Pharma Industry Overview

Overview Presented by:

Mikky Madhogaria Equity Research Analyst Eastwind Capital Advisors

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Global mkt size is approx $770-780 bn with low growth of 3-4% in 2009. US sales is approx 14 times of India & China sales is approx 4 times of India India’s share approx 2% in world pharma mkt. Market Share(approx)

Growth’09(ap prox)

North America

40%

2%

Europe

32%

2%

Japan

10%

3%

Latin America

6%

10%

Asia/Africa/Australia

12%

9.9%

Revenue Rank 2008

Company  

Country  

MKT SHARE %

1

Pfizer (with Wyeth)

U.S.

9.20

2

Johnson& Johnson

U.S.

7.90

3

GSK

UK

5.88

4

Bayer

Germany

5.78

5

Hoffmann–La Roche

Switzerland

5.22

6

Sanofi-Aventis

France

5.17

7

Novartis

Switzerland

5.15

8

AstraZeneca

UK/Sweden

3.82

9

Abbott Laboratories

U.S.

3.82

Merck & Co.

U.S.

3.09

10

Clinical Trials Preclinical

  

Testing  Years 

3.5 

Test Population 

Phase I 

Phase II 

Phase III 

FDA 

  

1 

2 

3 

2.5 

12 Total 

Laboratory 

20 to 80  100 to 300 

and animal 

healthy 

studies 

1000 to  3000 

patient 

patient 

volunteers  volunteers 

volunteers  Verify 

File IND at  Assess  Purpose 

safety and  biological  activity 

FDA  Determine  safety and  dosage 

Evaluate 

effectivenes

effectivenes s, look for  side effects 

s, monitor 

Additional  File NDA at  FDA 

Review 

Rate 

Approval 

adverse 

evaluated 

5 enter trials 

marketing    

testing  required by 

reactions 

FDA 

from long-

5,000  compounds 

Post 

process / 

term use  Success

Phase IV 

1 approved 

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India pharma Mkt size FY09 Rs 93881 ($19 bn) cr on the basis of sales, g=13% India is the world’s 4th largest producer of pharmaceuticals by volume (accounting for around 8% of global production) In value terms, production accounts for around 1.5% of the world total. Employs around 500,000 Indian company meets 95% of domestic sales Fragmented industry contributes 1.6% to GDP. 5,600 smaller licensed generics manufacturers 270 large R&D based pharmaceutical companies in India and their share is around 70% India produces 22% of world generics Per capita consumption of drugs is very low $93 as compared to $412(Japan), $222(Germany), $191(US) India among top 5 bulk drug producers in world Ranbaxy is 7th world’s largest generic manufacture

Top 10 companies contributes 30% of market share(on the basis of standalone sales) Company Name

MARKET SHARE %

Cipla Ltd.

5.60

Ranbaxy Laboratories Ltd.

4.76

Dr. Reddy'S Laboratories Ltd.

4.47

Sun Pharmaceutical Inds. Ltd.

4.03

Aurobindo Pharma Ltd.

2.98

Cadila Healthcare Ltd.

2.07

Glaxosmithkline Pharmaceuticals Ltd.

1.79

Matrix Laboratories Ltd.

1.60

Ipca Laboratories Ltd.

1.36

Orchid Chemicals & Pharmaceuticals Ltd.

1.29

100 manufacturing facilities approved by the US Food and Drug Administration (FDA)

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Logistics: Crucial Part of industry as activities are highly time sensitive & need temperature controlled storage & distribution.

•Exports a/c’s for 40% (g=16%) of total sales of which : III.Formulations = 46% IV.Bulk Drug = 54% •Share of exports in total national exports >2% •Imports mainly of life saving drug & formulation(patent) •Main market for imports: US, Germany, Switzerland, France

Major API Exports

Key Markets (Exports)

Share(approx)

North America

21%

Amoxycillin

LAC

7%

Cephalexin

EU

21%

Middle East

9%

CIS

7%

Ciprofloxacin

South Asia

4%

Ampicillin

Other Asia

14%

Ranitidine

Africa

14%

Ephedrines

Others

2%

Menthol

Erythromycin Ibuprofen

Top 10 Global Therapeutic classes

% share

Top 10 Indian Therapeutic classes

% share

Oncologics

6.2

Anti Infectives

18

Lipid regulators

5.1

Cardiac (CVS)

10.9

Respiratory agents

4.3

Gastro Intestinal

10.9

Acid pump inhibitors

3.9

Pain / Analgesics

8.8

Antidiabetics

3.6

Respiratory

8.9

Antipsychotics

3.1

Vit / Minerals/ Nut

8.1

Antidepressants

3

Derma

5.4

Angiotensin II antagonists

2.9

Gynec

5.6

Anti-epileptics

2.3

Neuro/CNS

5.5

Autoimmune agents

2

Anti Diabetic

5

Market Share of key drug classes(‘06) Total no. of ANDA approvals (India) Year

Number

2002

21

2003

26

2004

25

2005

52

2006

74

2007

124

2008

134

Q1 2009

50

Sales($ Bn)

Exclusivity Expiration

Patent Expiry

Company

Lipitor (atorvastatin)

13.6

Sep 24, 2009

PFIZER

Plavix (clopidogrel)

8.6

no unexpired exclusivity Aug 17, 2009

Nov 17, 2011

SANOFI AVENTIS US

Nexium (esomeprazole)

7.8

Apr 28, 2009

Nov 25, 2014

ASTRAZENECA

Seretide (fluticasone+salmeterol

7.7

Apr 30, 2011

Aug 12, 2008

GLAXOSMITHKLIN E

Enbrel (etanercept)

5.7

Seroquel (quetiapine )

5.4

Oct 20, 2009

Sep 26, 2011

ASTRAZENECA

Zyprexa (olanzapine )

5.0

Mar 19, 2012

Apr 23, 2011

LILLY

Remicade (infliximab)

4.9

Singulair (montelukast)

4.6

Nov 30, 2008

Feb 3, 2012

MERCK

Lovenox (enoxaparin)

4.4

May 16, 2010

Feb 14, 2012

SANOFI AVENTIS US

Product (API)

2009

2010

Lansoprazole(Prevacid/Takepron/Zoton) Losartan potassium (Cozaar/Hyzaar)     Atorvastatin calcium (Lipitor) Duloxetine (Cymbalta/XeriStar)  Tamsulosin (Flomax/Omnic/Harnal)  Perindopril erbumine (Coversyl/Aceon) 

Docetaxel (Taxotere)  Gemcitabine (Gemzar)  Lamivudine and zidovudine (Combivir) 

Escitalopram oxalate (Lexapro/Cipralex)   Anastrozole (Arimidex) 

Pantoprazole (Protonix/Pantozol)  Donepezil  (Aricept)  Levofloxacin Levaquin/Cravit/Tavanec) 

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M&A has been the key strategy adopted by Indian companies to gain a foothold in the export markets Deal in 2009 Value Pfizer-Wyeth

$62 bn

Roche-Genentech

$46.8 bn

Merck-Schering

$48 bn

Sanofi-Shantha

$782.1 mn (8 times its projected

(22 times Genentech's forecast 2010 earnings)

sales of $92 mn for FY10)

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The top 20 pharma companies have over US$7.5bn (Rs378bn) in cash and cash equivalents. Therefore, expectation of more deal (BMS, AstraZeneca, Sanofi-Aventis, GSK, Novartis and J&J due to their strong cash positions)

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Target: Large pharmaceutical companies with strong drug development pipelines and low exposure to patent expiries are the most attractive M&A target

Strengths India is regarded as having the edge over China in terms of:

1.

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Qualified, English-speaking employees Fair protection of intellectual property rights supported by welldeveloped judicial system.

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Availability of skilled personnel at affordable cost.

scientists/technicians/management

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Indian manufactures can produce drugs at 40% to 50% of the cost to the rest of the world. In some cases, this cost is as low as 90%.

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Well developed chemistry R & D and manufacturing infrastructure with proven track record in advanced chemistry capabilities, design of high tech manufacturing facilities and regulatory compliance.

18

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The NPPA (National Pharma Pricing Authority), sets prices of different drugs, which leads to lower profitability for the companies.

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Indian pharma market is one of the least penetrated in the world: India accounts for almost 16% of the world population while the total size of industry is just 1-2% of the global pharma industry

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Large no. of small players increases competition and reduces efficiency

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The new patent product regime will bring with it new innovative drugs. This will increase the profitability of MNC pharma companies and will force domestic pharma companies to focus more on R&D

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Large number of drugs going off-patent in Europe and in the US between 2005 to 2009 offers a big opportunity for the Indian companies to capture this market

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Can become a global outsourcing hub for pharmaceutical products

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New markets are opening

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Aging of the world population, Growing incomes, Growing attention for health.

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Containment of rising health-care cost.

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High Cost of discovering new products and fewer discoveries.

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Stricter registration procedures.

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High entry cost in newer markets.

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Threats from other low cost countries like China and Israel exist

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Mature pharmaceutical market: is expected to grow at 1% ~ 4% by 2013

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Emerging pharmaceutical market: is expected to grow at 13% ~ 16% by 2013

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High growth in generic segment as $123bn worth patent will expire by 2012 ($18.4bn benegit to India)

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Pricing pressures and shrinking margins in the generics space and the increasing litigation instances in the US are compelling Indian companies to consider opportunities beyond US

Steady shift of big pharma towards biotech  It is not only an API and formulation manufacturing base, but also as an emerging hub for:

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Bio-technology Bioinformatics Contract research Clinical data management and Clinical trials

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Growth in contract manufactiring & outsourcing of clinical trials, R&D, etc

CUSTOM DUTY  Exemption of custom duty for import of all capital goods, inputs, consumables and reference standards for R&D purposes 

Extension of customs duty exemption to more life saving drugs and other anti–Aids and anti–cancer formulations

EXCISE DUTY  Goods manufactured in R&D centres should be exempted from excise duty and service tax 

Extension of excise duty exemption to more life saving drugs and other anti –Aids and anti –cancer formulations

OTHERS  Strengthen and increase capital outlay for academic institutions engaged in scientific research

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Requirement of a single window clearances instead of multiple clearances from different institutions for testing a new molecule

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Passing of Central Drug Authority Bill –pending for the last five years

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Removal of cost based price controls

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Continuation of the tax shelter in specified zones like Himachal Pradesh, Sikkim and Jammu

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Cut off date for the tax holiday should be extended till March 31, 2012.{1}

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Benefit should be expanded to cover expenditure incidental to research carried outside R&D facility such as clinical trials, bioequivalence studies etc carried on in India or in any foreign

NEW Excise duty

Impact

4%

Custom duty on life saving Reduced to 5% devices particularly related to cardiac diseases abolition of Fringe Benefit Tax (FBT)

Positive

NPPAhas also reduced the prices of imported medicines MAT ( carry forward of tax credit under MAT extended from 7 yrs to 10 yrs ) Amendment of 100% profit exemption effective from FY2011 for bs. Units operating from SEZ

These will go a long way towards boosting the clinical research industry as well as Indian innovators. Marketed by MNC drug firms like Pfizer, Novo Nordisk, Sanofi Aventis and Eli Lilly

Increased to 15%

-ve : Sunpharma, Dishman, Cadila, Biocon

Extension by 1 more year

+ve: Divi’s lab, Biocon

Acc. to new proposal: b) Co.’s which have set up overseas subsidiaries in India, will have to pay tax on their earnings earned abroad c) US companies who are outsourcing services to overseas India will be at a disadvantage as their earnings from these countries will now be treated as income, and they would be liable to pay tax on it. 

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Existing practice wherein companies who are outsourcing services earned tax credits on income earned through those services.

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Shocker to Indian pharma companies engaged in contract manufacturing and research services (could adversely affect their outsourcing services business as majority of their clients belong to US.)

For detailscontact: [email protected]