Term Project for MOT Hanmi Pharmaceutical’s Success by the Management of Technology

1. Term Project for MOT Hanmi Pharmaceutical’s Success by the Management of Technology 17th, December, 2006 This report was prepared by Hyunkyu Lee

2. TABLE OF CONTENTS • Pharmaceutical Market • Introduction for Hanmi Pharmaceutical • Characteristic of Competitive Domain • Hanmi Pharmaceutical’s Strategy in Technology • Conclusion

3. Global pharmaceutical industry is steadily growing because of global wealth, aging society and technology development. Source: Pharmaceuticals Market in U.S, Datamonitor, 2005

4. ETC OTC Korean pharmaceutical market size is about 9 trillion won, and ETC market is growing rapidly because of separation of dispensary from medical practice in 2000. Competitive Domain in Medicine Market Korean Pharmaceutical Market (ETC & OTC) ETC • Ethical Drugs • Medicines that may be sold with a prescription and with a visit to a medical professional • Usually more technology-oriented drugs OTC • Over-the-counter Drugs • Medicines that may be sold without a prescription and without a visit to a medical professional

5. TABLE OF CONTENTS • Pharmaceutical Market • Introduction for Hanmi Pharmaceutical • Characteristic of Competitive Domain • Hanmi Pharmaceutical’s Strategy in Technology • Conclusion

6. CEO : S.K.LIM, Chairman / K. Y. Min, President • Market cap : US$738 Million (As of Feb, 2006 ) • Employee : 1,400 (As of Feb, 2006) • 2005 revenues : KRW 377 Billion • 2005 actual R&D spending : KRW 33 Billion (8.6% of total revenues) • Locations : -Headquarters : 45, Pangi-dong, Songpa-gu, Seoul, KOREA -R&D Center : 377-1, YoungChun-dong, DongTan-Myun, Hwaseong-City, Kyonggi-do, KOREA -Plant : 893-5, Hajeo-li, Paltan-myun, Hwaseong-City, Kyunggi-do, KOREA • Website address : www.hanmi.co.kr • Stock Exchange Listings : KSE008930 Hanmi Pharmaceutical is growing very rapidly. And also, Hanmi is the most technology-oriented Korean company in the industry.

7. Hanmi Pharmaceutical is growing very rapidly. And also, Hanmi is the most technology-oriented Korean company in the industry. Pharmaceutical Company Sales in Korea, 2005 <ETC Sales in Korea, 2005> Source: 한미약품 재무제표, 2006

8. TABLE OF CONTENTS • Pharmaceutical Market • Introduction for Hanmi Pharmaceutical • Characteristic of Competitive Domain • Hanmi Pharmaceutical’s Strategy in Technology • Conclusion

9. Pharmaceutical industry is “Knowledge-Driven Industry”, hence R&D is KSF (Key Success Factor) for Hanmi. Capacity-Driven Customer-Driven Knowledge-Driven • Investment on physical capital is relatively large in relation to cost or value added • e.g.- Food Processing- Basic Metals- Basic Chemicals- Pulp and Paper • Investments in brands or customer relations are relatively large in relation to cost or value added • e.g.- Food products- Consumer Chemical- Glass- Ceramic products • Investments upon R&D tend to relatively large in relation to cost or value added • e.g.- Electrical equipment- Specialty Chemicals- Transport Equipment- Pharmaceuticals Pharmaceutical competitors such as Pfizer that have outperformed the industry averages appear to have been superior at innovation, particularly in terms of their ability to introduce unique drugs for common diseases. –Textbook, page 12 R&D is Important!

10. Pharmaceutical industry is “High Risk and High Return”. So developing and protecting intellectual property is very important. • Success probability is only 0.015% (= 5% x 2% x 85% x 71% x 44% x 69% x 80%) • Government protects the patent of new medicine for 25 years for the developers • Developers can make a monopoly of the medicine so they can get enormous profit from the market Patent is Important! Source: 제약산업의 도약을 위한 우선과제, 장재철, 삼성경제연구소

11. TABLE OF CONTENTS • Pharmaceutical Market • Introduction for Hanmi Pharmaceutical • Characteristic of Competitive Domain • Hanmi Pharmaceutical’s Strategy in Technology • Conclusion

12. - Hanmi Pharmaceutical’s Strategy in Technology • R&D Intensification • 1st Super-Generic Strategy • DDS Technology: OSMU by Diffusion • Licensing

13. R&D Intensification: Hanmi Pharmaceutical is top Korean medicine company for R&D. Sales and R&D Cost of Hanmi($ Million) R&D Center • Hanmi Pharmaceutical’s R&D cost is the most R&D expenditure in Korean pharmaceutical company • Like Pfizer, Hanmi is outperforming Korean pharmaceutical’s average in terms of sales growth • Hanmi Research Center, which is located in Giheung area, is evaluated the most important R&D center for Hanmi. Source: 한미약품 재무제표, 2006; 약업신문

14. Proprietary drug, which have patent Original Improving original drug- Position of Hanmi Pharmaceutical Patent Super-genric Copy drug, when original drug’s patent expired Generic 1st Super-Generic: There are three categories in pharmaceutical, which are original , super-generic and generic medicine.

15. Global Generic Market Value ($ billion) Patent Expiration in Pharmaceutical Industry • Market Value ($ Billion) • Number of Product (e) CAGR 13.6% CAGR 13.2% Because of the governmental policy to supply medicine with low price for the people’s health, generic market is growing more faster than original medicine. Source: Generic Market in U.S, Datamonitor, 2005

16. Hanmi’s strategy on the technology management is 1st super-generic. By this, Hanmi can get large market share with low risk. New Drug VS Generic Source: 한미약품 홈페이지

17. First super-generic strategy pre-occupies the generic market because of the government regulation to support cheap medicine. Market Share of Generic Drugs Strength of 1st Super-generic • Lower Risk than Original Drugs • Lower Cost than Original Drugs • Lower Price than Original Drugs • Shorter time for R&D than Original Drugs • Patent of 1st generic drugs for180-day • Higher Market Share than generic drugs Source: 제네릭 약물산업 위기인가? 기회인가?, 메디&팜스투데이, 2006 Generic Market in U.S, Datamonitor, 2005

18. Micro-emulsion Technology (DDS Tech) • Royalty for License • Company • Product • 6 million $ • 6% of Sales • 6.3 billion $ • (The most huge size • of deal in Korean • pharmaceutical industry) • Roche, Switzerland huge company (1987) • IVAX, USA (1995) • Novartis, Switzerland (1997): • Triakson Synthesis • Soft-Capsule Technology • Micro Emulsion Synthesis Technology Diffusion & Licensing: To get the competitive advantage, Hanmi used DDS(Deliver Tech) as source of OSMU by diffusion and licensed with global huge company. Source: 국내 의약기업의 새로운 활로 제네릭 의약품, 고은지, LG경제연구원 Generic Market in U.S, Datamonitor, 2005

19. TABLE OF CONTENTS • Pharmaceutical Market • Introduction for Hanmi Pharmaceutical • Characteristic of Competitive Domain • Hanmi Pharmaceutical’s Strategy in Technology • Conclusion

20. Conclusion • Pharmaceutical market is a good example of knowledge-driven industry. • As other knowledge-driven industry is, R&D is the KSF (Key Success Factor) in pharmaceutical industry. • Hanmi is the most technology oriented-company in Korean drug industry. • Hanmi continuously showed 20~30% of growth rates, and Hanmi became the largest (1st super) generic pharmaceutical company in Korea. • Hanmi’s success factor can be concluded as below. - R&D Intensification - 1st Super Generic Strategy - DDS Technology : OSMU by Diffusion - Licensing • The case of Hanmi Pharmaceutical can be a good example for showing that R&D is KSF in knowledge-driven company.

21. EOD