Trends Challenges - Generic Drug Business in Malaysia

1. Trends & Challenges- Generic Drug Business in Malaysia David Ho Managing Director Hovid Bhd, Malaysia

2. Focus of Presentation Overview of the pharmaceutical business Trends in Generic Drug Business Opportunities & Positive Outlook Threats & Difficulties The Way Forward Examples of successful commercialization Summary of Key Points

3. Pharmaceutical Drug Business-Overview Global pharmaceutical market -�Estimated to be double in value to US$1.3 trillion by 2020 (PricewaterhouseCoopers) Malaysia - market size was valued at more than RM 1.7 billion (2006) and close to RM 2 billion (2007) (IMS Health, 2007) Prescription drugs account for around 75% of the market (Business Monitor International), with the segment likely to remain dominant in future According to a research report from Espicom, the pharmaceutical market in Malaysia would surpass the US$1 billion mark by 2009 and reach US$ 1.3 billion by 2011. According to a research report from Espicom, the pharmaceutical market in Malaysia would surpass the US$1 billion mark by 2009 and reach US$ 1.3 billion by 2011.

4. Generic Drug Business - Overview Global generic business reached US$60 billion in annual sales in 2005 (MedAd News, November 2006) Growth 14 � 16% in the next 5 years, 9 points ahead the overall industry. For branded drugs, 8% growth annually (IMS) Markets in Asia region are growing, at CAGR of 11.1% (2001-2007) (Frost & Sullivan) Malaysian generic pharmaceutical market was valued at RM 390 million (2001). Annual growth rate of 10 percent & a CAGR(2001 to 2007) of 12.5% (Frost & Sullivan) Markets in the region are at their growing except Taiwan, the market is already relatively saturated with over 100 generic drug manufacturers currently operating in Taiwan and with heavy multinational presence � over 70% of the market is controlled by overseas MNCs. Markets in the region are at their growing except Taiwan, the market is already relatively saturated with over 100 generic drug manufacturers currently operating in Taiwan and with heavy multinational presence � over 70% of the market is controlled by overseas MNCs.

5. Malaysia: Proprietary vs Generic Drugs Proprietary drugs is currently taking up over 70% of the total market (Business Monitor International) Growing market share: 20 � 30% compared to 10 years ago, 10 to 15% of the market 11 US-based pharma companies in Malaysia with accumulative investment of approx RM 104.6 million. Sales revenue in 2001 was RM 1 billion (Pharmaceutical Association of Malaysia) 72 drug manufacturers in Malaysia. Of these, 32 are licensed to produce prescription medicines while the rest are producers of OTC medicines (MOPI)

6. Current Trends in Generic Drug Business Mergers, acquisitions & consolidation - Eight significant acquitions in 2006 - eg: Dr Reddy�s Laboratories to acquire Betapharm - eg: Ranbaxy to acquire Terapia - same shall be expected in the local generic drug business - stronger players will emerge, corporate landscape will change Penetration into new oversea markets - South East Asia and Middle East countries - Teva, Sandoz, Biocon & Lupin � presence in the Japanese market Diversification into nutraceuticals & food supplements Emphasize on R & D � discovery of new actives from natural products, drug delivery & processing method eg: Dr Reddy�s Laboratories outbid Teva (world largest generics company) to acquire Betapharm (Germany 4th largest) Eg: Ranbaxy to acquire Terapia (Romania�s largest generics company) Eg: Hospira to acquire Mayne Pharma, Barr Pharmaceutical to acquire Pliva, Mylan Labs to acquire Matrix, Stada Arzneimittel to acquire Hemopharm, Actavis to acquire Sindaneg: Dr Reddy�s Laboratories outbid Teva (world largest generics company) to acquire Betapharm (Germany 4th largest) Eg: Ranbaxy to acquire Terapia (Romania�s largest generics company) Eg: Hospira to acquire Mayne Pharma, Barr Pharmaceutical to acquire Pliva, Mylan Labs to acquire Matrix, Stada Arzneimittel to acquire Hemopharm, Actavis to acquire Sindan

7. Opportunities Increased use of generic drugs - Spiraling healthcare cost. Healthcare expenditure = 3.1 � 5.0% of the GDP in year 2006 (Medical Cost Reference Guide, 2006) - Prescription drugs = the fastest rising component of health care spending - Government to reduce expenditure by substitution with affordable generics - Trend observed in US and Japan � increasing use of generic substitution, Japan � fee given for generic prescribing & dispensing - Malaysia is expected to follow suit Prescription drug = fastest ringing component of health care spending due to introduction of costly new patented medicines. As cost containment measures, introduction of generic substitution In Japan, incentive is given to doctors for generic prescribing and pharmacist for generic dispensing (year 2002) Year 2006, incentive for doctor who allows generic subsitution Prescription drug = fastest ringing component of health care spending due to introduction of costly new patented medicines. As cost containment measures, introduction of generic substitution In Japan, incentive is given to doctors for generic prescribing and pharmacist for generic dispensing (year 2002) Year 2006, incentive for doctor who allows generic subsitution

8. In 2005, the generic industry represented more than 56 per cent of prescriptions dispensed in the US (Journal of Generic Medicines, 2006)

9. Average price per prescription in US

10. Opportunities Patent expiration of many blockbuster drugs - Drugs worth more than $76 billion in sales in the next 5 years (Biospectrum, 2007) & $160 billion by 2015 (J Generic Med, 2006) - to go off patent - Opportunities for generic drug players to produce generic versions of the drugs & increase market share - Key factor - ability of our local generic manufacturers to take advantage by preparing new products in their production pipeline, appropriate manufacturing facilities & bioequivalent to the proprietary drugs -opened up enormous opportunities for the generic drugs player in Asia -opened up enormous opportunities for the generic drugs player in Asia

11. Blockbuster drugs going off patent

12. Challenges Free Trade Agreement - Products originating from signatory countries will be free from tariff and non-tariff barriers - May represent an opportunity for drug companies to increase sales - Flow of products into the country � enhancing the existing competition - Pushing local manufacturers to create competitive advantages & improving the quality of generic products - Market liberations - survival of the fittest ASEAN FTA - Products originating from signatory countries will be free from tariff and non-tariff barriers and hence flow of products from neighbouring countries may be tightening the existing competition. On the other hand, this may represent an opportunity for drug companies to increase sales and expand into new market and at the same time, pushing local manufacturers to create competitive advantages & improving the quality of generic products. Double-edged sword. Market liberations - survival of the fittest ASEAN FTA - Products originating from signatory countries will be free from tariff and non-tariff barriers and hence flow of products from neighbouring countries may be tightening the existing competition. On the other hand, this may represent an opportunity for drug companies to increase sales and expand into new market and at the same time, pushing local manufacturers to create competitive advantages & improving the quality of generic products. Double-edged sword. Market liberations - survival of the fittest

13. Challenges Stiff competition from low cost new comers eg: India and China - Indian drug-makers expected to acquire 33% share of global generic market in next 2 years vs current 4% (Biospectrum, 2007) - China � technology, large capacities, economics of scale - potential for biogenerics Regulatory hurdles - Registration of product � an enormous exercise - Long waiting time for registration approval - Stringent requirement on GMP and QC procedures - Asia � complex market with each country having its unique regulatory procedures -Expanding oversea market - investment and time required for registration may strain a company. Eg: China � therapeutic efficacy study using the Chinese population is required for registration of generics -Expanding oversea market - investment and time required for registration may strain a company. Eg: China � therapeutic efficacy study using the Chinese population is required for registration of generics

14. Challenges Difficulties of expanding into foreign market - In China, therapeutic efficacy study using the Chinese population is required for registration of generics - Individual registration is required for every country. Harmonization not really in place - Most countries � have entrenched domestic generic player FTA with US - Data exclusitivity - Recent US FTAs contain unlimited patent extensions, greater market exclusivity, and elimination of the requirement that a brand company disclose the best mode of practicing its invention - entrenched domestic generic player with established distribution channels and strong relationship with the industry people. To be able to push them aside ad make room for your own products and gain market share is a big challenge. That is why most generic companies as a strategy, look to acquire or partner with local player. USFTA - all dramatic divergences from US law (Data exclusivity guarantees additional market protection for originator pharmaceuticals by preventing health authorities from accepting applications for generic medicines during the period of exclusivity. The effective period of market exclusivity gained by the originator company is the period of data exclusivity (currently 6 or 10 years) plus the time it takes to register and market the generic medicine � a further 1 to 3 years (Source: European Generic Medicine Association) Data-exclusitivity - the United States and other countries provide a period of protection during which second-comers may not rely on the data submitted by the innovative company to obtain approval for their copies of the product. This means that, during the period of exclusivity, the data provided by the originator cannot be relied upon by regulatory officials to approve similar products. This period of protection is five years in the United States and six to ten years in the EU Member States. Other countries that provide a period of protection against reliance on data include Australia, China, Japan, Jordan, Korea, Mexico, New Zealand, and Switzerland.- entrenched domestic generic player with established distribution channels and strong relationship with the industry people. To be able to push them aside ad make room for your own products and gain market share is a big challenge. That is why most generic companies as a strategy, look to acquire or partner with local player. USFTA - all dramatic divergences from US law (Data exclusivity guarantees additional market protection for originator pharmaceuticals by preventing health authorities from accepting applications for generic medicines during the period of exclusivity. The effective period of market exclusivity gained by the originator company is the period of data exclusivity (currently 6 or 10 years) plus the time it takes to register and market the generic medicine � a further 1 to 3 years (Source: European Generic Medicine Association) Data-exclusitivity - the United States and other countries provide a period of protection during which second-comers may not rely on the data submitted by the innovative company to obtain approval for their copies of the product. This means that, during the period of exclusivity, the data provided by the originator cannot be relied upon by regulatory officials to approve similar products. This period of protection is five years in the United States and six to ten years in the EU Member States. Other countries that provide a period of protection against reliance on data include Australia, China, Japan, Jordan, Korea, Mexico, New Zealand, and Switzerland.

15. Challenges Increasing introduction of biotech based products - present regulatory and production hurdles Decline in NDAs over recent years - number of new generic opportunities will be reduced next 15 years

16. Challenges Strategies by Big Pharma to counter generic competition: - Litigation suits on patent infringement to delay generic entry - Price cutting of branded drugs upon patent expiry, eg Merck sharply cut the price of its Zocor upon patent expiry, Teva did not benefit as much from the 180-day exclusitivity - Branded generics - Extension of patent life of branded products: (1) Development of combination products, eg: Merck/Schering Plough partnership to develop Vytorin (ezetimibe/simvastatin) (2) Using patented technology such as formulation changes. Losec in enteric-coated multiple unit pellet system instead of pellets-filled capsule (3) Use of secondary patent To counter generic competition/delay generic entry One approach is to apply for a secondary patent on drugs whose recipes are about to enter the public domain, citing a new formulation, a new pill form, or new packaging To counter generic competition/delay generic entry One approach is to apply for a secondary patent on drugs whose recipes are about to enter the public domain, citing a new formulation, a new pill form, or new packaging

17. The Way Forward Support from the government is vital - capacity building & incentive to drive the industry forward - awareness campaigns for the public on generic medications Increase the quality of generic drug products - implementation of bioequivalent generic drug products Intensified effort in research & development - Novel drug discovery from natural resources. - R & D efforts has paid off for India. 47% share of total DMF filed in US were from India (Biospectrum, 2007) - particularly in areas of product innovation and improvement eg: drug delivery system (SR, bioenhanced system, drug targeting, etc)

18. Global Sales Value of Drug Delivery Systems

19. Delivery Systems Some Examples: Natopherol AquaBiosorp from Abbot Laboratories Tocovid Suprabio from Hovid (SEDDs) CoQ10 Suprabio from Hovid (SEDDs) Hydrosoluble CoQ10 from Tischon Cyclosporin Neoral (microemulsion) Fenofibrate (TriCor) from Abbot Laboratories (micronization technology)

20. Delivery System for Tocotrienols Absorption of tocotrienols - Different from normal drug molecules - More similar to lipid absorption - Similar to other fat soluble vitamins - Requires physiological processing (bile) - Influenced by food status/dietary fats - Tend to be low and erratic

21. Strategy Suitable vehicle - promote lymphatic transport Self-emulsify system - suitable surfactant system Amenable to lipolysis - suitable surfactant system and concentration Reduce influence of P-gP/CYP3A4 - common substrate

23. Alpha-Tocotrienol

25. The Way Forward Export to potential high growth countries - Increasing awareness by local manufacturers of the export potential of Malaysian pharmaceuticals - Average export growth of 10.5% for the past 3 to 4 years in the last few years of the previous decade (MOPI) Nutraceuticals and dietary supplements - Malaysian OTC healthcare is to grow by 18% to reach RM 1,283 million by year 2008. The four largest sectors are vitamins and dietary supplements, cough, cold and allergy remedies, analgesics and medicated skin care which have accounted for 91% of the total value of OTC healthcare in 2003 (Euromonitor International, 2004)

26. Summary of Key Points Global & Local generic drug business - estimated to outpace the overall pharmaceutical industry Potentials - increasing generic substitution; patent expiry of branded drugs, overall industry appeared rosy Challenges - market competitiveness, strategies by MNCs to delay generic entry, impending FTAs, timely approval by the regulatories Concerted effort by the government, generic drug industry and the generic manufacturer itself � required Comprehensive preparations - to capture a bigger market share and at the same time, maintaining their competitiveness to face continued challenges Global generic drug business is estimated to outpace that of the overall pharmaceutical industry � the same is expected with local generic drug industry Potential: increasing effort by the government to reduce healthcare cost; increasing quality of the local generic drug products and the huge number of patent expiry of branded drugs Challenges: increasing market competitiveness, strategies adopted by the MNCs to delay generic entry, impending FTAs and delay in timely generic drug approval by the regulatories Concerted effort by the government, generic drug industry and the generic manufacturer itself � required comprehensive preparations are needed for the generic drug manufacturers to capture a bigger market share and at the same time, maintaining their competitiveness to face continued challenges Global generic drug business is estimated to outpace that of the overall pharmaceutical industry � the same is expected with local generic drug industry Potential: increasing effort by the government to reduce healthcare cost; increasing quality of the local generic drug products and the huge number of patent expiry of branded drugs Challenges: increasing market competitiveness, strategies adopted by the MNCs to delay generic entry, impending FTAs and delay in timely generic drug approval by the regulatories Concerted effort by the government, generic drug industry and the generic manufacturer itself � required comprehensive preparations are needed for the generic drug manufacturers to capture a bigger market share and at the same time, maintaining their competitiveness to face continued challenges

27. email: dho@hovid.com website: http://www.hovid.com