India's Cross Border M&A Opportunities in Pharma & Healthcare

1. change your perspective see what makes the difference india - a destination for cross-border m&a opportunities a discussion document march, 2008 pharma & healthcare private and confidential

2. the india proposition – select economic criteria • 4th largest economy in the world; 2nd largest GDP among the developing countries (based on purchasing power parity) • over the past 15 years, has been the second fastest growing economy in the world, after China, with an average annual growth rate exceeding 6.5% • displaced the US as the second-most favoured destination for foreign direct investment (FDI) in the world after China. (source: AT Kearney's FDI Confidence Index) key metrics • probably the most preferred country for future R&D investments, with slightly more than 40 percent of CEOs indicating they will likely make such investments over the next three years • most mature and well developed capital markets amongst developing countries • 3-4 years of unabated “bull-run” based on record corporate growth & earnings have provided Indian companies the necessary foundation for expansion with minimal leverage • modest inflation despite spiraling crude prices

3. the india proposition – availability of funds

4. the india proposition – availability of funds

5. the india proposition – pharmaceutical sector • the Indian pharmaceutical sector is currently the largest amongst the developing nations. Given its current momentum of growth the Indian pharmaceuticals market is expected to expand to US$ 25 billion by 2010. It is rightly considered to be one of the flagship sectors of the Indian economy, as Indian pharmaceutical companies continue to move to the center stage of the global pharmaceutical market. There is a worldwide structural trend evolving in pharmaceuticals and Indian companies play a key role in this framework, driven by their superior biotech and drug synthesis skills, high quality and vertically integrated manufacturing assets, differentiated business models and significant cost advantages. • Even at home, Indian pharmaceutical companies reign supreme compared to their multinational counterparts. Profit margins of Indian companies are consistently on the rise and the recent trend of mergers and acquisitions by Indian pharmaceuticals are likely to provide an upside to the growth numbers. Total Indian Pharmaceutical Market is valued at US$ 8790 million with a growth rate of exceeding 8% • Indian pharmaceutical companies have adapted to the changing industry dynamics and increasing regulatory and competitive pressures and have evolved distinctive business models to take advantage of their core competencies in R&D, Manufacturing, Marketing and the niche opportunities offered by the changing global pharmaceutical environment. These differentiated business models provide the pharmaceutical companies the necessary competitive edge for consolidation and growth

6. the india proposition – pharmaceutical sector

7. the india proposition – pharmaceutical sector

8. the india proposition – the global indian: cross border acquisitions * list excludes the take-over of Arcelor by Mittal Steel (essentially Indian promoter and management team)

9. the india proposition – the global indian: cross border acquisitions

10. the india proposition – the global indian: cross border pharma acquisitions why indian companies acquire ? • build critical mass in terms of marketing, manufacturing and research infrastructure • establish front end presence • tap other geographies / therapeutic segments / customers • enhance product, technology and intellectual property portfolio • catapulting market share • barrier to entry Indian pharmaceutical companies have now moved up a step in the value chain and are looking at inorganic route to growth through acquisitions. Many top and mid tier Indian companies have gone on a global "shopping spree" to build up critical mass international markets the India advantage • Indian pharmaceutical companies, given their reverse engineering skills have evolved superior chemistry, regulatory and manufacturing skills at low cost • Availability of skilled labor at low cost (labor costs in India are around 1/7th the levels in developed countries) • Capital efficiency: Indian companies are able to reduce the upfront capital cost of setting up a project by 25-50% due to access to locally fabricated equipment and high quality local technology/engineering skills. This benefit can be passed on to customers • Regulatory expertise: India has around 75 plants approved by the US-FDA (the highest in any country outside USA) The total value of merger & acquisitions transactions done by the Indian pharma companies exceeds US$4 billion in value terms (last 24-30 months)

11. the india proposition – the global indian: cross border pharma acquisitions • industry dynamics and deal preferences – innovation vs. generics / commodity products – the company group has products ranging across the spectrum (and the geographical reach); thus would be a suitable investment target for a number of Indian pharma product companies

12. the india proposition – the global indian: cross border pharma acquisitions

13. the india proposition – the global indian: cross border pharma acquisitions

14. the india proposition – the global indian: cross border pharma acquisitions

15. the india proposition – the global indian: cross border pharma acquisitions • sample mergers & acquisitions inked by the Indian industry participants in 2005-06 in the pharma sector

16. the india proposition – the global indian: cross border pharma acquisitions • mergers & acquisitions inked by the Indian industry participants in 2005 in the pharma / biotech sectors

17. the india proposition – the global indian: cross border pharma acquisitions • mergers & acquisitions inked by the Indian industry participants in 2005 in the pharma / biotech sectors

18. the india proposition – the global indian: management philosophy • apart from the “generic products space”, the innovation space acquisitions would be an optimal tool for Indian companies while building on their capabilities given the industry’s relative inexperience with basic & applied research and product development. The advantages of acquiring a company strong in research & development for innovation are many and obvious; a few broad ones include: • fewer challenges in turning around the acquisition considering the scale of operations of an R&D driven service provider in comparison to a marketing and sales driven “generic products” company • fewer challenges in merging acquired research projects or capabilities in the absence of multiple well established in-house research programs and capabilities • gaining an existing alliance portfolio of the acquired company thereby creating an immediate entry into the innovation and its related space to be consolidated further • ability to synergize existing and acquired capabilities to seek new vistas of opportunity • the bottom line – since M&A provides a potential advantage to succeed for Indian companies on their way to harness external capabilities in the absence of existing competencies and strengths of in-house research projects and many untapped geographies – the key elements of the incumbent management team essentially be integrated into a bigger roles, in a larger organisation with larger budgets and targets

19. the india proposition – the global indian: a case study • Wockhardt is a global, pharmaceutical and biotechnology company that has grown by leveraging two powerful trends in the world healthcare market - globalization and biotechnology. • has a market capitalization of US$ 1.3 billion and an annual turnover of US$ 285 million (Rs. 12.39 billion). Wockhardt has a strong and growing presence in the world’s leading markets, with half of its revenue coming from Europe and the United States. • key strengths • manufacturing capabilities: manufacturing facilities in India and UK have the approval of major regulatory bodies, including US FDA and UK's MHRA, with capabilities for both Finished Dosage Formulations and APIs • biotechnology: Wockhardt has developed comprehensive ‘concept-to-market’ strengths in all facets of recombinant biotechnology. These include gene-cloning, development of production strains, expertise in all three major expression systems, purification, downstream processing and testing • set up the Wockhardt Biotech Park, amongst India’s largest biopharmaceuticals complex, with six dedicated plants built to international standards with capacities to meet 10-15% of global demand for important biopharmaceuticals • sound regulatory infrastructure has been set up for its biogenerics pipeline with registrations in developing markets. The company has also set up front-end offices in the identified markets - either owned organizations, strategic joint ventures or distribution arrangements • acquisition management • the company has a strong track record in acquisition management, with three successful acquisitions in the European market and two in the domestic space. • the acquisitions in Europe and the subsequent integration of their operations have strengthened Wockhardt’s position in the high-potential markets of UK and Germany, and have expanded the global reach of the organization • the growth drivers for Wockhardt’s European business include exports, new product launches, penetration in the European Union through mutual recognition, and strategic acquisitions

20. the india proposition – the global indian: a case study …continued • Wockhardt UK Limited: (Erstwhile CP pharmaceuticals) is amongst the 10 largest generics companies in UK and the second largest hospital generics supplier. The Company has a comprehensive, FDA-approved manufacturing facility. Wockhardt UK has built up a critical mass in the segments of Retail Generics, Hospital Generics, Private Label GSL / OTC Pharmaceuticals, etc • Esparma GmbH: The acquisition of Esparma GmbH in 2004, has given Wockhardt a strategic entry point into Germany, the largest generics market in Europe. Esparma has a strong presence in the high-potential segments of urology, neurology and diabetology, assisted by a dedicated sales & marketing infrastructure • key to Wockhardt’s successful acquisition management is the management’s ability to turnaround the acquired company, in active participation with the incumbent management team, in record time and thus create value out of the acquisition. • the company believes in value buys that would have a tactical fit with its core competencies and key strategic objectives • the company has plans for further acquisitions in the developed markets of Europe and US to further consolidate and strengthen their positions in these geographies

21. the india proposition – healthcare sector • the Indian healthcare sector has been growing at a frenetic pace and is undergoing phenomenal expansion. Private hospitals and continued investment in the public health programmes are driving the boom • healthcare industry includes different segments: healthcare delivery, medical equipment and diagnostics, medical outsourcing and medical education • revenues from the healthcare sector account for 5.2 per cent of the GDP and it employs over 4 million people (source: CII-Mckinsey study on 'Health in India' ). By 2012, revenues can reach 6.5 to 7.2 per cent of GDP and direct and indirect employment can double • India will spend US$ 45.76 billion on healthcare in the next five years as the country, on an economic upsurge, is witnessing changes in its demographic profile accompanied with lifestyle diseases and increasing medical expenses (source: CII-Mckinsey study on 'Health in India' ) • private healthcare will continue to be the largest component in 2012 and is likely to double to US$ 35.7 billion • could rise by an additional US$ 8.9 billion if health insurance cover is extended to the rich and middle class • coupled with the expected increase in the pharmaceutical sector, the total healthcare market in the country could increase to US$ 53-73 billion (6.2-8.5 per cent of GDP) in the next five years

22. the india proposition – healthcare sector: key drivers & trends • changing demographic and socio-economic profile • proportion of the country's population in the 15-54 and the 55 and above age groups is increasing owing to improvement in life expectancy levels • large geriatric population (55 and above), estimated to be the largest in the world, will form a major consumer segment in the near future • rising demand for quality health care • growth in affluence of over 300 million strong middle-income consumers is creating demand for higher standards of healthcare • between 1993-94 and 2001-02, aggregate household expenditure on health services increased at an annual compounded rate of 9.3% • multi-specialty private hospitals are preferred even if the consumers bear this expense personally • increasing penetration of private health insurance • with growing awareness levels and increasing affordability arising out of the growth of private health insurance, the demand for quality healthcare services in India is growing faster than ever before • estimates project an insured base of 160 million by 2010 • institutional customers have emerged as an important customer segment for private health insurers • changing lifestyle patterns • incidence of lifestyle diseases such as diabetes and cardio-vascular diseases is on the rise • trend is driving the demand for multi-specialty and super-specialty healthcare services, covering key therapeutic areas like cardiology, nephrology, oncology, orthopedics, geriatrics, maternity and critical care

23. the india proposition – healthcare sector: key drivers & trends • healthcare sector posted a 42% rise in earnings in the year to March 2007(source: Reuters) • at the current pace of growth, medical tourism, currently pegged at US$ 350 million, has the potential to grow into a US$ 2 billion industry by 2012 • private healthcare will form a large chunk of this spending, rising from US$ 14.8 billion to US$ 33.6 billion in 2012. This figure could rise by an additional US$ 8.4 billion, if health insurance cover is available to the rich and the middle class • the voluntary health insurance market, which is estimated at US$ 86.3 million currently, is growing fast. Industry estimates put the figure at US$ 2.8 billion by 2005 • with the expected increase in the pharmaceutical market, the total healthcare market could rise from US$ 22.2 billion, currently (5.2 per cent of GDP) to US$ 50 billion - 69 billion) (6.2-8.5 per cent of GDP) by 2012 • the sector is providing a host of opportunities including • medical tourism • preventive health care • health care BPO • tele-medicine • laboratory and diagnostic services • medical devices

24. the india proposition – the global indian: cross border healthcare acquisitions • Indian healthcare is all set to go global with a host of domestic hospital chains busy scripting overseas expansion plans • Apollo Hospitals has drawn up plans to set up or manage hospital projects in Mauritius and Fiji. Besides, it is bidding for a diagnostic facility in the UK and plans to try for a hospital project in that country later. These would be in addition to the group's existing overseas facilities in Colombo, Bangladesh, Nigeria and the Middle East • Max Healthcare, another leading hospital chain, is trying to enter the US, UK and far-east markets. This is besides the expansion of its operations in neighbourhood countries like Bangladesh and Afghanistan • Wockhardt is also eyeing markets in Europe, particularly the UK, as part of its growth strategy. The company is already building its brand presence through tie-ups with leading healthcare insurance providers in the US, UK and Singapore • the government is also providing able support to help promote smaller health care providers • till now, only a few big private healthcare providers such as Apollo, Fortis, Wockhardt and Max were creating their individual brand awareness in overseas markets through tie-ups with insurance companies and patient facilitation centres • the government is launching a comprehensive programme to promote medical tourism • putting in place an accreditation system for domestic hospitals and healthcare providers, drawing up a price band for superspeciality services offered by Indian hospitals, adoption of country-specific marketing strategies, opening of overseas facilitation centres and tie-ups with overseas insurance companies • the National Accreditation Board for Hospitals and Healthcare Providers (NABH) set up by the Ministry of Health under the aegis of the Quality Council of India is currently finalising the guidelines for accreditation of hospitals and other healthcare service providers

25. the india proposition – medical devices sector • the biomedical devices market in India is unofficially estimated at around US$ 2 billion and of which about 80-85% is met through imports • driving forces that are creating the demand for medical equipment include: • establishment of a number of super-specialty hospitals and specific diagnostic centres • urban private sector hospitals upgrading their equipment and instruments to remain competitive • favourable government policies such as a reduction in import duties on medical equipment • off-shoring medical devices • as an example: the US market for medical devices is expected to reach $89 billion in 2007, representing a promising opportunity for manufacturers and service providers (source: Medical Device & Diagnostic Industry – "Opening the doors to India: Off-shoring Medical Devices) • with this opportunity comes the added pressure for medical device companies to stay ahead of the competition • to compete in this attractive market, many medical device makers are successfully partnering with offshore outsourcing firms and collaborating on device development and manufacturing • they are off-shoring processes such as application development, systems engineering, hardware design, software solutions, and manufacturing • benefits of outsourcing to India • Impressive pool of well educated, highly qualified, english speaking professionals • With more than 380 universities, 11,200 colleges, and 1500 research institutions, India has the second-largest pool of scientists and engineers in the world; more than 2.5 million graduates are added to the workforce every year, including 300,000 engineers and 150,000 technology professionals • among Brazil, Russia, India, and China, India is expected to stay the youngest; its working-age population is estimated to represent 70% of the total population by 2030 – the largest in the world • economic & political stability • partners that specialize in finished-device manufacturing, can help a company improve quality while shortening the product development cycle and reducing time-to-market and reducing the lifecycle costs by as much as 40-50%

26. the india proposition – the global indian: a case study • Opto Ciruits (BSE Code: 532391; NSE Symbol: OPTOCIRCUI) is a leading manufacturer of non-invasive healthcare equipments headquartered in Bangalore, India. The product profile includes digital thermometers, sensors, probes, pulse oxymeters, patient monitoring systems and innovative products in the pipeline. OCIL has two lines of businesses • (a) OEMs – direct supplier to GE and other large MNCs • (b) MediAid (100% US-based subsidiary) – markets OCIL’s brands • grown in-organically over the past few years: • Advanced Micronic Devices, a listed company engaged in manufacturing and marketing of health care equipments in India : 2001 • Digital Clinical Thermometer division from Unilever in India : 2002 • Acquisition of the patient monitoring division of Palco Labs, USA : 2003 • continuing its goal of aggressive growth and diversification in the healthcare segment recently (Dec 2005) completed its acquisition of EuroCOR GmbH • transaction valued at €11 million • EuroCOR manufactures Cardiac and Peripheral Stents of various types, including Drug Eluting Coronary Stents used in Critical Cardiac Care. It is one of the largest manufacturers of Stents. By acquiring EuroCOR, OCIL gets to access the existing as well as potential market for Stents globally Why OCIL acquired EuroCor .. • strong foothold in the global arena for Stents (total global market for Stents expected to be US$10billion by 2008) • strong R&D base of EuroCOR will lead us in the direction of greater market share and also better margin business • help improve shareholder value What EuroCor had to say .. • though present in more than 26 countries worldwide including in India, this acquisition by Opto Circuits gives • a great opportunity to access the vast potential offered by India • excited by the prospect of tappinglatent potential in developing countries

27. Sanjay Krishnan London sanjay@mosaiccap.com hand phone: +44 (0) 7738321449 facsimile: +44 (0) 208 711 3943 Vinay Shah & Ashutosh Ghanekar Mumbai vinay@mosaiccap.com hand phone: +91 (0) 9967642785 facsimile: +44 (0) 20 66325631 Vikram Bihani Bangalore vikram@mosaiccap.com hand phone: +44 (0) 9886409387 facsimile: +44 (0) 80 25091532 key contact information