The document provides an overview of opportunities for big pharma companies in China from 2010 to 2020. It discusses trends of increasing foreign investment and virtual integration models. Cost reduction through production in China will drive future strategies, along with pursuing the large Chinese market and revenues. Innovation and R&D are migrating to China to access the large talent pool and lower costs of clinical trials. Virtual partnership models will become more common as companies extend their value chains without full ownership.

1. Global Strategy Global Challenges Executable Solutions Bio-Pharma: China 2010 - 2020 A Look at The FUTURE: 4th & 5th Generation Global Strategies France Houdard Managing Director france.houdard@exolus.com January 2010

3. The PAST: Evolution of Biopharma Foreign Investment into China … COST REDUCTION  REVENUE / MARKET  INNOVATION  EFFICIENCY 3) INNOVATION 2) REVENUES TALENT Sales MARKETS Engineering Marketing R&D IT HR Back Office F&A Procure Distribution Sourcing RESEARCH & DEVELOPMENT Production SALES & MARKETING RESOURCES PRODUCTION / SOURCING 1) COSTS DRIVING Shareholder Value

4. The FUTURE: Virtual Integrations – 4th & 5th Generation Strategies INNOVATION REVENUES TALENT MARKETS Sales Engineering Marketing R&D IT HR Back Office CONTRACTS, PARTNERSHIPS F&A Pro’c SHARED SERVICE CENTERS Distribution Sourcing RESEARCH & DEVELOPMENT Production SALES & MARKETING PRODUCTION / SOURCING RESOURCES DRIVING Shareholder Value COSTS

6. The OPPORTUNITY: Virtually Integrated Pharma Company (VIPCO’s) FIPCO MODEL  VIPCO MODEL (CSO, CMO, CRO, PC-CRO, INSTITUTIONS) FIPCO(Fully Integrated Pharma Co.) VIPCO(Virtually Integrated Pharma Co.) Partnerships Sales & Distribution CSOs Sales & Distribution Manufacturing CMOs Manufacturing Clinical Development CROs Clinical & Regulatory Preclinical Support Preclinical CROs Research Technology R&D Academia, Scientific, Institutions Source: G. S. Burrill, ‘Biotech 2008: A 20/20 Vision to 2020’, The Burrill Indiana Life Sciences Meeting, October 2008.

7. Bio-Pharma (2010 – 2020): Next Generation Operating Models

8. 1. COSTS: Where is Big Pharma Producing Today in China? COST INFRASTRUCTURE TALENT  SUPPLY CHAIN  IPR China Big Pharma Production Source: All Publically Available Information, Company Websites

9. Germany (5) France (6) EU-27 UK (7) Germany (3) EU-27 France (6) UK (4) 2. REVENUES: China Already World’s 2nd Largest Economy (PPP) GDP PPP (2008) 11,8 trillions de $ 6,4 trillionsde $ US (1) China (2) 3,6 trillionsde $ 3 trillionsde $ India (3) Japan (4) $7.8 tr $4.4 tr $3.3 tr $14.9 tr $14.3 tr GDP Nominal (2008) US (1) $5.1 tr Japan (2) China (5) IND(9) $14.3 tr $4.2 tr $4.9 tr $1.2 tr $17.1 tr Source: IMF; EIU, CIA World Factbook; F Houdard

10. 900 800 99 700 90 600 500 53 170 355 400 461 525 239 300 255 200 157 106 100 73 35 0 2005 2010F 2015F 2020F 2025F 2. REVENUES: How large is China’s Middle Class? CHINA MIDDLE CLASS: 300 million (2010) … 500 million (2015) Middle Class Income Bands for Urban Population Urban Household Income (US$ – PPP-Adjusted) 822 822 756 756 Global > US$107,800 684 684 Affluent US$ 3,800 - 107,800 607 607 531 531 Urban Population (millions) Upper Middle US$21,501 – 53,900 Lower Middle US$13,500 – 21,500 Poor < US$13,500 Upper Middle Class Lower Middle Class Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008.

11. NEXT GENERATION: Value Chain Focus for Virtual Extensions (China) COST & TIME to DEVELOP 1 DRUG in WEST: 16 YEARS … USD1.3 billion drugs Discovery Up to 1MM drugs Pre-Clinical Testing 10 to 50 4-5 Phase I Phase II 2-3 Phase III 1 - 2 FDA 1 Market Phase IV 1 years 0 16 2 4 6 8 10 12 14 Source: A. DiMasi and HG Grabowski: Managerial & Decision Economics 28 (2007); Zinnov LLC

12. 3. INNOVATION: Big Pharma Migrating R&D Functions to China COSTS DISEASE DIVERSITY  RESEARCH DEVELOPMENT  CLINICAL TRIALS Pharma Research & Development Operations in China Source: All Publically Available Information, Company Websites

13. 3. INNOVATION: China Mobilizes all Resources to Develop Talent CHINA SCIENCE and ENGINEERING GRADUATES: 1.6 MILLION per YEAR University Natural Sciences Degrees (1985 – 2005) USA China Thousands Sources: National Science Board, Science & Engineering Indicators 2008

16. China graduating roughly 10x science grads than the US.

17. Large pool of highly trained nurses, physicians, technical personnel

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.PATIENT POOL Sources: Exolus Research; PWC, The changing dynamics of pharma outsourcing in Asia (2008)

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%.

26. Pfizer

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.

28. GSK

29. Outsources to Shanghai Institute of Materia Medica (SIMM) chemistry requirements.

30. AstraZeneca

31. Invested USD14 million in Wuxi Pharma Tech for the synthesis of 150,000 compounds.China’s CRO Market CSO Extended Cases CRO Extended Cases Sources: Goldman Sachs: Healthcare Services: CROs, December 2007; Exolus Research

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