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Building a Global Generics and Specialty Powerhouse Nilesh Gupta
Managing Director
Lupin Ltd.
August 25, 2014
Disclaimer
Materials and information provided during this presentation may contain ‘forward-looking statements’. These statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties which could cause actual outcomes and results to differ materially from these statements. Risks and uncertainties include general industry and market conditions, and general domestic and international economic conditions such as interest rate and currency exchange fluctuations. Risks and uncertainties particularly apply with respect to product-related forward-looking statements. Product risks and uncertainties include, but are not limited, to technological advances and patents attained by competitors, challenges inherent in new product development, including completion of clinical trials; claims and concerns about product safety and efficacy; obtaining regulatory approvals; domestic and foreign healthcare reforms; trends toward managed care and healthcare cost containment, and governmental laws and regulations affecting domestic and foreign operations. Also, for products that are approved, there are manufacturing and marketing risks and uncertainties, which include, but are not limited, to inability to build production capacity to meet demand, unavailability of raw materials, and failure to gain market acceptance. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Index
Building a Global Generics Powerhouse 1
Lupin Update 3
Q&A 4
Building a Specialty Business 2
11
Section 1 Building a Global Generics Powerhouse
Lupin Ltd.
Critical Success Factors for building a Global Generics Company
Strong Market Presence in Significant Geographies 1
World Class Manufacturing 3
Stellar Execution Track Record 4
Excellent R&D and Regulatory Capabilities 2
11
Global generics landscape is poised to grow from $242b to $400b by 2016
Source; IMS market prognosis, May 2012
USA : 322 47 78 Canada: 22 6 7
France : 41 6 8 Germany : 45 7 10 UK : 22 5 7
Italy : 29 3.5 4.5 Spain : 23 2 3
Brazil : 30 15 28 Mexico : 10 4 8
China : 67 31 58 India : 14 13 27
Japan : 111 6 10
Australia : 13 1.5 2.5 `
Pharma market (US$ bn / 2011) Gx market (US$ bn / 2011) Gx market (US$ bn / 2016)
Strong Market Presence in Significant Geographies 1
Pharmerging Markets: Significant Growth Potential
CAGR (F) % 2012–2017
2%
2%
7%
13%
Source: IMS Health Global Market Prognosis, May 2013, at ex-manufacturer price levels, constant local currency (LC)$. Contains Audited + Unaudited data. Source: IMS.
Global Pharma Sales Global Market Size 2012: US$ 900 bn 2017E: US$ 1,200 bn CAGR: 4.4% p.a.
0
200
400
600
800
1,000
1,200
2008 2012 2017 (F)
Top 8 Mature Markets Other Developed Markets
Other Emerging Markets Pharmerging Markets
US
$ bn
Strong Market Presence in Significant Geographies (cont’d) 1
0
100
200
300
400
2008 2012 2017 (F)
Tier 1 (China) Tier 2 (BR, RU, IN)
Tier 3 Higher Drug Sales per Capita Tier 3 Lower Drug Sales per Capita
Excellent R&D and Regulatory Capabilities R&D Focus Areas
Regulatory Understanding
R&D and Regulatory Capabilities
Clinical Capabilities
API Capabilities
Formulation Capabilities
2
ANDAs
Para IV Filings
Complex Generics
Specialty and Biosimilars
NCEs
Complex Injectable, Derm, Controlled Substance Inhalation,
Inhalation, Derm, Biosimilars
Do it sustainably R&D capabilities driving broad product portfolio
Ability to Manage Scale
Ability to go up on Complexity
World Class Manufacturing 3
Vertically Integrated and diversified manufacturing platform 1
Ability to manufacture key products from two or more sites 3
Extensive capabilities in multiple dosage forms – solids, semi-solids, liquids, injectables and more 4
Consistent Compliance track record 5
Control over entire supply chain right from early intermediates 2
Stellar Execution Track Record 4
Consistent revenue growth across key markets
Consistent track record of product filings and launches
Enhanced manufacturing and supply chain capabilities
Quality culture across the organization
• Consistent Revenue and profitability growth • Business needs to deliver from all key markets and products
• Steady flow of filings and approvals
• Vertically integrated manufacturing capabilities across dosage forms
• Responsive and agile supply chain
• No critical observations and no or few 483s in all audits • 24x7 compliance and audit readiness
Differentiated market entry approach
• Substitution markets – US, UK, Australia, etc. • Branded Generic markets – Japan, Eastern Europe, etc. • Emerging Markets
Growth of Indian Pharma Players
Source: Citi Research.
Phase Building Base Expansion Widening Horizon Consolidation Acceleration Business Dynamics
• API players in India and emerging markets
• Growing branded formulations business in India
• Rising formulation presence in India and Emerging Markets
• DMF filings – API supplies to US begin
• US and EU Generics opportunity - Para II/III ANDAs
• In the late 90s, some companies start taking the P-IV route
• Ramp up in US DMF filings
• India market growth accelerates
• ANDA portfolio ramp up, some success with P-IVs
• More Indian cos enter the US
• Acquisitions to boost presence/portfolio
• Robust India market growth
• US scale up, success in P-IV/complex products
• Pipelines—quality and quantity
• Focus on other Emerging markets
Macro Backdrop
▲ New patent regime in India – product patents not recognized
▲ Good process chemistry skills
▲ Hatch Waxman Act
▼ Rising competition in the home market
▲ Formulation facility approvals
▼ Slow growth in India
▲ Rising India GDP drives penetration
▼ Rising competition and pricing strain in US
▲ Big patent expiry wave in the US
▼ Regulatory pressure on pricing, especially in Europe
Timeline 1970–1980 1980–1990 1990–2000 2000–2008 2008–2013
Key Enablers Reverse Engineering
Reverse Engineering,
Low Cost Structure
Vertical Integration, Regulatory Expertise
Formulation capabilities, Regulatory Expertise
R&D Skills, Brand Building,
Marketing Muscle
Indian Generics – US market share by value
Indian companies have doubled their dollar market share in the US in the past 5 years
27 29 32 34
38 40 43
4.5% 4.7% 5.6% 5.2%
6.8%
8.4% 9.5%
0%
2%
4%
6%
8%
10%
0
10
20
30
40
50
60
2006 2007 2008 2009 2010 2011 2012
($bn
)
US Generics Market Market Share (by Value) %
Source: MOSL
Indian Generics – US market share by volume
Indian companies volume share has increased to ~25% from ~12% five years ago
Source: HSBC
Pipeline Evolves to More Complexity
Oral Solid
Oral Contraceptives
Oral Suspension Complex
Controlled Release
Complex Injectables Inhalation
Derm
Biosimilars
Controlled Substances
Ophthalmic
Complexity
Barriers to Entry
Indian company pipelines, esp. of lead companies is rapidly evolving to more complex products, platforms and dosage forms
Biosimilar Opportunity
Opportunity is large. High variability seen in the forecasts due to uncertainties around regulatory pathways and uptake.
Source: IMS
Worldwide sales of all products losing U.S. patent protection
Value of patent expiries remains strong, esp. biologics
USD billions, net sales
SOURCE: EvaluatePharma (2012)
Small molecule
Biologics
14 19 19 20 25
30 41
58
21
34 34
18 19 20
7
12
8 15
13 5
29
18
49
17
24
16
31
15
49
14
41
13
33
12
66
11
41 1
10
32 2
09
25
08
21 1
07
21 1
06
19
2005
16 1
Strategy for Generics going forward
Market Focus
• US to remain the biggest generic market • Maximize opportunities in markets like Europe and Japan • Focus on emerging markets – India, Russia, LatAm and China
Product Portfolio
• Ensure sustainable, predictable product pipeline • Build and acquire capabilities for complex generics and
specialty areas (e.g. complex injectables and inhalation) • Biosimilars
Driving Operations Excellence
• Focus on margin enhancement and overhead optimization • Best practices in supply chain management • Attract global talent and build leadership pipeline • Regulatory and Quality Compliance
Building Blocks to deliver the next phase of Growth
Section 2 Building a Specialty Business
Lupin Ltd.
Why Specialty? Specialty has strong fundamental growth drivers underpinned by significant barriers to entry
Specialty Pharma Set to Grow at the Expense of Big Pharma Specialty Pharma Positioning
• High revenue visibility and sustainable earnings
• Significantly higher margins than Generics
• Barriers to entry
– Focus on differentiated products
– New technology and creation of IP
– Clinical expertise and expense
– Life cycle management
• Lower R&D and sales force costs compared to Innovator / Big Pharma
• Stepping stone to Big Pharma game
Low
High Low
70% 64%
53%
20% 27%
39%
10% 9% 8%
2005 2010 2015E
Patented Generic Others
Big Pharma, 85%
Big Biotech &
Specialty, 15%
Big Pharma, 70%
Big Biotech &
Specialty, 30%
Why the shift to Specialty?
Generics Specialty Generics
Key
Driv
ers
Moving to a mix of specialty + generics because of market dynamics
“In 2013, performance of Big biotech and specialty pharma
companies exceeded that of Big pharma, in
terms of topline, valuations and M&A
premiums”
Market Valuations Share Evolution
Volume driven business Price risk à Low margins
High competition à Saturation Low cost manufacturing
challenging Lesser small molecules LOEs
Value driven high margin business High prices
Lower competition Complex manufacturing Life Cycle Management
High promotion expenses
2013 Source: EY
2009
Case Studies in Creating Value through Specialty Transformation
• Grew by $10 bn in Revenues in 2 years
• Market Cap up by $52bn in 2 years
• Grew by $3 bn in Revenues in a year
• Market Cap up by $10 bn in 2 years
Watson / Actavis Transformation
2000 2006 2009 2011 2012 2012 Schein ANDRx Arrow Specifar Ascent Actavis
Generics Controlled release tech
Ex-US Euro distribution Asia Pacific 3rd largest generic global
Nephrology Generics distribution
Biologic / biosimilar base
European manufacturing
Regional marketing
10% US share
Rev.: $0.8 B $2.0 B $2.8 B $4.6 B $5.4 B $8.0 B
Evolution to Global Generics Leadership
48%
27%
15%
10%
2014E - Balanced US Brand/Generic/Intl/Distribution
Revenues
N America Rx
N America Gx
International
Anda Distrib
Post Warner Chilcott: 25% Brand; Post Forest: 48% Brand
Evolution to Specialty Business at Scale
Watson/Actavis: scale • Adds global footprint • 3rd largest global generic company Actavis/Warner Chilcott • Specialty brand/pipeline • Irish domicile/tax efficiency Actavis/Forest • Specialty brand/pipeline
Actavis 4/12 WC 5/13 Forest 2/14
Deal Value ($B) 5 9 25
Pre Mkt Cap 6 17 32
Post Mkt Cap 11 26 57
10x Mkt Cap increase in 2.5 Yrs
Post Forest: $15B
Revenue
Mylan: From US Generic to Multinational Specialty/Generic Hybrid
2007 2007 2011 2012 2013 2014 Merck Generics (includes Dey
Labs)
Matrix (72% stake)
Pfizer respiratory Partnership with Pfizer for Japan
Agila Abbott
90 country presence
API vertical Platform for Advair and others
Japan generics injectables ex-US specialty brands and branded generics
Epipen brand Asia presence
Ex-US branded infrastructure (2000 reps)
Improves ex-US tax structure
Revenue: $1.6B $6.1B $6.8B $6.9B Projected ProForma: $10B Rev/$3B EBITDA
• Evolving specialty/branded generic presence over time • From 70% external manufacturing to 80% internal
manufacturing • Globalization of generics and branded footprint • Significant multi-years investment in high barrier
generics and in capacity to produce (inhalation/biosimilars/complex inj)
• Balance of organic growth and M&A
North America 60%
Europe 24%
ROW 16%
Mylan
North America 48% Europe
33%
ROW 19%
Mylan+Abbo+
Generic 85%
Specialty 15%
Mylan
Generic 67%
Specialty/
Branded Gx 31%
OTC 2%
Mylan+Abbo+
Mkt Cap: $9.6B Mkt Cap: $19.2 B
Specialty pharma market has seen significant rise in approvals
No. of 505(b)(2) approvals has been constantly increasing over the last few years
4643
39
33
28
0
10
20
30
40
50
2012 2011 2010 2009 2008
No. of 505(b)(2) approvals
SOURCE: FDA Website
▪ Specialty pharma companies account for >$65B in revenues with a 6-8% annual growth rate and much higher valuation ratios than generic pharma companies
▪ Leading players include Allergan, Endo, Forest, Hospira, Jazz, Teva and Valeant
▪ 505(b)(2) pathway is seen as a low-cost way to enter branded markets, adding $15-20B in overall new pharma sales with approvals recently outpacing those of NMEs
Specialty product approvals (cont’d)
More specialty drugs than traditional drugs have been approved every year since 2010
Source: FDA and PWC
Specialty drug approvals inch out traditional drugs
22 22 18 23 24 14 18 22
8 9
6 7 8
8 10
12 17
21
19 10
0
15
30
45
60
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Dru
gs a
ppro
ved
(FD
A)
Traditional Specialty
28 29 26
31 34
26
35
43
27
19
Till July
Specialty in US – Spending
Source: pwc and Express Scripts
Specialty drugs will account for nearly half of US drug sales in coming years
53%
61%
47%
39%
2020
2013
62%
66%
38%
34%
2020
2013
Global Spending US Spending
Traditional Specialty
Global Spending on specialty drugs is expected to increase by 361% from $87bn in 2012 to $402bn in 2020 as they carry a higher price tag…
Specialty – Barriers to Entry
Many challenges for a generic manufacturer to crack the Specialty business
Challenge Description Therapy Area Focus • Need to identify and work on select niche therapy areas with
a long term perspective in mind • Large therapy areas are domain of Big Pharma
Product Development
• Specialized research and clinical/regulatory capabilities needed
• Need clear medical advantage in products identified • Clear differentiation advantage to payors also • Complex and expensive R&D required including clinical trials
High development cost
• High development cost compared to generics • Clinicals usually involved • Spend $3-25 million per product
Life Cycle Management
• Need to have clear LoE strategy • Sustainable pipeline
Specialty Strategy
Market Focus • Developed markets – US is the biggest market but markets
like Western Europe and Japan are interesting also • Market needs to incentivize innovation
Product Portfolio
• Focus on niche Therapy Areas – Dermatology, Pediatrics, Gastroenterology, etc.
• Proprietary platforms like inhalation device is a plus • Build capability to develop product portfolio, esp. research,
clinical and regulatory capabilities
M&A • The best Specialty companies have been built by a series of
acquisitions • Technology Platforms, Products and Companies
Section 3 Lupin
Lupin Ltd.
Market Cap
Revenues
PAT
PAT%
FD%
2005
Rs. 22 bn.
Rs. 1,161 cr.
Rs. 84 cr.
7%
45%
2014
Rs. 418 bn.
Rs. 11,087 cr.
Rs. 1,836 cr.
17%
90%
Lupin’s Journey
CAGR 39%
CAGR 28%
CAGR 41%
• Lupin is a vertically integrated global generics player with an emerging specialty presence
• Business spread across regulated and emerging markets
• Extensive R&D capabilities across API, formulations, Biosimilars and Drug discovery
• R&D expense at 8.4% of sales for FY14
• 200 ANDAs filed, of which 103 are approved as of June 30, 2014
• Manufacturing facilities
– 12 sites across the globe (10 in India & 2 in Japan)
– 9 Formulations sites and 5 API sites
• Team of over 1,400 scientists and 15,000 employees
Lupin Today
FY14 Revenue Mix
Formulations 90%
API 10%
US 44%
India 22%
Japan 12%
API 10%
ROW 9%
Europe 3%
Total Revenue: US$1,848 mn
By Business Mix
By Market
Our Market Position
1. AIOCD AWACS March 14. 2. IMS MAT March 14. 3. Bloomberg as on August 19, 2014. 4. Street research. 5. IMS July 14.
2.8% IPM Market Share
(by total sales1) Market Size: $13 bn4
4th
Largest South Africa Generics
Player2
No. 1 in CVS Market Size: $4 bn4
Emerging Markets
5th Largest US
Generics Player (by prescriptions2 5.3% )
Market Size: $95 bn4
8th Largest Japanese
Generics Player2
Market Size: $10 bn4
Advanced Markets
6th
Largest Generics Player
(by market cap3)
10th
Largest Generics Player
(by sales3)
Globally
3rd
Largest Indian Pharma Player
(by total sales)
No.1 In Anti-TB Globally
11th Largest Player in
Indian Pharma Market (5)
Lupin has historically delivered outstanding shareholder returns
Total return to shareholders
CAGR Percent, INR Total return index
Dec 2000 = 100, INR
8Teva
Mylan 12
Cipla 14
DRL 18
Lupin 35
Sun Pharma 36
SOURCE: DataStream
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,0005,5006,000
Jan-
14
Jan-
13
Jan-
12
Jan-
11
Jan-
10
Jan-
09
Jan-
08
Jan-
07
Jan-
06
Jan-
05
Jan-
04
Jan-
03
Jan-
02
Jan-
01
Mar 2012 – Jun 2014
6
42
18
20
36
49
BSE Sensex Lupin India Pharma Dec 2000 - Jun 2014
Market capitalization1
(USD bn)
25.6
8.2
7.5
5.8
19.3
45.9
1 Market capitalization as of Jul 18, 2014
Lupin’s Transformation
Anti-infective and API focused domestic player
Pre-2005 Generics and branded generics player focusing on domestic and regulated markets
2005–2013 Global specialty and generics player
2014 …
2002 • First 5 ANDA’s filed • Exports cross INR 1bn 2003 • Lupin Pharmaceuticals Inc
founded in USA
2005 • Suprax® launched
2006-08 • Generics business launched • Acquired Kyowa in Japan • Indore SEZ and Biotech facility 2009 • Acquisitions in Australia,
Germany and South Africa 2010-13 • Sales crossed US$ 1 bn • Acquired I’rom in Japan • No.1 amongst US generics
players with 99.6% fill rates • Foray into OC’s, ophthalmics
and derm
2014 • Mexico acquisition leads entry
in LatAm Market • Yoshindo JV for Biosimilars • Nanomi acquisition marks
entry in complex injectables space
• 2 new research centers in US • Brand build through Alinia® and
Locoid® cream
Business Growth – Last 12 Quarters
15.4 17.4
17.9 18.8 22
.2
22.4 24
.7 25.4
24.2 26.3 29
.8 30.5 32
.8
3.0 4.1
3.8
3.8 4.8 5.2 6.3 6.6 6.9 7.4 8.1 8.8 11
.4
19%
23%21% 20%
22%23%
26% 26%29% 28% 27% 29%
35%
0%
10%
20%
30%
40%
0.0
10.0
20.0
30.0
40.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Rs bn.
Revenues EBITDA EBITDA Margins
2014-15 2011-12 2012-13 2013-14
Revenues doubled growing at a rate of 6% compounded per month, and EBITDA tripled growing at a rate of 12% compounded per month for last 12 quarters
…EBITDA margins at 35% in Q1’15 vs 19% in Q1’12
Note 1 - Compounded monthly growth rates
Q&A
Lupin Ltd.
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