & Poor Index Platform
3| Ranjit Shahani | ValuexIndia | November 2011 | Business use only

Then an unprecedented scale and scope of
financial crisis ...
 U.S. Mortgage  Bank write-downs  U.S. proposed  EU and IMF launch
losses (~700 (Citi, UBS, HSBC) financial act €750 bn rescue plan
Bn)
 Bear Stearns collapse  Citigroup bailout  Greece sovereign debt
 ECB 95 B ($45 bn) downgraded
Euro injection  Lehman bankruptcy
 Northern Rock  Italy emergency budget
y g y g
 BoA – Merrill nationalized to reduce deficit by €24
bn
 $85bn AIG bail out  Barclays and
UBS capital
plans

World Equity index

2007 2008 2009 2010
SOURCE: Datastream world index; press articles;

Characteristics of Pharma so far
Market growth 2001-06
CAGR, %
15
1890 t to1950
1890s 1950s
1890s to 1950s 1960 t to1970
1960s 1970s
1960s to 1970s
Latin America
A Innovation led
A Innovation led • Strongly outperformed
Asia/Africa/Australia
S&P500 last 20 years
B Less important role of payors
B Less important role of payors
10
North America
N th A i
C Physician driven decisions
C Physician driven decisions • High margins Europe
1980s to 1990s 2000s and beyond
1980s to 1990s 2000s and beyond
D U.S. major growth driver
D US major growth driver
5
• Product companies have
p
E Focus on medicines – not services
E Focus on medicines – not services created most value in the
Japan
F Uniform/less complex distribution health care space

0
0 50 100 150 200 250 300
Market size 2006
Billion USD


Agenda



3.
3 Major Challenges

4. Emerging Markets
g g



Key trends shaping the future of Pharma

Opportunities: Challenges:
Significant unmet medical needs Worldwide cost containment

Price cuts &
generic penetration
Aging population

Risk averse regulators
Lifestyle diseases

Innovation productivity
Growing demand in
emerging markets
Industry reputation
Advances in science &
technology


Trends

1 Lots of unmet needs remain

2 Poor lifestyle leads to increased demand for drugs

3 Explosion of biological knowledge

Wealth – People are getting richer and will spend
4
more on health care

5 Demographics – Aging and growing populations

Information – Rise of consumerism and the
6
informed patient


Lots of unmet needs
1
Example: Still no cure for dengue fever
Areas with Dengue fever

Some 2.5 billion people – 40% of the world’s
population – are now at risk from dengue. WHO
currently estimates there may be 50 million cases
y y
of dengue infection worldwide every year


Poor lifestyle leads to an increase in the demand
2
for drugs


Fundamental knowledge of biology: genomics,
3
proteomics, metabolomics


Biologics have revolutionized modern medicine
3
– and will continue to do so
 Offer real hope for many unmet needs, particularly
complex diseases
 Bind to specific targets – simply not possible with
other medicines
 Contribute significantly to improved survival rates,
enhanced longevity, and better quality of life

Human
genome
Leading biotech
Commercial brands emerge Stem-cell
Basic biotech firms research
biotechnology founded
Genetic code Gene therapy
DNA molecule enabled
cracked
decoded
1950s 1960s 1970s 1980s 1990s to today Today / future

Source: Company websites and annual reports Note: All trademarks, logos and pictures are the property of the respective owner

3
Biologics are more complex than small
molecules…

Monoclonal
Aspirin® Calcitonin Antibody (IgG)

small chemical molecule simple biologic complex biologic
Molecular weight Molecular weight Molecular weight
= 180 Daltons = 3,455 Daltons = 150,000 Daltons
0 amino acids ~ 32 amino acids ~ 1300 amino acids

- w/o host cell modifications - w/host cell modifications
- produced in yeast, bacteria (glycosolations, etc)
- produced in mammalian cells


3 New trends in drug discovery
Many Opportunities for scientific breakthroughs

 Patient stratification
 Pathways according to genetic
di t ti
profile

 Targeted therapies
 siRNA

 Regenerative medicine
 Biologics
g

 Translational medicine
 Stem cells

2 ,2 0 0,0 0 0 1 1 0 0 ,0 00

 Reverse vaccinology
2 ,1 0 0 ,0 0 0 2 0 0 ,0 00

 Gene therapy
2,0 0 0,0 00 3 00 ,00 0
1 ,9 0 0,0 00
4 0 0 ,0 00
1 ,8 0 0,0 00
5 00 ,00 0

1 ,7 0 0,0 00
6 00 ,00 0

1 ,6 0 0 ,0 0 0
7 0 0 ,0 00
1 ,5 00 ,00 0
80 0 ,0 0 0
1 ,4 0 0,0 00
9 00 ,00 0
1 ,3 0 0,0 00
1 ,0 0 0,0 00
1,2 00 ,00 0 1,1 00 ,00 0


4 Wealthy people will spend more on healthcare
Total health spending vs. GDP, 2007
Per capita, USD at PPP

* 2007 health spending data
Source: OECD

4 Geographical Growth Forecast GDP in USD trillions

2005E 2030E

U.S.
US 12.5 U.S. 20.8
Japan 4.6 China 14.3
Germany 2.8 Japan 5.8
China 2.3
23 India 4.9
49
U.K.
UK 2.2 Russia 2.9
France 2.1 Germany 2.7
Italy 1.8 U.K. 2.6
Canada 1.1 France 2.3
Spain
S i 1.1
11 Brazil
B il 2.2
22
India 0.8 Canada 1.9

China and India have already
y The four BRIC markets will
entered the top 10 account for a third of world GDP
Source: Global Insights – WMM; GS BRICs Report

5 Demographics: aging and growing populations


Today’s ‘pyramid-shaped’ population profile
5
will become ‘urn-shaped’ by 2050
World population by age and sex, 2000 Females
Males
Millions, LE* = 65.4

45 80+ 24
46 75-79 32
66 70-74 53
81 65-69 72
97 60 64
60-64 90
107 55-59 104
133 50-54 132
164 45-49 166
182 40-44 187
209 35-39
35 39 215
233 30-34 240
245 25-29 255
249 20-24 260
271 15-19 285
294 10-14 311
295 5-9 311
300 0-4 317

* LE = Life Expectancy
Source: UN, World Population Prospects: The 2002 Revision and World Urbanization Prospects: The 2001 Revision


Today’s ‘pyramid-shaped’ population profile
5
will become ‘urn-shaped’ by 2050
World population by age and sex, 2050 Females
Males
Millions, LE* = 74.3

236 80+ 142
157 75-79 125
182 70-74 159
216 65-69 201
247 60 64
60-64 242
255 55-59 257
261 50-54 268
271 45-49 280
283 40-44 294
295 35-39
35 39 307
301 30-34
301 25-29
299 20-24 312
298 15-19 311
295 10-14 309
293 5-9 306
288 0-4 302

* LE = Life Expectancy
Source: UN, World Population Prospects: The 2002 Revision and World Urbanization Prospects: The 2001 Revision


Aging and the continuing rise of chronic diseases will
5 further increase demand for healthcare services

Incidence Economic impact Direct2
Population, Bn $ Bn Indirect3
3.0 1,180
Obesity1
1.6 +88%
+211%
380

2005 2020 2003 2023
366 430
Diabetes
+114%
171 +226%
130

2000 2030 2003 2023
1 Obese and overweight, BMI >25
2 Direct costs of medical treatment (e.g. hospital, outpatient care, drug costs)
3 Loss of productivity and lost working days
Source: Wild et al. (2004); Boyle et al. (2001); Credit Suisse estimates

As people get older: prevalence of e.g. Alzheimer’s will
5
grow out of proportion compared to today
Prevalence of Alzheimer’s disease
%

47

19

3

Age 65-74 75-84 >85
Years


6 Rise of consumerism and the informed patient
Number of weblogs
Millions Virtual people networks
>181 million and virtual worlds
8
blogs > 750 million active
users
6 180 million monthly
unique users
~ +400%
4 60 million users
50 million users
2

Widely dispersed online
0 > 4 million users
interactive communities
Mar Jul Nov Mar Jul Nov that overcome
2009 2010 geographical barriers


Agenda



3. Major Challenges
j g

4.
4 Emerging Markets

5.
5 Opportunities & Questions


Major Challenges

1 R&D costs pulling ahead of output

2 Government pressure on price

3 Unmet medical needs remain

4 Commercial model in transition

5 Pharma’s negative image a real challenge


1 Declining R&D Productivity…
NMEs per bn USD
30

25

20
Today
0.5
0 5 NMEs per bn USD –
15
a factor 50 worse than
35 years ago…!
10

5

0
1970 1975 1980 1985 1990 1995 2000 2005
* Does not include Biologics NDAs
Time
Source: NME data for 1966-1971 from Peltzman, S. (1973) Journal of Political Economy 81, no. 5: 1049–
91. NME data for 1972-1979 as reported in Hutt, P.B. (1982) Health Affairs 1(2) 6-24. NME Data
for 1980-2005 from Parexel’s Pharmaceutical R&D Statistical Sourcebook 2006/2007, Food and
Drug Administration, and Pharmaceutical Research and Manufacturers of America. Industry R&D
spend data from the Pharmaceutical Research and Manufacturers of America, PhRMA Annual
Membership Survey, 2006

1 ….major issue in the Pharmaceutical Industry

Industry R&D spending per new NME Decreasing internal rate of return
approved on R&D1
$B
Bn IRR,
IRR percent
+208%

3.7 12.0
3.0
-38%
7.5
2.0
1.7
1.2

’98-’00 ’01-’03 ’02-’04 ’04-’06 ’06-’08 ’97-’01 ’02-’06
1IRR 2002-2006: Model based on the performance of all drugs from EvaluatePharma database that were on
p
patent and actively marketed between 2000 and 2006 ( ,
y (~2,500 compounds worldwide); IRR 1997-2001:
p );
Analysis using the model described above but substituting 1997-2001 attrition rates and development times.
Source: Annual reports; Bloomberg, EvaluatePharma, Pharmaprojects, NACDS;


Pressure on prices as country’s healthcare costs
2
grow faster than GDP
Per capita HC cost 2006
Index: 1992 = 100

Index Index Index
300 300 400
$3,300 HC Exp $ 2,800 $ 2,300
GDP
200 200 250
Wages1

100 100 100
92 97 02 07 92 97 02 07 92 97 02 07

Index Index Index
300 300 400
$3,930 $ 6,675 $ 2,890

200 200 250

100 100 100
92 97 02 07 92 97 02 07 92 97 02 07
1. Average nominal wage index
Note: Index on basis of local currency; Per capita HC cost 2006 at exchange rate of 1 USD=0,797 €, 2005: 110,22 Yen/US$
Source: OECD Health Data 2008; EIU; BCG analysis


Unmet medical need remains across disease
3
areas despite medical progress

▪ Alzheimer’s ▪ MRSA
▪ Anticoagulants ▪ Multiple sclerosis
▪ Autism ▪ Muscular dystrophy
▪ Chronic obstructive pulmonary ▪ Myocardial infarction, acute (AMI)
disease ▪ Obstructive sleep apnoea (OSA)
▪ Chronic renal failure ▪ Ovarian cancer
▪ Cocaine addiction ▪ Pancreatic cancer
▪ Colorectal cancer ▪ Parkinson’s disease
▪ Congestive heart failure ▪ Prostate cancer
▪ Diabetic
Di b ti nephropathy
h th ▪ Renal f il
R l failure, chronic
h i
▪ Diabetic retinopathy ▪ Rheumatoid arthritis
▪ Epilepsy ▪ Schizophrenia
▪ Hepatic cancer
p ▪ Septic shock
p
▪ Hepatitis C treatment ▪ Stroke, acute
▪ HIV treatment ▪ Systemic lupus erythematosus (SLE)
▪ Lung cancer ▪ Traumatic brain injury
▪ Lymphomas ▪ Type 2 diabetes


Industry has responded to these challenges with
4
mergers and job cuts
Announced job cuts by function 2006-2009 Jobs cut as % of
staff Jan 2006
S&M
30%4 19%5 23% 19% 6% 4% 4% 3%1 4% 2% 1%1 Manufacturing
35.000 33.6002 R&D
# Jobs cut Unspecified
(000) 29.5003
30.000

25.000

20.000

15.000
15.000

10.000
8.011
6.000
5.000 4.139 4.000 3.848
2.548
800 700
0

Merck Pfizer AZ BMS GSK Sanofi- Novartis J&J Roche Lilly Abbott
Aventis

To retain historic profitability pharma industry
has to cut costs wherever possible
1. For J&J and Abbott total staff includes non-pharmaceutical business units, J&J excluding medical devices 2. Includes job cuts after merger with Schering-Plough 3. Includes job
cuts after merger with Wyeth 4. Includes employees of Schering-Plough as of Dec2008 5. Includes employees of Wyeth as of Dec2008
Source: Factiva, Jan 2006 – Jul 2009; BCG analysis

5 Pharma’s negative image a real challenge

Drug safety Understating the adverse reactions associated with a
drug
g

Clinical trials Failing to disclose the full results of clinical trials

Drug prices Ignoring social responsibilities in pricing for the
developing world

Sales practices
p Spending too much on sales & marketing and diverting
p g g g
funds from R&D

Investor relations Ignoring negative publicity

Innovation Spending R&D funds to develop “me-too” drugs

Source: PWC


Agenda



3. Major Challenges

4. Emerging Markets

5.
5 Opportunities & Questions


The Indian Pharmaceutical Market

Characteristics Highly
fragmented
 Highly fragmented (53 868 B d )
Hi hl f t d (53,868 Brands
industry
 Top 50 companies contribute to 85%
 Top 300 brands contribute to 32%
 Retails Sales (91%) and Institutional Sales (9%)
 5.5 Mn. Pharmacies
 Low priced ‘branded generic’ market (84%+)
 Acute therapies (74%) dominate over Chronic
Therapies (26%)
 Combination Drug Market (62% of new introductions in
2010)
Source: IMS /AIOCD


Key Market Types
y yp

Market Size US$ 12.1 Bn.
OTC
8%

Branded
Generics
84%

Source : AIOCD-AWACs Apr 2011


Top 300 brands =
Indian Pharmaceutical Market 32%, Top 10 brands =
Top 10 Products 3.69%

Rank Products TG Company Value %GR
(Rs. Cr.)
1 Corex Cough Preparation Pfizer 205.7 4.1
2 Human Mixtard Insulin Abbott 193.3 15.4
30/70
3 Monocef Cephalosporin Aristo Pharma 185.4
185 4 17.4
17 4
4 Voveran NSAID Novartis 183.9 7.0
5 Augmentin Amoxy + Clav GSK 173.2 5.5
6 Taxim Cephalosporin Alkem 148.4 13.7
7 Taxim O Cephalosporin Alkem 145.1 18.4
8 Revital Nutritional Ranbaxy 144.6 14.5
9 Dexorange Haematinic Franco Indian 139.4 8.4
10 Betadine Antiseptic Win Medicare 140.5 12.8

Source: AIOCD – April 2011


Healthcare Environment
Regulatory


Price Controls

 100% of the industry currently under price control
control.

 20% on cost-based price control

 80% on price monitoring (para 10b)


Price Control Trend
Decontrol has not resulted in increase in prices

No. of Molecules under price control

400 345 …Real prices have declined
year on year
300
New Drug Policy
0.8 0.7
07
200 145 0.6 0.7
0.4 0.5
74
100 0.2 0
0 -0.2
0
-0.2 -0.5
1979 1987 1995 2008
-0.4 -0.7
-0.6
-0.8
2002 2003 2004 2005 2006 2007 2008


Medicine vs Commodity Prices

Per day treatment cost Rs. Average cost of common goods Rs.
for common ailment & services of daily consumption
(one time)

Common headache 1.00 Cup of tea 5.00
Common allergy 0.75 Thali meal 30.00
Common cold 1.50 Milk (half litre) 12.00
Gas trouble (antacid) 3.00 Egg 2.50
Asthma 0.45 Banana 2.00
Diarrhoea 1.20 Suburban train ticket (return) 8.00
Amoebiasis 1.10 Bus fare (minimum) 3.00
Diabetes 0.70 Inland letter 2.50
Blood pressure 1.75 Newspaper 2.00
Angina (chest pain) 0.55 Public telephone call 1.00
Arthritis 1.50


India Key Challenges

Product Patent
1 2 Counterfeit Drugs
World class IPR
Ensure deterrent
Addressed by … legislation against
counterfeit marketers
• Engaging with
Drug Price Government
G t
Control Order • Dialogue with Media
Reduce rigours of Multiple stakeholders
need to be engaged
price control 5 3
High Import
tariffs
Reduce import
Data Protection and 4 tariffs to ASEAN
levels
Compulsory Licensing
Data
D t protection f 5 years
t ti for


Emerging markets will grow significantly in the
next 10 years
y
GDP in $ trillions, 2008-18 CAGR
109 2008-18

Developed
markets*
* 62 4%
62

Emerging
markets will
42
represent
43% of the
 47 world s
world’s GDP
Emerging 9% by 2018
markets*
 20

* As determined by FTSE Global Equity Index
2008 2018
Source: Global Insight’s World Overview


BRIC country GDPs are climbing worldwide
rankings, demonstrating double digit g
g , g g growth
2009 GDP, CAGR
Ranking Economy in USD tn 2000-2009
1 US 14.3
14 3 4%
China’s 2Q 2010
2 Japan 5.1 1% GDP was higher
3 China 4.9 17% than Japan’s!

4 Germany 3.3 7%
5 France 2.6 8%
6 UK 2.2 4% As emerging
g g
markets become
7 Italy 2.1 7%
more
8 Brazil 1.6 10% affluent, diseases
of affluence
9 Spain 1.5
15 10%
become more
10 Canada 1.3 7% prevalent
11 India 1.3 12%
12 Russia 1.2 19%
Source: World Bank, July 1 2010; Reuters, Aug 15 2010

Spending on pharmaceuticals in these markets
is expected to g
p grow at 5x
Emerging markets pharma growth

Estimated pharma sales ($Bn)

900
800
Emerging
700 322 markets
k
+10% Emerging markets represent:
600 165  95% of all population growth
500 Western
232  43% of all GDP growth
400 202
+2% Europe
E
300  500 million new consumers
200 +2% 334 US
291
100
0
2008 2015E
+x% Est. CAGR 08 15
08-15
Note 1: Western Europe is France, Germany, UK, Italy, Spain, Greece, Belgium, Sweden, Ireland, Netherlands, Norway, Finland, Denmark, Switzerland, Austria and Portugal.
Emerging covers the other countries but excludes Japan, US and Canada
Source: IMS; EIU; BCG analysis

Growth in Emerging Markets is supported by
expansion of venture capital
p p
Venture capitalist expectations increase/decrease in investment
over the next 5 years (percent of respondents)
Increased investment

92 91
76

Germany Israel U.S. U.K. France

Brazil China India

-44 -50 -56 6
-61

-89

Decreased investment
Source: 2010 Global Venture Capital Survey by Deloitte LLP (July 2010)


As emerging markets grow, they will likely
increase spend on healthcare
p
Pharma spend per capita, 2009 United States (off scale) GDP/cap
US$ at constant exchange rate
700
France
650
6 0
Increased healthcare Japan
600 spending as GDP Belgium
Ireland
550 increases Canada
Switzerland
Finland
500 Portugal Austria Denmark
Germany
Spain Sweden
450
Italy Australia
400
Slovenia UK
350 Netherlands

300 Hungary
H Slovakia
Czech
250
Croatia
200 Israel
Poland Lithuania South Korea New Zealand
Venezuela Estonia
Decreased
150 Turkeyy Latvia healthcare spending
Romania
Bulgaria Taiwan Singapore
100 Brazil
Mexico Saudi Arabia Hong Kong as GDP growth slows
Argentina
50 South Africa Russia
Egypt
Malaysia
0 India China
0 5,000
5 000 10,000
10 000 15,000
15 000 20,000
20 000 25,000
25 000 30,000
30 000 35,000
35 000 40,000
40 000 45,000
45 000 50,000
50 000 55,000
55 000 60,000
60 000 65,000
65 000 70,000
70 000

1 Note: R2=0.8, N = 63, United States outlier excluded from the regression analysis GDP per capita, 2009
US$ at constant exchange rate
SOURCE: World Market Monitor; IMS

Agenda



3. Major Challenges

4. Emerging Markets



Pharmaco innovation can capture value in the
y
near term by…

1 Developing the right therapy

Maximize the
value of 2 Identifying the right p
y g g patient
Health Care

3 Driving the right treatment


But in the future ... “Chip in the pill”

Sensors in pills Wearable patch Communications

Improve Understand Involve
medication adherence physiologic response patients in their own care

Those are some trends in the near future...what
y
are the trends for 2020 and beyond?

2020+

Phase II
 Geographical shift
of innovation?
2010 Phase I
Ph
• Adapting to changing
business conditions
• Developing new products
• Exploiting competitor
weakness

20 years ago …

China G7 World Wide Web


… who would have imagined?

China G20 Mobile Web


Four Crucibles of Innovation that will shape the
next decade and beyond

The great The economic centre of gravity will shift from
1
rebalancing developed to developing countries

The
To sustain wealth creation, developed countries
2 productivity
will need to find ways to boost productivity
imperative

The global
Innovative businesses will harness the power of
3 grid and
an increasingly interconnected global economy
technology

Pricing the
4 Resource scarcity will drive innovation
planet


The great rebalancing

Most patent applications

6
1

Emergence of 2
7

new centres of
innovation 3 8

4 9

No U.S. company in the top 10
5
ten


...new innovative ways of working

Pipeline – Indian Pharma Companies
Company NCE Pipeline Key Therapeutic Area
Biocon Preclinical – 2 Inflammation, Oncology,
Phase II – 2 Diabetes
Phase III – 1
Piramal Healthcare 13 Compounds in Oncology, Infectious Diseases,
Clinical Trials Diabetes,
Diabetes Inflammation
Glenmark Discovery – 4 Metabolic Disorders,
Preclinical – 5 Dermatology, Inflammation
Phase I – 1
Phase II – 3
Ranbaxy Preclinical – 4-6 Metabolic Diseases, Infectious
Molecules Diseases, Respiratory Diseases,
, p y ,
Phase II – 1 Oncology
Suven Life Discovery – 2 Neurodegenerative Diseases,
Sciences Preclinical – 4 Obesity, Diabetes, Inflammatory
Phase I – 1 Diseases
Source: Industry sources


Pipeline – Indian Pharma Companies

Company NCE Pipeline Key Therapeutic Area

Dr Reddy’s Lab Pre-clinical – 1 Metabolic Disorders, Cardiac,
Phase II – 2 Oncology
Phase III – 1

Advinus Pre-clinical – 3 Diabetes, Cardiac, Lipid Disorders

Wockhardt Preclinical – 10 Infectious Diseases,
Phase II – 1

Lupin Discovery –2 Migraine, Psoriasis,T.B.
Pre-clinical – 1
P li i l

Sun Pharma Discovery – 2 Allergy, Muscle Relaxant,,
NDDS – 1 Inflammatory Diseases, Pain
y
Management
Source: Industry sources


Collaborative Research

Indian Molecule Indication Nature of Global Remark
Company Deal Partner
Cadila Not Cardiovascular Collaborative Eli Lilly To discover and develop
Healthcare disclosed research new cardiovascular drugs
for a span of six years
Cadila Not Inflammatory Collaborative Karo Bio To develop a new
Healthcare disclosed diseases research compound that targets the
Glucocorticoid receptor for
treatment of inflammatory
disorders
Torrent Not Hypertension Collaborative Astra Zeneca To discover a novel drug
disclosed research for hypertension for Rs 1.2
billion
Suven Life Pre clinical
Pre-clinical CNS Joint Eli Lilly Partnering deal for early
Sciences drug development phase research for
candidate discovery of NCEs
Dr Reddy’s DRF 1042 Cancer Joint Clintech Co-development and
development
p International commercialisation
agreement
Source: KPMG, Cygnus Research


Out-licensing
g
Indian Molecule Indication Nature of Global Remark
Company Deal Partner

Orchid Not disclosed Anti-infectives License Merck & Co. To discover and
agreement develop Novel drug
anti-infectives
anti infectives for USD
100 million
Alembic NDDS for Anti-epileptic Out-licensing UCB, Out-licensed for
Keppra-XR Belgium milestone payments of
USD 11 million and
royalty on future world
net sales
Glenmark GRC 3886 Asthma, COPD Out-licensing Forest Labs Out-licensed to Forest
Labs for USD 190
million for North
American markets
Glenmark GRC 3886 Asthma, COPD Out-licensing Tejin Pharma Out-licensed to Tejin
Pharma for Japanese
p
markets
Source: KPMG, Cygnus Research


Indian Pharmaceutical Exports
p

Source: ibef.org


Generics to drive growth of exports from India
g p

Source: ibef.org


Recent M&As in the Indian pharmaceuticals
industry
Companies involved Value US $ Billion
Abbott Piramal H lth
Abb tt & Pi l Healthcare 3.7
37

Hospira & Orchid Chemicals 0.4

Sanofi-aventis & Shantha 0.7
Biotech
Reckitt Benckiser & Paras 0.7
Pharmaceuticals
Mylan & Matrix Laboratories 0.9

Ranbaxy & Daiichi Sankyo 4.6

Dabur Pharma & Fresenius 0.3

Source: UBS, internet


M&A Partnership deals 2011 – Indian
pharmaceuticals industry (1/4)
Deal title Deal type Date of deal Details
announcement
The formation of
• Bayer HealthCare and the Indian company Zydus Bayer Z d
B Zydus
Bayer and Zydus Cadila Cadila recently signed an agreement in Mumbai, Pharma is in line
sign Joint Venture India, to form the Joint Venture Company Bayer with Bayer’s
Agreement to strengthen Joint Venture January 28, 2011 Zydus Pharma. With this newly established strategy to build a
pharmaceutical business marketing and sales enterprise, Bayer aims to stronger presence
in India1 enhance its presence in the fast growing in the emerging
pharmaceutical market i I di
h i l k in India. markets
k t

Merck & Co., Inc., and
Sun Pharma Establish This collaboration
Joint Venture to Develop • Merck & Co. and Sun Pharmaceutical Industries is aimed at
and Commercialize Ltd. Recently announced the creation of a joint
Joint Venture April 11, 2011 expanding
Novel Formulations and venture to develop, manufacture and
commercialize new combinations and Merck’s presence
Combinations of in the emerging
Medicines in Emerging formulations of innovative, branded generics in
the Emerging Markets markets
Markets2

Source(s): 1. Bayer and Zydus Cadila sign Joint Venture Agreement to strengthen pharmaceutical business in India , Bayer Press Release,
January 28, 2011; 2. Merck & Co., Inc., and Sun Pharma Establish Joint Venture to Develop and Commercialize Novel Formulations and
Combinations of Medicines in Emerging Markets, Merck Press Release, April 11, 2011


announcement

• New England Biolabs (
(NEB), a leading company
)
This agreement
in the production and supply of reagents for life
New England Biolabs science research, recently signed exclusive
will help NEB
Enters into Distribution Distribution/ distribution agreement with Imperial Life Sciences products gain
April 12, 2011 market access in
Agreement with Imperial Marketing (ILS), a biosupplier company based in India that
Life Sciences in India1 currently supplies reagents and instrumentation India
for genomics proteomics, cell biology and
genomics, proteomics
imaging

Through this
agreement,
• Bausch + Lomb is launching pharmaceutical Bausch + Lomb
business in India through a strategic agreement
a s capture
aims to captu e
with Micro Labs, a leading provider of quality
ith Mi L b l di id f lit
Bausch & Lomb Enters part of the rapidly
healthcare products.
into Collaboration expanding
Distribution/
Agreement with Micro June 30, 2011 ophthalmic
Labs for Distribution of Marketing • This partnership will provide Bausch + Lomb with pharmaceuticals
its Products in India2 high-quality manufacturing capabilities in the market in India
region that will speed the introduction of new which is expected
p
prescription and over-the-counter medicines
i ti d th t di i
to reach US$300
targeted at a wide range of eye diseases.
million by 2015

Source(s): 1. New England Biolabs Enters into Distribution Agreement with Imperial Life Sciences in India, PharmaDeals; 2. Bausch & Lomb
Enters into Collaboration Agreement with Micro Labs for Distribution of its Products in India, PharmaDeals


announcement

• Eli Lilly India ( y) and Lupin Limited (Lupin)
y (Lilly) p ( p )
recently entered into a strategic collaboration to Lupin’s robust
promote and distribute Lilly’s Huminsulin range of promotion and
products, including Huminsulin RTM, Huminsulin distribution setup
Strategic Collaboration NPHTM, Huminsulin 50/50TM, Huminsulin
between Eli Lilly India Distribution/ along with a
July 29, 2011 30/70TM and Humapen Ergo II. strong presence in
and Lupin to Distribute Marketing
Diabetes Care Products1 various
• Under the terms of the agreement, Lupin’s India therapeutic areas,
formulation business will deploy a sales force of including diabetes
300 medical representatives to pro-vide education market will help
and resources to physicians and patients Lilly strengthen its
foothold in India

• Aurobindo Pharma Limited through its investment
holding subsidiary and OJSC DIOD, a Russian
manufacturer of ecological healthcare equipment The establishment
Aurobindo Pharma and nutrition supplements through its investment of this Joint
establishes Joint Venture holding subsidiary recently announced venture is line with
with Diod (Russia) to
( ) Joint Venture September 7, 2011
p , establishment of a joint venture in Russia on a
j Aurobindo’s
manufacture and market parity basis (50%:50%). international
generic drugs in Russia2 • The name of the Joint Venture is Aurospharma expansion
Company and it has been established to strategy
manufacture and sell the pharmaceuticals in the
markets of Russia, Belarus and Kazakhstan.

Source(s): 1. Strategic Collaboration between Eli Lilly India and Lupin to Distribute Diabetes Care Products, PharmaDeals; 2. Aurobindo
Pharma establishes Joint Venture with Diod (Russia) to manufacture and market generic drugs in Russia, Aurobindo Press Release,
September 7, 2011

This strategic
announcement
alliance is
expected to
• Eli Lilly India and Boehringer Ingelheim India provide both the
Eli Lilly, Boehringer ink recently enteried into a India specific pact to co-
Co-promotion firms combined
pact to sell diabetes October 3, 2011 promote a portfolio of diabetes compounds,
agreement benefits with Lilly's
drugs1 currently either in late-stage development or expertise in the
already in the market. diabetes market
as well as
Boehringer
B hi
• NATCO Pharma Limited has entered into an Ingelheim's rich
exclusive agreement with Mabxience, the and innovative
biosimilar division of Swiss-based Chemo late-stage
Lugano, to purchase four monoclonal antibodies pipeline.
Exclusive Agreement drug substances from Chemo Lugano and use
between Natco Pharma them t manufacture finished d
th to f t fi i h d dosage
Licensing October 18, 2011 pharmaceutical formulations.
and Mabxience for
Biosimilars2 This agreement is
• Three of the four products including trastuzumab, aimed at boosting
bevacizumab, rituximab belong to the oncology Natco’s presence
segment, while etanercept is used to treat in the Biosimilars
autoimmune di
t i disease. marketspace
k

Source(s): 1. Eli Lilly, Boehringer ink pact to sell diabetes drugs, Moneycontrol, October 3, 2011; 2. Exclusive Agreement between Natco
Pharma and Mabxience for Biosimilars, PharmaDeals


Understanding M&As – Indian issues

• Ownership of Indian companies is with one or two ▪ Professionals run the process with
families and decision making concentrated. the owner promoter having the final
say as far as price is concerned.
Local auditors sometimes play a
▪ Owner promoters are now open about selling or role.
acquiring profit making businesses as against
p
previously when there were only distress sales.
y y ▪ Advisors need to play a key role in
managing expectations and in
▪ JVs are now more common between Indian ensuring that the deal is closed
promoter run companies and global companies. successfully.

▪ Global companies have paid significant premium ▪ There are valuation challenges.
to enter / get leadership position in the Indian
market through the acquisition route. ▪ Inadequate internal controls lead to
integration issues.
▪ Indian promoters are g
p generally not savvy in M&As
y y
and MIS is generally not very good. ▪ Being individual controlled
companies IP is often in the hands
of one or two individuals.
▪ Cash transactions are not uncommon.
▪ Unaccounted sales and profit

Source: E&Y

India leads the emerging “hybrid” model

Innovator Companies Generic Companies

Source: UBS


Open questions for Pharmacos looking to come to India

1 How can we productively drive innovation ?

How do we leverage the dynamics in
g y
2 the emerging markets to become
leaders in innovation?

3 How d we provide affordable
H do id ff d bl
healthcare?

4 How do we sustain growth?

How well-prepared are we to address the
p p
5 challenges and opportunities of the
future?


A Ringside View of the Pharma Industry by Ranjit Shahani

A Ringside View of the Pharma Industry by Ranjit Shahani

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