A Ringside View of the Pharma Industry by Ranjit Shahani

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http://valuexindia.com - On day 2 of VALUEx India 2011, Ranjit Shahani addressed the group. Ranjit Shahani is Vice Chairman and MD of Novartis India.

He has made significant contributions in consolidating the Company’s pharmaceuticals business during the critical integration phase pre and post formation of Novartis India Limited.

As President of Organisation of Pharmaceutical Producers of India (OPPI), he has been in the forefront in creating awareness of the challenges facing the Pharmaceuticals industry and how patents serve as innovation growth drivers.
 
During his presentation, Ranjit Shahani shared his thoughts on the pharma opportunity in India. Specifically, he shared his views, based on his unique insight as a leader in the industry, issues such as how pharma companies can drive innovation, leverage the dynamics of emerging markets to becomes leaders in innovation, and provide affordable and profitable health care in low income countries

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A Ringside View of the Pharma Industry by Ranjit Shahani

  1. 1. A Ringside View of the Pharma IndustryRanjit Shahani, Country President, Novartis IndiaPresentation at ValuexIndiaMumbai, November 7, 2011
  2. 2. Agenda 1. A quick look back 2. Key trends shaping the future 3. Major Challenges 4. Emerging Markets 5. Opportunities & Questions2 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  3. 3. 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 averageSource: Standard & Poor Index Platform 3| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  4. 4. Then an unprecedented scale and scope offinancial 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 plansWorld Equity index 2007 2008 2009 2010 SOURCE: Datastream world index; press articles; 4| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  5. 5. 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 AmericaA Innovation ledA Innovation led • Strongly outperformed Asia/Africa/Australia S&P500 last 20 yearsB Less important role of payorsB Less important role of payors 10 North America N th A iC Physician driven decisionsC Physician driven decisions • High margins Europe 1980s to 1990s 2000s and beyond 1980s to 1990s 2000s and beyondD U.S. major growth driverD US major growth driver 5 • Product companies have pE Focus on medicines – not servicesE Focus on medicines – not services created most value in the JapanF Uniform/less complex distribution health care space 0 0 50 100 150 200 250 300 Market size 2006 Billion USD 5| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  6. 6. Agenda 1. A quick look back 2. Key trends shaping the future 3. 3 Major Challenges 4. Emerging Markets g g 5. Opportunities & Questions6| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  7. 7. 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 & technology7| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  8. 8. 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 patient8| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  9. 9. Lots of unmet needs1 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 9| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  10. 10. Poor lifestyle leads to an increase in the demand2 for drugs 10 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  11. 11. Fundamental knowledge of biology: genomics,3 proteomics, metabolomics 11 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  12. 12. Biologics have revolutionized modern medicine3 – 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 12 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  13. 13. 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 13 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  14. 14. 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 14 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  15. 15. 4 Wealthy people will spend more on healthcareTotal health spending vs. GDP, 2007Per capita, USD at PPP * 2007 health spending data Source: OECD 15 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  16. 16. 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 16 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  17. 17. 5 Demographics: aging and growing populations 17 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  18. 18. Today’s ‘pyramid-shaped’ population profile5 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 ExpectancySource: UN, World Population Prospects: The 2002 Revision and World Urbanization Prospects: The 2001 Revision 18 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  19. 19. Today’s ‘pyramid-shaped’ population profile5 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 ExpectancySource: UN, World Population Prospects: The 2002 Revision and World Urbanization Prospects: The 2001 Revision 19 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  20. 20. Aging and the continuing rise of chronic diseases will5 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 20 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  21. 21. As people get older: prevalence of e.g. Alzheimer’s will 5 grow out of proportion compared to todayPrevalence of Alzheimer’s disease% 47 19 3 Age 65-74 75-84 >85 Years 21 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  22. 22. 22 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  23. 23. 23 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  24. 24. 24 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  25. 25. 6 Rise of consumerism and the informed patientNumber of weblogsMillions Virtual people networks >181 million and virtual worlds8 blogs > 750 million active users6 180 million monthly unique users ~ +400%4 60 million users 50 million users2 Widely dispersed online0 > 4 million users interactive communities Mar Jul Nov Mar Jul Nov that overcome 2009 2010 geographical barriers 25 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  26. 26. Agenda 1. A quick look back 2. Key trends shaping the future 3. Major Challenges j g 4. 4 Emerging Markets 5. 5 Opportunities & Questions26 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  27. 27. 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 challenge27 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  28. 28. 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 TimeSource: 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 28 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  29. 29. 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; 29 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  30. 30. Pressure on prices as country’s healthcare costs2 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 02 071. Average nominal wage indexNote: 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 30 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  31. 31. Unmet medical need remains across disease3 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 31 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  32. 32. 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 32 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  33. 33. 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 33 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  34. 34. Agenda 1. A quick look back 2. Key trends shaping the future 3. Major Challenges 4. Emerging Markets 5. 5 Opportunities & Questions34 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  35. 35. The Indian Pharmaceutical MarketCharacteristics 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 35 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  36. 36. Key Market Types y yp Market Size US$ 12.1 Bn. OTC 8% Branded Generics 84% Source : AIOCD-AWACs Apr 2011 36 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  37. 37. 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 12.8Source: AIOCD – April 2011 37 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  38. 38. Healthcare EnvironmentRegulatory38 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  39. 39. Price Controls  100% of the industry currently under price control control.  20% on cost-based price control  80% on price monitoring (para 10b) 39 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  40. 40. Price Control Trend Decontrol has not resulted in increase in prices No. of Molecules under price control400 345 …Real prices have declined year on year300 New Drug Policy 0.8 0.7 07200 145 0.6 0.7 0.4 0.5 74100 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 40 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  41. 41. 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 1.5041 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  42. 42. India Key ChallengesProduct Patent 1 2 Counterfeit DrugsWorld 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 importData Protection and 4 tariffs to ASEAN levelsCompulsory LicensingDataD t protection f 5 years t ti for 42 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  43. 43. 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 2018Source: Global Insight’s World Overview 43 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  44. 44. BRIC country GDPs are climbing worldwiderankings, demonstrating double digit g g , g g growth 2009 GDP, CAGRRanking 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 201044 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  45. 45. Spending on pharmaceuticals in these markets is expected to g p grow at 5xEmerging markets pharma growthEstimated pharma sales ($Bn)900800 Emerging700 322 markets k +10% Emerging markets represent:600 165  95% of all population growth500 Western 232  43% of all GDP growth400 202 +2% Europe E300  500 million new consumers200 +2% 334 US 291100 0 2008 2015E +x% Est. CAGR 08 15 08-15 Note 1: Western Europe is France, Germany, UK, Italy, Spain, Greece, Belgium, Sweden, Ireland, Netherlands, Norway, Finland, Denmark, Switzerland, Austria and Portugal. Emerging covers the other countries but excludes Japan, US and Canada Source: IMS; EIU; BCG analysis 45 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  46. 46. Growth in Emerging Markets is supported by expansion of venture capital p pVenture capitalist expectations increase/decrease in investmentover the next 5 years (percent of respondents) Increased investment 92 91 76 Germany Israel U.S. U.K. France Brazil China India -44 -50 -56 6 -61 -89 Decreased investment Source: 2010 Global Venture Capital Survey by Deloitte LLP (July 2010) 46 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  47. 47. As emerging markets grow, they will likely increase spend on healthcare pPharma spend per capita, 2009 United States (off scale) GDP/capUS$ at constant exchange rate700 France6506 0 Increased healthcare Japan600 spending as GDP Belgium Ireland550 increases Canada Switzerland Finland500 Portugal Austria Denmark Germany Spain Sweden450 Italy Australia400 Slovenia UK350 Netherlands300 Hungary H Slovakia Czech250 Croatia200 Israel Poland Lithuania South Korea New Zealand Venezuela Estonia Decreased150 Turkeyy Latvia healthcare spending Romania Bulgaria Taiwan Singapore100 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 47 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  48. 48. Agenda 1. A quick look back 2. Key trends shaping the future 3. Major Challenges 4. Emerging Markets 5. Opportunities & Questions48 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  49. 49. Pharmaco innovation can capture value in the ynear 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 treatment49 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  50. 50. But in the future ... “Chip in the pill” Sensors in pills Wearable patch Communications Improve Understand Involvemedication adherence physiologic response patients in their own care50 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  51. 51. Those are some trends in the near future...what yare 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 weakness51 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  52. 52. 20 years ago … China G7 World Wide Web52 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  53. 53. … who would have imagined? China G20 Mobile Web53 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  54. 54. Four Crucibles of Innovation that will shape thenext 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 54 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  55. 55. The great rebalancing Most patent applications 6 1 Emergence of 2 7 new centres of innovation 3 8 4 9No U.S. company in the top 10 5ten 55 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  56. 56. Old India
  57. 57. New India
  58. 58. ...new innovative ways of working
  59. 59. Pipeline – Indian Pharma CompaniesCompany NCE Pipeline Key Therapeutic AreaBiocon Preclinical – 2 Inflammation, Oncology, Phase II – 2 Diabetes Phase III – 1Piramal Healthcare 13 Compounds in Oncology, Infectious Diseases, Clinical Trials Diabetes, Diabetes InflammationGlenmark Discovery – 4 Metabolic Disorders, Preclinical – 5 Dermatology, Inflammation Phase I – 1 Phase II – 3Ranbaxy Preclinical – 4-6 Metabolic Diseases, Infectious Molecules Diseases, Respiratory Diseases, , p y , Phase II – 1 OncologySuven Life Discovery – 2 Neurodegenerative Diseases,Sciences Preclinical – 4 Obesity, Diabetes, Inflammatory Phase I – 1 Diseases Source: Industry sources59 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  60. 60. 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 ManagementSource: Industry sources 60 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  61. 61. 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 agreementSource: KPMG, Cygnus Research 61 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  62. 62. 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 marketsSource: KPMG, Cygnus Research 62 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  63. 63. Indian Pharmaceutical Exports pSource: ibef.org 63 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  64. 64. Generics to drive growth of exports from India g pSource: ibef.org 64 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  65. 65. Generics to drive growth of exports from India g pSource: ibef.org 65 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  66. 66. Recent M&As in the Indian pharmaceuticalsindustry 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, internet66 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  67. 67. 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 Markets2Source(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 andCombinations of Medicines in Emerging Markets, Merck Press Release, April 11, 2011 67 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  68. 68. M&A Partnership deals 2011 – Indian pharmaceuticals industry (2/4) Deal title Deal type Date of deal Details 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 2015Source(s): 1. New England Biolabs Enters into Distribution Agreement with Imperial Life Sciences in India, PharmaDeals; 2. Bausch & LombEnters into Collaboration Agreement with Micro Labs for Distribution of its Products in India, PharmaDeals 68 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  69. 69. M&A Partnership deals 2011 – Indian pharmaceuticals industry (3/4) Deal title Deal type Date of deal Details 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. AurobindoPharma establishes Joint Venture with Diod (Russia) to manufacture and market generic drugs in Russia, Aurobindo Press Release,September 7, 2011 69 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  70. 70. M&A Partnership deals 2011 – Indian pharmaceuticals industry (4/4) Deal title Deal type Date of deal Details 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 Lillys 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 Ingelheims 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 kSource(s): 1. Eli Lilly, Boehringer ink pact to sell diabetes drugs, Moneycontrol, October 3, 2011; 2. Exclusive Agreement between NatcoPharma and Mabxience for Biosimilars, PharmaDeals 70 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  71. 71. 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 profitSource: E&Y 71 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
  72. 72. India leads the emerging “hybrid” model Innovator Companies Generic Companies Source: UBS72 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only

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