1

80% of the world’s drugs are consumed by only

20% of its people .…they are, not surprisingly,

the rich ones…. The message of the product boiled down to : You

have a Problem, we have the Pill The great competitors of our Industry are facing

each other for domination of the world market...

- from the Book – ‘Merck Vs Glaxo The Billion Dollar

Battle’ by Mathew Lynn 1991

3

What Asian Giants can do - Special reference to India

4

US: 1-2%; forecast for 2009-10 $287 - $297 Bn EU: 3-4%; forecast in 2009-10 $162 - $172 Bn Japan: 4-5%; forecast in 2009-10 - $88 Bn

Slowing Value Growth in Mature Markets (US & top 5 in EU)

Increased contribution from Emerging Markets

China, Brazil, India, S Korea, Mexico, Turkey & Russia are forecast to grow at a combined 14-15%

Benefit of greater government spending on healthcare and broader public and private healthcare funding

Additional $24 Bn of branded products to lose market exclusivity in top 8 markets in 2009-10; this will contribute significantly to generics

Approx 30 NCEs slated for launch in 2009-10; many of these are focused therapy driven

Niche therapeutic NMEs with comparatively limited Market Potential

Fewer products winning Regulatory Approvals – No Block Busters

Note: Top 5 countries in EU – France, Germany, Italy, Spain & UK

Patent Expiries & Global Melt

Down

Growth in Emerging Markets

Drying Pipeline; Fewer

Block Busters

The imperative to cut costs and improve faster effective delivery is driving Big Pharma towards increased outsourcing, Partnerships, Alliances, Acquisitions etc be it R&D or Manufacturing

Partnerships with Cost-Effective players enhances competitiveness Increasing price pressures for innovators to minimize manufacturing

costs (Merck scrapping of $2bn CAPEX and Pfizer to generate $4bn cost savings)

Increasing reliance on CROs to accelerate product development process Increased demand for niche manufacturing capabilities viz Steroids,

sterile products etc Lowering Input RMCs & Labor alone - may not be the answer; Need for

Innovative Out of the Box Solutions; Alternative technologies? ‘Changing Mindset’ of Big Pharma to partner with Competent Players

5

6

BIGPHARMAs

Rx• CRAMS• Clinical – CRO• Commercial - PIV

Generics• Reverse Engineering• IP Navigation / creation• Clinical Development of Dosages• Post Expiration Launch

Product Development Partnerships

DF Manufacturers

Vaccines & other new opportunity areas e.g Peptides, Immuno, Oncology and Biologicals

API Manufacturers

OCEAN OF PLAYERS

7

Ranbaxy – Daiichi Matrix – Mylan Shantha Biotechnics – Sanofi

Acquisition

Aurobindo – Pfizer DRL – GSK Strides– Pfizer

Marketing - Manufacturing

Orchid – HospiraAPI Tie-Up - Exclusive

Consolidation – M&A & Tie- Ups

Torrent – Takeda

Presence in Generics Presence in

Emerging Markets Lowering Costs;

Increasing Margins Marketing

Advantages in EMs

Main reasons for Consolidation:

Survive and Add ValueSurvive and Add Value

8

0

50

100

150

200

250

300

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

India USA China Italy Germany

Japan Switzerland Israel Spain England

Source: Newport Horizon Premium™

Year IND CHN

`08 403 116

`09 Q2

177 34

9

Sourcing Geographies: Key Differences-APIs

Costs

Technology

API

RMI

Regulated Market Focus

Compliance

Source: UBS + IH

10

Phase II

Government Control•Indian Patent Act –1970•Drug prices capped•Local companies begin to make an impact

Phase III Development Phase•Process development

•Production infrastructure creation

•Export initiatives

Phase IV

Growth Phase•Rapid expansion of domestic market

•International market development

•Research orientation

Phase V

Innovation & Research•New IP law•Discovery Research•Collaborative Research •CRAMS•M&A – Tie- Ups

1970 1980 1990 2000 2010

Phase I

Early Years•Market share domination by foreign companies•Relative absence of organized Indian companies

1960

Indian Pharmaceutical - An Evolution

11

Generic Value Chain - Process Chemistry & Reverse Engineering Lower Cost of Infrastructure & Skilled Manpower High Quality Manufacturing & Cost Competitiveness Expertise in International Regulatory Compliance Encouraging Government Support - Improved Patent Regulations,

Pharma Parks Entrepreneurial Spirit Capital Inflows FDI - Unprecedented growth – Pharma Sector

Outperforms; Less volatile

Pros Numerous units with regulatory filings Lower cost of API Rich talent pool (>125,000 chemical

engineers every year) High English speaking population

Cons Poor networking in innovation

chain Weak policy framework to

support innovation Investments in R&D

12

The API Supplier’s View - Supplying Big Pharma

13

Long Term Tie-Up – Sustainability Long term, Strategic & Symbiotic Business Relationship Purchase Commitment- Inventory Price Protection Clause Extension Arm of the Big Pharma

Technology and Other Support Technology & Regulatory Support – need based Process Optimization Support – Mutual Gain Sourcing & Supply Support – situation based

Financial Concerns and Expectation Reasonable Revenue Partner – Margins - do not squeeze too

hard Capacity Utilization – Under writing capacities specifically

created Business Associate Vs mere Supplier/ Vendor

Win - Win Vs

Win - Lose

14

Big Pharma Views –

In Collaborating with API

Manufacturer

15

Big Pharma Expects

Cost Drivers

Manpower Excellence

Servicing

Quality

Infrastructure & Facilities

Softer Issues

API Cost Drivers – KSMs Vs RMIs, Backward Integration

Cost Containment - strategy to remain Cost Competitive

Inventory Policy – for Advance Intermediates / KSMs

Formal Agreement - Securing RMIs / KSMs & COO

Quality Compliance & Consistency Commitment to adhere to Process and Parameters TSE/ BSE & other Statutory Compliances – PCB Regulatory Compliances and periodic Statutory

Approvals

Information sharing – Need to Know basis NDAs and strict compliance – IP Security Skilled & Adequate Man Power – Employee

Retention Strict adherence to SOPs IP & Technology Secrecy – CONFIDENTIALITY

Capacity Concerns – augment capacities – if required

Dedicated facility Vs Multi Purpose facility

Safe Operations (SHE) – Plant, Personnel & Environment

GMP & EHS Compliance – Corporate Citizenship

Servicing Timelines Compliance

Exclusive, Semi-Exclusive Arrangements

Patent Strategy – API manufacturers response Geographical and Political Stability Infrastructure Capability – impacting Inland Logistics Material Handling and Storage - Cold Chains etc

16

Quality Systems

Manufacturing Practices

Safety Practices – Safety Health & Environment (SHE)

Personnel Protection and Welfare

Chemistry Strengths – ability to work on leads- NCEs

Managing Facility – to maintain and update

Company Character & Business Ethics

Complex Chemistry – Simplify and Economic process

In hard times there is only one viable balance: Win - Win

Sharing Risks & Sharing Rewards – is the Big Pharma / Manufacturer ready??

‘….the greatest threat to the drugs industry is not a lack of innovation, because there will always be plenty of problems to solve….the biggest problem is the trouble the government and society will have in providing the healthcare for an ageing population with greater and greater need. The economics of the provision of healthcare is the big problem, and if the Industry doesn’t see that, then it is looking down the wrong end of the telescope…’

- from the Book – ‘Merck Vs Glaxo The Billion Dollar Battle’ by Mathew Lynn 1991

18

D-I-Y to D-I-T (Do It Yourself to Do It Together)

Burst of Talent and Capabilities

Collaborate, Cooperate & Consolidate

Trust & Faith in your Partner- Invest for Mutual Gain

Business Associate – A Strategic Partner Vs a mere Vendor

End User taking up sudden costs due to factors like - stricter

norms, New Regulatory Compliances, New Regulations, etc

Business Cooperation with Indian API is an acquired taste…..

......it grows on you ----leaving a warm, satisfying

after taste

19

Acacia Life SciencesAlekhya DrugsAnjan DrugsCovalent LaboratoriesGenerics BulletinIMSMegafine Pharma Morgan Stanley ResearchMSN Organics Newport Horizon Premium

Thank You

Newport Horizon Nivika ChemopharmaPorus DrugsShilpa Medicare LimitedStratVi ConsultingSuven Life SciencesTimes NowTimes Of IndiaUBSWHOUS FDA

Thank You!

20