CRAMS - The India Opportunity

1. CRAMS – The India Opportunity Lifesciences, Healthcare & Medtech Consulting Practice March 2015 Mumbai I New Delhi I Chennai I Bangalore CONFIDENTIAL & PROPRIETARY Any use of this material without specific permission of UNIVERSAL CONSULTING INDIA PVT LTD is strictly prohibited

2. Early stage drug discovery and development in India occurs to a lesser extent with an increased focus on development of branded generics Discovery Development Approval Preclinical File IND BLA Lead Compound ID File NDA FDA Review Target Validation Lead Phase I Phase II Phase III Target ID Optimization (1 year) (2 years) (2-3 years) Duration 3 - 4 years 1.5 years 6 years 1-2 years The drug discovery and development process generally takes 12-14 years, involving a plethora of activities to bring dr ugs to an approval process which is a costly and time consuming process, which is why India is largely a generics mar ket with limited focus on innovator or drug discovery - Indian pharma companies are well placed to capitalize on the generics space and the opportunities it offers con sidering that it is the key growth driver for the pharma industry today  The predominant business model in the pharmaceutical industry is internal research and global marketing  A number of drugs are set to go off patent in the coming years and increasing R&D costs coupled with low productivity are driving MNCs to take resource in outsourcing part of their research and manufacturing to countries that offer the a dvantage of low cost and technical skill, such as India  India has achieved a leadership in the CRAMS segment and established itself as a “hub” as it offers substantial cost a dvantages and high quality research and manufacturing capabilities  Source: ICRA, Cygnus report, Avendus report, Centrum report | 1 Copyright © Universal Consulting India Pvt Ltd

3. The Indian contract research market is worth USD 1.8 Bn at present, growing at a rapid rate of c. 57% Indian CRAMS Market The global contract manufacturing market is growing at a CAGR of 13% to reach c. USD 42 Bn in 2010 - It is expected that the Indian CMO business would reach USD 7-8 Bn by 2015 driven by increased funding from institutional and private investors The global contract research organization grew at a CAGR of 19% to achieve c. USD 25 Bn in sales in 2010 The outsourcing trend globally is driven by: - Value chain optimization required - India has the largest no. of FDA approved manufacturing plants (c. 180) outside the US - Weaker pipelines and rising approval times - Pressure to cut prices - Declining market exclusivity period India offers the following value proposition for CRAMS: - Significantly lower cost of production and R & D as compared to other countries - High Number of USFDA and UK MHRA approved plants (200+) - Well developed technical capabilities, chemistry skills - Sufficient product filing track record where Indian companies have been on the forefront in filing DMFs and ANDAs, where India’s share of ANDA approvals by the USFDA was 36% in 2009 - Quality infrastructure and established track record of IPR compliance  CAGR% (2007-2011) USD Bn 5 43% CRAMS  4.6  4 1.8 3.5 Contract Re search 56.5% 3 1.3 2.5  0.9 2 1.7 Contract Manufac turing 1.1 0.6 2.8 36.8% 2.2 1 0.3 1.6 1.1 0.8 0 2007 2008 2009 2010 2011 Source: ICRA, Cygnus report, Avendus report, Centrum report | 2 Copyright © Universal Consulting India Pvt Ltd

4. Outsourcing to India, traditionally limited to bulk drugs and intermediates is now regarded as a key strategy for survival for MNCs as well as Indian players 1980s 1990s 2000s 2010s The Indian CRAMS industry has steadily moved up the v alue chain in terms of the co mplexity and criticality of the pharma outsourcing activitie s performed Outsourcing of complex APIs, sterile formulation s, vaccines, R & D and clinical trial manufacturi ng Outsourcing of GMP A PIs and solid dose form ulations Outsourcing of complex formulations, biopharm aceuticals Outsourcing of interme diates and simple APIs Outsourcing to India was initially restricted to generic bulk drugs and pharmaceutical intermediates  Following it’s compliance with WTO norms on intellectual property, India has seen a spurt in outsourcing activity in the areas of clinical development, clinical trial manufacture and commercial manufacture of on-patent APIs/ dosage forms  Divi’s labs, Dishman Pharma, Jubilant Organosys and Piramal Healthcare have emerged as the largest CRAMS players  Syngene, GVK Biosciences, Sai Advantium, TCG and Aurigene have emerged as leading focused R & D players in India  Generics players like DRL, Lupin, Aurobindo, Arch Pharmalabs amd Emcure are also diversifying into CRAMS in a big way  Several big pharma MNCs such as Pfizer, Merck, GSK, Wyeth, Eli Lilly and Astra Zeneca have begun outsourcing to India in a big way  Source: ICRA, Cygnus report, Avendus report, Centrum report | 3 Copyright © Universal Consulting India Pvt Ltd

5. R & D outsourcing to India is becoming an increasingly popular trend due to the increasing capacity of Indian companies to offer these services at low cost Cost of conducting R&D in India Indexed cost- 100 The Indian CRO market provides services ranging from drug discovery, new product development, formulation, pre clinical trial management till phase II A  120 100 8-9 The Indian CRO market consists of: - Research chemistry and biology- 18% - Pre clinical trials- 30% - Clinical trials- 52%  100 20-25 Potential co st savings o f c. 60% 80 25 60 35-40 40 20 Indian pharma companies that provide outsourcing services primarily do so in the late stage discovery (research chemistry) and drug development services - API manufacturing being outsourced has the highest share at 55%  0 Total R&D co st in US Research Biol ogy Research Ch emistry Development Costs Total R&D co st in India Extent of outsourcing in the value chain Percentage 60 Currently, capabilities in research biology are limited, however, being built up to facilitate early stage discovery - While the outsourcing of drug discovery and development and formulation manufacturing is low, as they form part of core activities, they represent a huge scope for future growth  50 40 30 55 20 25 10 20 15 15 15 0 Discovery API dev.Dosage de API mfg.Dosage mf Packaging v. g. Source: ICRA, Cygnus report, Avendus report, Centrum report | 4 Copyright © Universal Consulting India Pvt Ltd

6. The number of students becoming trained pharmaceutical scientists in the country is a lot higher as compared to other developed countries Annual no of trained chemists Cost of skilled chemists Indexed to 100 Indexed to 100 800 150 600 100 400 612 50 100 95 200 70 172 100 79 0 10 0 India France USA UK USA Germany Italy India India produces the highest number of trained and skilled chemists/ pharmacists, which serves as a great resource for t alent with respect to the drug and finished formulation development and manufacturing processes  India offers a tremendous cost based advantage as compared to other countries where the cost of R & D can go upto 10 times the amount  Hence in India, there are a plethora of opportunities for high quality work and achievement of research objectives at a significantly lower cost and with integrated CRAMS players emerging and building entrenched relationships with MNC s, the CRAMS sector will continue to expand  Source: ICRA, Cygnus report, Avendus report, Centrum report | 5 Copyright © Universal Consulting India Pvt Ltd

7. Profiles of some major Indian CRAMS players Divi’s conducts custom synthesis of APIs and pharma intermediates , with an ifrastructure of 4 R&D centers, 2 pilot plants and 2 large scale manufacturing units to support their activities  Divi’s Laboratories Divi’s undertakes contract research on process development for new compounds on behalf on leading MNCs the world over, and partners with them for the supply of APIs - They have more than 250 research scientists across their R&D centers  Divi’s also performs complete validation of processes, where it offers analytical expertise to generate reliable data for regulatory agencies and documentation expertise for regulatory submissions  Divi’s net revenue for 2010-11 was INR 1305 Cr with a growth rate of 41% over the previous year - CRAMS contributes to about 50% of the turnover with the remaining from the manufacture of generic APIs  Dishman serves as a global outsourcing partner for the pharma industry offering a portfolio of developmental, scale up and manufacturing services which span their customer’s needs from chemical development to commercial manufacture and sup ply of APIs - The majority of process R&D activities are undertaken at a facility in Bavla which houses 200 staff members working in 3 shift, 6 day R&D operations Dishman’s net revenue for 2010-11 was INR 4196 Cr with a growth of 19% over the previous year - CRAMS business contributes to about 70% of revenue  Dishman’s  Jubilant Lifesciences is the largest and leading Indian CRAMS player with presence across the value chain and provides dru g discovery and development services as well as research and manufacturing of various products including APIs and formul ations Various USFDA approved manufacturing locations across India, as well as North America with DMFs filed across regulated markets along with over 2000 scientists globally for R&D purposes (about 1300 in India and 1400 in America) For FY2011, Jubilant recorded a revenue of INR 3433 Cr  Jubilant Lifesciences   Source: Secondary Research | 6 Copyright © Universal Consulting India Pvt Ltd

8. A few examples of alliances in the Indian CRAMS segment Indian Company Outsourcing Partner Outline Covers the use of Codexis’ proprietary enzymatic biocatalysis technology for the manufacture of b uilding blocks, intermediates and APIs Dishman Codexis Suven Lifesciences Eli Lilly Agreement to collaborate on the pre-clinical research of molecules for neurological disorders Jubilant Lifesciences Eli Lilly A five year agreement to collaborate on a range of drug discovery services Nicholas Piramal Eli Lilly Joint development of several pre-clinical drugs in multiple therapeutic areas Nicholas Piramal Astra Zeneca Agreement for custom development and manufacturing for several products Indoco Remedies Watson Pharma Develop and manufacture generic drugs with market size of USD 670 Mn Torrent Pharma Novo Nordisk Contract manufacturing of finished formulations Jubilant Lifesciences Novartis Contract manufacturing of intermediates and APIs Strides Arcolab Ltd Pfizer Supply 67 generic drugs to Pfizer with a focus on oncology Matrix Labs GSK Contract manufacturing for APIs Source: ICRA, Cygnus report, Secondary research | 7 Copyright © Universal Consulting India Pvt Ltd

9. Indian companies with dedicated research and development arms, headquartered in India, to service global partners leveraging Indian scientific capabilities (1/2) Sun Pharma has set up a state of the art research center, SPARC- Sun Pharma Advanced Research Center, in Baroda, to cater to it’s primary research requirements - SPARC mainly focuses on addressing two areas: analogue chemistry for new chemical entities with improved profiles of validated targets and the development of novel drug delivery systems for existing or new molecules specifically designed to address certain issues with current therapy or offer advantages  SPARC to provide r esearch services as per deal with Merck Sun Pharma and Merck have recently (2011) signed an agreement to develop and bring innovative formulations to emerging markets - The products will be developed using technology from SPARC - Sun Pharma will bring forward it’s product development skills and manufacturing capabilities, while Merck will contribute with respect to regulatory activities and market presence  Aurigene engaged i n R&D activities in p artnership with seve ral MNCs Aurigene was formed as a wholly owned independent subsidiary of Dr Reddy’s Laboratories Ltd. in 2002  Aurigene leverages world-class science, high-quality scientific resources in India, to create long term value as a unique, highly productive Drug Disc overy Biotech, engaged in small molecule and peptide drug discovery  Currently, Aurigene runs over 20 drug discovery programs with 9 collaborators worldwide which include pharma as well as biotech companies  In 2009, DRL announced that research operations at their Hyderabad center would be absorbed into Aurigene, which is headquartered in Bangalor e, and resources including employees and infrastructure would be transitioned into Aurigene which would operate out of Bangalore and Hyderaba d  GE’s John F. Welch Technology Centre in Bangalore, India, is a multi–disciplinary R&D centre that expands GE's R&D capabilities, accelerating th e company's delivery of advanced technology to its global customers  GE’s technology ce ntre serves as a hub for R&D requiremen ts It collaborates with GE's three other R&D facilities that form the GE Global Research team (the Research Centre in Schenectady, NY; Munich, Ger many; and Shanghai, China) to conduct research, development and engineering activities for all of GE's diverse businesses worldwide  Drawing on India's unique multi–disciplinary skills – from mechanical and electrical engineering to polymer science and chemical engineering, the c entre incorporates the latest technology and e–engineering tools to facilitate real–time global interaction with GE's businesses, technology centres, customers and suppliers  In addition to the GE Global Research activities, the JFWTC is also home to technology teams from other GE organizations including GE Advanced Materials, GE Consumer & Industrial, GE Energy, GE Transportation and GE Healthcare  Source: Secondary Research | 8 Copyright © Universal Consulting India Pvt Ltd

10. Indian companies with dedicated research and development arms, headquartered in India, to service global partners leveraging Indian scientific capabilities (2/2) Contract Research Organization, CRO has been set up as a separate strategic business unit to cater to R&D services for Cadila Healthcare, which is located in the Dholka district in Ahmedabad  Cadila research faci lity in Ahmedabad f or R&D activity The unit offers pre-clinical and clinical studies for coherent drug development catering to over 45 therapeutic areas including CVS, GIT, analgesic, anti-infectives, antii-diabetic, respiratory, immunologicals etc overlooking Cadila’s own internal research as well as services outsourced to it by other companies  Zydus Cadila has several in-licensing alliances with global MNCs such as Schering AG, Boehringer Ingelheim, Viatris, etc. With capabiliti es to conduct drug discovery and development from concept to IND for pre clinical and clinical development  Zydus Cadila has a high end R&D cente r for collaborative re search The company has a well equipped research facility with a team of over a 1000 scientists performing R&D activities in segments such as small molecules (CVS, diabeters, pain, oncology), biologics and vaccines  In 2009, Zydus Cadila and Eli Lilly entered a collaborative research agreement for drug discovery and development focused in the area o f cardiovascular research, which can go upto about 6 years  Zydus will work to develop and discover potential molecules against a novel target, initiating drug discovery, lead identification and optimi zation, and conduct preclinical studies and clinical trials up to Phase II Human Proof-of-Concept and Eli Lilly will provide chemical startin g points as well as expertise and feedback regarding toxicology, ADME, chemistry, biology, clinical and regulatory aspects  Hyundai Motor India Engineering (HMIE) is a fully owned subsidiary of Hyundai Motor Company, South Korea, which has set up the R& D Centre in Hyderabad  Hyundai”s R&D cen ter to serve as a glo bal hub for its engin eering needs HMIE is a centre with one of the most advanced research and development facilities which focuses on state of the art product and desig n engineering and rigorous quality enhancement - It will further facilitate the development of India as Hyundai’s global hub for manufacturing and engineering of small cars by deve loping vehicles which includes their styling, design engineering and vehicle test & evaluation  Biocon has an integrated business model with capabilities spanning the entire biopharma R&D value chain from pre-clinical discovery to clinical development and through to commercialization - This includes 3 business divisions for- custom research (Syngene), clinical research (Clingene) and biopharmaceuticals (Biocon ) with a state of the art R&D hub at Bangalore  Biocon’s 3 business divisions fully focus ed on R&D Biocon and Amylin entered an agreement in 2009, for the development and commercialization of a novel peptide hybrid in metabolic diso rders  Source: Secondary Research | 9 Copyright © Universal Consulting India Pvt Ltd

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