Pharmaceutical Market

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5 Δεκ 2012 (πριν από 4 χρόνια και 4 μήνες)

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© 2008 Morrison & Foerster (UK) LLP All Rights Reserved


PHARMERGING MARKETS



Julian Thurston

Co
-
Chair Global Lifesciences Group

Morrison & Foerster

7
th

Floor, Citypoint

One Ropemaker Street

London

EC2Y 9AW


Telephone: +44 20 7920 4050


Pharmerging Markets

Who are they?



B


Brasil


R


Russia


I




India


C


China




Mexico


South Korea


Turkey


Pharmerging Markets

IMS predicts:



33% global pharmaceutical sales will be in pharmerging markets
by 2011


50% global pharmaceutical sales will be in pharmerging markets
by 2020



In 2001 this was just 13%



Reasons:


Growing middle classes


Wealth brings Western diseases eg obesity, diabetes


Pharmerging Markets

Classic development in 4 stages:

1.
Local generics businesses, no real IP laws

2.
IP laws based on TRIPS harmonisation, local science base
starts to offer
services

to other countries


clinical
trials/manufacturing (India, China, Brasil). Base line recognition
of IP necessary for services contracts. Commencement of local
sales with some IP (local trade marks, patents)

3.
Local businesses start innovating


“IDCs”


innovative
developing countries

4.
Local innovative businesses want to internationalise. Just
starting in Korea and Brasil.

Pharmerging Markets


Strategic and Financial
Impact


No longer the just the “triad”


USA, EU, Japan



Strategies developing to capture the value



Affect on NPV/DCF models for:



Financings


Partnerings


M&A

China
-

Healthcare Market


Strong economic growth and increasing demand for
better healthcare have made the country one of the most
important emerging markets for multinational
pharmaceutical companies


One of China’s top priorities, as highlighted in its 11
th

five
year economic development plan is the provision of
basic healthcare services to the entire Chinese
population by 2020.


All forecasts indicate that China will become one of the
world’s top five pharmaceutical markets by 2015.


The Chinese market is big and growing


With 1.3 billion people, China accounts for 22% of the world’s total


China’s purchasing power is second only to the US


In 2006 China ranked fifth worldwide in terms of overall economic power
with a total GDP of US$2.5 trillion


Chinese consumers spent about $47 billion on drugs in 2006, with
spending growing at a compound rate of nearly 20 percent between
2002 and 2006 (compared to global growth rate of only about 5 percent
for the same period)


By the end of 2007 the total Chinese healthcare market was valued at
US$86.8 billion* (compared with the US market at US$ 2.26 trillion**)


In 2007, the Chinese healthcare market grew by 25.5%* compared to
the previous year surpassing growth for most developed countries


Sales to hospitals, main players

7.2%

5%


5%



5%



5%



4%


4%


4%

2%

2%


China’s Pharmaceutical Industry


China’s pharmaceutical sector is young and still evolving


Shanghai, as the country’s main commercial hub, has
emerged as the preferred location, helped by the
presence of the Zhangjiang Hi
-
Tech Park.



The Industry comprises:


Pharmaceutical Manufacturers/Suppliers


Other Service Providers


Innovators


Big Pharma R&D

Pharmaceutical Manufacturers/Supplies


China has developed a vibrant manufacturing
industry to
supply :


lower
-
priced alternatives to branded pharmaceuticals for sale
and use in China, and


reliable sources of low
-
cost
active pharmaceutical ingredients
(APIs)



Generics industry historically promoted by:


absence of patent protection in China for pharmaceutical
products prior to January 1, 1993 and


many key blockbuster drugs not having patents in China


therefore local pharmaceutical companies could legally copy
new drugs developed and patented in other countries


relatively low barriers of entry associated with this work


Pharmaceutical Manufacturers/Supplies



The majority of manufacturers derive much of their
income from domestic sales of finished formulations


China has the lowest global cost base for API production
and has now become a major producer of API’s for the
global industry


At the end of 2007 over 6,600 pharmaceutical
manufacturers were registered with the State FDA


As yet no single firm has emerged as the dominant
market leader

Pharmaceutical Manufacturers/Supplies

2005

1.
Yangtze River
Pharmacy Group

2.
Harbin Pharmaceutical
Group Co

3.
Shijiazhuang Pharma
(CSPC)

4.
North China
Pharmaceutical Group


5.
Xiwang Group Co

6.
Shenghua Group

7.
Northeast
Pharmaceutical Group


8.
Shandong Xinhua
Pharmaceutical Group

9.
Tianjin Zhongxin
Pharmaceutical Group

10.
Tianjin TASLY
Pharmaceutical Group

2006


1.
Harbin Pharmaceutical
Group Co


2.
Shanghai
Pharmaceutical
(Group) Co

3.
Tainjin Pharmaceutical
Holdings

4.
Guangzhou
Pharmaceutical

5.
Yangtze River
Pharmacy Group

6.
Shijiazhuang Pharma
(CSPC)

7.
North China
Pharmaceutical Group


8.
XiuZheng
Pharmaceutical Group

9.
Northeast
Pharmaceutical Group


10.
Sichuan Kelun
Pharmaceutical

2007

1.
Yangtze River
Pharmacy Group


2.
Xiwang Group Co

3.
Harbin Pharmaceutical
Group Co


4.
Shijiazhuang Pharma
(CSPC)

5.
Shenghua Group

6.
Northeast
Pharmaceutical Group

7.
Xian
-
Janssen
Pharmaceutical

8.
North China
Pharmaceutical Group


9.
XiuZheng
Pharmaceutical Group

10.
Luzhou Group

The top 50 local pharmaceutical companies by revenue saw significant

change between 2005 and 2007 as a result of consolidation

Service Providers






As a low cost, high skill centre, China can provide productive and
cost effective execution of laboratory tasks, preclinical and clinical
testing and manufacturing and will continue to move into processes
previously considered the core activities of biotechnology
companies



With entry into the World Trade Organisation in December 2001
and the subsequent improvement in Intellectual Property Rights
protection international pharmaceutical companies became more
willing to disclose their technologies to Chinese manufacturers and
clinical trial service providers and benefit from lower cost services


China's effort to improve its laboratory practices resulted in the
creation of a Good Laboratory Practices (GLP) system in 1999
-

closely modeled on the US equivalent




Service Providers


An Example

WuXi PharmaTech




pharmaceutical and biotechnology CRO


founded in 2000


specializes in laboratory services, preclinical development, and
manufacture


No speciality in any disease area but
tailors service to its clients’
needs


more than 700 customers in the US, Europe, and Japan including
include Merck and Pfizer


August 2007
-

raised $185 million through IPO on NYSE


has shown robust growth over the past three years



WuXi PharmaTech says it plans to remain a service company. It has
a passion for researching possible compounds for new
-
concept
drugs, but no interest in the financial risks associated with the low
success rate of candidate drugs.

Innovators


China is just beginning to enter a phase of Innovation and develop innovative
products.


At present, only about

5% of the medicines on the Chinese market are innovative
and patent
-
protected



In some ways China remains an unlikely innovator …


its education system remains rigid


Chinese culture leans toward conformity rather than imagination


intellectual property protection is less than ideal



… however:


the Government is supportive of innovation


costs are low resulting in high productivity


there is a flow of Chinese scientists returning to China motivated by
entrepreneurialism and ambition who have studied and worked in laboratories in
the US


some Big Pharma are

moving R&D to China and Chinese scientists are rapidly
developing the ability to innovate and create their own intellectual property



Innovation is on the rise


There has been a marked increase in the number of
applications filed in the State Intellectual Property Office
in China.


In 2006, 570,000 patent applications were filed
surpassing the 410,000 patent applications filed in the
US Patent and Trademark Office.


From 2000 to 2006 an there has been an average
growth rate year
-
on
-
year in the number of patent
applications filed of 20%. Domestic applications
experienced higher growth than foreign applications.


Innovation is on the rise

Innovators


Innovation in China is largely funded by continuing to
offer manufacturing, clinical trial and contract research
services


At present
relatively few local companies are engaged
in the discovery and development of new
-
concept drugs
due both to the high initial capital investment such drugs
require and to their high failure rate.


In 2008 there are approximately 160 new drug
candidates in China’s pipeline, most of which are
modest evolutions


Innovators


Institutes and Universities


Main source of novel drugs


Lack the funding and personnel for clinical trials


Pharmaceutical companies


Lack the size, knowledge and resources for innovation


May manage clinical trials for Institutions and Universities


Biotechnology companies


More innovative and efficient than Pharmaceutical companies


Industry consolidation


consolidation of the industry is looming


but this needs paper and finance






Supportive Governmental Policies


In general, the climate in China is moving towards
favouring innovation


In April 2007 China issued its first five
-
year development
plan for its bioindustry 2006 to 2010


To build systems to benefit the bioindustry including policy
technology innovation, bio
-
security, industry organisation and
service.


To increase R&D investment


To upgrade the structure of the industry by cultivating biotech
enterprises and forming large
-
scale biotech enterprises


To grow industry scale


China has acted firmly against corruption with the arrest
and execution of the former head of the State FDA. 6
fake medicines approved, bribes of $850.

Data Exclusivity


Undisclosed test data will not be disclosed by authorities
prior to approval of market authorisation


For a period of 6 years from the date of approval of
marketing authorisation, a generics manufacturer cannot
refer to the undisclosed test data


Authorities will not disclosed undisclosed test data
except:


As necessary to protect the public


Where steps are taken to protect against unfair commercial use

Big Pharma R&D

Cost Advantages of R&D in China for Big Pharma


The push into China is partly a response to the spiralling
cost of drug discovery which can reach $1 billion by the
time a new drug is approved


Generally the cost of R&D in China is about 20 to 25% of
the cost in developed countries


Generally the cost of conducting clinical trials is about
70% of the cost of conducting such trials in the US.


Sample cost savings from ShanghaiBio relative to US:


30
-
60%

on Drug Discovery and Development


50
-
70%

on Pre
-
Clinical Testing in Animal and In
-
Vivo Models




Business model of selected companies

Government Business Incentives for R&D


Preferential income tax rate of 15% for R&D facilities


R&D centers can get their land use fees and land
transfer costs refunded for the first three years


The Zhangjiang park (Shanghai) offers fast
-
track
approvals for customs and some other procedures


Under Chinese law, if a foreign company with an R&D
centre in China applies for the approval of a new
medicine, it is handled by the relevant provincial level
FDA, whereas if a company with no R&D presence in
China does so, it is handled by the State FDA which
generally takes longer

Benefits in Penetrating the Chinese Market


Building research centres in China helps foreign
companies establish relationships with Chinese
physicians and government officials, which can be
pivotal when those companies try to launch products and
seek regulatory approvals.


Having a local presence and ties with the local
community can help ensure that intellectual property is
better protected.



Large, High
-
Quality, Inexpensive Talent Pool

-
The talent pool in China is improving to a globally
competitive level.

-
Many western
-
trained scientists and engineers have
returned to China taking good knowledge of drug
discovery and development, leadership skills and
especially English language skills.

-
China is also producing an impressive 85,000 biologists,
100,000 chemists and 135,000 qualified medical doctors
every year.


Big Pharma R&D Investment in China


AstraZeneca


May 2006, AstraZeneca announced it would invest over $100
million into China
-
based R&D over a three year period


used to build an R&D center that will focus on cancers prevalent
in China especially liver and gastric cancers


2006, AstraZeneca also announced a $14 million, two
-
year
compound synthesis pact with WuXi PharmaTech


work will focus on lead identification and provide chemical
compounds to supplement AstraZeneca’s chemical library



Novartis


spending $100 million for the design and construction of two
R&D facilities


focus of research will be virally induced cancers and infectious
diseases



R&D Investment by Big Pharma


GlaxoSmithKline


spending $40M outfitting a Shanghai
-
based R&D center to direct
its global discovery and development in neurodegeneration


building up drug discovery capabilities related to disorders such
as multiple sclerosis, Parkinson’s disease, and Alzheimer’s
disease


expected to become one of GSK’s bigger facilities when it is
completed p


redicted that in 10 years it will employ more than 1000 scientists



Roche


January 2004, Roche established an R&D center in Shanghai
with a $11 million investment


medicinal chemistry research for lead generation and
optimization




R&D Investment by Big Pharma


Lilly


In 2007, Lilly announced a $100 million investment into R&D in
China over five years


will invest into Chinese partners for chemistry and biology
projects instead of establishing wholly owned facilities



Pfizer


October 2005, Pfizer announced the establishment of an R&D
center in Shanghai





IPO of Chinese Companies

Date

Company

Exchange

Amount Raised US$M

15
-
Feb
-
06

STAR Pharmaceutical

SIN

10.4

27
-
Feb
-
06

BioSino Biotechnology

HKG

6

26
-
Sep
-
06

Mindray Medical

NYSE

270

30
-
Nov
-
06

China Medstar

AIM

8.9

01
-
Feb
-
07

WuXi Pharmaceutical

HKG

102.7

07
-
Feb
-
07

3SBIO

NASDAQ

123.2

19
-
Mar
-
07

Tongjitang Chinese Medicine

NYSE

99

23
-
Mar
-
07

Sihuan Pharmaceutical Holdings

SIN

37.9

20
-
Apr
-
07

Simcere Pharmaceutical

NYSE

227

2007

China Medical

LSE

19.80

2007

Fosun

HK

1,480

2007

China Nepstar Chain Drugstore

NYSE

334

2007

WuXi Pharma Tech

NYSE

185

IPO Enthusiasm


Industry watchers highlight the need for caution around
Chinese IPO’s


Chinese pharmaceutical companies have been rushing
to IPO
in the U.S. before the enthusiasm disappears

Mergers and Acquisitions


The highly fragmented pharmaceutical industry seems
like a natural candidate for M&A


Consolidation is underway as hotshots with IPO cash
have started scooping up smaller rivals


Only five months after its April 2007 NYSE listing, Simcere took
a $15 million, 51 percent stake in fellow drug maker Boda. In
late November, Simcere paid $4.4 million for Master Luck,
majority owner of Nanjing Tung Chit Pharmaceutical, which
makes cancer drugs.


In September 2007, a subsidiary of Tongjitang, which listed in
March 2007, bought Guizhou Long
-
Life Pharmaceutical
Company for $5.6 million in cash.

Mergers and Acquisitions


In perhaps the biggest and boldest deal …towards the
end of 2007, after its successful IPO,


WuXi PharmaTech

signed a definitive agreement to
acquire US
-
based
AppTech Laboratory Services

(AppTec) for
approximately $151M



WuXi assumes AppTec debt totaling approximately
$11.7M


The purchase expanded WuXi's offerings to include biologics
services and enabled WuXi to gain a significant US operational
footprint, and expand its customer base and addressable market
size.


Mergers and Acquisitions 2007

ACQUIRER/INVESTOR

ACQUIREE/INVESTEE

TYPE

VALUE ($M)

TPG

ShangPharma

Private
Placement

$30

WuXi Pharma Tech

AppTech Laboratory Services

M&A

$151

China Medical Technologies

Molecular Diagnostics Technologies
(HKG)

M&A

$137m

Benda Pharmaceutical

Shenzhen SiBiono GeneTech

M&A

$7.7

Beijing Med
-
Pharm

Sunstone Pharmaceutical

M&A

Unknown

Beijing Med
-
Pharm

Shanghai Rongheng Pharmaceutical

M&A

Unknown

China Aoxing
Pharmaceutical

Shijazhuang Le Ren Tang
Pharmaceutical

M&A

$10

AXM Pharma

Beijing Yuhuatang Biological Sci
-
Tech
Development

M&A

$5.7

© 2008 Morrison & Foerster (UK) LLP All Rights Reserved

BRASIL IS CHANGING TOO


BRASIL, SOME KEY FACTS


2007 GDP
(purchasing power party)




$1.836 trillion


Growth





5.4%


Population





191 million


Middle Class





22.5 million


Fixed line phones




33.8 million


Cellphones





99 million


Imports and Exports approx 9% to China


50% of all fuel sold for cars is ethanol


CLEANTECH IS BIG IN BRASIL


5
TH

largest landmass in the world


huge natural resources


Has 10% of world population of dentists!


Brasil


Pharmaceutical Market


In 2007 the pharmaceutical market grew 9% to $10.1
billion growing at 7.1% per annum projected to be
US$18.3 billion by 2012


200 pharmaceutical companies


consolidation
opportunities


More than 300 biotech companies in Brasil, more than
50% 7 years old


BDNES authorised to consider more healthcare
investment

Pharmaceuticals


Key Focus Areas


Manufacture of vaccines


Fiocruz



Neglected diseases



Stem cell therapy $12.1 m funding 2008/2009
(embryonic stem cells, individualised adult stem cells
etc)

Sensitivity to IP Value


Until 8 years ago, PhD students in Brasilian
universities had no tuition about patenting and
other issues. Now it is an integral part of the
course.



Brasilian businesses may have patented in
Brasil and possibly the USA. Otherwise no
focus on export.

Sensitivity to Export Markets


Until a few years ago, the maximum investment a
Brazilian business could make overseas in a single year
was $5 million. This created a climate of little
international trade, the focus being on imports (high
tariffs) and local manufacture.


Only the largest companies exported.


But many smaller businesses had products for the
Brazilian market.


SMEs now just beginning to realise the value of export
markets and/or international partnering.

Capital Markets


BOVESPA:

100 IPOs in 2006 and 2007, 64 in 2007. After


a quiet first semester, IPO activity now picking


up again in second half of 2008.



The two lead banks


Credit Suisse and UBS require
international advisors, and most listings now have an
international element such as s.144A registration at the
same time. Many more banks, private equity houses
and VCs in Brazil


Vision of the Future?

Pharmaceutical and med
-
tech markets are becoming more and more
international


This means more


Complexity


Strategy


Execution


IP issues


Regulatory Issues


Disputes


This is a world in which international legal services are essential


MoFo “joining the dots” for technology, products and finance


Contact

Julian Thurston



Co
-
Chair Global Lifesciences Group

Morrison & Foerster

Citypoint

One Ropemaker Street

London

EC2Y 9AW


Telephone: +44 20 7920 4050