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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 Manila – 29 th May’06.

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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 Manila – 29th May’06

  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 viewUSA 1 chemist 1 chemist Better education x 1,3 70 h/week50 h/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 - expansion of grey segment • 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

  8. The Economic Growth Advantage • 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 • Asia : Japan – sustain current growth PRC – slightly slower growth to prevent hard landing India – increasing growth rate being talked up to 9%/10% • Chindia: 40% population, 8% economy India sentiment: Largest foreign affairs caucus in US Congress (180) China sentiment: 74,000 demonstrations reported in 2005 in China

  9. 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

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

  11. 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

  12. The Knowledge Advantage • 4th largest reservoir of Scientific Manpower (2nd largest English speaking) • 3m graduates pa, 115k MSc Chemistry, 345k IT, USA 75k • Knowledge super power in the making • Lead by a Nuclear Scientist as President – remote sensing satellite technology, 1/6 countries • Diaspora network (25m across 120 countries) • In ancient days India invented the zero • US & Europe will not dominate Science, Maths, IT

  13. The State of European Science Teaching “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” Laboratories in UK state schools: Closed UK University Excellent 5% Chemistry Departments: Good 29% Dundee Kings Basic/uninspiring 41% Surrey Exeter Unsafe/unsatisfactory 25% Lancaster Queen Mary under review-Sussex Source – Royal Society of Chemistry, Policy Bulletin – Spring 2006

  14. 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 • Indians are hungry for information Source: World Business 26.2.2006, Larry Page (Google) zeitgeist conference may 2006

  15. 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

  16. 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

  17. The FDI Advantage $b 2001/2 6.1 2002/3 5.0 2003/4 4.7 2004/5 5.5 2005/6 6.5 - 4Q 2005 at $2b for the first time in India - But still only 10% of China or Singapore

  18. 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

  19. Investment by foreign Pharma companies

  20. 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)

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

  22. Leading Generic Companies Annual Sales (US$ Millions) Source : Company /Financial reports & presentations

  23. 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 • Source: KPMG • -29 ANDAs p.a ranks in top 3 filers

  24. The Pharma Advantage – API’s 1999 13% 2000 17% 2001 20% 2002 30% 2003 35% 2004 40% Source: Citigroup *DMF – Drug Master Files Q1 2006 India alone 43% Chindia filings USA DMF filings by India 1990 1 1995 4 2000 36 2004 162 Source: Crisil

  25. The Pharma Advantage Competitive Advantage – Aggressive Home Market

  26. 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 • Exports ($m): • 1990 15% • 45% • 2010E 70% • Source: IPA

  27. The Pharma Advantage Competitive Advantage - Cost of Innovation R&D I R&D II R&D III R&D IV

  28. Fundamental drivers of Generic growth - healthcare costs Total Healthcare Spending, % of GDP Source: World Bank, DB Global Pharma Report Aug 2005, OECD Health Data 2005 (1) – 2002, UBS European Pharma Report, Sep 2005 The collective healthcare bill for Ford, Chrysler & GM in 2006 will be > $12b

  29. Fundamental drivers of Generic growth- Demographics Estimated % of regional population over 60 Source: World Bank, DB Global Pharma Report Aug 2005, OECD Health Data 2005 (1) – 2002, UBS European Pharma Report, Sep 2005

  30. Fundamental drivers of generic growth – Patent Expiries $Bn Revenues Source : Global Generic Drug Stocks Citigroup Smith Barney, September 2004, IMS Health : MIDAS , MAT June 2005

  31. 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

  32. Ranbaxy Strategic Direction • Growth through • - Organic • - Inorganic 2012 US $ 5 Bn 2007 US $ 2 Bn 2004 • Amongst the Top 5 • generic Companies US $ 1 Bn • Significant income • from proprietary products

  33. Potential Downsides to the Indian Scenario

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

  35. Potential downside – Oil prices* *Chindia consumes 40% oil Source – BLS, ELA, The Conference Board

  36. Potential downside – InfrastructureA common view Source – FT

  37. 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

  38. 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

  39. “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

  40. Thank You

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