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SK-PHARMACEUTICALS Role of the National Distributor in the State Program of Accelerated Industrial Innovative Developm

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SK-PHARMACEUTICALS Role of the National Distributor in the State Program of Accelerated Industrial Innovative Developm

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    1. 1 Good morning/afternoon Ladies & Gentlemen! Welcome to the presentation of SK-Pharmaceuticals, a National Distributor of medicines & medical devices in Kazakhstan. I will be happy to answer all your questions after the presentation.Good morning/afternoon Ladies & Gentlemen! Welcome to the presentation of SK-Pharmaceuticals, a National Distributor of medicines & medical devices in Kazakhstan. I will be happy to answer all your questions after the presentation.

    2. November, 2010 2 During this presentation I will give you an update of the Kazakhstan Pharm market. In line with that we’ll talk about the State Procurement System of Medicines & medical devices and about the role of the National Distributor “SK-Pharmaceuticals”, its main objectives & principles. Further, I will describe the State Program of Accelerated Industrial & Innovative Development in relation to Kazakhstan Pharm Industry and the role of the National distributor. And lastly, we’ll talk what are the investment opportunities into Kazakhtan Pharm Industry.During this presentation I will give you an update of the Kazakhstan Pharm market. In line with that we’ll talk about the State Procurement System of Medicines & medical devices and about the role of the National Distributor “SK-Pharmaceuticals”, its main objectives & principles. Further, I will describe the State Program of Accelerated Industrial & Innovative Development in relation to Kazakhstan Pharm Industry and the role of the National distributor. And lastly, we’ll talk what are the investment opportunities into Kazakhtan Pharm Industry.

    3. November, 2010 3 Let us start from the Market Review.Let us start from the Market Review.

    4. 4 November, 2010 According to the latest IMS Health estimates, the world pharm market is forecasted to reach $825 bln in 2010 with average annual growth of 5-8%. Kazakhstan market over the last 7 years has been showing 2-digit growth number with average of 15-20% per annum. In 2010 the Total Kazakhstan market is forecasted to reach $1.1 bln. The size of our market is the 3rd largest in the CIS market (which is estimated at around $15bln) with 5% share. Russia and Ukraine take the leading positions in CIS market. As you can see from the chart, the market is by 90% consists of imported products.According to the latest IMS Health estimates, the world pharm market is forecasted to reach $825 bln in 2010 with average annual growth of 5-8%. Kazakhstan market over the last 7 years has been showing 2-digit growth number with average of 15-20% per annum. In 2010 the Total Kazakhstan market is forecasted to reach $1.1 bln. The size of our market is the 3rd largest in the CIS market (which is estimated at around $15bln) with 5% share. Russia and Ukraine take the leading positions in CIS market. As you can see from the chart, the market is by 90% consists of imported products.

    5. November, 2010 5 According to IMS Health, annual per capita consumption of medicines in Kazakhstan has grown from $20 in 2003 to $73 in 2008. However, consumption level is far from the level of European countries where France takes the leading position. But it shows growth opportunities in our country. On consumption level, Kazakhstan takes the second position in CIS, after Russia.According to IMS Health, annual per capita consumption of medicines in Kazakhstan has grown from $20 in 2003 to $73 in 2008. However, consumption level is far from the level of European countries where France takes the leading position. But it shows growth opportunities in our country. On consumption level, Kazakhstan takes the second position in CIS, after Russia.

    6. 6 November, 2010 Imports in the first half of this year reached $431 which represents 90% of the total pharm market. If you look at the left chart, you will see that the top 10 countries contribute 67% to the total imports in value. Germany, France & Russia are the leading importing countries. However, there is a drastic change in top 10 in volume expression. 22% in volume comes from China, though in value it is only on the 26th place. China is followed by Russia, Germany & Belorussia. US imports are on the 8th position. Russian & German companies seem to have a balanced portfolio which allows them to generate good cash and good sales.Imports in the first half of this year reached $431 which represents 90% of the total pharm market. If you look at the left chart, you will see that the top 10 countries contribute 67% to the total imports in value. Germany, France & Russia are the leading importing countries. However, there is a drastic change in top 10 in volume expression. 22% in volume comes from China, though in value it is only on the 26th place. China is followed by Russia, Germany & Belorussia. US imports are on the 8th position. Russian & German companies seem to have a balanced portfolio which allows them to generate good cash and good sales.

    7. 7 November, 2010 If we look at the local pharm industry, the total production in 2009 was $85mln, with exports of about $17.8 into neighboring CIS countries. Out of 79 existing producers, 6 companies generate 90% of the total industry volume. These companies are: Chimpharm, Global Pharm, Nobel, Romat, Karaganda Pharmaceutical Complex and Nur-Mai Pharm. All these 6 companies are full-cycle production plants. There are still large growth opportunities lie in this sector of Kazakhstan economy.If we look at the local pharm industry, the total production in 2009 was $85mln, with exports of about $17.8 into neighboring CIS countries. Out of 79 existing producers, 6 companies generate 90% of the total industry volume. These companies are: Chimpharm, Global Pharm, Nobel, Romat, Karaganda Pharmaceutical Complex and Nur-Mai Pharm. All these 6 companies are full-cycle production plants. There are still large growth opportunities lie in this sector of Kazakhstan economy.

    8. November, 2010 8 The market situation is closely linked to the State procurement of medicines & medical devices this part contributes around 40% to the total pharmaceutical market (both hospital and retail).The market situation is closely linked to the State procurement of medicines & medical devices this part contributes around 40% to the total pharmaceutical market (both hospital and retail).

    9. 9 November, 2010 How the system operates you can see from this chart. The Government allocates the budget for Guaranteed Volume of Free Medical Aid. This program consists of 3 key parts: procurement of medical services, of medical equipment and the main part – procurement of Medicines & Medical Devices. Supply of medicines go into 2 directions: hospitals & outpatient treatment. The National Distributor “SK-Pharmaceuticals” is responsible for hospitals supply, whereas out-patient clinics are supplied through direct procurements at local level.How the system operates you can see from this chart. The Government allocates the budget for Guaranteed Volume of Free Medical Aid. This program consists of 3 key parts: procurement of medical services, of medical equipment and the main part – procurement of Medicines & Medical Devices. Supply of medicines go into 2 directions: hospitals & outpatient treatment. The National Distributor “SK-Pharmaceuticals” is responsible for hospitals supply, whereas out-patient clinics are supplied through direct procurements at local level.

    10. 10 November, 2010 Hospitals supply represent a centralized system of orders & logistics. In order to provide the hospitals with the requested medicines & medical devices the National Distributor conducts the 2-phase tender among the potential suppliers. As the result, the hospitals get timely supplies of medicines and the government saves the budget due to 2-phase tender process & elimination of unnecessary intermediaries. Hospitals supply represent a centralized system of orders & logistics. In order to provide the hospitals with the requested medicines & medical devices the National Distributor conducts the 2-phase tender among the potential suppliers. As the result, the hospitals get timely supplies of medicines and the government saves the budget due to 2-phase tender process & elimination of unnecessary intermediaries.

    11. 11 November, 2010 Overall, the State procurements of medicines contribute 40-45% to the total pharm market. Out of this volume, 46% of procurements go through SK-Pharmaceuticals. This share is expected to grow to 53% by 2012Overall, the State procurements of medicines contribute 40-45% to the total pharm market. Out of this volume, 46% of procurements go through SK-Pharmaceuticals. This share is expected to grow to 53% by 2012

    12. November, 2010 12 Why the Government has launched Unified Distribution System? This system was taken as a analogue of Malaysian Healthcare system, where the National Distributor plays a very important role in the development of the pharm industry & pharmaceutical development. Based on the similar principles operates SK-Pharmaceuticals.Why the Government has launched Unified Distribution System? This system was taken as a analogue of Malaysian Healthcare system, where the National Distributor plays a very important role in the development of the pharm industry & pharmaceutical development. Based on the similar principles operates SK-Pharmaceuticals.

    13. November, 2010 13 We are 100% national company and affiliate company of JSC “Sovereign Wealth Fund “Samruk-Kazyna”. By the Government resolution we were established in 2009 to improve sustainability & competitiveness of the pharm industry through consolidation of public procurement of medicines. Our mission is: (read from the slide). Our Vision is: (read from the slide). Both mission & vision are reached through our main activities which are stated below (read from the slide)We are 100% national company and affiliate company of JSC “Sovereign Wealth Fund “Samruk-Kazyna”. By the Government resolution we were established in 2009 to improve sustainability & competitiveness of the pharm industry through consolidation of public procurement of medicines. Our mission is: (read from the slide). Our Vision is: (read from the slide). Both mission & vision are reached through our main activities which are stated below (read from the slide)

    14. November, 2010 14 We have 6 main objectives to achieve annually: The first one is to ensure that our patients get quality & safe drugs. This is monitored by the rules of the tender which do not allow non-registered, non-compliant medicines to participate in the tender. The second objectives is to increase the availability of drugs. Every year we are improving the orders & logistics process. We make sure that by the end of the year we have on stock the medicines ordered for the next year, so that medical facilities have regular supplies of the drugs. The tender rules envisage preferences to local suppliers. Apart from that, we sign long-term agreements with the local manufacturers where we guarantee to procure certain volume under condition that they introduce GMP standards. Thus we promote the development of the local manufacturing. Because of the centralized procurement & elimination of incremental levels, the Government is saving the budget. We are also continuously working on improving the planning & logistics processes in the whole chain.We have 6 main objectives to achieve annually: The first one is to ensure that our patients get quality & safe drugs. This is monitored by the rules of the tender which do not allow non-registered, non-compliant medicines to participate in the tender. The second objectives is to increase the availability of drugs. Every year we are improving the orders & logistics process. We make sure that by the end of the year we have on stock the medicines ordered for the next year, so that medical facilities have regular supplies of the drugs. The tender rules envisage preferences to local suppliers. Apart from that, we sign long-term agreements with the local manufacturers where we guarantee to procure certain volume under condition that they introduce GMP standards. Thus we promote the development of the local manufacturing. Because of the centralized procurement & elimination of incremental levels, the Government is saving the budget. We are also continuously working on improving the planning & logistics processes in the whole chain.

    15. November, 2010 15 Why do we talk about “SK-Pharmaceuticals” and its role in the State Program of Accelerated Industrial & Innovative Development? Because one of the key components of this program is the development of the local pharm industry. The National Distributor plays an important part in this process. Let’s discuss that.Why do we talk about “SK-Pharmaceuticals” and its role in the State Program of Accelerated Industrial & Innovative Development? Because one of the key components of this program is the development of the local pharm industry. The National Distributor plays an important part in this process. Let’s discuss that.

    16. November, 2010 16 Why Kazakhstan pharm industry was included into the State Program? There are many issues in this segment. The industry has huge potential for further development. In order to achieve the main goals we need to solve the key issues, which lie in main 3 areas. Firstly, the local market is very small – only 10% in value and 30% in volume out of the total pharm market. The size is limited by manufacturing capacities and demand. Hence, the pharm industry contributes less than 1% to the real GDP. The plants have limited manufacturing capacities & do not comply with GMP standards. There is no substance production & very low Research base. The industry is in great need of highly qualified staff, scientists, biologists. All these factors create barriers for industry development.Why Kazakhstan pharm industry was included into the State Program? There are many issues in this segment. The industry has huge potential for further development. In order to achieve the main goals we need to solve the key issues, which lie in main 3 areas. Firstly, the local market is very small – only 10% in value and 30% in volume out of the total pharm market. The size is limited by manufacturing capacities and demand. Hence, the pharm industry contributes less than 1% to the real GDP. The plants have limited manufacturing capacities & do not comply with GMP standards. There is no substance production & very low Research base. The industry is in great need of highly qualified staff, scientists, biologists. All these factors create barriers for industry development.

    17. November, 2010 17 Our main goal in the State Program of Accelerated Industrial & Innovative development is to grow our share from 30% to 50% by 2014 in volume terms. There are 5 key areas of activities, which involve manufacturing, human resource, international standards, government support in the form of favourable investment conditions and guaranteed volumes of sales for the local producers if they introduce international standards. This directly involves the activity of the National Distributor. In more details we will see on the next slide.Our main goal in the State Program of Accelerated Industrial & Innovative development is to grow our share from 30% to 50% by 2014 in volume terms. There are 5 key areas of activities, which involve manufacturing, human resource, international standards, government support in the form of favourable investment conditions and guaranteed volumes of sales for the local producers if they introduce international standards. This directly involves the activity of the National Distributor. In more details we will see on the next slide.

    18. November, 2010 18 As part of the state program “SK-Pharmceuticals” signs long-term agreements with local manufacturers which guarantee procurements under the condition that these plants introduce GMP standards. This measure provides guarantee on the return of investments through confirmed volumes. YTD we have already signed agreements with 9 companies. The tender rules, envisaged in the Government Resolution, provide preferences to local producers. As part of the Program we monitor the implementation of Chimpharm project, one of the largest in the country. During our meetings with foreign companies we are looking for possible investors into local industry and provide both sides on the relevant information as Kazakhstan manufacturers support from the outside. We will talk about it in our next slide.As part of the state program “SK-Pharmceuticals” signs long-term agreements with local manufacturers which guarantee procurements under the condition that these plants introduce GMP standards. This measure provides guarantee on the return of investments through confirmed volumes. YTD we have already signed agreements with 9 companies. The tender rules, envisaged in the Government Resolution, provide preferences to local producers. As part of the Program we monitor the implementation of Chimpharm project, one of the largest in the country. During our meetings with foreign companies we are looking for possible investors into local industry and provide both sides on the relevant information as Kazakhstan manufacturers support from the outside. We will talk about it in our next slide.

    19. November, 2010 19 If you want to invest into Kazakhstan pharm industry you can do it in the following phorms…If you want to invest into Kazakhstan pharm industry you can do it in the following phorms…

    20. November, 2010 20 We are looking for expertise in medicines production. The producers need the suppliers of substances. For the new manufacturing the companies might be interested in construction of pharm plants. For the plants will be needed equipment in compliance. Since the industry lacks highly qualified staff, consulting services might be requested. And finally, to realize volume potentials, you might consider contractual production. So, we are looking towards cooperation with potential investors. We are looking for expertise in medicines production. The producers need the suppliers of substances. For the new manufacturing the companies might be interested in construction of pharm plants. For the plants will be needed equipment in compliance. Since the industry lacks highly qualified staff, consulting services might be requested. And finally, to realize volume potentials, you might consider contractual production. So, we are looking towards cooperation with potential investors.

    21. November, 2010 21 THANK YOU VERY MUCH FOR YOUR ATTENTION. THANK YOU VERY MUCH FOR YOUR ATTENTION.

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