Global Industry Of Pharmaceuticals

Global Industry Insight -2006 Pharmaceuticals

•The pharmaceutical industry is one of the vital and distinct industries as it deals with the lives of the people. At present, pharmaceutical drugs are the most preferred therapeutic treatments for the global population of 6.45 billion. •Pharmaceutical industry is defined as the market for drugs of chemical or biological origin. These drugs are approved through modern, scientific approval process. •The coverage of the market is on the basis of therapeutic segment to which the drugs belong. •Major components of the pharmaceutical industry’s value chain are R&D, manufacturing, marketing and distribution. The Global Pharmaceutical Industry Survey 2005 covers all these major domains of the value chain, focusing at industry and company levels. •All figures in Major Markets and Major Players are converted to USD with conversion rates as on December 31 of the respective years. •Estimates are provided wherever data for 2005 is not available

THEMES •

HIGHLIGHTS

•

INDUSTRY OVERVIEW

•

GROWTH DRIVERS

•

ISSUES & CHALLENGES

•

TECHNOLOGY

•

MAJOR MARKETS

•

MAJOR PLAYERS

•

REGULATORY ASPECTS

•

MERGERS & ACQUISITIONS

•

CRITICAL SUCCESS FACTORS

•

FUTURE OUTLOOK

HIGHLIGHTS •The global pharmaceutical market has grown by 5.95% to USD582.71 billion in 2005. The market has witnessed the lowest growth rate in the last five years owing to increase in patent expiries and measures taken in major markets to curtail the increasing healthcare budget. •In 2005, the three major markets – North America, Europe and Japan – were valued at USD491.22 billion, accounting for 84.30% of the global pharmaceutical market •Sales in Europe (including the UK market) totaled USD169.26 billion in 2005, registering the highest regional sales growth of 10.63% compared with 2004 •North America, the largest pharmaceutical market recorded sales totaling USD262.43 billion and a growth rate of 5.82% in 2005 compared with the previous year •Asia, Africa and Australian market value in 2005 was USD40.86 billion and has grown by 2.14% compared with 2004

HIGHLIGHTS •In 2005, cardiovascular, CNS, anti-infective, metabolism and oncology segments contributed USD273.42 billion, accounting for 46.92% of the total pharmaceutical market •Cardiovascular was the largest therapeutic segment with the sales value of USD79.03 billion in 2005, growing by 3% compared with 2004 •Cholesterol and triglycerides lowering class is the largest therapeutic class of the cardiovascular segment with the sales value of USD31.60 billion in 2005 and accounted for 5.42% of the total pharmaceutical market •The top 10 therapeutic classes contributed USD177.60 billion, accounting for 30.47% of the total pharmaceutical market. •The top 10 best-selling drugs accounted for USD53.2 billion, contributing about 9.13% of the total pharmaceutical market. •Lipitor, with a sale of USD12.19 billion, was the largest selling blockbuster drug in 2005 and accounted for 2.09% of the global pharmaceutical market •The recent product withdrawals including Tysabri in 2005, and Vioxx and Bextra in 2004 have affected the image of the pharmaceutical industry. This in turn has led the FDA to focus more on safety issues prior to drug approval.

HIGHLIGHTS •Determination of pharmacokinetic data of a new compound by microdosing takes 4 to 6 months and costs USD0.35m •The number of new drugs approved in the US by the FDA decreased by 53% to 17 in 2005 from 36 in 2004. Drugs worth USD21.2 billion are estimated to lose their patent rights in 2006, which is an increase of 76% compared with 2005 •On an average, the value of the M&A in the last 10 years was more than USD40 billion. The number of M&A deals in 2005 was 247 and the total deal value was USD68.20 billion. The deal number has seen a decline of 8% compared with 2004 •The top 10 global pharmaceutical companies spent USD45.79 billion on R&D in 2005. The amount spent on consumer advertising of prescription and non-branded drugs was USD4.51 billion in 2004 •The market size of global pharmaceutical outsourcing in 2005 is estimated to be around USD60 billion and has grown at a compounded annual growth rate of 8.37% in the last 5 years. •According to Cygnus estimates, the global pharmaceutical market is projected to grow between USD624 to 629 billion in 2006, an increase of 7 to 8% over 2005.

INDUSTRY OVERVIEW •The pharmaceutical industry is complex, dynamic and highly globalized with many companies operating as multinationals in various countries. The geographical boundaries are blurring in the pharmaceutical industry with more than one country involved in the manufacture of a single finished product. Global Pharmaceutical Market Size and Growth Rate (2000 -2005)

•The global pharmaceutical market is valued at USD582.71 billion in 2005.

•The lower growth rate during the year compared with 11.83% y/y in 2004 is owing to the increased competition from

USDbn

•The market grew at an annual rate of 5.95% over the previous year; it is the lowest growth rate in the last five years.

700 600

16% 14% 12% 10% 8% 6% 4% 2% 0%

500 400 300 200 100 0 2000

2001

2002

Industry Size (LHS)

2003

2004

2005

Growth Rate ( RHS)

Source: IMS world Reviews and Cygnus Research

generic products, cost containment strategies of some of the major markets to curtail their rising healthcare budgets and impact of the drug withdrawals (Vioxx and Bextra) from the market. The global pharmaceutical market is valued at USD582.71billion in 2005 and grew by 5.95% over that of in 2004.

INDUSTRY OVERVIEW •North America, Europe (including Regional nature of the Pharmaceutical Industry - 2000 and 2005 North the UK market) and Japan North America, America, Others, constituted nearly 84.30% of the 45.04% 43.39% 9.94% global pharmaceutical market in Others, 2005, up from 79.39% in 2000. 5.40% Japan, 14.62%

Europe, 17.83% Asia, Africa UK, 3.55% Latin & Australia, America, 5.31% 5.37%

Japan, 10.22%

Asia, Africa Latin UK, 3.43% & Australia, America, 7.01% 3.29%

Europe, 25.61%

•The collective share of these regions has increased from Market size in 2000: USD352.19bn Market size in 2005: USD582.71 bn USD279.59 billion to USD491.22 Source: Cygnus Research billion. Major Therapeutic Segments of the Industry- 2005 11.08% •Among the regions, Europe (including the UK) has reported a 7.99% 13.56% 7.39% higher growth of 124.81% with the total market size of 6.90% USD169.26 billion in the period, followed by Asia, Africa and Australia (excluding Japan) over same with the market size of 5.70% USD40.86 billion in 2005 grew by 118.48% in the period. 30.89% 5.83% 1.34% Cardiovascular

CNS

4.22% 1.72% 3.38%

Metabolism Oncology •In therapeutic segment, the pharmaceutical market is largely Musculoskeletal & Pain Gastro-intestinal Dermatology Ophthalmology dominated by the drugs related to CVS,CNS, anti-infective,Source: Cygnus Research metabolism and oncology segments. These segments account for USD273.42 billion and made up 46.92% of the total market in 2005, down from 47.43% in 2004.

Anti-Infectives Respiratory Genito-Urinary Others

North America, the largest pharmaceutical market accounted for 43.04% of the global pharmaceutical market in 2005 with sales of USD262.43 billion.

INDUSTRY OVERVIEW Annual Sales of the Top Ten Therapy Classes 2003 – 2005 2003 S .No  

2004

2005†

Therapy Class

Sales (USDb n)

1

Cholesterol. & Triglyceride reducers

26.1

Cholesterol & Triglyceride Reducers

30.2

Cholesterol & Triglyceride reducers

31.6

2

Anti-ulcerants

24.3

Antiulcerants

25.5

Anticancer*

26.6

3

19.5

Anticancer

23.8

Antiulcerants

26.3

12.4

Antidepressants

20.3

Antidepressants

20.1

5

Anti-depressants Anti-rheumatic nonsteroidals Antipsychotics

12.2

Antipsychotics

14.1

Antipsychotics

15.5

6

Calcium Antagonists, plain

10.8

Antirheumatic NonSteroidals

13.1

Erythropoietins

12.1

7

Erythropoietins

10.1

Calcium antagonists

11.9

8

Anti-epileptics

Antiepileptics Antirheumatic non steroidals Oral antidiabetics

11.7

4

9

Oral Anti-diabetics Cephalosporins & 10 combinations Top 10 Therapy classes

9.4 9 8.3 142.1

Therapy Class

Sales (USDb n)

Angiotensin-II Inhibitors Calcium Antagonists Plain Erythropoietin Products

11.6

Anti-Epileptics

11.3

Top 10 Therapy classes Share of top10 therapy Share of top10 therapy class to 28.89% class to the total the total market market Source: IMS, * Cygnus Research estimate, † MAT June 2005

12

11.4

173.3 31.51%

Therapy Class 

Top 10 Therapy classes Share of top10 therapy class to the total market

Sales (USDbn )

11.4 10.4 177.6 30.47%

The top ten therapy classes contributed USD177.6 billion to the total market. The decline in share of the top ten therapy classes from 31.51% to 30.47% in 2005 is mainly owing to the lower sales of antirheumatic non-steroidals and angiotensin-II inhibitors.

INDUSTRY OVERVIEW Top 10 Best Selling Drugs 2003 - 2005 2003

 

2004 Sales (USDbn)

Sales (USDbn)

Products

1

Lipitor

9.23

Lipitor

10.86

Lipitor

12.19

2

Zocor

5.00

Plavix

5.64

Plavix

6.21

3

Ogastro/Prevacid

4.71

Zocor

5.20

Seretide/Advair

5.34

4

Norvasc

4.34

Advair,seretide

4.74

Norvasc

4.71

5

Zyprexa

4.28

Norvasc

4.46

Nexium

4.63

6

4.13

Zyprexa

4.42

Zocor

4.40

3.98

Prevacid, Ogastro

4.14

Zyprexa

4.20

8

Plavix Erypo (Eprex/Procrit) Seretide/Advair

3.94

Nexium

3.88

Prevacid/Ogastro

4.00

9

Nexium

3.30

Erypo(Eprex, Procrit)

3.59

Pravachol

3.82

10

Zoloft

3.12

Risperdal

3.05

Diovan/Co-Diovan

3.70

Top 10 drugs Share of the top 10 drugs to the total market

53.2

Top 10 drugs Share of the top 10 drugs to the total market

46.03 9.36%

Top 10 drugs Share of the top 10 drugs to the total market

49.99 9.09%

Products

Sales (USDbn)

S.No

7

Products

2005

9.13%

Source: Annual Reports, compiled by Cygnus Research

The top 10 best selling drugs during 2005 accounted for USD53.2 billion and constituted about 9.13% of the total pharmaceutical market. Among the top 10 drugs, Diovan/Co-Diovan – a hypertensive drug – recorded a higher growth of 19.62% y/y with sales of USD3.70 billion

INDUSTRY OVERVIEW Trends shaping the pharmaceutical industry •The pharmaceutical industry is increasingly consolidating over the past 20 years. The market share of the top 10 pharmaceutical companies that was about 20% of the global pharmaceutical market in 1985 has increased to around 47-48% in 2005. •The global pharmaceutical outsourcing market is increasing by compounded annual growth rate of around 8.37% in the last 5 years. The market size in 2005 is estimated to be around USD60 billion. Outsourcing is leading to an unbundling of pharmaceutical value chain. The number of specialist companies in the traditional value chain has been rising over the last 5-10 years, whereas the number of integrated companies is declining. •In the last 20 years, the pharmaceutical industry’s “centre of activity” has shifted from the Europe to that to America. This is quite evident from the fact that the European and American markets were of equal size around 20 years back and at present, the size of the American market is almost double that of the European market. •The R&D costs of a drug that is the costs associated with bringing a drug into the market are increasing at a phenomenal rate over the years. According to the Tufts centre for study of drug development of Tufts University, the costs associated with the drug development were around USD897m in 2003 and these costs have increased by around 59.32% from 1999, which was at USD563m. Higher consolidation and increasing focus on outsourcing to the specialist companies by the main stream research based companies are the major trends in the global pharmaceutical industry.

GROWTH DRIVERS •The likely shift in the disease pattern from communicable to non-communicable diseases would mainly drive the pharmaceutical industry in the future. The DALYs due to noncommunicable diseases has been projected to increase from 47% in 2002 to 57% in 2030. This significant increase is being fuelled by the growth in aging population and changes in life style, which includes poor eating habits, less physical exercise, and a stressful work atmosphere (WHO, 2005). •The increase in Healthcare expenditure across the globe owing to rapid advances in medical technologies, population ageing and higher quality expectations from the public would drive the demand for the pharmaceuticals. The growth in pharmaceutical spending is more than that of the total healthcare spending of the OECD countries in the last few years. •Biotechnology based drugs are major contributors in the new product sales growth and accounted for 27% of the overall products in R&D pipeline in 2004. The new technologies will accelerate the development of biotech drugs in the future. Though biotech products accounted for 8-10% of the total pharmaceutical market in 2004, this proportion is expected to increase in future (IMS, 2004) backed by a robust R&D pipeline. •Technology has been making dramatic changes at the drug development level, enabling an analysis of 100,000 compounds per day using combinatorial chemistry and high throughput screening. Technologies like medical imaging and pharmacogenomics are shortening the development timelines and the costs along with the increase in the effectiveness of the drug. Rising healthcare expenditures and the life style based diseases are the major drivers of the global pharmaceutical industry.

ISSUES & CHALLENGES

USFDA are decreasing.

Number of new drugs approved and R&D spend (2001-05) 60

50

50

40

40

30

30 •The tightened regulatory environment, especially for 20 20 drug approvals has become one of the major issues being 10 10 0 0 faced by the industry. This is one of the reasons behind 1996 199719981999 20002001 200220032004 2005 the 53% decline in drug approvals in 2005 compared with R&D spend of PhRMA member companies (RHS) Number of new drugs approved (LHS) 2004. After the Vioxx withdrawal issue came into Source:Source: PhRMA, Cygnus PhRMAResearch and FDA limelight, the USFDA is focusing more on safety of the drug, especially for drugs that are to be administered for chronic ailments.

USDbn

•Despite the increase in R&D expenditure by pharmaceutical companies for the development of new drugs, the number of new drugs getting approved by

•Between 2006 and 2010, the value of branded drugs losing their patents is USD75.5 billion. (The estimate is based on the sales value of the products in 2004). In 2006 alone, drugs worth USD21.2 billion are estimated to lose their patent rights, which is an increase of 76% compared with 2005. Increase in Research & Development spending by the pharmaceutical companies are not turning out towards higher drug approvals

ISSUES & CHALLENGES •In order to curtail pharmaceutical spending in the healthcare budgets, governments of various countries are encouraging the use of generic medicines in hospitals. This has been particularly evident in Germany and the UK. The result of this has been an increasing number of generic companies, which in turn has increased competition in the generic market exerting downward pressure on prices. •The returns on the promotions spent by the pharmaceutical companies are not proportionate to the amount spent on promotions. This is exerting considerable pressure on the pharmaceutical firms to get maximum returns from their increased marketing expenditures, for which they have to identify the poorly performing markets, ineffective promotional campaigns and make corrective measures to maximize the amount spent on promotions. •Parallel trade has a significant negative impact on the R&D investment and size of the work force of research-based pharmaceutical companies in Europe. Within the European Union, parallel trade was estimated at USD3.3 billion in 2001 and projected to reach USD7.4 billion in 2006.

To curtail the healthcare budgets, governments across the globe are encouraging the use of generic medicines and even are reducing the prices of the generics regularly.

TECHNOLOGY Technology in drug development (Prominent Technologies)

•Combinatorial chemistry and high throughput screening •Chemoinformatics •Medical imaging •Pharmacogenomics

Technology in drug delivery •Nanotechnology in drug delivery •Transdermal drug delivery •Chronopharmaceutical delivery

Technology in manufacturing

•Process Analytical Technology

Technology in marketing •Customer relationship management

Benefits of transdermal drug delivery •Improved bioavailability •Uniform plasma levels •Longer duration of action •Reduction in dosing frequency •Reduced side effects •Maintenance of drug plasma levels up to the end of the dosing interval

Applications of PAT •Inbound and outbound logistics •Manufacture of active pharmaceutical ingredients •Bulk formulation •Filling and packaging of drugs

Process Analytical Technology would be made mandatory in the years to come by the regulators globally because of its inherent advantages in control of the operations.

TECHNOLOGY New technologies

•Super computers in drug discovery Microdosing of new experimental drugs to human volunteers helps to determine the key pharmacokinetic data before phase-I clinical trial and save considerable amount of money. Determination of pharmacokinetic data of a new compound by microdosing takes 4-6 months and costs USD0.35m. It is an improvement over the conventional phase-I studies which take 12-18 months, costing USD3-5m for the determination of the same data (Bryan, 2005b). In the microdosing technique, volunteers are given radiolabeled doses of new experimental drugs and accelerator mass spectroscopy (AMS) is used to count radioactive carbon atoms in blood, urine and fecal samples taken from the volunteers.

•Polymorph screening ReactArray Solo, a new polymorph screening technology from Anachem Ltd, the UK-based instrumentation company, launched in February 2006, provides fast and efficient polymorph screening by enabling simultaneous runs of up to 48 different reaction conditions. This technology will benefit the researchbased pharmaceutical companies to a greater extent by protecting the patents of their novel drugs.

•Microdosing in clinical trials

•Georgia Institute of Technology is bringing into using one of the world’s most powerful supercomputing clusters, the 1000-node Cluster 1350 system based on IBM BladeCenter systems and powered by dual-core AMD Opteron processors. It can perform more than 8.5 trillion calculations per second.It helps in the development of more targeted drugs by determining the biological and chemical processes of human cancer genes and proteins through fast and accurate analysis of complex DNA and proteins. Polymorph screening would be a major technology in the years to come as the protection of the intellectual property rights would be very crucial for the research based pharmaceutical companies in the scenario of the lower drug approval rates.

MAJOR MARKETS The US

Major market share of the global pharmaceutical industry - 2005

•The US is the highest spender on the healthcare, globally. According to the latest figures available, the healthcare spending in the US during 2004 was USD1.9 trillion and has grown by 7.9% over 2003. This constitutes about 16% of the country’s GDP (Medical News Today, January 11, 2006).

25.61%

13.37%

42.56% 10.22% 3.43% 1.18% 1.66%1.96%

US

Europe

others Japan

UK

China

Mexico

Brazil

Source: Cygnus Research

300 250 200 150 100 50 0

20% 15% 10%

%

•The growth rate during the year is the lowest in the last five years. This is due to the increased competition from the generic drugs and impact of the drug withdrawals (Vioxx and Bextra) from the market. Between 2001 and 2005, the CAGR was 9.9%.

USDbn

•The pharmaceutical market in the US has witnessed a lower growth rate of 7.83 % y/y Pharmaceutical market in the USA (2001-2005) in 2005 with total sales of USD248 billion.

5% 0% 2001

2002

2003

Market Size (LHS)

2004

2005

Growth Rate (RHS)

Source: Cygnus Research

The US is the largest pharmaceutical market globally with the total sales of USD248 billion in 2005 with the growth rate of 7.83%.

MAJOR MARKETS •The central nervous system (CNS) stood as the largest therapeutic segment in the US pharmaceutical retail sales with sales of USD42.45 billion in 2005 and accounted for 22.86% of the total pharmaceutical sales.

Pharmaceutical market segmentation in the US, 2005 13.60%

22.86% 18.77%

9.37% 5.78% 2.56% 3.01% 4.46% 5.96%

5.78%

7.86%

Cardiovascular Central Nervous System Alimentary/Metabolism •The decline in the sales of the products Respiratory Anti-Infectives Musculo-skeletal Genito-Urinary Cytostatics Dermatologicals Neurontin, Paxil and Zyprexa in the segment Blood Agents Others in 2005 has largely been offset by the higher Source: Cygnus Research sales of Seroquel, wellbutrin, Cymbalta and Pharmaceutical market share by value in the US, 2005 Risperdal of CNS segment. 10.97%

•The top 10 major players accounted for 57.86% of the total pharmaceutical sales in the US market during 2005. •Pfizer, the largest company, accounted for 10.97% of the market during the year with sales of USD27.2 billion.

8.02%

42.14%

6.45%

6.13% 3.39%

3.51%

Pfizer Merck & Co Amgen Bristol Myers Squibb

4.44%

4.80% 4.96%

GlaxoSmithkline Astrazeneca Sanofi-Aventis Others

5.20%

Johnson & Johnson Novartis Lilly

Source: Cygnus Research

Drugs related to the Central Nervous System are the largest therapeutic segment in the US with total sales of USD42.45 billion.

MAJOR MARKETS JAPAN •The pharmaceutical market in Japan has reported a growth rate of 5.95% y/y in 2005 with total sales of USD59.53 billion.

USDbn

Pharmaceutical market in Japan (2001-2005) 70 60 50 40 30 20 10 0

15% 10% 5% 0%

•The growth rate is the lowest in the last three 2001 2002 years but is better than the negative growth Market Size (LHS) rates seen in 2001 and 2002 owing to the economic recession, and was above the 2001- Source: Cygnus Research 2005 CAGR of 5.75%.

-5% -10% 2003

2004 2005 Growth Rate (RHS)

Pharmaceutical market segmentation in Japan, 2005

•The lower growth rate in the market is mainly owing to greater emphasis on the prescription of generic drugs by the government and the drug price reductions forced by insurance companies.

6.92%

6.92%

5.86%

8.67% 8.68%

21.84%

15.37% 10.16%

Cardiovascular Anti-Infectives

•Cardiovascular is the leading therapeutic Respiratory Musculo-skeletal segment in Japan with sales totaling USD13 Others billion in 2005 and accounts for about 21.84% ofSource: Cygnus Research the total pharmaceutical market.

11.96% Alimentary/Metabolism Cytostatics Central Nervous System Dermatologicals

Pharmaceutical sales in Japan in 2005 is USD59.53billion and the drugs related to cardiovascular disorders are the largest selling drugs

MAJOR MARKETS

•The pharmaceutical market in Europe (excluding the UK) has grown by 9.86% y/y in 2005 with the total sales of USD149.26 billion. • This is the second year of the continuous decline in growth rate in the last five years, which has seen a CAGR of 19.29%. It is mainly a result of market loss owing to the parallel trade estimated to the extent of USD5 billion in 2005 (IMS, 2005). •Germany is the major market in Europe with sales of USD32.5 billion in 2005, accounting for about 21.77% of the European market. •The top four markets of Germany, France, Italy and Spain collectively account for about 65.89% of the European market with the total sales of USD98.5 billion.

Pharmaceutical market in Europe (2001-2005) 200 USDbn

EUROPE

35% 30% 25% 20% 15% 10% 5% 0%

150 100 50 0 2001

2002 Market Size(LHS)

2003

2004

2005

Growth Rate(RHS)

Source: Cygnus Research

Major Pharmaceutical markets in Europe, 2005 Germany France Italy Spain Netherlands Belgium Poland Greece Portugal Sweden Switzerland Austria Finland Hungary Denmark Denamrk Czech Republic Norway Ireland Slovakia Slovenia

31 19.6 15.25 4.9 4.78 4.4 4.25 3.7 3.68 3.62 3.1 2.25 2.1 1.92 1.86 1.8 1.71 1.6 0.76 0.55

Value in USDbn

Source: Cygnus Research

Pharmaceutical market size in Europe (excluding UK) in 2005 is USD149.26 billion and Germany is the leading pharmaceutical market in the region with sales of USD32.5 billion

32.5

MAJOR MARKETS The UK

•The growth rate is one of the highest in the last five years owing to higher spending in both public and private health expenditures.

Pharmaceutical market in the UK (2001-05) 25

18% 16%

20 USDbn

•The pharmaceutical market in the UK has reported a growth rate of 16.75% y/y, well above the 2001-2005 CAGR of 8.72%, and registered the sales of ofUSD20 billion in 2005.

14% 12%

15

10% 8%

10

6% 4%

5

2% 0

0% 2001

2002 Market Size(LHS)

2003

2004

2005

Growth Rate(RHS)

Source: Cygnus Research

•Although the UK is one of the markets having a higher generic penetration, the growth in thePharmaceutical market segmentation in the UK, 2005 23.82% branded prescriptions in 2005 is higher compared 12.47% with generics. 24.24% •Cardiovascular is the leading therapeutic segment in the retail pharmaceutical market of the UK with sales of USD4.12 billion, about 24.24% of the total pharmaceutical sales. The segment is driven by leading cholesterol lowering drugs including Lipitor, Zocor and Lipostat.

10.88%

13.47% 4.00%

1.47%3.88% 5.76% Cardiovascular Alimentary/Metabolism Anti-Infectives Cytostatics Respiratory Central Nervous System Musculo-skeletal Dermatologicals Others Source: Cygnus Research

Pharmaceutical sales in the UK market is valued at USD20 billion in 2005 with the cardiovascular as the leading therapeutic segment in 2005.

MAJOR MARKETS Mexico

Pharmaceutical market in Mexico (2001-2005)

• In conjunction with eased export restrictions and the Mexican governments restrictions of manufacturing capacity in the country has led to huge market growth with increased exports to other Latin American markets and the established markets including the US and Canada. •Anti-infective is the leading therapeutic segment in the market with retail sales of USD1.45 billion, accounting for 17.14% of the total retail pharmaceutical market.

12

50%

10

40%

USDbn

•The pharmaceutical market Mexico has reported a growth rate of 5.43% in 2005 with total sales of USD9.7 billion. The 2000-2005 CAGR was 15.23%.

8

30%

6

20%

4 2

10%

0

0% 2000

2001 2002 Market Size(LHS)

2003

2004 2005 Growth Rate(RHS)

Source: Cygnus Research

Pharmaceutical market segmentation in Mexico, 2005 7.25%

7.08%

17.14%

7.32%

15.11%

8.51% 12.99%

13.22%

11.45% Anti-Infectives Respiratory Cytostatics Central Nervous System Dermatologicals

Others Alimentary/Metabolism Cardiovascular Musculo-skeletal

Source: Cygnus Research

Source: IMS retail sales and Cygnus estimates

The pharmaceutical market in Mexico is valued at USD9.7 billion in 2005 and Anti-infective is the leading therapeutic segment of the market.

MAJOR MARKETS Brazil

Pharmaceutical market in Brazil (2001-2005)

•Brazil is a potential market as it is highly untapped, with medical facilities inaccessible to about 50% of the population. Nearly 80% of the raw material requirement of the pharmaceutical market is imported.

8 USDbn

•The pharmaceutical market in Brazil has reported growth of 23.48% y/y in 2005 with total sales of USD6.89 billion. The high growth is as a result of the complete recovery of the economy from recession and the increased spending on healthcare.

30% 20%

6

10%

4

0% -10%

2

-20%

0

-30% 2001

2002 Market Size(LHS)

2004

2005

Growth Rate(RHS)

Source: Cygnus Research

Pharmaceutical market segmentation in Brazil, 2005 13.57% 19.01%

0.65%

15.24%

11.54% 7.65%

•Alimentary or metabolism is the leading therapeutic segment in the market with sales of USD1.14 billion, accounting for 16.55% of the market in 2005

2003

6.24%

9.64%

Cardiovascular Alimentary/Metabolism Anti-Infectives Genito-Urinary Others

16.55%

Central Nervous System

Respiratory Dermatologicals Cytostatics

Source: Cygnus Research

The pharmaceutical market in Brazil is valued at USD6.89billion in 2005 and Alimentary or Metabolism is the leading therapeutic segment of the market.

MAJOR MARKETS

•The pharmaceutical market in China is valued at USD11.4 billion in 2005 and has reported a growth of 20% year in year (figure 7.20). Over the past few years, the Chinese pharmaceuticals market has grown at an amazing rate, recording a CAGR of 21.91% between 2001 and 2005.

USDbn

China

Pharmaceutical market in China (2001-2005) 12

30%

10

25%

8

20%

6

15%

4

10%

2

5%

0

0% 2001 2002 2003 Market size(LHS)

2004 2005 Growth Rate(RHS)

Source: Cygnus Research

•The excellent growth of the market has been driven by an expanding Chinese urban population, which combined with an increasing standard of living, has created a growing awareness of the importance of healthcare. •Nearly 80% of the drugs in the country is distributed through hospitals whereas 15% is sold through retail outlets and the rest is through convenience stores that mostly sell over-thecounter drugs (Burril and Co, 2005). •The major players in the market are JS Yangzijiang Fty, Pfizer, GlaxoSmithKline, Roche, Fresenius, AstraZeneca, Novartis, HLJ Harbin Pharm, Merck & Co and Johnson & Johnson. The pharmaceutical market in China is valued at USD11.4 billion in 2005 and about 80% of the drugs in the market is distributed through the hospitals.

MAJOR PLAYERS Net

Top ten firms in 2005 Grow S.No.

Company

Revenues ’05 (USDbn)

Revenues ’04 (USDbn)

1

Pfizer

51.29

52.51

2

Johnson & Johns on

50.51

47.35

37.27

38.50

4

GlaxoSmithKli ne Sanofi-Aventis

32.34

34.38

5

Novartis

32.31

28.24

3

6 7

Roche AstraZeneca

26.99 23.95

27.64 21.42

8

Merck

22.00

22.9

9

Bristol-Myers Squi bb

19.20

19.38

Wyeth

18.75

17.35

10

Rate %

Net Earning

Net Earnings Growth Rate

‘05 (USDbn

(2.32

6.67 (3.19 (5.93 14.4 (2.35 11.8 (3.93 (0.92

8.06

Market Capitaliz t ion ’05 (USDbn)

8.08

11.36 ’04 (USDbn)

-28.87%

171.59

10.41

8.51

22.33%

8.28

7.74

7.50

Market Capitalizat i o n

2

04 (USDbn) 0

Market Capitaliz ation Growth Rate %

-14.62

178.78

0 . 9 197.86 7

6.98%

142.68

281.38

-10.67

6.85

9.49%

117.51

56.52

-97.21

6.14

5.60

9.64%

143.77

123.97

51.90

5.11

6.24

-18.11%

26.65

21.21

13.77

4.72

3.68

28.26%

77.27

59.86

20.41

4.63

5.81

-20.31%

69.55

95.65

22.53

3.00

2.38

26.05%

44.95

49.75

-37.53

3.65

1.23

196.75%

61.92

57.68

-10.68

-17.12

Source: Company Websites and Annual Reports Revenue includes pharmaceutical, consumer healthcare & others

Pfizer is the largest company in the global pharmaceutical market with sales of USD51.29 billion in 2005.

MAJOR PLAYERS Pfizer Inc •Pfizer has three business segments: Health care, Animal health and consumer health care. •Health care constitutes the core of Pfizer Inc and accounted for 86.32% of the total revenue in 2005. •Consumer health care segment accounts for 7.56% of the total revenue in 2005. •Animal health segment accounted for 4.3% of the total revenues in 2005. Top ten products: Pfizer 2005

Key Financials: Pfizer Inc. 2003 - 2005 Financial Year Ending

S.No.

Brand Name

Sales in 2005 (USDbn) 12.2

Dec-05

Dec04

Dec03

1

Lipitor

Revenues (USDbn)

51.29

52.51

44.73

2

Norvasc

4.7

Marketing & Admin. Expenses (USDbn)

16.99

16.90

15.10

3

Zoloft

3.3

4

Celebrex

1.7

R & D expenses (USDbn)

7.44

7.68

7.48

5

Viagra

1.6

Net Earnings (USDbn)

8.08

11.36

3.91

6

1.4

Net EPS (USD)

1.10

1.51

0.54

Xalatan/ Xalacom

Net Margin (%)

15.75

21.63

8.74

7

Zyrtec

1.4

8

Detrol

0.988

Op. Income (USDbn)

11.53

14.00

3.24

9

Camptosar

0.91

0.76

0.68

0.60

10

Genotropin

0.808

Dividends (USD) Source: Company Website & Annual Reports

Source: Annual Report, 2005

Pfizer’s leading block buster drug Lipitor with sales of USD12.2 billion accounts for 2.09% of the global pharmaceutical market.

MAJOR PLAYERS Johnson & Johnson (J&J) •J&J has three business segments: consumer, pharmaceutical and medical devices & diagnostics. •The consumer segment has reported sales of USD9.1 billion in 2005, an increase of 9.2% over last year. •The sales of pharmaceutical segment were USD22.3 billion in 2005, an increase of 0.9% than in 2004. •Medical devices and diagnostics segment reported sales of USD19.1 billion in 2005, which has grown by 13.1% over 2004. Key Financials: Johnson & Johnson 2003 - 2005 Financial Year Ending

Top products: J & J 2005

Dec-05

Dec-04 47.35

Dec03 41.86

S.No . 1

Revenues (USDbn)

50.51

Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn)

16.87

15.86

14.13

6.31

5.20

4.68

Net Earnings (USDbn)

10.41

8.51

7.19

3.46

2.87

2.42

Net Margin (%)

20.61

17.97

17.17

Op. Income (USDbn)

13.65

12.83

10.30

NA

1.095

0.925

Net EPS (USD)

Dividends (USD)

Source: Company Website & Annual Report, NA-Not Available

Brand Name RISPERDA

Sales in 2005 (USDbn) 3.552

2

PROCRIT®/EPREX

3.324

3

REMICADE

2.535

4

TOPAMAX

1.68

5

DURAGESIC

1.585

6

LEVAQUIN®/FLOXIN

1.492

7

ACIPHEX®/PARIET

1.169

Source: Annual Report, 2005

Pharmaceutical and Medical devices & diagnostics sales accounted for USD22.3 billion and USD19.1 billion respectively in 2005.

MAJOR PLAYERS Glaxo Smithkline Plc •The company has two business segments: Pharmaceuticals which includes prescription pharmaceuticals & vaccines and Consumer Healthcare consists of over-the-counter medicines, oral care and nutritional healthcare. •Pharmaceuticals and vaccines contributed USD32.11 billion in 2005, which accounted for 86% of the total revenues in 2005. •Consumer healthcare reported USD5.16 billion in 2005, which accounts for 13.85% of the total revenues in 2005. Top ten products: GSK 2005 Key Financials: GlaxoSmithKline 2003 - 2005 Dec-05

Dec-04

Dec-03

S.No . 1

Revenues (USDbn)

37.27

38.50

37.47

2

Avandia

1.99

Marketing & Admin. Expenses (USDbn)

12.47

13.87

14.02

3

Zofran

1.44

R & D expenses (USDbn)

5.39

5.59

5.09

4

Lamictal

1.46

Net Earnings (USDbn)

8.28

7.74

7.66

5

Wellbutrin

1.27

6

Imigran/Imitrex

1.20

Net EPS (USD)

1.42

1.31

1.28

7

Valtrex

1.20

Net Margin (%)

22.21

20.10

20.44

8

Augmentin

1.15

Op. Income (USDbn)

11.82

11.09

10.76

9

Flixotide/Flovent

1.10

0.75

0.81

0.73

Seroxat/Paxil

1.06

Financial Year Ending

Dividends (USD)

Source: Company Website & Annual Report

10

Brand Name Seretide/Advair

Sales in 2005 (USD bn) 5.17

Source: Annual Report, 2005

Glaxo Smithkline is the second leading pharmaceutical company globally with major focus into Respiratory products and Anti-infectives.

MAJOR PLAYERS Sanofi-Aventis •The company has two business segment: pharmaceuticals (principally prescription drugs) and human vaccines.

Top ten products: Sanofi-Aventis 2005

Key Financials: Sanofi-Aventis 2003 - 2005 Financial Year Ending Revenues (USDbn)

Dec-05

Dec-04

Dec-03

32.34

34.38

30.50

Marketing & Admin. Expenses (USDbn)

9.77

10.76

9.43

R & D expenses (USDbn) Net Earnings (USDbn)

4.79

5.40

7.50

Net EPS (USD)

S.No.

Brand Name

Sales in 2005 (USDbn)

1

Lovenox

2.54

2

Plavix

2.40

3

Taxotere

1.91

5.10

4

Eloxatine

1.85

6.85

5.59

5

Stilnox

1.80

5.61

5.14

4.13

6

Allegra

1.59

Net Margin (%)

23.19

19.92

18.32

7

Lantus

1.44

Op. Income (USDbn)

10.80

10.47

9.10

8

Delix

1.20

NA

1.62

1.28

9

Copaxone

1.07

Aprovel

1.06

Dividends (USD)

Source: Company Website & Annual Report NA-Not Available

10

Source: Annual Report, 2005

Sanofi-Aventis is the third largest pharmaceutical company (considering only the pharmaceutical sales)with higher net margins of about 23% in 2005 when compared to other major players

MAJOR PLAYERS Novartis

•Novartis has three business divisions – Pharmaceuticals, Sandoz (generic pharmaceuticals) and Consumer Health. •The sales of Novartis’ Pharmaceutical division increased 10% to USD20.3 billion backed by a dynamic growth ahead of the market and in all regions. •Sandoz has reported generic pharmaceutical sales of USD4.7 billion in 2005. •Consumer Health net sales increased by 8% to USD7.3 billion, bolstered by a double-digit growth performance in OTC. Top ten products: Sanofi-Aventis 2005

Key Financials: Sanofi-Aventis 2003 - 2005 Financial Year Ending

S.No.

Dec-

Dec-04

Dec-03

32.34

34.38

30.50

Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn)

9.77

10.76

9.43

4.79

5.40

5.10

Net Earnings (USDbn)

7.50

6.85

5.59

Net EPS (USD)

5.61

5.14

4.13

Net Margin (%)

23.19

19.92

18.32

Op. Income (USDbn)

10.80

10.47

9.10

NA

1.62

1.28

Revenues (USDbn)

Dividends (USD)

Source: Company Website & Annual Report, NA-Not Available

Brand Name

Sales in 2005 (USDbn)

1

Lovenox

2.54

2

Plavix

2.40

3

Taxotere

1.91

4

Eloxatine

1.85

5

Stilnox

1.80

6

Allegra

1.59

7

Lantus

1.44

8

Delix

1.20

9

Copaxone

1.07

Aprovel

1.06

10

Source: Annual Report, 2005

Novartis revenues in 2005 is about 32.34 billion with the major focus into oncology products.

MAJOR PLAYERS Roche •Roche has two business divisions –Pharmaceuticals & Diagnostics. •Roche’s Pharmaceutical division has reported sales of USD20.73bn in 2005. •Roche Diagnostics has reported sales of USD6.26 billion in 2005 as compared with USD6.91 billion in 2004. Top ten products: Roche 2005 Key Financials: Roche 2003 - 2005

S.No.

Brand Name

Sales in 2005 (USDbn)

Financial Year Ending Revenues (USDbn)

Dec-05

Dec-04

Dec-03

1

MabThera/ Rituxan

3.16

26.99

27.64

25.14

2

NeoRecormon, Epogin

1.71

Marketing & Admin. Expenses (USDbn)

9.05

9.21

8.29

3

Herceptin

1.63

4

CellCept

1.30

R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD)

4.33

4.50

3.83

5

Avastin

1.27

5.11

6.24

2.47

6

Tamiflu

1.18

5.20

6.94

2.94

7

Pegasys

1.07

18.93

22.58

9.82

8

Rocephin

0.70

Op. Income (USDbn)

6.59

7.93

4.50

9

Xeloda

0.61

Dividends (USD)

1.90

1.76

1.32

10

Xenical

0.48

Net Margin (%)

Source: Company Website & Annual Report

Source: Annual Report, 2005

MAJOR PLAYERS Astra Zeneca •AstraZeneca has only one business segment: Pharmaceuticals. •AstraZeneca’s flagship product Nexium sales were up 18% to USD4.63 billion. Sales in the US were up by 15% to USD3.12 billion, and this strong volume growth continues despite being partially offset by lower price realization. Nexium sales in other markets have grown by 25%. Top ten products: AstraZeneca 2005

Key Financials: AstraZeneca 2003 - 2005 Financial Year Ending Revenues (USDbn)

Dec-05

Dec-04

Dec-03

23.95

21.42

18.85

Marketing & Admin. Expenses (USDbn)

8.69

8.26

7.39

R & D expenses (USDbn) Net Earnings (USDbn)

3.37

3.46

4.72

Net EPS (USD)

S.No.

Brand Name

Sales in 2005 (USDbn)

1

Nexium

4.633

2

Seroquel

2.761

3

Seloken/Toprol-XL

1.735

3.01

4

Losec/Prilosec

1.652

3.68

3.04

5

Crestor

1.268

2.91

2.18

1.77

6

Arimidex

1.181

19.70

17.18

16.12

7

Pulmicort

1.162

Op. Income (USDbn)

6.50

4.54

4.00

8

Casodex

1.123

Dividends (USD)

1.30

0.94

0.795

9

Symbicort

1.006

Zoladex

1.004

Net Margin (%)

Source: Company Website & Annual Report

10

Source: Annual Report, 2005

Nexium of Astra Zeneca sales increased in 2005 all across the US and and other regions with Seroquel following at the seconf bestselling product

MAJOR PLAYERS Merck

• Revenues of Merc in 2005 dropped marginally to USD22 billion from USD22.9 billion in 2004 • R&D expanses of the company reduced to USD3.84 billion in 2005 from USD4.01 billion in 2004 • Zocor is top product of the company in 2005 posting a total sales of USD4.38 billion Top ten products: Merck & Co 2005 Key Financials: Merck & Co 2003 - 2005 Financial Year Ending

Dec05

Dec04

Dec03

Revenues (USDbn)

22.0

22.9

22.48

Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn)

7.15

7.23

6.39

3.84

4.01

3.28

Net Earnings (USDbn)

4.63

5.81

6.83

Net EPS (USD)

2.10

2.61

3.03

21.05

25.37

30.38

Op. Income (USDbn)

7.36

7.97

8.42

Dividends (USD)

1.52

1.49

1.45

Net Margin (%)

Source: Company Website & Annual Report

S.No.

Brand Name

1

Zocor

Sales in 2005 (USDbn) 4.381

2

Fosamax

3.191

3

Cozaar/Hyzaar

3.037

4

Singulair

2.975

5

Proscar

0.741

6

Primaxin

0.739

7

Vasotec/Vaseretic

0.623

8

Cosopt/Trusopt

0.617

9

Cancidas

0.57

10

Maxalt

0.348

Source: Annual Report, 2005

Merc experiencing a lean result in 2005 in terms of revenues, net return and net margin although the R&D spending of the company decreased

MAJOR PLAYERS Bristol Myers Squibb •BMS has three divisions: Pharmaceuticals, Healthcare and Nutritionals. •In 2005 throughout the world pharmaceuticals sale of BMS has declined by 2% to USD15.25 billion compared with its previous year. •The healthcare division of Bristol-Myers Squibb has accounted sales of USD1.75 billion, a decline of 3.69% compared with its previous year. •The worldwide sales of nutritionals in 2005 were USD2.20 billion. Top ten products: Bristol Myers Squibb 2005 Key Financials: Bristol Myers Squibb 2003 - 2005 Financial Year Ending

S.No.

Brand Name

Sales in 2005 (USDbn)

Dec03 18.65

1

Plavix

3.82

19.20

Dec04 19.38

2

Pravachol

2.25

Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn)

5.10

5.01

4.62

3

Avapro/Avalide

0.982

2.74

2.50

2.27

4

Abilify

0.912

Net Earnings (USDbn)

3.00

2.38

3.09

5

Taxol

0.747

Net EPS (USD)

1.53

1.23

1.60

6

Reyataz

0.696

15.62

12.28

16.56

7

Sustiva

0.68

Op. Income (USDbn)

4.51

4.41

4.68

8

Erbitux

0.413

Dividends (USD)

1.12

1.12

1.12

9

Efferalgan

0.283

Zerit

0.216

Revenues (USDbn)

Net Margin (%)

Dec-05

Source: Company Website & Annual Report

10

Source: Annual Report, 2005

Bristol Myers Squibb suffers decline of sales in two of its three business divisionspharmaceuticals and healthcare

MAJOR PLAYERS Wyeth •Wyeth has three divisions: Wyeth Pharmaceuticals, Wyeth Consumer Healthcare, and Fort Dodge Animal Health. •Wyeth Pharmaceuticals revenues were increased by 10% to USD15.32 billion in 2005 as compared with 2004. •Wyeth Consumer Healthcare has reported sales of USD2.6billion in 2005. •Animal Health has grown by 5% for the year 2005 to USD0.88 billion compared with 2004. Top ten products: Wyeth 2005

Key Financials: Wyeth 2003 - 2005 Financial Year Ending

Dec-05

Dec-04

Dec-03

18.75

17.35

15.85

Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn)

6.11

5.80

5.46

2.74

2.46

2.09

Net Earnings (USDbn)

3.65

1.23

2.05

Net EPS (USD)

2.73

0.93

1.54

19.46

7.08

12.93

Op. Income (USDbn)

4.78

-0.12

2.36

Dividends (USD)

0.96

0.92

0.92

Revenues (USDbn)

Net Margin (%)

Source: Company Website & Annual Report

S.No.

Brand Name

Sales in 2005 (USDbn)

1

Effexor

3.458

2

Protonix

1.684

3

Prevnar

1.508

4

Enbrel

1.083

5

Nutrition

1.04

6

Premarin

0.908

7

Zosyn/Tazocin

0.891

8

Zoton

0.375

9

BeneFIX

0.343

10

Rapamune

Source: Annual Report, 2005

Wyeth posts growth in its pharmaceuticals and animal health business by 10% and 5% respectively in 2005

0.3

REGULATORY ASPECTS Regulatory Bodies The US United States Food & Drug administration

European Union The European Medicines Agency (EMEA)

Japan Ministry of Health, Labor & Welfare •Pharmaceutical and Food Safety Bureau office •Health Policy Bureau

Major divisions of FDA •The Center •The Center •The Center •The Center •The Center

for for for for for

Biologics Evaluation and Research Devices and Radiological Health Drug Evaluation and Research Food Safety and Applied Nutrition Veterinary Medicine

Major committees – EMEA •Committee for Medicinal Products for Human Use •Committee for Medicinal Products for Veterinary Use •Committee on Orphan Medicinal Products

REGULATORY ASPECTS Regulations in the US

•Pure Food and Drug Act, June 30 1906. •Food, Drug, and Cosmetic Act of 1938 •The Kefauver-Harris Drug Amendments of 1962 •The FDA Modernization Act of 1997.

Regulations in Japan

•The Pharmaceutical Affairs Law •The Pharmacists’ Law •The law concerning the Organization for Pharmaceutical Safety and Research •The Blood Collection and Blood Donation Services Control Law •The Poisonous and Deleterious Substances Control Law •The Narcotics and Psycho tropics Control Law •Cannabis Control Law •The Opium Control Law •The Stimulants Control Law

Regulations in European Union •In 1975, the Commission establishes a multistate procedure to allow a pharmaceutical company to market a product in all member states if just one of them approved the product application – a procedure referred to as ‘mutual recognition’. The Commission also created the Committee for Proprietary Medicinal Products (CPMP). •In 1987, the Commission established another process, ‘the concertation procedure’ designed to foster a single market. Under this procedure, the CPMP reviewed all biotechnology and other high technology pharmaceutical products for approval across the EU.

REGULATORY ASPECTS

International agreements on intellectual property rights protection The major international agreements to protect intellectual property are •General Agreement on Tariffs and Trade (GATT) •Trade Related Aspects of Intellectual Property Rights (TRIPS) •The Paris Convention for the Protection of Industrial Property (PCPIP) •The Patent Co-operation Treaty (PCT)

Prolonging Patent Protection •GATT & TRIPS •The Waxman-Hatch Act

The world is massively heading towards an uniform business environment in pharmaceuticals through a series of international agreements and laws

REGULATORY ASPECTS

Recent regulatory amendments The US USFDA sets up Drug Safety Oversight Board In line with the regulatory reforms announced by the FDA in the last quarter of 2004, USFDA set up a Drug Safety Oversight Board (DSB) February 2005 to oversee the management of drug safety issues and to increase the transparency of approval process and safety of drugs. USFDA tightens approval process The public criticism in the wake of high-profile withdrawals such as Vioxx and Bextra has forced the USFDA to adopt a cautious approach toward new drug approvals. Now the USFDA is not only taking longer time to approve drugs but is also studying side effects more closely than it did in the past. Some of the new drugs that could have otherwise made it to the market a year ago, no longer find place on the shelf.

USFDA becomes more cautious in approving new drugs amid widespread public outcry against the approval of high profile drugs

REGULATORY ASPECTS EU FDA and EU extend Confidentiality Agreement The USFDA, the European Commission (EC), and the EMEA extended their confidentiality agreement on medicinal products for human and veterinary use for five more years. This agreement, signed in September 2003, was set to expire in 2005. This confidentiality agreement allows the three agencies to exchange information on legal and regulatory issues, scientific advice and orphan drug designation, inspection reports, marketing authorization procedures and post-marketing surveillance.

Japan Application for approval of generic drugs modified In September 2005, the MHLW modified the application for the approval of generic drugs with single active pharmaceutical ingredient. Now, the manufacturers of generic drugs have to specify in the application, details such as the brand name of the generic drug, active pharmaceutical ingredient, dosage form, quantity and the company name. The new additions to the application are ‘the name of the generic company’ and ‘active pharmaceutical ingredient.’

Generic drug manufacturers in Japan now needs to declare the name of the active pharmaceutical ingredient

MERGERS & ACQUISTIONS

M&A drivers

Generics retail market estimates (USDbn) – 2005 10

•Need for low cost pharmaceuticals USDbn

•Growing generics market

106

120 100 80

65

60

CAGR - 11%

40

•Focus on areas of core competence •To replenish decreasing R&D pipeline and shrinking patented drug list

20 0 2005

2010

Source: *IMS Health *Denotes: Inhouse estimates

Big pharmaceutical firms are acquiring specialty pharmaceutical and biotech firms owing to decrease in the success rate of their R&D, increase in patent expiries and product recalls, which are shortening their list of patented drugs and ultimately hitting a large source of revenue.

MERGERS & ACQUISTIONS M&A Trends •Pharmaceutical M&A accounted for more than one-fourth of total healthcare M&A in deal value •Pharmaceutical deals declined in terms of number and value in 2005 •Smaller value deals dominated the M&A scenario in 2005

350 300 250 200

303 246

268

247

176

150 100 50 0 2001

2002

Source: Cygnus Research

2003

2004

2005

Deal value of Pharmaceutical M&A (2001-2005)

USDbn

Number of Pharmaceutical M&A (2001-2005)

120 100 80 60 40 20 0

105.85 73.38 40.00

37.88

2001

68.20

2002

Source: Cygnus Research

2003

2004

2005

MERGERS & ACQUISTIONS

Top 10 M&A 2005 Rank

Deal value (USDm)

Acquirer

Target

1

Sankyo Co (Japan)

Daiichi Pharmaceutical Co (Japan)

7,700

2

Teva (Israel)

IVAX Corp (US)

7,400

3

Novartis AG (Switzerland)

Chiron Corp (56% stake) (US)

5,780

4

Sandoz (Novartis AG) - (Switzerland)

Hexal AG (Germany)

5,280

5

Abraxis BioScience (formerly APP) (US)

American BioScience (US)

4,170

6

Allergan Inc

Inamed Corp (US)

3,100

7

Sandoz (Novartis AG) - (Switzerland)

Eon Labs (US)

2,600

8

Nycomed A/S (Finland)

Nycomed Holding A/S (Finland)

2,270

9

Amgen (US)

Abgenix (US)

2,200

Dainippon Pharmaceuticals (Japan)

Sumitomo Pharmaceuticals (Japan)

2,120

10

MERGERS & ACQUISTIONS

Top 10 M&A 2004 Rank

Deal value (USDm)

Acquirer

Target

1

Sanofi-Synthelabo (France)

Aventis (France)

2

Yamanouchi Pharmaceuticals (Japan)

Fujisawa Pharmaceuticals (Japan)

8,000

3

Private Equity Consortium (US)

Warner Chilcott (UK)

3,000

4

Bayer (Germany)

Roche OTC business (Switzerland)

2,900

5

UCB (Belgium)

Celltech (UK)

2,700

6

Amgen (US)

Tularik (79%) (US)

1,300

7

Genzyme (US)

ILEX Oncology (US)

1,000

8

Perrigo (US)

Agis Industries (Israel)

818

9

QLT (Canada)

Atrix Laboratories (US)

855

Sandoz (Novartis AG) - (Switzerland)

Sabex (Canada)

565

10

Source: Cygnus Research

62,600

MERGERS & ACQUISTIONS

Top 10 M&A 2003 Rank

Acquirer

Target

1

Biogen (USA)

Idec (USA)

6,700

2

Teva Pharmaceuticals (Israel)

Sicor (USA)

3,400

3

Johnson & Johnson (USA)

Scios (USA)

2,400

4

DSM (Netherlands)

Roche vitamin unit (Switzerland)

2,000

5

Merck & Co (USA)

Banyu (Japan)

1,500

6

Roche (Switzerland)

Igen (USA)

1,400

7

Pfizer (USA)

Esperion Therapeutics (US)

1,300

8

CSL (Australia)

Aventis Behring vaccines arm (France)

925

9

Chiron (USA)

PowderJect (UK)

880

King Pharmaceuticals (USA)

Elan (Ireland) primary care franchise

750

10

Deal value (USDm)

CRITICAL SUCCESS FACTORS

•Alliances and acquisitions •Outsourcing to low cost destinations •Absorption of technological innovations •Improving sales force effectiveness • Need for Critical mass •Need for blockbuster drugs

To exploit the benefits of alliances and partnerships, pharmaceutical companies need to: •Streamline the exchange of information about partner resources, drugs, and clinical trials and molecule synthesis processes to improve time-to-market •Avoid drug discovery dead ends by keeping their partners abreast of developments while safeguarding their own intellectual property •Improve quality and reliability of clinical trials •Speed up regulatory approvals

Smooth communication between the partners are important to reap the maximum benefit of alliances and acquisitions

FUTURE OUTLOOK •The global pharmaceutical market is expected to grow between 7% to 8% to between USD624 billion and USD629 billion in 2006. •The US would still be the leading market with sales of about USD267-270 billion, with a growth rate between 8-9% y/y in 2006. •The higher growth rate in the market is owing to the increased spending on the prescription drugs with the new Medicare Part D of Medicare Prescription Drug Program, which has come into effect on January 1, 2006. It provides prescription drug coverage to more than 40m people of the US. •Japan is estimated to grow at 3% in 2006 with sales of USD61.07 billion. •The Latin American market is expected to grow at a higher rate of 10%, with increasing share of healthcare spending as a percentage of GDP in the market and higher economic growth. •The Chinese pharmaceutical market is expected to witness exceptional growth between 15% and 20% in 2006.

The US is still the leading market in pharmaceuticals with a higher growth rate mainly due to increased spending on the prescription drugs

FUTURE OUTLOOK •In the future, an aging global population; the shift in the disease pattern towards lifestyle disorders; and increase in biotechnology based drugs will continue to be the prime driving factors of the pharmaceutical industry. •Increase in number of patent expiries is a growing concern for the major pharmaceutical companies among the research-based pharmaceutical companies. In 2006 alone, drugs worth USD21.20 billion are going off-patent. •Generic variants of five major biopharmaceutical drugs are expected to hit the market in 2006. Amgen’s anti-anemic drug Epogen, with a global sale of USD2.5 billion in 2005, is one of the major biopharmaceutical drugs going off-patent in 2006. Major Pharmaceutical and Biopharmaceutical Drugs Losing Patents in 2006 Pharmaceuticals Brand

Patent holder

Zocor

Biopharmaceuticals Brand

Patent holder

Merck & Co.

Epogen

Amgen Inc

Zoloft

Pfizer

Neupogen

Amgen Inc

Lamisil

Novartis

Avonex

Biogen Inc

Ambien

Sanofi-Aventis

Ceryzyme

Pravachol

BMS

Enbrel

Genzyme Corp Immugene Corp and Wyeth Ayerst Labs

Zofran

GSK

 

Source: Cygnus Research

The biopharmaceutical market is all set to flood the market taking the advantage of patent expiry of some blockbuster drugs

FUTURE OUTLOOK •The pharmaceutical industry will witness further consolidation in the future too. •In February 2006 alone, a total of 16 M&A worth USD965m happened in the industry. The largest deal for in the first three months of 2006 being Indian-based Dr Reddy’s Laboratories acquisition of Betapharm Group of Germany for USD570m. •M&As will be driven mainly by the need to refill drying blockbusters of big pharmaceutical companies, which will push they into acquiring biopharmaceutical companies by the need to tap the growing generics market. •The FDA is concerned more about the safety of the new drugs that comes up for its approval. In the near future it might mandate the requirement of long-term safety data for approving the drugs used to treat chronic ailments mandatory. •In order to improve the manufacturing standards further, the FDA is also expected to make compliance to process analytical technology mandatory mandatory in the future.

Keeping a healthy product pipeline would be the major concern of the pharmaceutical companies in the future and this will lead to M&A deals