1. Global Strategy<br />Global Challenges<br />Executable Solutions<br />Bio-Pharma: China 2010 - 2020<br />A Look at The FUTURE: 4th & 5th Generation Global Strategies<br />France Houdard<br />Managing Director<br />firstname.lastname@example.org<br />January 2010<br />
2. Table of Contents – Corporate Series (Part 2 of 6) <br />BIOPHARMA: China 2010 – 2020<br /><ul><li>Preface – Overview of the China Life Science Industry</li></ul>The PAST: Evolution of Biopharma Foreign Investment into China <br />The FUTURE: Virtual Integrations – 4th & 5th Generation Strategies<br />The PRESENT: Strengths, Weaknesses, Opportunities, Threats (SWOT) <br />The OPPORTUNITY: Virtually Integrated Pharma Company (VIPCO’s)<br /><ul><li>Next Generation Integrated Global / China Operating Models</li></ul>Traditional Operating Models<br />COSTS / PRODUCTION: Big Pharma Production Trends in China<br />REVENUES / SALES: World’s 2nd Largest Economy (PPP); 400 MM in Middle Class<br />Future Operating Models (2010 – 2020): Value Chain Focus for Virtual Extensions (China) <br />INNOVATION / R&D: Big Pharma Research & Development (R&D) Trends in China<br />CLINICAL TRIALS: Drivers? Benefits?<br />NEXT GENERATION (2010 – 20120): Who is Migrating to VIPCO Extended Models?<br /><ul><li>China’s Economic Future and Implications for Big Pharma</li></ul>State of Economy: Corporate, Household Balance Sheets; Health of Financial Sector<br />Size, Growth Rate, Robustness across China Economy: Investment / Consumption / Trade<br />State of Export Sector and Impact on the Economy<br />Summary of Future Opportunities for Big Pharma in 2010 - 2020<br />
5. The PRESENT: Strengths, Weaknesses, Opportunities, Threats (SWOT) <br />PATENTS PIPELINES COSTS TALENT EMERGING MARKET OPPORTUNITIES <br /><ul><li>INNOVATION / TALENT</li></ul>Pipeline Productivity Collapse. Big Pharma has doubled investment in R&D during past decade. Yet, the return on this investment has plummeted. Today’s new drug yield is barely ½ the new drug production of 10 years ago - despite a doubling in number of compounds being placed into early-stage clinical testing. <br />Globally Transformed Labor Dynamic – “World is Flat”. Extremely high priority and focus placed on national development of scientific base and capabilities in China: already 1.6 million science and engineering graduates per year in PRC (China has 10 x size of graduate pool compared to US). R&D heads /integrates East.<br />R&D and Clinical Trials head East. China clinical trial benefits include Costs Savings (30-50%); Time Savings (30%); Large Technical Talent Pools; “Gene Pool” advantages in clients; broad infrastructure.<br /><ul><li>REVENUES / MARKETS</li></ul>Global Patent Expirations. Tidal wave of patent expiries this decade: USD150 billion between 2005 and 2015. Future for Big Pharma companies rooted in products that are currently under research and development, or have even yet to even be discovered.<br />Emerging Markets already Emerged. Fundamental shift in leading global market sizes, from developed to emerging markets – e.g., BRIC (Brazil, Russia, India, China). Today, China is world’s #5 largest pharmaceutical market and is projected to be the #2 largest in world by 2020 ($120bn); #1 in 2025.<br />Massive Middle Class + Aging Population + Disease Divergence + Insurance = Opportunity. Immense revenue opportunities in China rooted in: divergence of disease profiles; fundamental shift in age profile of its population; massive growth in middle class and incomes; expanding healthcare and insurance infrastructure.<br /><ul><li>COSTS / VALUE CHAIN</li></ul>Healthcare Costs. Massive cost balloon for Big-Pharma across entire global value chain, from Production through R&D.<br />Clinical Trial Costs. Costs of Clinical trials in Western countries more than 2X costs in China. <br />Global Labor Costs. Western Wages are 5 to 10 times Greater than Wages in China, from production operators to scientists and engineers. Need for cheaper costs, but also the quality – and IPP.<br />
6. The OPPORTUNITY: Virtually Integrated Pharma Company (VIPCO’s)<br />FIPCO MODEL VIPCO MODEL (CSO, CMO, CRO, PC-CRO, INSTITUTIONS)<br />FIPCO(Fully Integrated Pharma Co.)<br />VIPCO(Virtually Integrated Pharma Co.)<br />Partnerships<br />Sales &<br /> Distribution<br />CSOs<br />Sales &<br />Distribution<br />Manufacturing<br />CMOs<br />Manufacturing<br />Clinical<br /> Development<br />CROs<br />Clinical &<br />Regulatory<br />Preclinical <br />Support<br />Preclinical CROs<br />Research<br />Technology<br />R&D<br />Academia, Scientific, Institutions<br />Source: G. S. Burrill, ‘Biotech 2008: A 20/20 Vision to 2020’, The Burrill Indiana Life Sciences Meeting, October 2008. <br />
7. Bio-Pharma (2010 – 2020): Next Generation Operating Models<br />
8. 1. COSTS: Where is Big Pharma Producing Today in China?<br />COST INFRASTRUCTURE TALENT SUPPLY CHAIN IPR <br />China Big Pharma Production<br />Source: All Publically Available Information, Company Websites<br />
10. 900<br />800<br />99<br />700<br />90<br />600<br />500<br />53<br />170<br />355<br />400<br />461<br />525<br />239<br />300<br />255<br />200<br />157<br />106<br />100<br />73<br />35<br />0<br />2005<br />2010F<br />2015F<br />2020F<br />2025F<br />2. REVENUES: How large is China’s Middle Class?<br />CHINA MIDDLE CLASS: 300 million (2010) … 500 million (2015)<br />Middle Class Income Bands for Urban Population <br />Urban Household Income (US$ – PPP-Adjusted)<br />822<br />822<br />756<br />756<br />Global > US$107,800<br />684<br />684<br />Affluent US$ 3,800 - 107,800<br />607<br />607<br />531<br />531<br />Urban Population (millions)<br />Upper Middle US$21,501 – 53,900 <br />Lower Middle US$13,500 – 21,500<br />Poor < US$13,500<br />Upper Middle Class<br />Lower Middle Class<br />Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008.<br />
11. NEXT GENERATION: Value Chain Focus for Virtual Extensions (China) <br />COST & TIME to DEVELOP 1 DRUG in WEST: 16 YEARS … USD1.3 billion <br />drugs<br />Discovery<br />Up to 1MM drugs<br />Pre-Clinical Testing<br />10 to 50<br />4-5<br />Phase I<br />Phase II<br />2-3<br />Phase III<br />1 - 2<br />FDA<br />1<br />Market<br />Phase IV<br />1<br />years<br />0<br />16<br />2<br />4<br />6<br />8<br />10<br />12<br />14<br />Source: A. DiMasi and HG Grabowski: Managerial & Decision Economics 28 (2007); Zinnov LLC<br />
12. 3. INNOVATION: Big Pharma Migrating R&D Functions to China<br />COSTS DISEASE DIVERSITY RESEARCH DEVELOPMENT CLINICAL TRIALS <br />Pharma Research & Development Operations in China<br />Source: All Publically Available Information, Company Websites<br />
13. 3. INNOVATION: China Mobilizes all Resources to Develop Talent<br />CHINA SCIENCE and ENGINEERING GRADUATES: 1.6 MILLION per YEAR <br />University Natural Sciences Degrees (1985 – 2005)<br />USA<br />China<br />Thousands<br />Sources: National Science Board, Science & Engineering Indicators 2008<br />
14. 4/5. CLINICAL TRIALS: Drivers for Increasing Future Extensions to China<br />COST (50%) TIME (50%) INFRASTRUCTURE TALENT PATIENTS <br /><ul><li>China cost of clinical trials approximately 50% Western costs.
15. China actively incentivizing foreign pharma companies to conduct R&D in country by offering a range of financial and other incentives.</li></ul>COSTS<br />INFRASTRUCTURE<br /><ul><li>Numerous world-class medical facilities that meet global requirements for clinical testing.
16. China graduating roughly 10x science grads than the US.
17. Large pool of highly trained nurses, physicians, technical personnel
18. Strong IT skills and vast pool of IT engineers.</li></ul>TECHNICAL TALENT<br />TIME<br /><ul><li>Fast speed of patient enrollment; savings up to 30% on enrollment time.
19. US FDA has established an office in China to help in oversight of trials.
20. Vast, diverse, unique diseases across China’s heterogeneous population.
21. Huge numbers of “flexible” and “untested” patients concentrated in all major cities, very quick and efficient patient recruitment.</li></ul>PATIENT POOL<br />Sources: Exolus Research; PWC, The changing dynamics of pharma outsourcing in Asia (2008) <br />
22. 5. NEXT GENERATION: Who Programming to VIPCO Extended Model?<br />MIGRATION to ADVANCED OPERATING MODELS in CHINA: CSO, CMO, CRO<br /><ul><li>Boehringer Ingelheim
23. First Big Pharma to have entrusted a sole distributor for all of its products in China: Sinopharm.
24. Sinopharm is China’s largest pharmaceutical distributor by sales and the only China distributor to cover the entire PRC.
25. Boehringer Ingelheim’s sales spiked upward by 45% from 2006 to 2007; Sinopharm saw an annual growth rate of 32%.
27. 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.
29. Outsources to Shanghai Institute of Materia Medica (SIMM) chemistry requirements.
31. Invested USD14 million in Wuxi Pharma Tech for the synthesis of 150,000 compounds.</li></ul>China’s CRO Market<br />CSO Extended Cases<br />CRO Extended Cases<br />Sources: Goldman Sachs: Healthcare Services: CROs, December 2007; Exolus Research<br />
32. Business Consulting – Life Sciences<br />For Full Report and More Information Please Contact Us:<br />URL: www.exolus.com<br />Email: email@example.com<br />www.exolus.com<br />
33. Disclaimer<br />In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our own contributions to the market of ideas. As well, we are always tremendously grateful for the many, often selfless, contributions that are availed in the process.<br />The opinions represented herein were prepared for information purposes only, at the time of publication.The information represented herein is believed to be reliable, at the time of publication, and was obtained by various public sources also believed to be reliable. The opinions were considered to be accurate at the point of creation, and further, any views, forecasts, or estimates contained herein may be subject to change at anytime without notice. The opinions expressed or implied herein may not be the opinions of the author, also Exolus, or any associated affiliates.<br />This report and the information contained herein collectively, is not offered as, and should not be regarded as, used or relied upon as advice on any matter. It shall not constitute or be construed as a recommendation or solicitation on behalf of the author, and no legal commitment or obligation shall arise by reason of this document. Thus, the reader shall make an independent assessment of opinion’s stated herein that shall not be considered a substitute for obtaining advise from the readers’ advisors. <br />The author shall not accept responsibility, express or implied, with regards to the accuracy and completeness of the information herein, and the author shall not be liable whatsoever and howsoever arising in connection to this publication. The author shall not accept, and hereby disclaim, all responsibility and liability to all persons, entities, or organizations for all consequences arising out of any use or reliance on the whole or any part of this publication.<br />This publication should not be reproduced or distributed without the author’s consent and is not intended for distribution in any jurisdiction in which this would be prohibited.<br />