Cross-border Partnering in Biotechnology:

Commercial Partnerships, Investment Landscape

and Beyond

June 18, 2012

L.E.K. Consulting Limited, Floor 34, CITIC Square, 1168 Nanjing Road West, Shanghai 200041, China

T: 86.21.6122.3900 F: 86.21.6122.3988 www.lek.com

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CONFIDENTIAL

L.E.K. Consulting is a leading global strategy firm with a strong focus

on life sciences

Global Capability

Life Science Experience & Expertise

20 offices worldwide, including 2 in China

Founded in 1983 in London

900+ consulting professionals; 100+ partners

Advised 20% of largest 200 companies globally

Highly differentiated from peer consultancies in

analytically driven decision-making

Leading advisor to life sciences companies around the world with over 2,300 engagements;

advised 4 of the top 5 global biotech companies, 9 of the top 10 global pharmas

Commercial support to bio/pharma product brands worth over US$30B in total annual

revenue; more than US$115B in transactions in life sciences

Awarded Healthcare Sector Adviser of the Year 2010 by Acquisitions Monthly and

Consultant of the Year at the 2011 Health Investor Awards

On the ground capabilities and experiences in China; over 50 projects in 2011 in China life

sciences and medical devices

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CONFIDENTIAL

DRAFT

Note: * Constant US$

Source: IMS, L.E.K. analysis

China is expected to be a major value driver of the global pharma

market, accounting for a quarter of global value growth to 2015

Pharmaceutical market growth rate by

major country (2010-15F)

2

China

Russia

Japan

Canada

U.S.

Brazil

U.K.

India Korea

Spain Turkey

Germany

Italy France

≥20%

10-20%

7-10%

3-6%

≤3%

2010-15 CAGR

CONFIDENTIAL

Aging population, continuing urbanization and increasing affordability represent strong

underlying market growth drivers

Chinese government actively encourages innovation and concentration in pharmaceutical

industry and aims an overall market growth of 20% p.a. in the 12th Five Year Plan (2011-15)

- biotechnology has been designated 1 of the 7 strategic emerging industries which will

garner favorable financial incentives and policies

- invest RMB40b (US$6.3b) on key innovative drug development, aiming to develop 30

innovative drugs with domestic IP in 5 years and 4-5 more each year in the future

- pharmaceutical industry is expected to be more concentrated with over 500 domestic

companies with revenue of RMB10b (US$1.5b) each and top 100 companies accounting

for over 50% of the market

- over 80 finished drugs receiving GMP certificates from US/EU/Japan/WHO; 5

companies reaching ranks of top 100 global pharmas by 2020

Improving primary care coverage through the health reform drives market in lower tier cities

and counties, as well as generic drug consumption; strong growth in specialty drug market,

particularly biologic drugs, with emerging opportunity of biosimilar drugs.

This fast growing market is driven by underlying fundamentals, public

and private investments and strong government directives

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CONFIDENTIAL

Cross-border M&A activities in healthcare have been increasing active

in the last three years, worth over US$1.5b in value

Note: * Excludes the M&A deals that only involves PE/ VC investment

Source: China Ventures, L.E.K. analysis 4

11

2

64

4

2

0

5

10

15

Number of deals

10

14

07

8 8

09 06

3

12

2

08

4

2005

2

2 1

11

11

21

21

0

5

10

15

07

Number of deals

06 10 2005

3

4

09

5

4

08 11

Corporate healthcare outbound*

M&A

Corporate healthcare inbound*

M&A

Additional investment

to existing entities

New deals

CONFIDENTIAL

Besides M&A, cross-border partnerships can take many forms, with a

range of control options

Partnership types

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Acquisition

Joint venture (JV)

(controlling stake)

Co-promotion

Licensing

Partnership considerations

Regulatory requirement

Market entry timeline

Investment constraint

Long-term strategy

Short-term tactics

Product portfolio

Number of impacted markets

Steps of the value chain

Risk control

… and others

Joint venture (JV)

(minority stake)

Distribution agreement

Incre

asin

g c

on

tro

l

Co-development

CONFIDENTIAL

China cross-border partnerships can take many forms

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GSK acquired

Nanjing Meirui in

2010

Pfizer formed a

JV with Hisun in

2012

Wuxi PharmaTech

acquired AppTec

(US) in 2009

GSK was preparing for commercial market access in urology in preparation

for its first urological product launch in China

Meirui had existing urology products and relationships with urologists

A part in Pfizer’s global generics push; both parties injected products into the

portfolio for China and global markets

Provides a different platform for Pfizer to approach the mostly generics

China market

Provides a global platform and new business to Hisun as the majority

stakeholder

Strengthen service capability in biotechnology and medical equipment, a

supplement to Wuxi’s expertise in small molecules

Access of AppTec’s clients in US

Dong-A (Korea)

licensed DPP-IV

drug to Luye in

2012

Luye is responsible for all the operations including manufacture, R&D in

China, sales and marketing

Dong-A’s partner has existing diabetes portfolio and can register and

commercialize the product more successfully than Dong-A, with no

experience in the market

Examples of cross-border commercial partnerships

CONFIDENTIAL

A partner in China does not necessarily need to be Chinese, and may

not be a traditional pharmaceutical company

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Research

Chinese

International

Examples of partners in China

Fosun Pharmaceutical (复星药业)

Wuxi Apptec (无锡药明康德)

Development Manufacturing Sales and

marketing Distribution

Asymchem (凯莱英)

CMS (康哲药业)

Shanghai Pharma (上海医药)

Bayer Pharmaceuticals

Quintiles

Lonza

Cardinal Health

CONFIDENTIAL

Considerations with a Chinese partner may differ than a typical

western company

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IP protection Technology transfer

Jump start in China Access to global market

Maximize profit Maximize scale

Consideration/ needs of

international partners

Consideration/ needs of

local partners

Western-style management “Chinese way”

Potential

conflicts

Successful partnership Shared

objective

CONFIDENTIAL

Some questions to consider in China cross-border partnerships

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Does one need a local partner in China?

What are the expectations of Chinese parties / Western parties? What are the

surprised?

What are the expectations on funding – from government, the companies involved,

financial partners?

Are Chinese deals different than Western deals? How?

How to sustain the partnership and achieve long term success?

How does one get started?

CONFIDENTIAL

DRAFT

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Helen Chen

L.E.K. Consulting

h.chen@lek.com

(8621) 61223900 (t)

(8621) 61223988 (f)

lek.com