Corporate Intelligence United Business Institute Serbia, Novi Sad April. 2004

1. Corporate Intelligence United Business Institute Serbia, Novi Sad April. 2004 Vesna Gavran Snežana Kikić

2. Trends in Pharmaceuticals industry for next 5 years • Globalization • Global sales • Consolidation • Diversification • Demographic group-”Silent population” • On-line pharmacy • Generic • Fast pharma

3. 229.5 115.4 Source: IMS World Review 2004 17.4 14.3 37.3 52.4 North America European Union Restof Europe Japan Latin America Asia, Africa and Australia GLOBALIZATION1.Pharma Global Sales

4. TOP 20 WORLD PHARMACEUTICAL COMPANIES X 1000 000 000 $ 35 30 25 R&D Expenditures 20 Sales 15 10 5 0 5.J&J 1.Pfizer 3.Merck 11.Lilly 13.Roche 15.Takeda 9.Pharmacia 19.Schering AG 7.Bristol-Myers Squibb 17.Boehringer-Ingelheim GLOBALIZATION Top 20 Deliver 81% of Total Sales

5. GLOBALIZATION2. Consolidation • Partnerships between the large pharmaceutical companies and small biotechnology companies allow the large pharmaceutical companies to gain access to the latest technology and allow biotechnology companies to finance the development of their drugs

6. GLOBALIZATION2. Consolidation • The consolidation and internationalisation of the pharmacy company can be expected to continue. • Consolidation activities: • acquisitions • in-licensing • co-development • co-marketing • distribution network Cooperation between the large pharmaceutical companies and small biotechnology companies. 2004 2009

7. Diversification 1. Demographic group ”Silent Generation” consumers over 65. • An aging population will soon drive 65 million baby boomers into the ranks of late middle age and senior citizenship, driving prescription sales to explosive growth levels. (New York Times, feb.2000) • According to IMS Health, prescription sales rose another 11.3 percent last year, to $182.7 billion, with drug chain sales rising 8.4 percent to a commanding $73.4 billion. Instead of serving and selling to one population pharmaceutical companies now need to respond to smaller groups based on age group, therapeutic area or disease and in the future genetic sub-group.

8. Diversification 2. Online Drugs Market • Progress on the electronic prescribing and communications front. • Rapid onset of mail-order pharmacy, whose sales jumped 21.7 percent in 2002 . The traditional pharmacy business model may no longer work

9. Diversification 3. Generics Cheaper good copies. • $100 billion worth of brand name prescription drugs will lose patent protection by 2005.

10. Faster Pharma • Faster developing 1. biotechnology 2. genome pharma 3. information technology -(microchips control release that can be swallowed or implanted) • Faster commercialization of new product. 1. period of expiration of new brand is shorter

11. EUROPE SLOVENIA SERBIA & MONTENEGRO

12. Sales Еuro (millions) 30942 1955 1920 1307 844,36 5296 5127 37336 21959 0 0 1700 4174 2958 24088 14657 362 631 0 3900 5022 4110 1511 646,88 Austria Belgium Croatia Czech Republic (CZK) Denmark (DKK) Finland France Germany Greece Hungary (HUF) Ireland Italy Netherlands Norway (NOK) Poland (PLN) Portugal Romania (USD) Russian Federation (USD) Slovak Republic (SKK) Slovenia (SIT) Spain Sweden (SEK) Switzerland (CHF) United Kingdom (GBP) GLOBALIZATIONPharma Sales in Europe After May 2004 pharmaceuticals markets in EU will expand to 25-member states. It will be 450 million people market. The inclusion of the CEE pharmaceutical industry will boost the growth of the European “cheaper”generic market.

13. Slovenia Country indicator Serbia & Montenegro Both countries have population 65 years and over 15 %

14. Krka 1954- Krka was founded with just nine employees in Yugoslav republic Slovenia. 1965-1974 -construction of the new plant for processing raw materials 1975-1984 approval granted by the American Food and Drugs Administration (FDA) for the production of antibiotics. Operations commence at the Dawa pharmaceuticals factory in Kenya 1985-1994 construction of the Novoterm insulation materials factory. expansion of the marketing network abroad — establishment of companies and representative offices. Co-operation with leading pharmaceutical companies in the world 1995-1999 ranking among the top pharmaceutical companies in central and eastern Europe, and penetration into the west European markets. 2001 - Opening of the production and distribution centre in Warsaw. 2002 - construction of the modern pharmaceutical plant (Notol) for producing drugs in solid dosage form, in Novo Mesto, Slovenia. Hemofarm 1960 June 1,- Hemofarm was established with only thirty employees in Yugoslav republic Serbia. 1964-1970-period of stagnation. 1973 –in mid August, constructing a new factory. A year later the first significant export was recorded. 1980- A young Technology Engineer Miodrag Babić came to the head of the company and gathered a team of inventive experts. 1991-first enterprise abroad founded. It was in Frankfurt. 1993-A joint venture with the Company Fresenius, Factory is called Hemomed. 1994-established factory Hemomont in Montenegro. 1995-the first Yugoslav-Chinese mixed enterprise was signed between Hemofarm and the local pharmaceutical company JinanYongning Pharmaceutical and the Belgrade company MAG 1996-The enterprise was founded as a joint venture of Hemofarm and Čajavec from Banja Luka. 2000-, infusion solutions in China with Yongning Pharmaceutical. 2002- Zorkapharma becomes sub diaries of Hemofarm group. 2003- In SAD opened a office representative of Hemofarm History Former Yugoslavia At the beginning they were domestic competitors

15. Competitive Fact Sheet

16. Hemofarm&Krka

17. Five plants in Vršac Srpska Crnja Bački Petrovac Plants in Sabac “Zorkapharma” Dubovac Hemofarm group Jasenovo Plants in Podgorica “Hemomont” PRODUCTIONIN THECOUNTRY Totally 11 plants in country

18. SANITARIJA SLAVIJAMED REMEVITA FAMPHARM 0.11% 0.53% 0.15% 0.15% SRBOLEK JUGOREMEDIJA GALENIKA 1.35% 8.17% 32.95% ZDRAVLJE 12.70% ZORKA PHARMA 11.28% HEMOMONT PANFARMA HEMOFARM 1.19% 17.15% 14.26% HEMOFARM GROUP - 43.89 % = 99.6 mil E Domestic market sales

19. DOMESTIC MARKET TOTALY 250.MIL.$ EXPORT 52% ( Germany, USA, Croatia…) A new plant NOVOTOL 22000.00m2 KRKA Novo Mesto Slovenia KRKA ( 60mil.$) LEK 22% 22% KRKA LEK EXPORT Krka domestic market sales Slovenia is currently reforming it pricing policy into a formal reference pricing system, weighted towards imported “cheaper” generic.

20. Krka presence in abroad KRKA- KOZMETIKA DOOEL Macedonia OOO KRKA- RUS Russian Federation KRKA- FARMA DOOEL Macedonia OOO KRKA FARMA Ruian Federation KRKA FARMA Croatia KRKA Ch Cesh Republic KRKA Polska Poland KRKA Novo Mesto Slovenia KRKA PHARMA Dublin Ireland KRKA Aussenhandels GmbH Germany KRKA PHARMA Dublin Ireland HELVETIUS S.R.L Italy KRKA Magyarorzag Kft. Hungary KRKA Serbia and Montenegro

21. Sales Market West Europe and rest of theworld 12% East Europe 28 % Central Europe 20 % South- East Europe 20 % Slovenia 20% Export structure according to markets

22. HEMOFARM S.R.L. ITALIA HEMOFARM Banja Luka REPUBLIC OF SRPSKA, BiH HEMOFARM IRAC HEMOFARM KISHINEV, MOLDAVIA HEMOFARM ARABIA Damascus DIPAPHARM CONSTANTINE, Algeria HEMOFARM KOMERC MACEDONIA HEMOPHARM GmbH GERMANY Serbia and Montenegro HEMOFARM BUCURESTI, ROMANIA HEMOFARM SWITZERLAND Hemopharm USA Pennsylvania Avenue S.C. HEMOFARM S.R.L. TIMISOARA, ROMANIA HEMOFARM PEKING, CHINA JINAN-HEMOFARM Pharmaceutical Co. Ltd. , China HEMOPHARM Import-Export GmbH Podružnica Ljubljana LJUBLJANA, SLOVENIA HEMOFARM PRAG 4, CECH REPUBLC HEMOFARM MOSKVA, RUSSIA Hemofarm presence in abroad

23. Nigeria Czech Rep. Hum. org. Morocco 0.41% 0.17% 0.01% 0.45% Syria China 0.46% The Rep. of Srpska Germany Tunisia 0.44% 15.09% 0.05% Algeria 0.48% 5.05% Italy 1.48% Russia Slovenia 51.95% 4.08% Romania 6.29% Ukraine 1.36% Kosovo Macedonia 1.69% 10.53% Export structure according to markets

24. Sector Trend: Diversification “Krka”-Is in a better position in EU market, because Slovenia has become a member of EU in 05/2004. “Hemofarm”-Is in a better position in Russian market, because Serbia has special trade agreement with Russian Federation.

25. Hemofarm Sales Information System Radio-TV Krka Sales Information System Technology Based Intelligence

26. SWOT Analysis

27. Future Market Focus They are interested in almost same markets.

28. P WHO will be able to swim with sharks? Future Krka as generic company is preparing for the expansion to EU markets. But, before placing own product on the EU market it must have a marketing authorization. Slovenia must complete harmonization of regulatory practices relating to product approval, complicated pricing, reimbursement policy. During the transition time national legislation will be valid in Slovenia but not in the rest of EU. To insure own competitive advantages in order to capitalize fully revenue opportunities Krka has to re-position strategies. On the EU market will be alreadyEstonia and Lithuania and rest of the new 10 CEE countries which pharmaceutical manufactures are producing generics too. But, it shouldn’t forget ex-Yu market where it has strong brand name. • Hemofarmis preparing for FDA certificate after which is getting chance to penetrate to the North America pharmaceutical markets. • How successful it is going to be? • It depends on a marketing policy. • It has to increase own competitive advantage to be prepared for strong, efficient marketing sharks. • Developed countries markets have increased on-line costumers-on-line sale should be established • But it shouldn’t forget to build stronger position at ex-Yu markets. • Special Trade agreement with Russian federation is expiring very soon (2005). - What will happen with Hemofarm’s biggest export market? FUTURE HAS STARTED

29. Sources • 1)www.Hemofarm.co.yu • 2)www.Krka.si • 3)www.imhealth.com • 4)www.resaerchandmarket.com • 5)www.buisnis.doc.gov • 6)www.dcc2.bumc.bu.edu • 7)www.ims-global.com • 8)www.aesgp.be • 9.)www.pharmatiech.com • 10.)www.m-t.pl