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Corporate IntelligenceUnited Business InstituteSerbia, Novi Sad April. 2004 Snežana KikićVesna Gavran

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Trends in Pharmaceuticals Trends in Pharmaceuticals industry for next 5 yearsindustry for next 5 years

Globalization1. Global sales2. Consolidation Diversification1. Demographic

group-”Silent population”

2. On-line pharmacy3. Generic Fast pharma

3

GLOBALIZATIONGLOBALIZATION 11..Pharma Pharma Global SalesGlobal Sales

Rank

Audited World Therapy Class

2003Sales($bn)

% Global sales

($)

% Growth

(constant $)

1 Cholest.&TriglyceriReducers

26.1 6% +14%

2 Anti-ulcerants 24.3 5 9

3 Antidepressants 19.5 4 10

4 Antirheumatic Non-Steroidals

12.4 3 6

5 Antipsychotics 12.2 3 20

6 CalciumAntagonists, Plain

10.8 2 2

7 Erythropoietins 10.1 2 16

8 Anti-Epileptics 9.4 2 22

9 Oral Antidiabetics 9.0 2 10

10 Cephalosporins & Combinations

8.3 2 3

Total Leading 10 $142.0bn 30% +11%

World AuditedMarket

2003 Sales($bn)

% Global Sales ($)

% Growth

(constant $)

North America 229.5 49% +11%

European Union 115.4 25 8

Rest of Europe 14.3 3 14

Japan 52.4 11 3

Asia, Africa and Australia

37.3 8 12

Latin America 17.4 4 6

TOTAL $466.3bn 100% +9%

Source: IMS World Review

2004 52.4

37.317

.4

229.

5

14.3

115.

4

North America European UnionRest of Europe Japan

Asia, Africa and Australia Latin America

4

GLOBALIZATIONGLOBALIZATION

05

101520253035

X 1000 000 000 $

1.Pfiz

er

3.M

erck

5.J&

J

7.Bris

tol-M

yers

Squ

ibb

9.Pha

rmac

ia

11.L

illy

13.R

oche

15.T

aked

a

17.B

oehr

inger

-Inge

lheim

19.S

cher

ing A

G

R&D Expenditures Sales

TOP 20 WORLD PHARMACEUTICAL COMPANIESTOP 20 WORLD PHARMACEUTICAL COMPANIES

Top 20 Deliver 81%

of Total Sales

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GLOBALIZATIONGLOBALIZATION 2. 2. ConsolidationConsolidation

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

GLOBALIZATIONGLOBALIZATION 2. 2. ConsolidationConsolidation

The consolidation and internationalisation of the pharmacy company can be expected to continue.

Gen-specialized Companies

Market Opportunities

5 – Global players

biotechnology Company

100 regionalPh Companies

15-20 Global players

2004 2009

Consolidation activities: acquisitionsin-licensing co-development co-marketingdistribution network

Cooperation between the large pharmaceutical companies and small biotechnology companies.

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DiversificationDiversification

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.

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DiversificationDiversification

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 growth of of the Online Drugs Market

0

1000

2000

3000

4000

5000

6000

1999 2000 2004

Year

Mill

ion

$

Online prescriptiondrugs market

Online OTC drugsmarket

The traditional pharmacy business model may no longer work

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DiversificationDiversification

INNOVATIVE MEDICINE

GENERIC COPY

Drug Discovery

Discovers millions of promising molecules for development using the latest research technologies.

No discovery or advancement research. Chooses to copy the most commercially successful innovative products.

DevelopmentRisk

Only 1 in 10,000 molecules discovered actually makes it to market.

The generics pick only the high revenue products for copying. Thus, generics face zero risk.

DevelopmentTime

It takes 10 to 15 years to develop a single medicine.

Approximately 2 to 3 years to develop a chemically identical &biologically equivalent generic copy.

DevelopmentCost

The average cost to develop a new medicine is $1.3 billion.

The average cost to develop a generic copy is $1 million.

$100 billion worth of brand name prescription drugs will lose patent protection by 2005.

Cheaper good copies.

3. Generics3. Generics

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Faster PharmaFaster Pharma

Faster developing1. biotechnology2. genome pharma3. 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

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EUROPEEUROPE

SERBIA & MONTENEGROSLOVENIA

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GLOBALIZATIONGLOBALIZATION Pharma Sales in EuropePharma 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.

Sales Еuro (millions)

5127

5296 84

4,3613

071920 19

5530

942

3733

6

017

000

2408

8

5022

1511

41100

646,

88390063

136

21465

729

584174

2195

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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)

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Slovenia, Data Profile   Serbia and Montenegro , Data Profile

1997 2000 2001 1997 2000 2001

People   People

Population, total 2.0 mill 2.0 mill 2.0 mill   Population, total 10.6 mill 10.6 mill10.6

msERBIA ill

Population growth (annual %) -0.3 0.1 0.1  

Population growth (annual %) 0.3 0.1 0.1

Environment   Environment

Surface area (sq. km) 20,250. 20,250. 20,250.   Surface area (sq. km) .. 102.0

thousand 102.0

thousand

Forest area (sq. km) .. 11,070. ..   Forest area (sq. km) .. 28,870.0 ..

Economy   Economy

GDP (current $) 18.2

billion 18.1

billion 18.8

billion   GDP (current $) 16.3 billion 8.4 billion 10.9 billion

GDP growth (annual %) 4.6 4.6 3.0   GDP growth (annual %) 10.1 5.0 5.0

Inflation, GDP deflator (annual %) 8.8 5.7 9.9  

Inflation, GDP deflator (annual %) 29.2 76.8 89.0

Exports of goods and services (% of GDP) 57.4 59.1 ..  

Exports of goods and services (% of GDP) .. 31.6 24.9

Imports of goods and services (% of GDP) 58.3 62.7 ..  

Imports of goods and services (% of GDP) .. 50.4 44.6

Trade in goods as a share of GDP (%) 97.4 103.9 ..  

Trade in goods as a share of GDP (%) 46.0 64.2 ..

Source: World Development Indicators database, April 2002   Source: World Development Indicators database, April 2002

 Both countries have population 65 years and over 15 %

Country indicator Slovenia

Serbia & Montenegro

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History

Krka1954- 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 Jinan Yongning 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

At the beginning they were domestic competitors

Former Yugoslavia

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Competitive Fact SheetCompetitive Fact Sheet

Hemofarm Krka

Mission/Vision

Hemofarm is committed to improving health and the quality of life. High-quality product range, rounded-out drug pallet, respect among customers and suppliers in the country and abroad are ongoing objectives and preconditions for further developmental expansion of the Hemofarm Group. The Group is therefore entering the 21st century with ambitions to further specialize in its activities, to extend the presence abroad and develop into a multinational company. (1)

Living the healthy life. Our basic task is to enable people to lead a healthy, good quality life. We are continually consolidating our position as one of the leading pharmaceutical companies on the markets of central and eastern Europe, and are also expanding to the markets of the European Union.We intend to realize our vision as a renowned and penetrating generic pharmaceutical company which will most rapidly develop its range of top quality, readily available pharmaceutical products, while enabling a broad spectrum of people worldwide to regain and maintain their health. (2)

Strategy

The strategy of the Group is directed towards a powerful penetration to foreign markets. Apart from classical export, Hemofarm realizes different types of co-operation and invests in establishing local productions in other countries.

Constant development and sale growth of generic product under our brand name.Maintaining close constant with the costumer.Investing in development and marketing and economizing the business process.

Activities

Hemofarm core activity is drug production on 90,000 m2 of manufacturing area as well as trade of products.

Continued focus on the development and sales of Krka’s generic pharmaceutical productsExtension of the production-distribution network abroad especially Russian Federation.

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HemofarmHemofarm && KrkaKrkaHEMOFARM KRKA

2002 Sales (mil) E 135,8 E 370, 9

1-Year Sales Growth 10.30% 11 %

Domestic Sales (%) 73.80 23%

Foreign Sales (%) 26.20 77%

2002 Employees 2800 4332

1-Year Employee Growth

15 % 7 %

University degree 20 % 26.60%

Marketing 115.6 % 10.55 %

R&D - 89.33% 7.9 %

Drug registration 111.44% 5.6 %

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PRODUCTION IN THE COUNTRY

Totally 11 plants in country

Plants in Podgorica

“Hemomont”

Bački Petrovac

Dubovac

Jasenovo

Srpska Crnja

Plants in Sabac “Zorkapharma”

Five plants in Vršac

Hemofarm group

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Domestic market sales

HEMOFARM GROUP - 43.89 % = 99.6 mil E

JUGOREMEDIJA8.17%

ZDRAVLJE

12.70%

SRBOLEK 1.35%

SLAVIJAMED0.53% FAMPHARM

0.15%

SANITARIJA0.11% REMEVITA

0.15%

HEMOMONT1.19% HEMOFARM

14.26%PANFARMA

17.15%

GALENIKA32.95%

ZORKA PHARMA11.28%

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Krka domestic market salesKrka domestic market sales

KRKA Novo Mesto Slovenia

A new plantNOVOTOL

22000.00m2

DOMESTIC MARKET TOTALY 250.MIL.$

KRKA ( 60mil.$)22%

EXPORT 52% (USA, Germany,

Croatia…)

LEK22%

KRKA LEK EXPORT

Slovenia is currently reforming it pricing policy into a formal reference pricing system, weighted towards imported “cheaper” generic.

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Krka presence in abroadpresence in abroad

KRKA Novo Mesto Slovenia

KRKA FARMA Croatia

KRKA Polska Poland

KRKA- KOZMETIKA DOOEL Macedonia

KRKA- FARMA DOOEL

Macedonia

KRKA Aussenhandels GmbH Germany

OOO KRKA- RUSRussian

FederationOOO KRKA FARMA

Ruian Federation KRKA Ch

Cesh Republic

KRKA PHARMA Dublin Ireland

KRKA PHARMA Dublin Ireland

KRKA Magyarorzag Kft.

Hungary

HELVETIUS S.R.L Italy

KRKA Serbia and

Montenegro

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Export structure according to markets

Sales Market

East Europe 28 %

South- East Europe 20 %

Slovenia 20%

Central Europe 20 %

West Europe and rest of the world 12%

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Hemofarm presence in Hemofarm presence in abroadabroad

HEMOFARM ARABIA

Damascus

HEMOPHARM GmbHGERMANY

Hemopharm USA Pennsylvania Avenue

HEMOFARM KOMERCMACEDONIA

HEMOFARM BUCURESTI, ROMANIA

S.C. HEMOFARM S.R.L. TIMISOARA, ROMANIA

HEMOPHARM Import-Export GmbH Podružnica Ljubljana LJUBLJANA, SLOVENIA

HEMOFARMPEKING, CHINA

JINAN-HEMOFARM Pharmaceutical Co. Ltd., China

HEMOFARM Banja LukaREPUBLIC OF SRPSKA, BiH

HEMOFARMMOSKVA, RUSSIA

HEMOFARMPRAG 4, CECH REPUBLC

HEMOFARM IRAC

HEMOFARM S.R.L. ITALIA

DIPAPHARM CONSTANTINE, Algeria

HEMOFARM KISHINEV, MOLDAVIA

HEMOFARMSWITZERLAND

Serbia and Montenegro

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Export structure according to markets

The Rep. of Srpska15.09%

Russia51.95%

Macedonia10.53%

Germany0.05%

Morocco0.45%

China0.44%

Czech Rep.0.17%

Syria0.46%

Tunisia0.48%

Nigeria0.41% Hum. org.

0.01%

Algeria5.05%

Italy1.48%

Slovenia4.08%

Kosovo1.69%

Romania6.29%

Ukraine1.36%

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Hemofarm Krka1. Global sales đ đ đ

2. Consolidation đ đ đ đ

3. On – line pharmacy đ đ đ

4. Wholesale đ đ đ đ đ đ đ

5. Expansion abroad đ đ đ đ đ đ đ

Sector Trend: Sector Trend: DiversificationDiversification

“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.

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Technology Based Technology Based IntelligenceIntelligence

Hemofarm Sales Information

System Radio-TV

Krka Sales Information

System

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SWOT AnalysisSWOT AnalysisHemofarm

KRKA Hemofarm KRKA

Home market strong positionLast 3 year strong penetration as domestic manufacturer on foreign markets.Diversification of product

Focus on genericInternational experienceBrand name at former YU countries

International presence and profitsLow penetration in EU, NALack of international experienceNot global brand nameCountry in transition period

Weak home market policyNot global brand name

New markets (EU, North America, China, Asia, Africa). Acquisition with global pharmaceutical leaderE-commerce

New markets (EU)Acquisition with global pharmaceutical leaderE-commerce

Internationalization costsNot present in large communitiesSpecial Trade agreement with Russian Federation is going to expire in 2005 .

Getting stronger competition at home market. Becoming a member of EU is going to lose free trade rights at former ex-Yu markets.

S Strengths

W Weaknesses

O Opportunities

T Threats

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Future Market FocusFuture Market FocusCountries Hemofarm Krka

EU đ đ đ đ

Russia đ đ đ đ đ

China đ đ đ

North America đ đ đ

Ukraine đ đ đ

Algeria đ đ

Syria đ đ

Serbia đ đ đ đ đ

Slovenia đ đ đ đBosnia and Herzegovina đ đ đ đ đ đ

They are interested in almost same markets.

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FutureFuture

WHO will be able to swim with sharks?

Hemofarm is 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?

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.

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SourcesSources

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