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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 IndustryA Ringside View of the Pharma IndustryRanjit Shahani, Country President, Novartis IndiaPresentation at ValuexIndiaPresentation at ValuexIndiaMumbai, November 7, 2011
Agenda
1. A quick look back
2. Key trends shaping the future
3. Major Challenges
4. Emerging Markets
5. Opportunities & Questions
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only2
Pharma outperformed the S & P 500 for over 20 years
Total returns to shareholdersIndex; 1985 = 100
2,000
1,500 Pharma*
1,000 S&P 500
500
01984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
* Market-cap weighted averageSource: Standard & Poor Index Platform
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
3| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Then an unprecedented scale and scope of financial crisis ...
Bank write-downs (Citi, UBS, HSBC)
U.S. Mortgage losses (~700 Bn)
EU and IMF launch€750 bn rescue plan
U.S. proposed financial act
Bear Stearns collapse
Lehman bankruptcy ECB 95 B
Euro injection
Greece sovereign debt downgraded
Italy emergency budget
Citigroup bailout ($45 bn)
Northern Rock BoA – Merrill
$85bn AIG bail out
y g y gto reduce deficit by €24 bn
nationalized
Barclays and UBS capitalUBS capital plans
World Equity index
2007 2008 2009 2010SOURCE: Datastream world index; press articles;
4| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Characteristics of Pharma so far
1960 t 19701890 t 1950 1960s to 1970s1890s to 1950s15
Market growth 2001-06CAGR, %
Innovation ledA1960s to 1970s1890s to 1950s
Innovation ledA1960s to 1970s1890s to 1950s
Less important role of payorsBN th A i
Asia/Africa/Australia
Latin America
10
• Strongly outperformed S&P500 last 20 years
Innovation led
Less important role of payors
A
B
1980s to 1990s 2000s and beyond1980s to 1990s 2000s and beyondPhysician driven decisionsC
US major growth driverD
North AmericaEurope
5
• High margins
• Product companies have
Physician driven decisions
U.S. major growth driverC
D
Japan
5Focus on medicines – not servicesEUniform/less complex distributionF
pcreated most value in the health care space
Focus on medicines – not services
Uniform/less complex distributionE
F
0 50 100 150 200 250 300Market size 2006
0
Billion USD
5| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Agenda
1. A quick look back
2. Key trends shaping the future
3 Major Challenges3. Major Challenges
4. Emerging Markets
5. Opportunities & Questions
g g
6| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Key trends shaping the future of Pharma
Opportunities:Significant unmet medical needs
Challenges:Worldwide cost containment
Aging population Price cuts & generic penetration
Lifestyle diseasesRisk averse regulators
Growing demand in emerging markets
Innovation productivity
Industry reputationIndustry reputationAdvances in science & technology
7| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Trends
1 Lots of unmet needs remain
2 Poor lifestyle leads to increased demand for drugs
3
Wealth – People are getting richer and will spend
Explosion of biological knowledge
4
5
Wealth People are getting richer and will spend more on health care
Demographics – Aging and growing populations
Information – Rise of consumerism and the informed patient6
8| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
1Lots of unmet needsExample: 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 yof dengue infection worldwide every year
9| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
2Poor lifestyle leads to an increase in the demand for drugs
10 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
3Fundamental knowledge of biology: genomics, proteomics, metabolomics
11 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Biologics have revolutionized modern medicine – and will continue to do so3
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
Stem-cell Leading biotech brands emergeCommercial
Today / future
researchGene therapy
1990s to today
brands emerge
1950s
DNA moleculedecoded
Genetic code cracked
1960s
Basic biotechnology
enabled
1970s
biotech firms founded
1980s Today / future1990s to today1950s 1960s 1970s
Source: Company websites and annual reports Note: All trademarks, logos and pictures are the property of the respective owner
1980s
12 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
3 Biologics are more complex than small molecules…
Monoclonal Antibody (IgG)CalcitoninAspirin® Antibody (IgG)
simple biologic small chemical molecule
Calcitonin
complex biologic
Aspirin®
Molecular weight Molecular weight Molecular weight = 180 Daltons0 amino acids
= 150,000 Daltons~ 1300 amino acids
- w/host cell modifications(glycosolations, etc)
= 3,455 Daltons~ 32 amino acids
- w/o host cell modifications- produced in yeast, bacteria (glycosolations, etc)
- produced in mammalian cellsproduced in yeast, bacteria
13 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
3 New trends in drug discovery
Many Opportunities for scientific breakthroughs
Patient stratification di t ti Pathways
Targeted therapies
according to genetic profile
siRNA
Pathways
Biologics
siRNA
Regenerative medicineg
Translational medicine Stem cells
Reverse vaccinology100,000
200,000
300 ,000
400,000
500 ,000
600 ,000
700,0001,600,000
1,700,000
1,800,000
1,900,000
2,000,000
2,100,0002,200,000 1
Gene therapy800,000
900 ,0001,000,000
1,100,0001,200,000
1,300,000
1,400,000
1,500,000
14 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
4 Wealthy people will spend more on healthcareTotal health spending vs. GDP, 2007Per capita, USD at PPP
* 2007 health spending dataSource: OECD
15 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
GDP in USD trillions4 Geographical Growth Forecast
12.5US 12.5U.S.
2005E
20.8U.S.
2030E
2.8Germany
2 3China
4.6Japan
2.8Germany
2 3China
4.6Japan 14.3China
5.8Japan
4 9India2.3China
2.1France
2.2UK
2.3China
2.1France
2.2U.K.
2.7Germany
4.9India
2.9Russia
1.8Italy
1.1Canada
1 1S i
1.8Italy
1.1Canada
1 1S i
2.3France
2.6U.K.
2 2B il1.1Spain
0.8India
1.1Spain
0.8India 1.9Canada
2.2Brazil
China and India have already The four BRIC markets will
Source: Global Insights – WMM; GS BRICs Report
yentered the top 10 account for a third of world GDP
16 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
5 Demographics: aging and growing populations
17 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
5Today’s ‘pyramid-shaped’ population profile will become ‘urn-shaped’ by 2050
45
Females
MalesWorld population by age and sex, 2000Millions, LE* = 65.4
80+75-7970-7465-6960-64
4546
6681
97
2432
5372
9060 6455-5950-5445-4940-4435 39
107133
164182
209
90104
132166
18721535-39
30-3425-2920-2415-19
209233
245249
271
215240
255260
28510-14
5-90-4
294295300
311311317
* 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
5Today’s ‘pyramid-shaped’ population profile will become ‘urn-shaped’ by 2050
Females
MalesWorld population by age and sex, 2050Millions, LE* = 74.3
236157
182216
247
142125
159201
242
80+75-7970-7465-6960-64247
255261
271283
295
242257268280294
307
60 6455-5950-5445-4940-4435 39295
301301299298
307
312311
35-3930-3425-2920-2415-19
295293288
309306302
10-145-90-4
* 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
5Aging and the continuing rise of chronic diseases will further increase demand for healthcare services
Incidence Economic impact
3.0Population, Bn $ Bn
1,180Indirect3Direct2
Obesity1
1.6 +88%
380+211%
20202005366
20232003430
Diabetes
171+114%
130+226%
1 Obese and overweight, BMI >25
20302000 20232003
2 Direct costs of medical treatment (e.g. hospital, outpatient care, drug costs)3 Loss of productivity and lost working daysSource: Wild et al. (2004); Boyle et al. (2001); Credit Suisse estimates
20 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
5 As people get older: prevalence of e.g. Alzheimer’s will grow out of proportion compared to today
Prevalence of Alzheimer’s disease%
47
19
3
AgeYears
65-74 >8575-84
21 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
6 Rise of consumerism and the informed patient
Number of weblogsMillions
8
Virtual people networks and virtual worlds>181 million
6
8 blogs > 750 million active users 180 million monthly
4
50 million users
~ +400% unique users
60 million users
0
250 million users
Widely dispersed online 0 > 4 million usersinteractive communities
that overcome geographical barriers
Mar Jul Nov2009
Mar Jul Nov2010
25 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Agenda
1. A quick look back
2. Key trends shaping the future
3. Major Challenges j g
4 Emerging Markets
5 Opportunities & Questions
4. Emerging Markets
5. Opportunities & Questions
26 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Major Challenges
1 R&D costs pulling ahead of output
2 Government pressure on price
3 Unmet medical needs remain
Commercial model in transition4
Pharma’s negative image a real challenge5
27 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
1 Declining R&D Productivity…
25
30NMEs per bn USD
20
25
Today0 5 NMEs per bn USD –
10
15 0.5 NMEs per bn USD –a factor 50 worse than 35 years ago…!
0
5
1970 1975 1980 1985 1990 1995 2000 2005* Does not include Biologics NDAs
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
1970 1975 1980 1985 1990 1995 2000 2005
Time
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
1 ….major issue in the Pharmaceutical Industry
Decreasing internal rate of return on R&D1
IRR percent
Industry R&D spending per new NME approved
$ B
12.0
IRR, percent
3.7
+208%$ Bn
7.5-38%
1.72.0
3.0
1.2
’02-’06’97-’01’06-’08’04-’06’02-’04’01-’03’98-’00
1 IRR 2002-2006: Model based on the performance of all drugs from EvaluatePharma database that were on patent and actively marketed between 2000 and 2006 (~2,500 compounds worldwide); IRR 1997-2001: p y ( , 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
2Pressure on prices as country’s healthcare costs grow faster than GDP
Index IndexIndex
Index: 1992 = 100Per capita HC cost 2006
$3,300 $ 2,800 $ 2,300
Wages1
HC Exp
GDP200
300
200
300
250
400
92 97 02 07 92 97 02 0792 97 02 07100 100 100
$3,930 $ 2,890Index Index
$ 6,675Index
300 300 400
92 97 02 07 92 97 02 0792 97 02 07100
200
100
200
100
250
1. 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
3Unmet medical need remains across disease areas despite medical progress
▪ Alzheimer’s▪ Anticoagulants
▪ MRSA▪ Multiple sclerosis
▪ Autism ▪ Chronic obstructive pulmonary
disease▪ Chronic renal failure
▪ Muscular dystrophy ▪ Myocardial infarction, acute (AMI) ▪ Obstructive sleep apnoea (OSA) ▪ Ovarian cancerChronic renal failure
▪ Cocaine addiction▪ Colorectal cancer▪ Congestive heart failure
Di b ti h th
Ovarian cancer▪ Pancreatic cancer▪ Parkinson’s disease ▪ Prostate cancer
R l f il h i▪ Diabetic nephropathy ▪ Diabetic retinopathy ▪ Epilepsy▪ Hepatic cancer
▪ Renal failure, chronic ▪ Rheumatoid arthritis▪ Schizophrenia ▪ Septic shock p
▪ Hepatitis C treatment ▪ HIV treatment ▪ Lung cancer▪ Lymphomas
p▪ Stroke, acute ▪ Systemic lupus erythematosus (SLE) ▪ Traumatic brain injury ▪ Type 2 diabetes▪ Lymphomas ▪ Type 2 diabetes
31 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
4Industry has responded to these challenges with mergers and job cuts
33.600235.000
S&M
R&DManufacturing
Jobs cut as % of staff Jan 2006
30%4 19%5 23% 19% 6% 4% 4% 3%1 1%12%4%
Announced job cuts by function 2006-2009
29.5003
33.600
30.000
25.000
# Jobs cut(000)
R&DUnspecified
15.000
20.000
15.000
7008002.548
3.8484.0004.1396.000
8.01110.000
5.000
LillyRocheJ&JNovartisSanofi-Aventis
GSKBMSAZPfizerMerck Abbott
0
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
has to cut costs wherever possible
32 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
5 Pharma’s negative image a real challenge
Drug safety Understating the adverse reactions associated with a drug
Clinical trials
g
Failing to disclose the full results of clinical trials
Drug prices
Sales practices
Ignoring social responsibilities in pricing for the developing world
Spending too much on sales & marketing and diverting p
Investor relations
p g g gfunds from R&D
Ignoring negative publicity
Innovation Spending R&D funds to develop “me-too” drugs
Source: PWC
33 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Agenda
1. A quick look back
2. Key trends shaping the future
3. Major Challenges
4. Emerging Markets
5 Opportunities & Questions5. Opportunities & Questions
34 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
The Indian Pharmaceutical Market
CharacteristicsHi hl f t d (53 868 B d )
Highly fragmented Highly fragmented (53,868 Brands )
Top 50 companies contribute to 85% Top 300 brands contribute to 32%
fragmented industry
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)2010)
35
Source: IMS /AIOCD
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Key Market Types y yp
Market Size US$ 12.1 Bn.Market Size US$ 12.1 Bn.
OTC8%
Branded Generics
84%
Source : AIOCD-AWACs Apr 2011
36 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Indian Pharmaceutical MarketTop 10 Products
Top 300 brands = 32%, Top 10 brands =
3.69% Top 10 Products
Rank Products TG Company Value(Rs. Cr.)
%GR
1 Corex Cough Preparation Pfizer 205.7 4.1
2 Human Mixtard30/70
Insulin Abbott 193.3 15.4
3 Monocef Cephalosporin Aristo Pharma 185 4 17 43 Monocef Cephalosporin Aristo Pharma 185.4 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
37 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Healthcare EnvironmentRegulatoryRegulatory
38 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Price Controls
100% of the industry currently under price control 100% of the industry currently under price control.
20% on cost-based price control
80% on price monitoring (para 10b)
39 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Price Control TrendDecontrol has not resulted in increase in prices
No. of Molecules under price control
Decontrol has not resulted in increase in prices
300
400 345
0 7
…Real prices have declined year on year
New Drug Policy
100
200 145
740.20.40.60.8
0
0.50.7
0.7
01979 1987 1995 2008
-0.4-0.2
00.2
-0.5-0.7
-0.2
0
-0.8-0.6
2002 2003 2004 2005 2006 2007 2008
40 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Medicine vs Commodity Prices
Per day treatment cost for common ailment
Rs. Average cost of common goods & services of daily consumption
Rs.
(one time)
Common headache 1.00 Cup of tea 5.00Common allergy 0.75 Thali meal 30.00Common cold 1.50 Milk (half litre) 12.00Gas trouble (antacid) 3.00 Egg 2.50Asthma 0.45 Banana 2.00Diarrhoea 1.20 Suburban train ticket (return) 8.00Amoebiasis 1.10 Bus fare (minimum) 3.00Diabetes 0.70 Inland letter 2.50Blood pressure 1.75 Newspaper 2.00Angina (chest pain) 0.55 Public telephone call 1.00Arthritis 1.50
41 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
India Key Challenges
Product Patent 1 2 Counterfeit DrugsWorld class IPR
Drug Price
Addressed by … • Engaging with G t
World class IPREnsure deterrent legislation against counterfeit marketers
Drug Price Control Order
35
Government• Dialogue with MediaMultiple stakeholders need to be engaged
Reduce rigours of price control 35
High Import tariffs
need to be engaged
Reduce import
price control
4Data Protection and Compulsory Licensing
Reduce import tariffs to ASEAN levels
D t t ti f 5Data protection for 5 years
42 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Emerging markets will grow significantly in the next 10 yearsGDP in $ trillions, 2008-18
109
CAGR
2008-18
y
Developed* 62 4%markets* 62
62
4%
Emerging
42
47
Emerging markets will represent 43% of theworld’s GDP
Emerging markets*
47
20
9%world s GDP by 2018
* As determined by FTSE Global Equity IndexSource: Global Insight’s World Overview
2008 2018
43 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
BRIC country GDPs are climbing worldwide rankings, demonstrating double digit growth
Ranking Economy2009 GDP, in USD tn
1 US 14 3
CAGR 2000-2009
4%
g , g g g
1 US 14.3
2 Japan 5.1
3 China 4.9
4%
1%
17%
China’s 2Q 2010 GDP was higher than Japan’s!
4 Germany 3.3
5 France 2.6
6 UK 2.2
7%
8%
4% As emerging
7 Italy 2.1
8 Brazil 1.6
9 Spain 1 5
7%
10%
10%
g gmarkets become more affluent, diseases of affluence 9 Spain 1.5
10 Canada 1.3
11 India 1.3
10%
7%
12%
become more prevalent
12 Russia 1.2Source: World Bank, July 1 2010; Reuters, Aug 15 2010
19%
44 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Spending on pharmaceuticals in these markets is expected to grow at 5x
Emerging markets pharma growth Emerging markets pharma growth
Estimated pharma sales ($Bn)
p g
322700800900Estimated pharma sales ($Bn)
Emergingk
232
165
322
500600700
WesternE
markets+10%
+2%
Emerging markets represent:
95% of all population growth
43% of all GDP growth202232
200300400 Europe
334291
+2%
+2% US
43% of all GDP growth
500 million new consumers
0100
2015E2008
291
+x% Est. CAGR 08-15Est. CAGR 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 CanadaSource: IMS; EIU; BCG analysis
45 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Growth in Emerging Markets is supported by expansion of venture capital
Venture capitalist expectations increase/decrease in investment over the next 5 years (percent of respondents)
p p
92 9176
Increased investment
Germany Israel U.S. U.K. France
-44 -50 -56 -61
Brazil China India
6
-89
Decreased investmentSource: 2010 Global Venture Capital Survey by Deloitte LLP (July 2010)
46 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
As emerging markets grow, they will likely increase spend on healthcare
6 0
700
Pharma spend per capita, 2009US$ at constant exchange rate
France
United States (off scale) GDP/cap
p
500
550
600
650
Portugal
Switzerland
Denmark
Ireland
FinlandAustria
Belgium
Canada
Germany
JapanIncreased healthcare spending as GDP increases
350
400
450
SlovakiaH
Netherlands
Sweden
Australia
Germany
UK
ItalySpain
Slovenia
150
200
250
300
Czech
South Korea
Slovakia
Estonia
Hungary
Croatia
Latvia
LithuaniaPolandVenezuela
TurkeyRomania
New ZealandIsraelDecreased healthcare spending
0
50
100
70 00065 00060 00055 00050 0005 000 45 00040 00035 00030 00025 00020 00015 00010 000
Saudi ArabiaTaiwan
Russia
Mexico
yRomania
Malaysia
ArgentinaBrazil
Bulgaria
South AfricaChina
EgyptIndia
0
SingaporeHong Kong
healthcare spending as GDP growth slows
GDP per capita, 2009US$ at constant exchange rate
70,00065,00060,00055,00050,0005,000 45,00040,00035,00030,00025,00020,00015,00010,0000
1 Note: R2=0.8, N = 63, United States outlier excluded from the regression analysisSOURCE: World Market Monitor; IMS
47 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Agenda
1. A quick look back
2. Key trends shaping the future
3. Major Challenges
4. Emerging Markets
5. Opportunities & Questions
48 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Pharmaco innovation can capture value in the near term by…y
Developing the right therapy1
Identifying the right patientMaximize the
value of 2 y g g pHealth Care
Driving the right treatment3
49 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
But in the future ... “Chip in the pill”
Sensors in pills Wearable patch Communications
InvolveImprove Understand Involve patients in their own care
Improve medication adherence
Understand physiologic response
50 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Those are some trends in the near future...what are the trends for 2020 and beyond?y
Phase II
2020+
2010 Ph I
Geographical shift of innovation?
2010 Phase I• Adapting to changing business conditions
• Developing new products• Exploiting competitor weaknessweakness
51 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
20 years ago …20 years ago …
G7China World Wide Web
52 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
… who would have imagined?… who would have imagined?
G20China Mobile Web
53 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Four Crucibles of Innovation that will shape the next decade and beyond
The great The economic centre of gravity will shift fromThe great rebalancing
The economic centre of gravity will shift from developed to developing countries1
TheThe productivity imperative
To sustain wealth creation, developed countries will need to find ways to boost productivity2
The global grid and technology
Innovative businesses will harness the power of an increasingly interconnected global economy3
Pricing the planet Resource scarcity will drive innovation4
54 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
The great rebalancing
Most patent applications
16
2 7Emergence of new centres of
4
3 8
9
innovation
4
5
9
10No U.S. company in the top ten
55 | Ranjit Shahani | ValuexIndia | November 2011 | Business use only
Pipeline – Indian Pharma Companies
Company NCE Pipeline Key Therapeutic AreaBiocon Preclinical – 2 Inflammation, Oncology,
Phase II – 2Phase III – 1
Diabetes
Piramal Healthcare 13 Compounds in Clinical Trials
Oncology, Infectious Diseases, Diabetes InflammationClinical Trials Diabetes, Inflammation
Glenmark Discovery – 4Preclinical – 5Phase I – 1
Metabolic Disorders, Dermatology, Inflammation
Phase I 1Phase II – 3
Ranbaxy Preclinical – 4-6Molecules
Metabolic Diseases, Infectious Diseases, Respiratory Diseases,
Phase II – 1, p y ,
OncologySuven Life Sciences
Discovery – 2Preclinical – 4
Neurodegenerative Diseases, Obesity, Diabetes, Inflammatory
Phase I – 1 DiseasesSource: Industry sources
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only59
Pipeline – Indian Pharma Companies
Company NCE Pipeline Key Therapeutic Area
Dr Reddy’s Lab Pre-clinical – 1Phase II – 2Phase III – 1
Metabolic Disorders, Cardiac, Oncology
Advinus Pre-clinical – 3 Diabetes, Cardiac, Lipid Disorders
Wockhardt Preclinical – 10 Infectious Diseases,Wockhardt Preclinical 10Phase II – 1
Infectious Diseases,
Lupin Discovery –2P li i l 1
Migraine, Psoriasis,T.B.Pre-clinical – 1
Sun Pharma Discovery – 2NDDS – 1
Allergy, Muscle Relaxant,, Inflammatory Diseases, Pain yManagement
Source: Industry sources
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only60
Collaborative Research
Indian Company
Molecule Indication Nature of Deal
Global Partner
Remark
CadilaHealthcare
Not disclosed
Cardiovascular Collaborative research
Eli Lilly To discover and develop new cardiovascular drugs for a span of six years
Cadila Not Inflammatory Collaborative Karo Bio To develop a newCadilaHealthcare
Not disclosed
Inflammatory diseases
Collaborative research
Karo Bio To develop a new compound that targets the Glucocorticoid receptor for treatment of inflammatory disorders
Torrent Not disclosed
Hypertension Collaborative research
Astra Zeneca To discover a novel drug for hypertension for Rs 1.2 billion
Suven Life Pre-clinical CNS Joint Eli Lilly Partnering deal for earlySuven Life Sciences
Pre clinical drug candidate
CNS Joint development
Eli Lilly Partnering deal for earlyphase research for discovery of NCEs
Dr Reddy’s DRF 1042 Cancer Joint development
ClintechInternational
Co-development and commercialisationpagreement
Source: KPMG, Cygnus Research
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only61
Out-licensinggIndian Company
Molecule Indication Nature of Deal
Global Partner
Remark
Orchid Not disclosed Anti-infectives License agreement
Merck & Co. To discover and develop Novel drug anti infectives for USDanti-infectives for USD 100 million
Alembic NDDS for Keppra-XR
Anti-epileptic Out-licensing UCB, Belgium
Out-licensed for milestone payments of USD 11 million andUSD 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 190Labs for USD 190 million for North American markets
Glenmark GRC 3886 Asthma, COPD Out-licensing Tejin Pharma Out-licensed to TejinPharma for Japanese pmarkets
Source: KPMG, Cygnus Research
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only62
Indian Pharmaceutical Exportsp
Source: ibef.org
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only63
Generics to drive growth of exports from Indiag p
Source: ibef.org
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only64
Generics to drive growth of exports from Indiag p
Source: ibef.org
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only65
Recent M&As in the Indian pharmaceuticals industry
Companies involved Value US $ BillionAbb tt & Pi l H lth 3 7
industry
Abbott & Piramal Healthcare 3.7
Hospira & Orchid Chemicals 0.4
Sanofi-aventis & ShanthaBiotech
0.7
Reckitt Benckiser & Paras 0.7PharmaceuticalsMylan & Matrix Laboratories 0.9
Ranbaxy & Daiichi Sankyo 4.6
Dabur Pharma & Fresenius 0.3
Source: UBS, internet
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only66
M&A Partnership deals 2011 – Indian pharmaceuticals industry (1/4)
Deal title Deal type Date of deal announcement
Details
The formation of B Z d
pharmaceuticals industry (1/4)
Bayer and Zydus Cadilasign Joint Venture Agreement to strengthen pharmaceutical business in India1
Joint Venture January 28, 2011
• Bayer HealthCare and the Indian company ZydusCadila recently signed an agreement in Mumbai, India, to form the Joint Venture Company Bayer Zydus Pharma. With this newly established marketing and sales enterprise, Bayer aims to enhance its presence in the fast growing
h i l k i I di
Bayer ZydusPharma is in line with Bayer’s strategy to build a stronger presence in the emerging
k tpharmaceutical market in India.
Merck & Co., Inc., and Sun Pharma Establish Joint Venture to Develop • Merck & Co. and Sun Pharmaceutical Industries
markets
This collaboration is aimed atJoint Venture to Develop
and Commercialize Novel Formulations and Combinations of Medicines in Emerging Markets2
Joint Venture April 11, 2011 Ltd. Recently announced the creation of a joint venture to develop, manufacture and commercialize new combinations and formulations of innovative, branded generics in the Emerging Markets
is aimed at expanding Merck’s presence in the emerging markets
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
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only67
M&A Partnership deals 2011 – Indian pharmaceuticals industry (2/4)
Deal title Deal type Date of deal announcement
Details
( )
pharmaceuticals industry (2/4)
New England BiolabsEnters into Distribution Agreement with Imperial Life Sciences in India1
Distribution/Marketing April 12, 2011
• New England Biolabs (NEB), a leading company in the production and supply of reagents for life science research, recently signed exclusive distribution agreement with Imperial Life Sciences (ILS), a biosupplier company based in India that currently supplies reagents and instrumentation for genomics proteomics cell biology and
This agreement will help NEB products gain market access in India
for genomics, proteomics, cell biology and imaging
• Bausch + Lomb is launching pharmaceutical business in India through a strategic agreement
ith Mi L b l di id f lit
Through this agreement, Bausch + Lomb aims to capture
Bausch & Lomb Enters into Collaboration Agreement with Micro Labs for Distribution of its Products in India2
Distribution/Marketing
June 30, 2011
with Micro Labs, a leading provider of quality healthcare products.
• This partnership will provide Bausch + Lomb with high-quality manufacturing capabilities in the region that will speed the introduction of new
i ti d th t di i
a s to captu epart of the rapidly expanding ophthalmic pharmaceuticals market in India which is expected
prescription and over-the-counter medicines targeted at a wide range of eye diseases.
pto reach US$300 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
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only68
M&A Partnership deals 2011 – Indian pharmaceuticals industry (3/4)
Deal title Deal type Date of deal announcement
Details
• Eli Lilly India (Lilly) and Lupin Limited (Lupin)
pharmaceuticals industry (3/4)
Strategic Collaboration between Eli Lilly India and Lupin to Distribute Diabetes Care Products1
Distribution/Marketing
July 29, 2011
y ( y) p ( p )recently entered into a strategic collaboration to promote and distribute Lilly’s Huminsulin range of products, including Huminsulin RTM, HuminsulinNPHTM, Huminsulin 50/50TM, Huminsulin30/70TM and Humapen Ergo II.
Lupin’s robust promotion and distribution setup along with a strong presence in various Diabetes Care Products
• Under the terms of the agreement, Lupin’s India formulation business will deploy a sales force of 300 medical representatives to pro-vide education and resources to physicians and patients
therapeutic areas, including diabetes market will help Lilly strengthen its foothold in India
Aurobindo Pharma establishes Joint Venture with Diod (Russia) to Joint Venture September 7, 2011
• Aurobindo Pharma Limited through its investment holding subsidiary and OJSC DIOD, a Russian manufacturer of ecological healthcare equipment and nutrition supplements through its investment holding subsidiary recently announced establishment of a joint venture in Russia on a
The establishment of this Joint venture is line with Aurobindo’s( )
manufacture and market generic drugs in Russia2
p , jparity basis (50%:50%).
• The name of the Joint Venture is AurospharmaCompany and it has been established tomanufacture and sell the pharmaceuticals in the markets of Russia, Belarus and Kazakhstan.
international expansion strategy
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
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only69
M&A Partnership deals 2011 – Indian pharmaceuticals industry (4/4)
Deal title Deal type Date of deal announcement
DetailsThis strategic alliance is expected to
pharmaceuticals industry (4/4)
Eli Lilly, Boehringer ink pact to sell diabetes drugs1
Co-promotion agreement October 3, 2011
• Eli Lilly India and Boehringer Ingelheim India recently enteried into a India specific pact to co-promote a portfolio of diabetes compounds, currently either in late-stage development or already in the market.
provide both the firms combined benefits with Lilly's expertise in the diabetes market as well as B h i
Exclusive Agreement
• NATCO Pharma Limited has entered into an exclusive agreement with Mabxience, the biosimilar division of Swiss-based Chemo Lugano, to purchase four monoclonal antibodies drug substances from Chemo Lugano and use th t f t fi i h d d
Boehringer Ingelheim's rich and innovative late-stage pipeline.
between Natco Pharma and Mabxience for Biosimilars2
Licensing October 18, 2011them to manufacture finished dosage pharmaceutical formulations.
• Three of the four products including trastuzumab, bevacizumab, rituximab belong to the oncology segment, while etanercept is used to treat
t i di
This agreement is aimed at boosting Natco’s presence in the Biosimilars
kautoimmune disease.
Source(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
marketspace
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only70
Understanding M&As – Indian issues
• Ownership of Indian companies is with one or two families and decision making concentrated.
▪ Professionals run the process with the owner promoter having the final families and decision making concentrated.say as far as price is concerned. Local auditors sometimes play a role.▪ Owner promoters are now open about selling or
acquiring profit making businesses as against previously when there were only distress sales. ▪ Advisors need to play a key role inp y y
▪ JVs are now more common between Indian promoter run companies and global companies.
▪ Global companies have paid significant premium
▪ Advisors need to play a key role in managing expectations and in ensuring that the deal is closed successfully.
▪ Global companies have paid significant premium to enter / get leadership position in the Indian market through the acquisition route.
▪ Indian promoters are generally not savvy in M&As
▪ There are valuation challenges.
▪ Inadequate internal controls lead to integration issues.
p g y yand MIS is generally not very good.
▪ Cash transactions are not uncommon.
▪ Being individual controlled companies IP is often in the hands of one or two individuals.
▪ Unaccounted sales and profit▪ Unaccounted sales and profit
Source: E&Y| Ranjit Shahani | ValuexIndia | November 2011 | Business use only71
India leads the emerging “hybrid” model
Innovator Companies Generic Companies
Source: UBS
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only72
Open questions for Pharmacos looking to come to India
1 How can we productively drive innovation ?
How do we leverage the dynamics in g ythe emerging markets to become leaders in innovation?
2
H d id ff d bl3 How do we provide affordable healthcare?
How well-prepared are we to address the
4 How do we sustain growth?
p pchallenges and opportunities of the future?
5
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only73
What should then be our strategic priorities going forward… wrt
1 Business portfolio
g g
?
2 Innovation
?
?Strategic priorities 3 Expansion in high-
th k t
?
?priorities growth markets
4Improvement of organizational
?
?4 organizational productivity
5 Talent
?
?5 development ?| Ranjit Shahani | ValuexIndia | November 2011 | Business use only74
So… the questions for debate…
30%Current Aspiration?
10%
40%
Geographical footprint% of revenue from‘emerging’ markets
1
40%
20%Portfolio diversification% of revenue from non-Pharma
2
50%40%Payment systems
% of revenue with self-pay versus public systems
3
65%35%
TA focus% of revenue from Specialty versus Primary Care
4
20202009Care
| Ranjit Shahani | ValuexIndia | November 2011 | Business use only75