1MEHTA PARTNERS

Global BioPharmaceuticals

Shape of Things to Come

Challenges and Opportunities

Viren Mehta

mehta@mpglobal.com

2MEHTA PARTNERS

The Generics’ Future Is Bright

• Most Products For Most BioPharma Companies Go Generic By 2018

• Generic Companies Are Continuing to Capitalize On These Opportunities

• Growing Volume, And Hopefully Value

• Value-added ―Generic‖ Formulations As Competition Gets Tough

• Moving Further Up the Innovation Chain

• In Larger Geographies

3MEHTA PARTNERS

Just Wealthy Justify Rapid Growth in Valuations

Company

Revenue -

2008 ($b)

Market Cap

- 2008 ($b) Company

Revenue -

2008 ($b)

Market Cap

- 2008 ($b)

Pfizer Inc 48.3 119.5 Takeda 15.2 46.4

Glaxosmithkline 44.6 66.6 Astellas 10.7 21.2

Novartis 41.5 113.0 Daiichi Sankyo 9.7 23.4

Sanofi-Aventis 40.3 59.3 Eisai 8.1 10.7

Johnson&Johnson 24.6* 162.2 Mitsubishi Tanabe 3.5 7.2

Top 5 India Top 5 China Top 5 Korea

Company

Revenue

- 2008

($b)

Market Cap

- 2008 ($b) Company

Revenue -

2008 ($b)

Market Cap

- 2008 ($b) Company

Revenue

- 2008

($b)

Market Cap -

2008 ($b)

Ranbaxy Labs 1.5 2.2 Harbin Pharma 1.4 2.0 Dong-A Pharm 0.6 0.8

Dr Reddy's 1.0 2.0 Guangzhou 0.5 0.7 Hanmi Pharma 0.4 0.7

Cipla 0.8 3.5 Beijing Tongre 0.4 1.2 Yuhan Corp 0.5 1.6

Sun Pharma 0.7 5.2 Shandong Xinhu 0.3 0.3 Daewoong Pharma 0.4 0.8

Piramal 0.6 1.3 Simcere Pharma 0.3 0.5 Green Cross 0.4 0.7

If the Middle Class Adopts Better Therapeutics… …

*Only Pharmaceutical Revenue

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Then Why Are We All Here?

• Could Most Regulated Markets Go the Way of Germany?

• May the New Japanese Government Throttle Generics?

• How Long May It Take For More Emerging Markets to Go the Way of India?

• That May Not Be All Bad (With Margins Comparable to Japan)!

• Would the Western Pharma In Their Collective Wisdom Ruin the Emerging

Markets Opportunity For Everyone?

• Where May the Next Batch of Generics Come From If R&D Does Not Revive?

• Can BioSimilars Offer the Next Batch of Growth Drivers?

Germany, the Cradle of Pharma, Commoditizing the Sector!

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Creating Sustainable Value Amidst Challenges

• Anticipating Competition

• Role of the Generic Majors vs Opportunities For Niche Companies

• Timing Investments For the BioSimilar Opportunity

• Viability of CMO, CRO, and Such Services

• Sustainability of Value-added Generics Towards Specialty Pharma Model

• Moving Up the Value Chain, Possibly Including Innovation

• Regulatory Challenges and Unpredictability

• The US Reforms May Address Authorized Generics + Other Inefficiencies

• Health Reforms Worldwide Increasingly Attack Even the Generics

• Difficulties of Globalization

• Middlemen Keep Majority of Generic Savings

• A Risk and An Opportunity

What Should a Generic Company of the Future Look Like?

6

Homogenization of Value Proposition

SectorSales %Growth

2009-2013

EPS %Growth

2009-2013PE PEG

EV/

EBITDA

Price/

Book Value

Mkt Cap/

Sales

Net Margin

(%)

ROE

(%)

Indian Generics12.0 14.2 10.8 0.8 6.6 1.2 1.2 14.2 14.8

Mature Biotech 8.8 11.2 12.2 1.1 8.7 2.8 4.4 33.7 21.7

Japan Generic14.9 11.0 14.8 1.3 8.8 1.8 1.2 6.6 9.5

Global EU1.8 4.6 11.3 2.5 5.7 1.7 2.5 27.8 19.0

Specialty(0.6) 2.4 11.4 4.8 7.6 1.6 2.2 18.9 13.6

Japan Majors(0.5) 2.4 12.8 5.4 5.9 1.5 2.2 17.6 11.6

Global US(0.2) 0.1 8.6 157.6 5.5 1.9 2.3 27.5 22.4

Source: Mehta Partners, Company Reports

Superior Growth At Relatively More Attractive Valuations

7MEHTA PARTNERS

R&D Based Pharma Face a Different Future

Source: Mehta Partners, Company Reports

Global Pharma Valuations : Declining Trend

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

Valu

ati

on

Mu

ltip

ule

s

.

P/E Multiple

P/BV Ratio

P/S Ratio

EV/EBITDAPressures At Home Force Them In to Generics

8MEHTA PARTNERS

How Much Should R&D Cost?

CompanyNME Approvals (1999-

2008)

Cumulative R&D Spend in $m

(1999-2008)

Compounds in PhIII (as of

Nov'08)

Novartis 14 47,193 15

Pfizer 13 67,658 7

GSK 8 43,621 10

Merck 7 34,500 6

SGP 7 18,543 5

BMS 6 24,213 3

Wyeth 7 24,378 7

Sanofi-Aventis 6 32,881 13

Eli Lilly 4 26,568 4

Roche 4 45,462 2

Astra Zeneca 3 35,529 8

J & J 3 52,363 5

Abbott 2 18,279 2

Novo Nordisk 2 9,525 1

Total 85 480,713

“Cos”t to Get a NME on Market 5,655@ @Excluding acquisition costs

Source: Mehta Partners, US FDA

9MEHTA PARTNERS

Global Pharma R&D Struggle to Continue

• The 14 global companies reported 2007 pharma sales of ~ $360 billion

• Their R&D spend in 2007 was $65 billion

• Over the next 8-years, to balance patent expiries and normal sales erosion, these 14 companies will need an estimated 25 NMEs/year (or 2 NMEs/company/year to simply maintain 2007 sales base of $360 billion in 2015.

• Cumulative R&D spending will exceed $500 billion over these 8-years

• For our entire 400+ company universe, the US FDA approved only 18 NMEs in 2007, which somewhat improved to 24 NMEs in 2008.

Coming Decade Promises Fundamental Changes For Our Industry

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Will R&D Return to Its Glory Days?

• Limitations of ―Old Science‖ Compounded by Early Tools of ―New Science‖

• ―New Science‖ Today Lacks Critical Mass For Predictable Productivity

• A Century Long Journey!

• Will the R&D Pain Peak in ~2015? ~2025? … …

• Will the Resulting Product Flow Be More Robust? Better Patent Protected?

• What Will That Next Batch of Generic Opportunities Look Like? What Skills May Be Critical For Real Competitive Edge?

• What Will R&D Based BioPharma Companies Look Like?

• When Will True BioPharma Innovations Help Us Control Total Healthcare Costs?

Generic Companies vs. R&D Driven Companies-How Different?

11MEHTA PARTNERS

Global Pharma Focus Shifting From GPs

Company% of 2007 Sales from

Expired Products

No. of products

Contributing 60% of

Pharma sales 2007

% Sales from

Emerging Markets

% Sales from Onco

Drugs 2007

GSK 43.5 13 15 2.2

Abbott 43.2 6 5 2.5

Novartis 37.6 9 15 10.5

SGP 37.2 7 15 8.5

Sanofi-Aventis 37.0 6 23 12.0

Merck 36.9 6 19 NA

Pfizer 35.7 6 13 5.4

Wyeth 34.7 4 14 NA

Roche 29.1 8 15 37.1

AstraZeneca 22.1 6 9 16.3

Eli Lilly 15.0 5 15 13.1

Bristol-Myers 14.8 3 11 8.1

Novo Nordisk NA NA 17 NA

Source: Mehta Partners, Company Reports

Emerging/Specialty Markets to Help With Healthcare Cost Pressures

12MEHTA PARTNERS

Healthcare Cost Pressures Drive Generics Growth

CountryGDP

Growth

Health Exp

as % of GDP

(2005)

Drug Spend as

% of Total

Health Spend

(2005)

Generic

Penetration

(2007)

%

Generic

Penetration

(Volume)

(2007)

%

Out of Pocket

Spend as % of

total

healthcare

(2006)

France 1.9 11.1 16.4 8.5 17.0 20.3

Italy 1.5 9.0 20.0 3.5 7.0 22.9

Japan 2.1 8.2 19.8 5.2 16.8 17.8

Spain 3.8 8.4 21.7 6.1 12.0 27.5

Unit Use to Continue to Grow Rapidly, Value Growth Will Be Key

Source: Mehta Partners, OECD, Company Reports

Countries With High Generics Growth Potential

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Japan Generics Opportunity• Poor Generic Uptake To Date Due To:

• Low Margins To GPs & Pharmacies

• Poor Management With Inadequate Product Line-up

• Psychological Barriers, Now Even Among New Government

• Generic Segment Is Projected To Double By 2012 &Triple In Size By 2015 Assuming the New GovernmentSupports Current Plans

• Generic Drugs Share Of 15% By Value vs Current6.4% of the Total Drug Market

• For Generics, Marketing/Branding Capabilities InGP/Dispensing Pharma Market, And DistributionCapabilities Into DPC/Large Hospitals Segment WillDetermine Success

• Near Term Opportunity Lies In GP/Dispensing PharmaSegments

GP/Dis.P

h, 340

DPC, 650

EXPECTED GENERIC MARKET SENARIO IN 2012E (JPY b)

Source: Company Reports, Mehta Partners

GP/Dis.Ph

, 215DPC, 250

FY 2008A

~6.4% of Market share

FY 2012E

~12.5% of Market share

14MEHTA PARTNERS

GDP Growth Shapes Emerging Markets Growth

• Characteristics Of The Healthcare System Of Emerging Markets Are Significantly Different

Than Those Of The Developed Markets – Often Opposite

Higher the Out of Pocket Spend, Longer the Branded Generics Life

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Countries GDP growth

2007

Healthcare as a

% of GDP-2006

Out of Pocket

expenditure as % of

total healthcare-2006

Brazil 5.4 7.5 52.1

China 11.4 4.5 58.0

India 9.2 4.9 80.4

Russia 8.1 5.3 36.8

South Africa 5.1 8.6 58.1

15MEHTA PARTNERS

Emerging Markets Are Diverse Yet Consistent

A Clear Set of Investment Criteria

From 10% Share Of Global Pharma Sales (And Little Profits) In The 1980s, Emerging Markets Share Has Grown to Almost One-quarter Today—Thanks to the Rapidly Expanding Middle Class (US is Almost 45%, Europe Over 30%, Japan Falling to Single Digit)

• ‗Out Of Pocket‘ Or Self Paid Emerging Markets Offer Sustainable Growth

Three Broadly Equal Sized World Regions Are Likely Over the Next Decade

• Europe, North America, And Emerging Markets

• Current Economic Turmoil Has Not Affected These Markets As Much

Emerging Markets Are Much More Diverse, and Need More Assurance For Quality Products

• Branded Generics Offer Sustainable Growth With Superior Margins

Several Emerging Countries Are Beginning The R&D Journey

Reputation For Quality, Combined With Cutting Edge Education, Management Mindset

• Significant Investments Of Management Time And Money Essential

16MEHTA PARTNERS

So, We Are Here Because

• Regulated Markets Won‘t Go the Way of Reference Pricing If the Industry‘s

Selling and Pricing Actions Become More Balanced, And If the Middlemen

Dependence on Generic Margins Can Be Moderated

• New Japanese Government Won‘t Throttle Generics, But a New Model Needed

• Each Emerging Market Is Unique, India May Not Be a Bad Model

• Management Savvy, Street-smarts, Reasonable Margins!

• Large R&D Based Pharma Need a Different Management Mindset

• Daiichi Sankyo Capitalizing on Ranbaxy Team

• R&D Must and Will Revive, Returning BioPharma to Glory Days

• BioSimilars Will Become the Next Growth Driver For Selected Managements

Pragmatic Yet Bold Investments For Continuing Success