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The Challenge from India

The Challenge from India. Dr. Brian W Tempest Chief Mentor & Executive Vice Chairman of the Board Ranbaxy Laboratories Limited, Delhi, India Mumbai – September 2006.

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The Challenge from India

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  1. The Challenge from India Dr. Brian W Tempest Chief Mentor & Executive Vice Chairman of the Board Ranbaxy Laboratories Limited, Delhi, India Mumbai – September 2006

  2. Except for the historical information contained herein, statements in this presentation and the subsequent discussions, which include words or phrases such as “will”, “aim”, “will likely result”, “would”, “believe”, “may”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “likely”, “project”, “should”, “potential”, “will pursue” and similar expressions or variations of such expressions may constitute "forward-looking statements". These forward-looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to our ability to successfully implement our strategy, our growth and expansion plans, obtain regulatory approvals, our provisioning policies, technological changes, investment and business income, cash flow projections, our exposure to market risks as well as other risks. Ranbaxy does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date thereof. Disclaimer

  3. Asia’s Share of the World GDP (at PPP in %) Year18701913 195019732001 China 17% 9% 5% 5% 12% India 12% 8% 4% 3% 5% Japan 2% 3% 3% 8% 7% Rest of Asia7%5%7%9%13% Total Asia38%25%19%25%37% Source – WEF - was 59% in 1820 with India 16%, China 33%

  4. Stock Market Performance in Asia in 2005 1. India +84% 2. Pakistan +75% 3. Korea +54% 4. Philippines +39% 5. China +34% Source: Rimes in GBP

  5. Davos 2006 Source – FT

  6. The Productivity Advantage India a usa Pharma view USA 1 chemist1 chemist Better education x 1.3 70 hours/week50 hours/week Longer working time x 1.3 $ 800 monthly $ 12,000 monthly Lower cost x 20 Sources: IPHMR Conferences, New Delhi August 2004

  7. The Ageing Advantage • Europe - retirees grow faster than workers - fertility rates lower, only 600k new Germans in 2005 • Japan - by 2050 36% > 65 years from 19% in 2005 • USA - over 50’s 88m will grow to 118m (2020) - obesity will cap life expectancy • China - one child families - get older before becoming wealthy - labour costs will rise owing to labour shortage - South Guangdong province is short of 2m workers • India - will remain very young - 50% <25years, 65% <35 years - source of the extra needed global workforce - in 2025 100m > 65 years (to China’s 200m)

  8. India and China: Working Population (age 15-64*;mn) *People who could potentially be economically active Source: UN

  9. The Economic Growth Advantage • Growth - GDP World growth marginally less in 06 than 05 (+4.3%) - USA expansion at a slower growth than 05 (+3.6%) - Euro zone, expected to perform better than USA - Japan, sustain current growth - China, slightly slower growth to prevent hard landing - India, increasing growth rate being talked up to 9%/10% - NRIs have overtaken the World Bank as the source of India’s foreign debt • Chindia, 40% population, 8% economy • Sentiment - India, largest foreign affairs caucus in US Congress (180) - Nuclear deal - China, 74,000 demonstrations reported in 2005 in China - State secrecy laws, IP rights

  10. Exports to GDP: India vs. China since Start of Reforms Source: WTO, Morgan Stanley Research

  11. The Billionaires Advantage • The world has 793 billionaires • USA has 371 – almost half • India - 23 billionaires, UK has 24 • China - 8 billionaires • Net worth of 40 richest Indians - $106 b • 40 richest Chinese - $26b “2006 belongs to some of the emerging markets, and no country more than India” Source: Forbes

  12. The R&D Investment Advantage Most attractive R&D Investment locations: 1. China 2. USA 3. India 4. Japan 5. UK Source – UNCTAD 2005

  13. The R&D Investment Advantage -reasons why India • Qualified Scientists & Engineers • Global India players with Alliances • English speaking • TRIPs compliant – first patent March 2006 • IIT, IIM & other scientific institutions Source – UNCTAD 2005

  14. The Knowledge Advantage • 4th largest reservoir of Scientific Manpower (2nd largest English speaking) • 3m graduates pa, 115k MSc Chemistry, 215k Eng (222k USA) Physics the most popular subject • Knowledge super power in the making • Lead by a Nuclear Scientist as President – remote sensing satellite technology, 1/6 countries • PCT application ranked 3rd – K, Ch, Ind, Si, RSA • Diaspora network (25m across 120 countries) • US & Europe will not dominate Science, Maths, IT

  15. Science Education in EU “This means that when pupils are in a science laboratory their experience is unsafe, unsatisfactory or uninspiring for 65% of the time. In addition, 13% of science classes are not taught in a laboratory at all” Source: Royal Society of Chemistry, Policy Bulletin – Spring 2006 UK “A” Level entries: Closed UK University 2000 2005% changeChemistry Departments: Physics : 32,059 28,119 -12% Dundee Kings Chemistry: 40,856 38,851 -5% Surrey Exeter Maths: 67,036 52,897 -21% Lancaster Queen Mary Computing: 19,099 7,242 -62% under review-Sussex Source: Daily Mail – 11 August 2006

  16. The Knowledge Advantage Engineers/Science graduates p.a – India 0.7m, China 0.5m, EU 0.5m, USA 0.4m, Japan 0.3m

  17. The Information Advantage • 34 News TV channels. Oldest 13 years old (NDTV) • 5000 newspapers, circulation 17m. 12 with 1m copies each • 200m daily readers. 21m new daily readers 2003/2005, +14% with 50% rural and 50% urban readership • Principal internet languages to become English, Chinese and Hindi • STD Kiosks converted to Internet Cafes. India to become the largest Internet market in 5-10 years • 5th member of the 100m mobiles club • Indians are hungry for information Source: World Business 26.2.2006, Larry Page (Google) zeitgeist conference may 2006

  18. The Potential for Improvement Advantage • Manufacturing growth - Chinese manufacturing +12% - India manufacturing +6.5% • Scope for improvement of Government Policies • Revitalization of agriculture - beyond milk (1st globally), wheat (2nd), rice (2rd) • More privatization – public sector not so buoyant • Further encouragement of R&D for Pharmaceuticals • Expand further the prosperous middle class of 300m

  19. The Medical Tourism Advantage • High quality healthcare, international standards • Patients from developed & developing countries • Growing privatization of hospitals, paperless hospitals • Analysis of serum samples from EU hospitals in India already • Low Costs: Thailand India - Open heart $14250 $4400 - Hysterectomy $ 2012 $ 571 - Knee surgery $7000 $4500 • Better access through Indian immigration & airports likely

  20. The M&A Future Advantage

  21. The FDI Advantage $b 1997/8 3.6 1998/9 2.5 1999/0 2.2 2000/1 4.0 2001/2 6.1 2002/3 5.0 2003/4 4.3 2004/5 5.6 2005/6 6.0 Source: Outlook business June 2006 - 2006/7 on target for $10b - But still only 15% of China

  22. Investment by top 15 Indian Domestic Pharmaceutical Companies $m 2000 110 2001 160 2002 200 2003 250 2004 400 2005 450 - Leading to even more Pharma R&D facilities and factories Source – Citigroup

  23. Investment by foreign Pharma companies

  24. Investment by Microsoft in India • Microsoft Global Development Centre (GDCI) • Microsoft Global Services (MGSI) • Microsoft Global Technical Support Centre (GTSC) • Microsoft Systems Research (MSRI) • Microsoft India Development Centre (MIDC)

  25. India A Global Strategic Asset for developed World Market businesses

  26. The Global Generic Market – growing everywhere $b 20042009 USA 15 27 W Europe 9 14 Japan 3 4 Rest of America 6 9 ROW 2540 Total 58 94 Source: Frost & Sullivan “India could soon dominate the entire production chain for generics” IMS prediction No 4 Scrip April 5 2006

  27. The Pharma Advantage Competitive Advantage – Aggressive Home Market

  28. The Pharma Advantage Competitive Advantage - Cost of Manufacture Active Pharmaceuticals Facility, Mohali Dosage Forms Facility, Paonta Sahib Highest number of FDA approved plants outside the US • No. of FDA approved plants: • 19901 • 1995 10 • 44 • 2004 105 • Source: Crisil / IPA

  29. The Pharma Advantage Competitive Advantage - Cost of Innovation R&D I R&D II 2005 2004 2001 185 2000 1999 170 146 86 49 24 32 Ranbaxy’s Patent Filings R&D III 24

  30. The Pharma Advantage – API’s % Share of USA DMF filings USA DMF filings by India India China 2004 27% 9% 2005 37% 10% Q1’06 44% 15% Q2’06 41% 16% Source: US FDA / J P Morgan 6th August 2006 1990 1 1995 4 2000 36 2004 187 2005 262 Source: Crisil / US FDA / J P Morgan

  31. The Pharma Advantage - ANDAs Annual USA ANDA Filings Ranbaxy 29 Sun 22 Orchid 18 Lupin 14 DRL 13 Cadilla 12 Source: Pharmabiz 8th Sept’ 2005 - One in every four ANDAs filed by Indian Companies in top USA FDA filers Source: KPMG -29 ANDAs p.a ranks in top 3 USA FDA filers -Indian Generic Companies on a Filing Spree - BOA • - No Chinese generic company has yet filed a USA FDA • ANDA

  32. Leading Generic Companies Annual Sales (US$ Millions) Source: CLSA, 6 August 2006 Source : Company /Financial reports & presentations

  33. A race to Prosperity • With Law (India) & Order (China) • Buddhism • Joint Bids for oil assets • Silk road re-opened – Sikkim to Tibet • (Nathula Pass) • Calcutta port is only 1120k from Lhasa

  34. Potential Downsides to the Indian Scenario

  35. Potential downside – Asian Flu* *50% of world chickens bred in Asia

  36. Potential downside – Oil prices* • A war against Iran could drive oil > $200 a barrel - ‘Times’ 22nd June 2006 • Oil is 33% of Indian Energy Sources – IMA, India June 2006 • BRIC countries consume 20% oil Source – Outlook business June 2006

  37. Potential Downside - Pollution USA – 4% population with 20% emissions China – Same level as USA in 2005. In 2025 will be double India, China, USA – Refuse any mandatory CO2 emission caps India is 6th greatest energy consumer Ganges River is the World’s most polluted river – source: World Commission on water

  38. Potential downside – InfrastructureA common view - Infrastructure will need $155b over the next five years Source – Manmohan Singh

  39. Potential downside – Counterfeit products from India -but not a global issue Origin of fake products seized in EU in 2004 Rank • China • Thailand • Hong Kong • Turkey • USA Source: FT Countries where fake pharma products seized in 2005 Rank • Russia • China • South Korea • Peru • Columbia Source: PSI 192,000 died from Counterfeit drugs in China in 2001 Source: IMS 27th Feb’2006

  40. Summary Asia economic strength is returning to levels seen in the past Many advantages for India – particularly R&D India as a global strategic asset Some downsides - infrastructure The current feeling in India a turning point has been reached and an inflexion point has been passed China & India represent the future of Asia and quite possibly the future for the global economy – Steve Roach, Morgan Stanley

  41. “We have all grown up learning the story of the unfinished voyage of Christopher Columbus setting sail to reach India, he discovered America. I now invite the people of America to complete the Voyage of that great explorer” Manmohan Singh Prime Minister of India July 2005

  42. Thank You

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