Reflections on the Global Generic Pharmaceuticals Market place

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Reflections on the Global Generic
Pharmaceuticals Market place

Dr. Brian W Tempest


www.briantempest.com



Vidya Pratishthan’s School of Biotechnology , Baramati, India


October 10
th

2007




DR. BRIAN W. TEMPEST CSci, CChem, MRSC, BSc, PhD


Dr. Brian Tempest has worked in the pharma industry for the last 36 years. During
this time he has worked for several pharma majors, including Glaxo & Searle,
around the world and joined Ranbaxy 12 years ago. During this period Ranbaxy
has transformed from a small company focused on the India domestic market, to a
top 10 global generic company. Dr. Tempest has lived in New Delhi, India for the
last 8 years, and has been President, Managing Director & Chief Executive Officer
and, until recently, the Chief Mentor & Executive Vice Chairman of the Board. Dr.
Tempest retired from Ranbaxy in December 2007, when he reached 60. Dr. Tempest
is one of a few westerners to have held a leadership position in an Indian blue chip
MNC, and has an unusual insight into India.

Dr Tempest is also a Honorary Professor of the Management School at Lancaster
University, UK, and he sits on the Editorial Board of the Journal of Generic
Medicines and on the Advisory Board of the India Fund held by JM Financial
Investment Managers Ltd in Mumbai.

Dr. Tempest will be available from Hale & Tempest Co. Ltd from January 1
st

2008

brian.tempest@gmail.com

/
brian.tempest@clara.co.uk

Mobile +91
-
98100
-
91192 / Tel:+44 1753 864 616

Asia’s Share of the World GDP (at PPP in %)


Year

1870

1913


1950

1973

2001




China 17% 9% 5% 5% 12%


India 12% 8% 4% 3% 5%


Japan 2% 3% 3% 8% 7%


Rest of Asia

7%

5%

7%

9%

13%




Total Asia

38%

25%

19%

25%

37%



Source


WEF


-

was 59% in 1820 with India 16%, China 33%




Asia on the Rise

Source


FT

The Global Challenge from Asia

The Asian Race to Prosperity

Reflections





Market drivers


Competition is rising


Why Branded generics


IP changes in USA & India


M&A and Private Equity


East
-
West Alliances



The Productivity Advantage


India

a usa Pharma view


USA



1 chemist Better education x 1.3 1 chemist


70 hours/week Longer working time x 1.3 50 hours/week






$ 800 monthly Lower cost x 20 $ 12,000 monthly

Sources: IPHMR Conferences, New Delhi August 2004

India’s Youthful Advantage

Percentage of Population aged 65 and older

6.9

5

8.3

14.7

14.8

21.5

29.2

12.3

18.7

21.4

13.2

22.7

China

India

Europe

North America

2000 A

2025 E

2050 E

Median Age in Asia


India


24


31


38


China


30



39


44


Japan


41


50


53

2000

2025

2050

Sources: Rand Corporation

Years

The Education Advantage

The Education Advantage

Engineers/Science graduates p.a


India 0.7m, China 0.5m, EU 0.5m, USA 0.4m, Japan 0.3m

Japan’s Wealth Advantage

Canada

2%

Rest of World

10%

Japan

27%

Germany

4%

Italy

4%

France

5%

UK

6%

USA

37%

Netherlands

2%

Spain

1%

Switzerland

1%

Taiwan

1%

Source: The World Distribution of Household Wealth

Sources: Goldman Sachs 2007

Top 5 Global Pharmaceutical Markets 2020

Rank

Country

Size

1.


2.


3.


4.


5.


USA


China


Japan


France


India

$ 475b


$ 125b


$ 61b


$ 51b


$ 43b

Sources: AXA Framlington



Company

Expiry

2010

Expiry

2012

Expiry

2011

Pfizer

Aricept
-

$800m

Lipitor
-

$12.1bn

Xalatan
-

$1.6bn

Viagra
-

$1.7bn

Detrol
-

$860m

Geodon
-

$1.1bn

Astra Zeneca

Arimidex
-

$2.2bn

Seroquel
-

$4.7bn

Symbicort
-

$3.7bn

Sanofi
-
Aventis

Taxotere
-

$2bn

US Plavix
-

$3.8bn

Avapro
-

$2.1bn

Lovenox
-

$3.1bn

BMS

US Plavix
-

$4.8bn

Avapro
-

$1.3bn

Abilify
-

$2.1bn

GSK

Advair
-

$3.8bn

Avandia
-

$2.5bn

Patent Expiry Dates

41%

38%

34%

30%

23%

% at Risk

Competition is Rising

CPHI Attendees, Milan,

2
nd



4
th

Oct’07

1.

China

467


33%

2.

India

189


13%

3.

Germany

96

4.

Italy

80

5.

USA

75

6.

UK

55

7.

France

55

8.

ROW

387

Total

1404

As registered on July 25, 2007

Generics


API’s

USA DMF filings by India

% Share of USA DMF filings






India

China



2004 27% 9%


2005 37% 10%


2006 44% 14%



Q1’07 48% 17%





Source: US FDA / J P Morgan, 2 may 2007






Source: US FDA, Credit Suisse






India

China



2004 187

48


2005 252

87


2006 357

128





Source: US FDA / J P Morgan, 6
th

August 2006










-


One in every four ANDAs filed by Indian Companies in top


USA FDA filers


Source: KPMG




-

No Chinese generic company has yet filed a USA FDA ANDA



but expected in 2008


Generics
-

ANDAs

0
50
100
150
200
250
300
2002
2003
2004
2005
2006
24

46

64

144

ANDA Filings in USA by Indian Companies

250

R&D Productivity is Falling

Global Pharmaceuticals Sales Trends

Global Pharmaceuticals Equity Trends

Speed of Clinical Trials in India






EU

India



Patients 85

650


Sites 22

5


Time 36m

18m





Neck Cancer CT








Plan


Actual




Patients 100

130


Sites 10

9


Time 5m

2.5m





Overactive bladder CT








300 patients, 30 sites


$5.6m EU/USA vs $ 1.8m plus


30% faster at $800K per day
savings









No. of USA investigators:


2001

-

2006



26,000 18,000



Sources: CT Outsourcing Conference, 24
th

July 2007, Mumbai

Electronic Data Capture in India





% Trials in EDC




2005 2007




25% 45%



Savings



Paper EDC



$2.8m $ 0.5m



2004 data





Sources: CT Outsourcing Conference,


24
th

July 2007, Mumbai





Accuracy




-

300 GSK Staff



-

2.2m Clinical Data sheets



-

450 Trials



-

No data security issues



-

Error rate <0.01 / 100k






Source: BCG report “Looking Eastward, Sept’2006”






Branded Generics


Promotion to doctors rather than pharmacists


Consistent sales year on year


No huge highs & lows for sales and profits


Need field force to promote products


Tend to be profitable


Promoted in conventional manner


Global generic brands


Relevant to Central Europe, East Europe, Latam, Asia


Ranbaxy 50% branded generics & 50% commodity
generics

Branded Generics
-

the Analyst’s view




“Branded Generics are the most profitable
place to be in generics and there are a few
markets with better branded characteristics
than those of the Middle East and North Africa
region”



Frances Cloud Nomura September 14 2007

Different Global Generic Market Sizes $bn

Region

Sandoz

2006

IMS

2008

USA

23

68

West Europe

14

19

East Europe

13

NA

Japan

3

3

Latam/Canada

10

3 (Canada only)

ROW

37

7

Total

100

100

Ranbaxy 2006 Sales by Geography

Europe & CIS
25%
API
8%
Americas
33%
Asia
27%
Africa
7%
$ 1.34b

Ranbaxy H1 2007 Sales by Market


Emerging
Markets
54%
Developed
Markets
40%
Other
6%
ROW Top 10 Generic Markets
-

$bn

IP


USA Pendulum

“A key USA Supreme Court ruling KSR VS Teleflex led to
Pharmaceutical patents being more easily challenged on the
grounds of obviousness, a ruling which immediately came into
play when J&J & Merck had a US patent for Pepcid
Complete (Famotodine) found to be obvious”.


Scrip, July 6
th

2007, p3



The full beneficial impact of this ruling on the generic industry is yet to be
seen eg Sanofi
-
Aventis Ramipril was invalidated as obvious by Lupin in
September 2007.


Bilateral FTAs
-

USA Pendulum






Democrats now chair the Ways & Means Committee


USTR legally required to work within TRIPS


Up till now the USA has been incorporating TRIPS PLUS IP
protection into bilateral free trade agreements


Corrections to bilateral trade agreements e.g. Peru, Columbia,
Panama FTAs now being made






TRIPS



Basic product patent


Data protection







PLUS TRIPS



+ Data exclusivity


+ New forms, isomers etc


+ New Indications


+ New Combinations







Should IP be the same across all Countries?

0
1000
2000
3000
4000
5000
6000
USA

Thai

China

India

Brazil

USD

Sources: World Health Report 2005

Per Capita Expenditure on Healthcare 2002

Sources:

1.
IMS Midas, March 2005

2.
Earth Trend Data Tables 2005

82% of the world population accounts for only
12% of the Global pharmaceutical sales

Region

Pharma Sales

Population

North America

Europe

Japan


$255 b 47%

$158 b 30%

$59 b 11%

332 5%

725 11%

128 2%



Asia/Africa/Aus

Latam


88%


$41 b 8%

$20 b 4%



18%


4711 73%

558 9%


12%


82%

Worldwide

$533 b 100%

6454 100%

Enforcement versus Evergreening

in Developing Countries






India IP
02/03

06//07



Filed


11466 28882


Examined 9538 14119


Granted 1379 7359




-

140 patent examiners 2007

-

600 more planned

-

Attrition an issue

-

Weekly patent journal

-

IP Appellate Court






Source: Business Standard, 16
th

Aug’2007



1995


2005 FDA cleared 327 drugs



95% pre 1995


before WTO deal



16 basic patent molecules possible



However 9000 Pharma applications


-

for evergreen changes



-

for new indications








Source: Gopa Kumar


“Centre for Trade & Development, Delhi”


PCT Filings






PCT Files from
Developing Countries 2006






1.
Huawei
-

China

2.
LG
-

Korea

3.
Samsung
-

Korea

4.
LG Cem
-

Korea

5.
Elec Telecom


Korea

6.
2TE


China

7.
STR


Singapore

8.
Ranbaxy


India

9.
CSIR


India

10.
NHN
-

Korea






Ranbaxy Patent Filings

24

32

49

86

146

170

185

M&A Building the Top Players in the


Global Generic Market

PE Deals in Asia (ex
-
Japan) in H1 2007

Country

No. of deals

Sum Invested
-

$m

China

103

1489

India

90

1369

Hong Kong

5

186

Australia

26

71

Taiwan

6

33

S.Korea

30

29

Thailand

2

29

Singapore

4

16

New Zealand

9

3

Total

278

3233

Sources: Thomson Financial

% PE/VC Share of all Global M&A Deals

0
5
10
15
20
25
2000
2001
2002
2003
2004
2005
5%

6%

9%

16%

17%

21%

Sources: Thomson One Banker, BCG Analysis

PE Investment in India is rising

Key Challenges to the Asian Scenario

Potential Challenge


Asian Flu*

*50% of world chickens bred in Asia

CO
2

emission
-

% of World total in 1990
-
2000


USA


23%

EU 25


17%

China


14%

Russia


7%

Japan


5%

India


4%




source: WRI, EIA

Potential Challenge


Climate Change

Potential Challenge


Infrastructure


Source


Manmohan Singh

“Our greatest potential will be realised only if we can ensure that our

Infrastructure does not become a severe and critical handicap”

Corruption
-

Perception Index


Rank



Country



1




Finland, Iceland, NZ


5




Singapore


11




Austria, Luxemburg, UK


16




Germany


20




Belgium, Chile, USA


42




Mauritius, S.Korea


51




South Africa, Tunisia


70




Brazil, China, India, Mexico


121




Philippines, Russia


163




Haiti




Sources: Transparency International 2006, selected countries only

Potential challenge


Oil prices


Source


Assocham



A war against Iran could drive oil > $200 a barrel
-

‘Times’ 22
nd

June 2006



India is expected to import 85% of crude oil by 2012 from 70% today

Source


BP

Potential Challenge


over the border

Potential Challenge
-

Currency Volatility

The Tempest Crystal Ball


India will continue to be a Key Driver in the Global Generic Industry



Competition is rising


Post TRIPs


Indian companies will evolve



Discovery companies will continue to be attracted to India for CT, EDC,


MO. China will be perceived to be stronger in biology/ toxicology



IP changes in US & India will slowly favor Generics



Alliances between Western Biotech and Asians companies will expand.


M&A PE deals will grow



How to use Asia will become the key opportunity


-

Assumes GDP growth of 7.3% for next 20 years with no profound shift in economic policy



Sources: McKinsey Quarterly, 3
rd

November 2007


The rise of the Indian Middle Class


Annual Income

< Rs. 90k

Rs. 90 k
-

Rs.2L

> Rs. 2L

1985 A

1995 A

2005 E

2015 F

2025 F

702 m

742 m

598 m

447 m

314 m


45 m

167 m

454 m

550 m

514 m


8 m


19 m


55 m

281 m

600 m

“The Indian System looks ramshackle

and improvised. But at its best it is

capable of brilliance”



“When we say the Silicon Valley is

built on ICs we don’t mean integrated

circuits


we mean Indians & Chinese”



“The UK needs to wake up to what

India is becoming”



Source: DEMOS report


January 2007


Perceptions of Asia





Asia economic strength is returning to levels seen in the past



Many advantages for India with some challenges




India is a global strategic asset for developed markets




India is a rich location for R&D alliances and CT outsourcing



MNCs will dip in & out of India & China




South East Asian economies will be driven by India & China



Japan will continue to represent a huge share of global wealth





“China & India represent the future of Asia and quite possibly the future for
the global economy”


Steve Roach, Morgan Stanley





Summary

Thank You