Identifying And Exploiting API Opportunities Across Emerging Markets

API SOURCING STRATEGIES 2008 BERLIN, GERMANY DAVID HARDING

NOVEMBER 24, 2008

API INTELLIGENCE AT THOMSON REUTERS

Newport Strategies founded in 1990 and acquired by Thomson Scientific in 2004 Industry pioneer in research and analysis of the impact of global API development on competition in generic products
Strategic competitive intelligence Tools for API sourcing and business development

Newport Horizon and Newport Vision used by over 200 companies across the globe

Backdrop
Pharma Market: Growth Expectations for 2009

Will hold steady at 2008 levels*

US: 1-2%, EU5: 3-4% Japan: 4-5% BRIC: 14-15%

Brand Pharma
Innovation slump Blockbusters losing patent protection Generics Increasing competition, especially from India Low cost API coming from India, China Margin pressures in U.S., UK, Germany Drop in small molecule opportunities post-2011
*2009 IMS Global Pharmaceutical 3 and Therapy Forecast

Agenda
A quick look at some figures in regulated markets Reviewing the changing dynamics of the API market Benchmarking API opportunities from and into emerging generic markets Pros and Cons of working in emerging markets

Number of API Manufacturing Plants Inspected by US FDA: 2001 2007

140 120 100 80 60 40 20 0 2001 2002 2003 2004 2005 2006 2007

Source: Newport Horizon Premium

Number of API Manufacturing Plants Inspected by US FDA: 2001 2007

Source: Newport Horizon Premium

Availability of High-Quality API: A Global perspective

Source: Newport Horizon Premium

Number of US DMFs filed by country: 1998 2007

Spain; 117 Israel; 183

England; 106

Switzerland; 189 India; 1270 Japan; 197

Germany; 226

Italy; 268

China; 359

USA; 698
Source: Newport Horizon Premium

US DMF Filings by API Manufacturers: 1998 2007

Source: Newport Horizon Premium

Number of European COS filed by country: 1998 2007

Israel; 71
England; 71 USA; 326

Japan; 77

Switzerland; 103

France; 113 India; 312

China; 131

Italy; 138 Germany; 201

Source: Newport Horizon Premium

COS Filings by API Manufacturers: 1998 2007

Source: Newport Horizon Premium

Indian Landscape for API Manufacture

Abundant amount of API manufactured for local market Abundant amount of API Exported; plenty imported
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Availability of API: India

Source: Newport Horizon Premium

Markets for API: India ~1300 Indian Import Registrations filed since Feb 2003
Companies with most IIRs

Schering-Plough
Teva DSM BASF Sanofi-Aventis Novartis (Sandoz, Lek) Pfizer Bayer North China Pharmaceutical Group

Kyowa Hakko Kogyo Products with most IIRs

Source: Newport Horizon

Clavulanate Potassium
Erythomycin Thiocyanate Levonorgestrel Vancomycin Hcl Cyclosporine
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Are there many opportunities to sell API into India?

Pros
Not self-sufficient in all products
Fermentation Steroids Prostaglandins Polypeptides

Cons
Abundance of locally manufactured API Many local facilities FDA approved Extensive importing from China Local API manufacturers enjoy cost advantage Restrictive duty on API imports

Demand for Intermediates Costs rising in China and India

Opportunities in highquality API for export dose

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Indian Corporate Groups Pursuing Regulated API Markets

No. of Corporate Groups

150 100 56 50 0 Established Less Established Potential Future Corporate Group API Rating 2004 2008 (as of October)
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80 18 23 17 29

Are there many opportunities to source API from India?

Pros
Many companies with regulatory filings Many companies that are FDA approved Lower cost of API Rich talent pool (125,000 chemical engineers each year alone) No Language Barrier

Cons
Increased FDA inspections could lead to unfavorable results
Example: Ranbaxy

cGMP standards not always met

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Chinese Landscape for API Manufacture

Abundant amount of API manufactured for local market Abundant amount of API Exported; some imported
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Availability of API: China

Local

Potential Future

Less Established

Established

200

400

600

800

Source: Newport Horizon Premium

Markets for API: China ~400 Chinese Import Registrations filed since September 2003
France 4% UK 4% Netherlands 4% Italy 5%
All Others 7%

Companies with most CIRs

Japan 26%

Kyowa Hakko Kogyo

Novartis (Sandoz, Lek) Ajinomoto DSM Fine Chemicals Pfizer Chong Kun Dang Ranbaxy Dr Reddys BASF

Germany 8%

Products with most CIRs

India 13% South Korea 9% Switzerland 9% USA 11%

Clavulanate Potassium Amoxicillin Clarithromycin Diltiazem Hcl Cysteine Pioglitazone

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Source: Newport Horizon

Changing Dynamics of API Market: China

The days of cheaper API prices could come to an end
Effects of the Olympic games

+ Implementation of more stringent EHS regulations

+ Waste water treatment standards + Increasing cost of labor, inflation and energy = Higher API prices

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IMPACT OF THE OLYMPICS

Will intermediate manufacturing start moving to India? Europe? U.S.? Will API outsourcing into China slow down?

Are there many opportunities to sell API into China?

Pros
Rising costs in China Demand for difficult to manufacture APIs
nibs

Cons
China has manpower, intellect and raw materials to manufacture most products locally Heavy focus on cost Importing from low-cost countries High-value of Euro

Demand for high-quality API from dedicated facilities

Newer cephalosporins

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Chinese Corporate Groups Pursuing Regulated API Markets

No. of Corporate Groups

150 100 50 26 44

144

8
0

11

Established

Less Established

Potential Future

Corporate Group API Rating 2004 2008 (as of October)

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Are there many opportunities to source API from China?

Pros
Lower cost base (than India) Improving IP and anticounterfeiting environment Good at intermediate manufacturing

Cons
Still lacking at meeting strict GMP standards Cost of materials increasing Language barrier Buyer Beware
Heparin scare

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Russian Landscape for API Manufacture

Some API manufactured locally, but for local market

Overwhelming majority of API imported INTO Russia

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Availability of API: Russia

Source: Newport Horizon Premium

Top API imported to Russia (2007)

1. Cefazolin Sodium 11. Paracetamol 12. Tolperizone Hcl 13. Vinpocetine

2.
3. 4. 5. 6. 7. 8.

Amoxicillin Trigitrate
Sorbitol Metamizole Sodium Aminosalicylic Acid Ampicillin Ascorbic Acid Acetylcalicylic Acid

14. Doxorubicin Hcl

15. Cefotaxime Sodium 16. Mannitol 17. Cefotaxime 18. Chlorpromazine Hcl 19. Docetaxel Anhydrous 20. Choline Alfoscerate

9.

Paclitaxel

10. Ceftriaxone Sodium

Source: PharmExpert
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Are there many opportunities to sell API into Russia?

Pros
Almost all API is imported
Little local production Little local expertise outside of supplements Local products w/ inconsistent quality

Cons
A lot of the API is coming from India, China Many local dose companies buy from offshore distributors
Suspect quality

Large number of local dose companies

Red tape

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Brazilian Landscape for API Manufacture

Some API manufactured for local market Very little exported Overwhelming majority of API imported INTO Brazil
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Availability of API: Brazil

Source: Newport Horizon Premium

Are there many opportunities to sell API into Brazil

Pros
Most of API is imported Low import taxes Dose companies becoming more quality minded

Cons
Currently most API imports from India and China Still heavy focus on cost rather than quality Euro to Real

Regulatory environment becoming tougher

Dose exports into neighboring countries Opportunities in
High-quality hormones Controlled substances

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Are there many opportunities to source API from Brazil

Pros
Universities and private enterprise work together Recent push for new drug development

Cons
Lack technical documentation or expertise Lack of scale Lack of specialization

Lack of export policy

Cant compete on cost

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Conclusion
Opportunities exist for sourcing API from China and India Opportunities exist for selling API into China, India and Brazil

Knowledge of API manufacturer is key

Are they really manufacturing this API? Are they able to supply regulated markets with API?

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Thank you!

David Harding Newport API Intelligence Specialist Thomson Reuters Scientific 215 Commercial Street Portland, Maine 04101 USA + 1 (207) 871-9700 x27 david.harding@thomsonreuters.com

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