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1 Pharmaceutical Sales

1.1 Pharmaceutical Sales

Pharma Market - Worldwide

Global sales 2004: $550bn, growth: 7%

The North American market (U.S. & Canada) represents by far the
largest single market and the most dynamic with 47.8% share

Japan is the world's second largest single market for pharmaceuticals

Source: IMS Health MIDAS

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Pharma Market - Typology

The pharmaceutical market includes three types of medicines: Pharmaceuticals:

New drugs developed by using chemical synthesis

Biopharmaceuticals:

New drugs developed by using biotechnologies

Generics:

Unbranded version of off-patent drugs

In 2004, the market of biopharmaceuticals was worth $55bn, a growth of ~17% with respect to 2003 The global sales for generics reached $35bn in 2004, growing about 10%

Presence of the different types of drugs on the pharma market

BIOGENERICS are foreseen to share soon the same market

Source: IMS Health 3 Internal usage only

Pharma Market - Insight US

Despite increasing sales in 2004, the US with 7% is experiencing the first drop below double-digit growth since 1995. However, the potential to grow for the market is still high and the growth is foreseen at 8-9% pace in 2006 Biopharmaceutical market grows faster

The new blockbusters are more and more bio products (13 out of 67 in total) Biotech companies such as Amgen, Genentech, Serono and Genzyme are within
the top 50 companies

Generics are promoted by the governmental policy to reduce healthcare costs

Growth in 2004

In 2004, generics accounted for more than 30% of

volume consumption. However, due to low prices they account only for 8% of drug sales by value

Generics market is predicted to grow at rate of

14% annually

Source: Pharmaceutical Engineering, Jul/Aug 2005, 25 (4)

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Pharma Market - Insight Canada

Stable growth of pharmaceuticals and Biotech on the upspring A bright future in biotech

About 500 diversified companies leading in biotech research 50% of product approvals are expected to be biological products by 2010
A key role of generics

In 2004, 40% of annual prescriptions were generics, even if they accounted

for only 15% of the annual expenses

Source: Pharmaceutical Engineering, Mar/Apr 2004, 25 (2)

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Pharma Market - Insight Japan

Japanese market will suffer with a limited 3% growth through 2008 due to the governmental policy to contain costs

In 2004 Japans market is worth $60bn - growth: 3% Pharmaceutical market features particular large share of foreign
companies of about 44 %

Dramatic increase in national medical costs forecast due to rising life

expectancy and improved medical technology will trigger severe drop of pharmaceutical prize index

Source: Pharmaceutical Engineering, Mar/Apr 2003, 23 (2)

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Pharma Market - Insight Western Europe

Sales 2004: ~ $163bn Growth rate: 4-5% 5 main protagonists:

Germany

France
UK Italy Spain

In 2006 growth is expected to stay constant at a rate of 4-5%

Source: EFPIA members associations

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Generics Market - Insight Western Europe

Share in % accounted for by generics in pharmacy market - sales value 2003

The recent politics of cost containment are promoting the use of generics in all the main European markets. An exceptions is France where the low penetration of generics is probably related to the low level of prices, also for branded medicines

Source: EFPIA members associations

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Pharma Market - Insight Latin America

Latin America (LA) pharma sales in 2003: $21.8bn Latin Americas demand for pharmaceuticals is highly growing

Increasing demand of prescription drugs related to the increased welfare Mexico and Brazil are the most stable markets in LA
Generics

Governmental policy of
cost reduction is promoting the use of unbranded drugs

However, generics must

fight with cheap copy products, which are not tested for bioequivalence

Source: IMS Health

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Main Markets - Future Trends

The global market size will continue to grow, even if at a contained rate of 67%, reaching $640-650bn by 2006 However, there are new elements in the global pharmaceutical markets that need to be taken into consideration. These are: The presence of new markets such as CEE, China, and India

growing demand for pharmaceuticals increasing outsourcing and partnerships with local companies
Higher profitability in niche markets

a number of companies move away from the blockbuster model to target at

specific patients, i.e. therapies for rare cancer

Source: IMS Health

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New Markets - Insight CEE

The EU expansion to the Central & Eastern European (CEE) countries with the free circulation of goods generated a new emerging market Audited drug sales in the 8 new members in 2004: $9.2bn - growth: 16%

Market is expected to be worth $13-14 billion by 2010

Generics

In 2002, generics accounted for about 70% of all prescriptions issued in

Poland, Hungary and the Czech Republic. They also accounted for more than 40% of the value of the retail market in Poland and the Czech Republic, and about 35% of the value of the retail market in Slovakia and Slovenia
Source: IMS Health 11 11 Internal Internal usage usage only only

New Markets - Insight China

China is worlds industrial powerhouse - the increasing welfare of its population spurs the demand for pharmaceutical products

Chinas highest growth in 2004

China has been recording an impressive double-digit growth of 30% with a

market size of ~ $8.5bn. In 2006 the Market will reach $1314bn with growth of 17-18%. China is expected to become the fifth largest drug market in the world by 2010

Source: IMS MIDAS Quantum

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New Markets - Insight India

India has enormous market potential due to the increasing welfare of a huge part of the population!
Top 10 Pharma companies in India in 2004

Indias market worth in 2004: $4.6bn

India market ranks thirteenth world wide, but it

is expected to have a 80% increase reaching $8.3bn by 2009 A competitive generics market

Ranbaxy or Dr. Reddys are top generics

producers also outside India

Source: IMS MIDAS Quantum

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1.2 Pharmaceutical Companies

Top 20 Pharmaceutical Companies

Based on pharmaceutical revenues in 2004 (in millions)
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Company Pfizer GlaxoSmithKline Sanofi-Aventis J&J Merck AstraZeneca Novartis Bristol-Myers Squibb Roche Lilly Wyeth Abbott Takeda Boehringer-Ingelheim Schering-Plough Bayer Novo Nordisk Schering AG Sankyo Merck KgA Sales $46.133 $31.417 $29.596 $22.128 $21.494 $21.426 $18.497 $15.482 $13.840 $13.059 $13.021 $11.462 $8.538 $7.667 $6.417 $5.529 $4.848 $4.171 $4.152 $3.907 Country US UK France US US UK CH US CH US US US Japan Ger US Ger DK Ger Japan Ger
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Source: http://www.contractpharma.com/top_comp.php#pharma

Top 10 Generics Companies

Generics sales - 2Q 2005 (in millions)

Rank 1 2 3 4

Company Teva Pharmac. Industry Sandoz Merck Generics Watson Pharmaceuticals

Sales $1,230 $832 $435 $313

Country Israel CH / Ger Ger US

5
6 7 8 9 10

Mylan Laboratories
Schwarz Pharma Pliva Barr Pharmaceuticals Alpharma Actavis

$253
$238 $191 $188 $103 $90

US
Ger Croatia US Norway Iceland

Source: www.leaddiscovery.co.uk/reports/The_World_Top_Ten_Generic_Companies.html 16 Internal usage only

Top 10 Biopharmaceutical Companies

Based on biopharmaceutical revenues in 2004 (in millions)
Rank 1 2 3 4 5 6 7 8 9 10 Company Amgen Genentech Serono Biogen Idec Genzyme Gilead MedImmune Chiron Millennium Intermune Sales $9.977 $3.749 $2.178 $2.112 $1.479 $1.242 $1.124 $990 $349 $147 Country US US CH CH/US US US US US US US

Source: http://www.contractpharma.com/top_comp.php#pharma

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1.3 Pharmaceutical Drugs and Compounds

Top 10 Pharmaceutical Products

Pfizers Lipitor is number-one drug with annual sales exceeding $10 billion The top 10 therapies classes account for 30% of the total world market with
global sales in excess of $50 billion

NOTE: Sales are in U.S. dollars for the 12 months ending June 2005. The figures cover pharmaceutical channel purchases from pharmaceutical wholesalers and manufacturers; they include prescription and certain over-the-counter data and current manufacturer prices.

Source: IMS MIDAS Quantum

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Forecast for the leading Therapy Classes

A market growth is expected as the population ages!

By 2005 more than 20% of the developed countries population will be over 60 years old (source: UN)

Demand for treating conditions such as hypertension, diabetes, high

cholesterol levels, osteoarthritis, menopause symptoms, and prostrate problems will increase

Oncology will have the highest global growth rate of 1718% in 2006 with a market reaching more than $40 billion by 2008

This is due to better diagnostics, the introduction of further innovative

products and the increased patient access to these innovative treatments. Moreover, cancer drugs cannot be impacted by over-the-counter switching

Source: IMS Health

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New Medicines Launch

70% of sales of new medicines* marketed since 1999 are generated on the US market

Between 1990-2004, R&D investment in US grew 4.5 vs. only the 2.7 times
in Europe

Compared to the US, Europe is seen as a less attractive R&D investment

location in terms of market conditions and incentives for the creation of new centers

* New medicines cover all new active ingredients marketed for the first time on the world market during the period 1999-2003
Source: IMS Health, 2004 21 Internal usage only

Pharma R&D - The Drug Approval Process

Long: It takes an average of 12-13 years for a new drug from synthesis to
medicines basket

Costly: R&D of a chemical or biological entity costs > $1bn* Of a high risk nature: only 1 out of 10,000 synthesized substances
becomes a marketable medicine
Clinical Trials on human beings Safety & tolerability tests Clinical efficacy on Definitive assessment on FDA approval Safety on 20-80 healthy volunteers 100-300 volunteers 1000-3000 volunteers surveillance

Preclinical test: in vitro and in vivo tests

Starting investigation: 10,000 entities
4-5 years

Phase I

Phase II Phase III

N D A

Phase IV
1 goes to commerciali12-13 year sation

8 years

9 year

10 year

NDA: New Drug Application * Di Masi J., Tufts University, Centre for the Study of Drug Development, November 2001 Source: EFPIA members associations (official figures) 22 Internal usage only

1.4 Pharmaceutical Production: Status & Trends

Insight US I
The United States: biggest market and strong producer

Highlights:

National production:
US pharmaceutical manufacturing is a dynamic industry answering global economic growth, demographics of an aging population and the production of newer, specialized therapeutics

Strong location:
19 out of the top 50 global pharmaceutical companies have corporate headquarters in the US

Not only Blockbusters:

Lower costs are needed to allow for better-targeted medicines aimed at smaller patient groups

Contract manufacturing is $30bn market and will grow to $48bn by

2008
Source: Pharmaceutical Engineering, Jul/Aug 2005, 25 (4) 24 24 Internal Internal usage usage only only

Insight US II
Increase efficiency and reduce cost!

Challenges:

Government and public pressure to reduce overall healthcare costs Regulatory agencies require compliance with tougher cGMP standards Contract manufacturing shifts to countries with lower production costs
but still complying with high manufacturing standards (e.g. India) Strategies:

Larger companies seek to integrate previously separate functions, such

as development and manufacturing operations

Large scale improvements of productivity and efficiency in

pharmaceutical production (i.e. by introducing FormWeigh.Net)

Source: Pharmaceutical Engineering, Jul/Aug 2005, 25 (4)

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Insight Canada I
Advantage on pharmaceutical production costs

Highlights:

Favorable environment:
stable governments, diversified society and being US neighbor are major advantages for potential Canadian investments

Big economic factor:

over 50 pharmaceutical companies employ more than 24 000 people all over Canada

Advantage Canada:
KPMG estimated Canadas pharmaceutical production to have lowest costs worldwide and a 6% cost advantage vs. the US in 2004

Continuous investments:
several companies have upgraded plant facilities and installed new equipment to increase production efficiency
Source: Pharmaceutical Engineering, Mar/Apr 2004, 25 (2) 26 26 Internal usage only

Insight Canada II
Facing the future with higher production efficiency and improved legislation

Challenges:

Governmental cost-cutting measures will impact on pharmaceutical

companies and their production sites

Patent protection lags behind other major western countries

Strategies:

Maximize production by increasing manufacturing efficiency Improvements to patent legislation and further tax incentives to
stimulate future investments

Source: Pharmaceutical Engineering, Mar/Apr 2004, 25 (2)

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Insight Japan I
Many players at high technological level

Highlights:

Big numbers:
Japans pharmaceutical industry features a very large number of small national producers (~1400 in total)

Crossing the gap:

Japanese chemical companies are developing their own pharmaceutical production technologies

High technological level in manufacturing:

since the mid 1990s, export dominates the pharmaceutical trade, demonstrating Japans cutting-edge production technology

Source: Pharmaceutical Engineering, Mar/Apr 2003, 23 (2)

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Insight Japan II
New regulations are challenging for national producers

Challenges:

The Pharmaceutical Affairs Law (PAL) will encourage the

presence of foreign pharmaceutical products, thus challenging local manufacturers

Little growth in pharmaceutical production due to biennial

governmental drug price schedule Strategies:

Higher industrial productivity and fast adoption of global unified

rules and standards to increase competitiveness

Intensifying national Merger & Acquisitions to face international

competitors

Source: IMS Health, Pharmaceutical Engineering, Mar/Apr 2003, 23 (2)

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Insight Western Europe I

The pharmaceutical industry is one of Europes best performing hightechnology sectors

Pharmaceutical production in % in the western European countries in 2003

Source: EFPIA members associations; CEN, December 6, 2004 Volume 82, Number 49 pp. 18-29

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Insight Western Europe II

A thriving pharmaceutical manufacturing with strong technical competence and expertise

Highlights:

Innovation, excellent education system and highly skilled workforce

are the strong points to achieve exemplary compliance of facilities for top quality products

Switzerland is still a big protagonist within the world wide drugs

manufacturers

Both, UK and France count more than 500 licenses to manufacture

drugs

Germany is still one of the top manufacturers in Europe, even if the

governmental cost containment politics in 2004 led to lower local investments by big pharma companies

Source: Pharmaceutical Engineering, Jan/Feb 2004, 24 (1) & Nov/Dec 2004, 24 (6);

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Insight Western Europe III

The main producers have to face the global rationalization of manufacturing activities

Challenges

An increasingly competitive global marketplace for investment in

manufacturing capability, e.g. CEE, China, and India Strategies

Patient-specific drugs will dominate future markets requiring high

flexibility concerning frequent changes in demand and capacityplanning The make to order manufacturing facility of the future will require high innovation and excellent engineering skills

Source: Pharmaceutical Engineering, Mar/Apr 2003, 23 (2)

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Insight CEE I
Favorable tax regimes and incentives for foreign companies will encourage drug makers to invest in facilities in CEE

Highlights

350 pharmaceutical manufacturers only in the polish market

registering more than 8,000 medicinal products

A big opportunity for generic drug manufacturers: profit from low

labor, set-up, production costs, and raising demand

Top five pharmaceutical players are already present on the

territory and many others start to expand

Source: Pharmaceutical Engineering, May/Jun 2004, 24 (3); PriceWaterHouseCoopers; IMS Health

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Insight CEE II
However, the unstable and unpredictable legal environment can still limit investments and development

Challenges

Few experienced GMP professionals Poor or absence of data exclusivity and protection of intellectual
property Strategies

Huge investment in the pharmaceutical sector to improve knowhow and seek for external support or guidance

Reorganization of the local manufacturing: e.g. most of the Polish

pharmaceuticals sector has already been privatized or sold to foreign investors

Source: Pharmaceutical Engineering, May/Jun 2004, 24 (3); PriceWaterHouseCoopers; IMS Health

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Insight China I
Multinationals consider China as biggest potential future market

Highlights

According to IMS, there are already 1,700 Sino-foreign joint ventures Roche, Novartis, GSK, and Pfizer rank among the top 10 companies
which plan to set local manufacturing facilities

A great opportunity for biopharmaceutical manufacturing sites: low

costs and high expertise in biology and biotechnology

Attractive tax incentive for foreign investors in the manufacturing 6,000 domestic producers with 97% of their production being copies
of foreign products

Source: PriceWaterHouseCoopers & IMS Health

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Insight China II
However, major regulatory improvements are still needed

Challenges

Chinas poor record of protecting intellectual property can deter both

indigenous and foreign companies from launching new products

Counterfeit drugs are supposed to kill 192,000 Chinese every year! A complex regulatory processes to obtain drug recognition and start
production

Strategies

A State Food & Drug administration (SFDA) has been specifically set
up to streamline processes and ensuring compliance with GMP

Source: PriceWaterHouseCoopers & IMS Health

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Insight India I
India is becoming a key manufacturing destination for the multinationals: costs to set-up and run a production facility are 80% lower than in the West

Highlights

70% of a total of 60,000 manufactured formulations are managed by

10,000 domestic firms

Multinational companies, such as Teva, Sandoz, and Ratiopharma,

are starting production in India to increase market share

Tax break for foreign investors in the local manufacturing facilities A thriving biopharmaceutical industry: six of the most important
biopharmaceutical products are manufactured in India

Source: Pharmaceutical Engineering, Nov/Dec 2005

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Insight India II
And the regulatory apparatus is evolving with the Industry

Challenges

Despite the Patents Act, ratified in April 2005, full intellectual

protection is not yet reached

Counterfeit or substandard manufactured drugs are still an issue! Partly poor infrastructure: shortages on water supply, electric power,
paved roads and rail transportation continue to hamper growth Strategies

Hi-tech industry and hi-GMP with 60% of the manufacturing sites

already approved by US FDA

High quality ancillary industry: all needed equipment is locally

produced (glass bottles, vials, capsules, blisters, packaging,)

Source: Pharmaceutical Engineering, Nov/Dec 2005

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Insight Latin America I

Strong multinational manufacturing presence

Highlights

Major multinationals, e.g. Pfizer, Novartis, Roche, GSK, Aventis,

Bristol-Myers Squibb, Schering Plough, have local production facilities or partnership with local contractors

Huge investments in the production have been realized to increase

scale and productivity of top products

The Bioindustry park: a very promising source of new medicines and

genetic discovery which will attract new companies, enterprises and business

Source: Pharmaceutical Engineering, Jan/Feb 2005, 25 (1)

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Insight Latin America II

Still unfavorable tax regimes and no incentives for foreign investors

Challenges

FDA has identified several issues dealing with unmatched GMP

requirements

Counterfeit medicines and lack of patent protection are still an issue

Strategies

Know-who rather than know-how: understanding the culture diversity! Alliance and partnership with local manufacturers to outsource most
of the activities

Establish a base in the most stable regions, i.e. Brasil, Mexico and
then expand to the other LA countries

Source: Pharmaceutical Engineering, Jan/Feb 2005, 25 (1)

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