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Emerging Trends in Pharma - HR Update`

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Forecasts* suggested that global sales in the pharmaceutical industry will grow by just 2.5-3.5% in 2009, the lowest expansion yet recorded. The US accounts for 40% of all revenues but will decline by 1-2%. “ PharmEmerging markets“ will expand by 13-14% accounting for half of all global growth. Similar growth trends forecasted over the coming 05 years . Brand Name Generics & a robust OTC/DTC strategy is becoming increasingly critical part of the overall pharma strategy, esp. as key growth drivers within the overall portfolio. Where are we today *IMS Health Research

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Go East…… "We want to be a global healthcare company," CEO Sanofi-Aventis . Held a presentation for investors specifically focused on emerging markets rather than existing products. Qiagen , a US diagnostics company, unveiled plans for a low-cost cancer test in India. GE Healthcare launched its "healthimagination" strategy, much of which hinges on the introduction of lower priced, simpler and more robust equipment that is better suited to emerging markets. "It's all about demographics and the economic rise of the middle class. Despite short-term volatility, the opportunities are tremendous.“ - Andrew Witty, CEO GSK (Has significant EM mkts exp)

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The ‘PharmEmerging’ Future BRIC +TMS = PharmEmerging Future Represent only 11% of Global sales BUT 51% of 2009’s growth ‘ Markets of the future ’ – Expanding access to Primary HealthCare, increasing purchasing capacity, disease profile & Generics Global Pharma Mkt grows to $940Bn (2013) - PharmEmerging Mkts grow to $185Bn .

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It remains a tough market* *As reported in the WSJ Health Blog posts 20,000 jobs losses (15% of workforce). R&D spend cut by $1.1Bn 8,200 jobs losses (7% of workforce) across all businesses 7,000 jobs losses (10% of workforce) - $2Bn restructuring 4,000 jobs losses (NA & WE Mkts). R&D cuts addln £500 MM Upto 1,300 job losses (4% of workforce) 5,500 jobs losses by 2011 Salaries frozen in 2010. Job losses projected

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Brand Name Generics $89Bn in brand-name drug sales in US at risk to generic competition -Next 05 yrs Chain pharmacies - Define commodity generics market in US & most other developed markets – focus on lowest available price & drugs are interchangeable. Payers are also focusing on lowering costs thus focus on Generics . Emerging markets – High growth, ppl pay out of pocket for medicines but cannot afford expensive brand-name drugs, high concerns on counterfeit medicine THUS customer willing to pay a premium for branded generics Two-Tiered Strategy – Selling own lines of more expensive name-brand products to the more affluent, as well as offering midpriced branded generic lines that include prescription and over-the-counter medicines for the broader market.

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Key trends for 2010 <ul><li>Hunt for the FBOP (Fortune at Bottom of Pyramid) intensifies </li></ul><ul><ul><li>Generic players chase Polypill for CardioVascular Disease (#1 killer disease worldwide) </li></ul></ul><ul><li>Global Sourcing = Higher scrutiny by Drug Approval Authorities </li></ul><ul><ul><li>Heparin recall – 12 co’s across 11 countries – 149 deaths </li></ul></ul><ul><ul><li>America & Europe used to provide 90% of API in 1990. Now only 20% & steadily decreasing </li></ul></ul><ul><ul><li>FDA now empowered to conduct foreign facility inspections </li></ul></ul><ul><li>Biggest Emerging Pharma Mkt - CHINA </li></ul><ul><ul><li>Ensure medical insurance coverage to addln 900M citizens by 2011 </li></ul></ul><ul><ul><li>$125B budget over 3 years to implement plan </li></ul></ul><ul><ul><li>Significant Generics opportunity – Volume play </li></ul></ul><ul><ul><li>5 biggest Pharma Mkt by 2014 </li></ul></ul><ul><li>New models of Payment – SKorea’s HTA </li></ul><ul><ul><li>HTA pre-requisite for inclusion in NHI </li></ul></ul><ul><ul><li>Measures clinical & economic value of treatments </li></ul></ul><ul><ul><li>Expect pricing pressures to escalate </li></ul></ul>*IMS Health Research

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Key trends for 2010 <ul><li>Japan’s Encourages Innovation through Pricing </li></ul><ul><ul><li>Branded products protected from price-cuts (approx. 08 yrs) </li></ul></ul><ul><ul><li>Prices of products close to patent expiry lowered significantly than currently. Generic substitution mandated </li></ul></ul><ul><ul><li>Clear push towards encouraging innovation – Co’s with portfolio of estd drugs will suffer significantly </li></ul></ul><ul><li>The ‘re-birth’ of OTC </li></ul><ul><ul><li>OTC sales grew by 6.9% in 2008 </li></ul></ul><ul><ul><li>Payors promoting self-medication to manage costs </li></ul></ul><ul><ul><li>Distribution channels are widening leading to a much larger market </li></ul></ul><ul><ul><li>Competition will increase as Food companies, FMCG, nutritional supplements & herbal manufacturers will all compete in the same space </li></ul></ul><ul><li>R&D re-design </li></ul><ul><ul><li>Diminishing returns from the Dual Innovation Model / Unrealized promise of the Human Genome Project </li></ul></ul><ul><ul><li>Involve payors upfront in R&D – as GSK has done </li></ul></ul><ul><ul><li>Accept longer pay-off periods with higher costs </li></ul></ul><ul><ul><li>Innovate, innovate, innovate </li></ul></ul>*IMS Health Research

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Innovative Approaches E-Card* : Pfizer offering a card to patients in EM which they can present at the pharmacy to get a discount on their drugs. Allows Pfizer to study patient behavior & remind patients to pick up their prescriptions. Has had an “eCard” program in the Philippines with more than 2M patients, looking to launch in key emerging markets such as Russia, Mexico and Brazil. ViiV* : Pioneering HIV JV between GSK (85%) & Pfizer (15%). 100 per cent dedicated to HIV (Mkt worth $8.4bn globally). Target to generate £1.6bn a year in sales. Allows sharing the risks and costs of drug development. Also allows its parent companies to gradually withdraw from the field & address biggest challenge in the market - Excess Capacity ViiV will initially have 500 staff, plus be able to call – for a fee – on an extra 600 staff from its parent companies. *Financial Times

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What costs $282M an hour? <ul><li>The U.S. spent $2.47 Trillion on health care in 2008 OR $282M/hr. </li></ul><ul><ul><li>Projected to grow to $4.5 Trillion by 2019 </li></ul></ul><ul><li>Health spending as a percent of GDP rose from 16.2% in 2008 to 17.3% in 2009 (far higher than any other industrialized country) </li></ul><ul><ul><li>Rising drug prices (3.2%) and increasing utilisation (1.5%) led to increase. </li></ul></ul><ul><ul><li>State projected to pay more than 50% of overall healthcare bill by 2012 </li></ul></ul><ul><li>Health Care Reform currently stalled </li></ul><ul><ul><li>Now being positioned as Health Insurance Reform </li></ul></ul><ul><ul><li>Billy Tauzin, Head PhRMA steps down. Casualty of the ‘deal’ </li></ul></ul><ul><ul><li>Piece-meal reform rather than comprehensive reform </li></ul></ul><ul><ul><li>PhRMA still supports the reform </li></ul></ul><ul><li>What Next? </li></ul><ul><ul><li>More M&A’s – Declining ‘new launches’ & aging population plus cost pressures will lead to consolidation </li></ul></ul><ul><ul><li>Ad-Hoc Cost Containment Measures (in absence of reform) </li></ul></ul><ul><ul><ul><li>Possibility of ‘ ad-hoc’ taxation approach by politicians to balance budget </li></ul></ul></ul><ul><ul><ul><li>Medical re-importation may be allowed / Medicare cuts </li></ul></ul></ul>

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Deal or No Deal Other deals - Sanofi's purchase of Merck's Merial Animal health @ $4 billion & Warner Chilcott took P&G's Pharma unit for $3.1 billion. M&A Momentum continues apace in 2010 as companies look for in-organic growth as ways to broaden portfolio, manage costs and leverage scale. 1. Pfizer & Wyeth - $68B 2. Roche & Genentech - $46.8B 3. MercK & Schering-Plough - $41.1B 4. Sanofi-Aventis & Merck - $4B 5. GlaxoSmithKline & Stiefel Labs - $3.6B 6. Warner Chilcott & P&G - $3.1B 7. BMS & Medarex - $2.4B 8. GlaxoSmithKline & Brazil - $2.2B 9. Roche & PTC Therapeutics - $2B

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OUR Challenges <ul><li>GLocal Approach – Best of Breed approaches tailored to regional/local requirements </li></ul><ul><li>Relentless focus on productivity, LEAN & enhancing bottom-line impact </li></ul><ul><ul><ul><li>Value creation rather than pure cost-containment </li></ul></ul></ul><ul><ul><ul><li>Re-think ways of working rather than incremental savings </li></ul></ul></ul><ul><li>Innovate or Perish – Build, nurture & sustain a culture which rewards ‘meaningful innovation’ </li></ul><ul><li>Regionalisation - Build customized approach & practices. Flexible structure to the changing environment </li></ul><ul><ul><ul><li>Esp. important to capitalise on EM </li></ul></ul></ul><ul><li>Robust HR Strategy – Talent mgmt & Career Mgmt critical. Retain & develop Jr & middle mgmt bench strength. Rotate talent between markets. </li></ul>

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2010 Patents Expiry List* 1. Cozaar/Hyzaar - Merck 2. Lipitor - Pfizer ($11.4B 2009 sales) 3. Flomax - Boehringer Ingelheim 4. Arimidex - AstraZeneca ($1.9B 2009 sales) 5. Climara - Bayer HealthCare 6. Aricept - Aricept ($3B 2009 sales) 7. Invirase - Roche 8. Hycamtin - GlaxoSmithKline ($72M 2009 sales) 9. Protonix - Pfizer 10. Levaquin - Levaquin ($1.5B 2009 sales) *Fierce Pharma