Identifying And Exploiting API Opportunities Across Emerging Markets

1. Identifying And Exploiting API Opportunities Across Emerging Markets API SOURCING STRATEGIES 2008 BERLIN, GERMANY DAVID HARDING NOVEMBER 24, 2008

2. 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

3. 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 and Therapy Forecast

4. 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

5. Number of API Manufacturing Plants Inspected by US FDA: 2001 – 2007 Source: Newport Horizon Premium™

6. Number of API Manufacturing Plants Inspected by US FDA: 2001 – 2007 Source: Newport Horizon Premium™

7. Availability of High-Quality API: A Global perspective Source: Newport Horizon Premium™

8. Number of US DMFs filed by country: 1998 – 2007 Source: Newport Horizon Premium™

9. US DMF Filings by API Manufacturers: 1998 – 2007 Source: Newport Horizon Premium™

10. Number of European COS filed by country: 1998 – 2007 Source: Newport Horizon Premium™

11. COS Filings by API Manufacturers: 1998 – 2007 Source: Newport Horizon Premium™

12. Indian Landscape for API Manufacture • Abundant amount of API manufactured for local market • Abundant amount of API Exported; plenty imported

13. Availability of API: India Source: Newport Horizon Premium™

14. 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 • Clavulanate Potassium • Erythomycin Thiocyanate • Levonorgestrel • Vancomycin Hcl • Cyclosporine Source: Newport Horizon

15. Pros Not self-sufficient in all products Fermentation Steroids Prostaglandins Polypeptides Demand for Intermediates Costs rising in China and India Opportunities in high-quality API for export dose 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 Are there many opportunities to sell API into India?

16. Indian Corporate Groups Pursuing Regulated API Markets

17. 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 Are there many opportunities to source API from India?

18. Chinese Landscape for API Manufacture • Abundant amount of API manufactured for local market • Abundant amount of API Exported; some imported

19. Availability of API: China Source: Newport Horizon Premium™

20. Markets for API: China~400 Chinese Import Registrations filed since September 2003 • Companies with most CIRs • Kyowa Hakko Kogyo • Novartis (Sandoz, Lek) • Ajinomoto • DSM Fine Chemicals • Pfizer • Chong Kun Dang • Ranbaxy • Dr Reddys • BASF • Products with most CIRs • Clavulanate Potassium • Amoxicillin • Clarithromycin • Diltiazem Hcl • Cysteine • Pioglitazone Source: Newport Horizon

21. 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

22. IMPACT OF THE OLYMPICS • Will intermediate manufacturing start moving to India? Europe? U.S.? • Will API outsourcing into China slow down?

23. Pros Rising costs in China Demand for difficult to manufacture APIs “nibs” Demand for high-quality API from dedicated facilities Newer cephalosporins 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 Are there many opportunities to sell API into China?

24. Chinese Corporate Groups Pursuing Regulated API Markets

25. Pros Lower cost base (than India) Improving IP and anti-counterfeiting environment Good at intermediate manufacturing Cons Still lacking at meeting strict GMP standards Cost of materials increasing Language barrier “Buyer Beware” Heparin scare Are there many opportunities to source API from China?

26. Russian Landscape for API Manufacture • Some API manufactured locally, but for local market • Overwhelming majority of API imported INTO Russia

27. Availability of API: Russia Source: Newport Horizon Premium™

28. Top API imported to Russia (2007) • Paracetamol • TolperizoneHcl • Vinpocetine • Doxorubicin Hcl • Cefotaxime Sodium • Mannitol • Cefotaxime • Chlorpromazine Hcl • Docetaxel Anhydrous • CholineAlfoscerate Source: PharmExpert™ • Cefazolin Sodium • Amoxicillin Trigitrate • Sorbitol • Metamizole Sodium • Aminosalicylic Acid • Ampicillin • Ascorbic Acid • Acetylcalicylic Acid • Paclitaxel • Ceftriaxone Sodium

29. Pros Almost all API is imported Little local production Little local expertise outside of supplements Local products w/ inconsistent quality Large number of local dose companies Cons A lot of the API is coming from India, China Many local dose companies buy from offshore distributors Suspect quality Red tape Are there many opportunities to sell API into Russia?

30. Brazilian Landscape for API Manufacture • Some API manufactured for local market • Very little exported • Overwhelming majority of API imported INTO Brazil

31. Availability of API: Brazil Source: Newport Horizon Premium™

32. Pros Most of API is imported Low import taxes Dose companies becoming more quality minded Regulatory environment becoming tougher Dose exports into neighboring countries Opportunities in High-quality hormones Controlled substances Cons Currently most API imports from India and China Still heavy focus on cost rather than quality Euro to Real Are there many opportunities to sell API into Brazil

33. 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 Can’t compete on cost Are there many opportunities to source API from Brazil

34. 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?

35. 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