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

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)

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

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

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

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

11. Blockbuster drugs going off patent Lipitor, Protonix, Actos, Zyprexia, Levaquin Zocor, Pravachol Zoloft, Toprol XL Coxaar/Hyzar, Abilify, Aricept, Flomax Norvasc, Ambien, Zyrtec, Lotrel Advair, Effexor XR, Resperidal, Fosamax Prevacid, Lexapro, Topamax, Lamictal Source: Forbes.com

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

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

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

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

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 $60 B (estimated) $47 B $ 32 B US Drug Delivery Systems Market, Strategic Report, 2003

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

22. SES formulation Spontaneous/gentle agitation Emulsion in GIT Lipolysis Digested products Enhanced absorption BLOOD

23. Alpha-Tocotrienol Increase by 3 folds

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

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