Know Your End-Market!

Medical & Pharmaceutical Trends Impacting the

Chemicals and Materials Industry

A panel discussion with Frost & Sullivan's leading Chemicals &

Materials analysts:
Hariharan Ramasubramanian, Dr Leonidas Dokos

27 February 2009
Focus Points

• Introduction
• Impact of Economic downturn
• Key Medical & Pharmaceutical Trends
• Materials for Medical Devices
• Product Segmentation
• Challenges, Drivers and Growth
• Chemical Excipients
• Product Segmentation
• Challenges, Drivers and Growth
• Major Industry Participants
• Conclusion

2
Introduction

3
The Integrated Industry Perspective – Healthcare
represents a crucial downstream end-user

Coatings,
Plastics
Adhesives Performance Specialty
and Packaging
and Materials Chemicals
Polymers
Sealants

Aerospace Aerospace Automotive & Automotive & Automotive &

& Defense & Defense Transportation Transportation Transportation
Automotive & Automotive &
Electronics Environment Electronics
Transportation Transportation

Electronics Electronics Healthcare Healthcare Environment

Healthcare Healthcare Food Construction Energy

Construction Construction Healthcare

Source:
Source:
FrostFrost
& Sullivan
& Sullivan

4
The Medical and Pharmaceutical end-use markets for
Materials and Chemicals

Healthcare

Medical & Pharmaceutical

Materials in Chemicals Excipients for

Healthcare Pharmaceutical Drugs

Materials in Materials in
Medical Devices Medical
Packaging

5
 Economic Downturn

Impact on Medical and Pharmaceutical Markets

6
Impact on Sectors of the Economy
Market Indices as an Indicator for Industry Prospects
• The effects of the downturn has disproportionately affected different segments of the
economy
• The healthcare sector has outperformed the broader market
US Market Indices
16,000

14,000
Indices value (units)

12,000

10,000

8,000 Healthcare
Indices, while
6,000 declining,
have still
4,000 outperformed
Dec-07 Feb-08 Mar-08 May-08 Jul-08 Aug-08 Oct-08 Nov-08 the broader
Dow Jones Industrial Average NasDaq Biotech market
NasDaq Financials NASDAQ Transportation
S&P HEALTHCARE INDEX PHLX SEMICONDUCTOR SECTOR INDEX

• This implies that investors expect that, while the healthcare sector will be
affected by the downturn, it will still out-perform the general economy

7
Winners and Losers…

High Elite: Companies which have

Elite Winners high cash reserves, but
Big Pharma unable to do much to improve
their business because of the
unfavorable situation
Big imaging
companies Winners: Companies which
Financial Leverage

Big device have high cash reserves and

companies
are able to leverage this
Big IVD situation successfully through
Losers Opportunists strategies like M&A /
Small device alliances.
companies
Discretionary product
manufacturers Generic Opportunists: Companies
manufacturers which have the best
Home care
opportunity to grow during the
companies economic downturn
Low Losers: Companies likely to
High Business risks in economic downturn Low loose their revenues due to
economic downturn
Source: Frost & Sullivan

8
What is the way forward …?

• Medical devices becomes a more attractive segment for plastics

suppliers facing declines in their other key end user segments.
• The prospects for higher margins and a stable demand acts as a
major incentive for companies to invest.
• However, a focussed - rather than piecemeal – approach to the
market will be important for companies looking for long term growth
in this segment.
• Plastics in Medical devices to grow at a CAGR of 5.4% in the period
2009-2015.

Companies such as Invibio

(Victrex) and LyondellBasell
that have built up a separate
brand image and identity for
their medical products are
well placed to grow in this
segment

9
What is the way forward …? (contd)

• As the era of blockbuster drugs continues to approach its end, the

smaller and specialist companies are better placed for survival.
• The pharmaceutical industry is more apprehensive about the upcoming
expirations of patented drugs than the global economic contraction.
• The expiration of patents means that manufacturers of excipients need to
be prepared to do business with a larger number of companies in a wider
geographical spread and at a more cost-driven supply basis.
• Strategic partnerships and
alliances will become more “In over 23 years in the industry,
crucial than ever. I've never really seen pharma
• Even amidst the current sales being affected by an
challenging economic climate economic downturn in the
the market for pharmaceutical western world. We're probably
excipients will perform better one of the industries that will be
than other chemicals markets affected the last and the least."
with a forecast CAGR – CEO of one of world’s top 30
between 2009-2015 of 3.3%. pharma companies.

10
Key Medical & Pharmaceutical Drivers and Trends

“Doctor, I feel a pain in…”

11
Pharmaceutical trends with Respect to Chemicals &
Materials – what lies ahead…
• In 2000, 10% (606 million) of the global population was aged 60+. By 2050 this
will be more than 21% (2 billion).
• The aging of population and the need for more medical devices and
sophisticated drugs will create undisputedly more demand for materials, active
ingredients and chemical excipients.
• There is increasing
competition from low-cost
manufacturers. These are
located in Asia, especially in
India and China, and are
continuously enlarging their
capacity while improving at
the same time the quality,
credibility and reliability.

Source: Frost & Sullivan

12
Pharmaceutical trends with Respect to Chemicals &
Materials – what lies ahead… (contd)

• Global mortality from chronic diseases will increase 50% by 2025.

• Cardiovascular diseases will remain the main global mortality chronic
disease by 2025 with cancer and respiratory diseases increasingly
affecting more people.
• 75% of people aged 60+ have
one chronic condition, while
50% have two or more
chronic conditions.
• Chronic diseases account
for more than 60% of all
health care spending.

Source: Frost & Sullivan

13
Performance Material Trends in the Medical Devices
and Pharma Packaging Markets

14
Market Segmentation
Plastics in Medical Devices

Plastics in Medical Devices

Polypropylene Polyethylene PVC Eng Plastics

• Syringes • Syringe Plungers • Catheters • Surgical

Equipment
• Labware • Labware • Medical Bags
• Sterilisation
• Medical Bags • Medical Bags • Administration
Trays
Sets
• Administration
• Medical Device
Sets
Housings
• Implants

15
Key Themes in the Performance Materials Industry
Trends of Specific Importance to the Medical Device Industry

Performance Materials Market: Impact of Key Industry Themes,

Performance Materials Market: Impact of Key Industry Themes,
2009
2009
10
10 Key selling points for
Security Conservation of
Security Conservation of engineering and high
Safety resources
Safety resources performance plastics
Market Impact
Market Impact

Performance
Performance
Lifestyle trends
Lifestyle trends Differentiation
5
Differentiation
5
Multiple Technical and Service
Multiple
functionalities Differentiation
functionalities
Sustainable
Sustainable
production
production
Expansion PVC Replacement
Expansion
0
0
0 5 Supply chain 1010
0 5 Supply chain
Internal Impact
Internal Impact
Source: Frost & Sullivan
Source: Frost & Sullivan

Key Trends with High Impact on the Medical Devices Market

16
Key Themes in the Performance Materials Industry (Contd…)
Changing Lifestyle Trends

2005
Patient Driven
Secondary Care
• Available personalised healthcare
and choice
2010
Changes in the • Patient knowledge through multiple
Changes in for
demand the Primary Care channels
demand
healthcare for
healthcare
diagnostics
diagnostics
• Public pressure on government
2015 • One stop shop
Home Care/ Self
Testing • Consumer responsive providers,
products and services
Source: Frost & Sullivan

Implications for Material Selection

Demand Volume • Unique design principles required
• Affordability • High robustness required off the
device
• Waiting Lists
• Aesthetics also assume higher
• Public Anxiety importance
• Development of demand • Opportunities are created therefore
for engineering plastics in these
management policies and strategies applications
e.g. demand driven financing

17
European Markets for Plastics in Medical Devices
Strong Growth Prospects
Revenues forecast to grow at a CAGR of 6.2% in the period 2008-15

Plastics in Medical Devices: Volume and Revenue

Forecasts (Europe), 2005-2015

350.0 800.0

300.0 700.0
600.0
250.0

€ Million
500.0
200.0
kt

400.0
150.0
300.0
100.0
200.0
50.0 100.0
0.0 0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Frost & Sullivan

18
Plastics in Medical Devices Market: For Plastics Suppliers Developing
Relationships with Key End User Groups is Crucial to Success

Direct supply is
Polymer Suppliers LyondellBasell
the most
preferred route

Compounding RTP Compounding

Gerresheimer
Tier 1 Component Producers Wilden
High influence on
material selection
Pharma Companies and often specify
Boehringer materials to be
Ingelheim used
Note: company
names are intended Source: Frost & Sullivan
as examples only
and do not represent
real relationships

19
Plastics in Medical Packaging:
The Pharmaceutical Blisters Market Excerpt

Key Market Segments

The Pharmaceutical Blisters Market Example –
• Containers Strong Drivers for Growth
• Vials & Ampoules
• Blister Packs
• Sachets & Strips Blister Market
Cost Efficiency
• Container Tubes of High
Growth
• Pre-fillable Syringes Volume
Restraints Containers

Key Growth Drivers

Growth in
Combination
Drugs
Increase
Source: MediSeal in Calendared
Increasing Smart
Efforts in Packaging
Growth in
Drug
Anti-
The pharmaceutical Increasing Counterfeiting Compliance

blisters market is Regulations for Efforts

Increasing Compliance
Drivers
expected to grow at a Barrier
Requirements
CAGR of 6.6% in the
period 2008-14
2008 2014 and beyond

Source: Frost & Sullivan

20
Frost & Sullivan Studies in the Area

Plastics in Medical Devices Medical Packaging

• European Markets for Plastics in • European Markets for Pharma

Medical Devices – M348 - Feb, 09 Packaging – M137 – Apr, 09
• U.S. Markets for Plastics in Medical • Materials for Medical Packaging – TI
Devices – N540 – Apr, 09 – D0E9 – Dec, 07
• U.S. Polymers in Medical Tubings
and Catheters – N498 – Jan, 09
• Western European Medical Silicones
Markets – M04A – Nov, 06

End Market Studies of Interest – Medical Devices IRG

• US Infusion Pumps Market – N3A5 - Feb, 09

• European Insulin Delivery Devices Market – M2CD – Oct, 08
• Others……..

21
Chemical Excipients for the Pharmaceutical Industry
Product Segmentation

22
Pharmaceutical trends with Respect to Chemicals – the
expected shift

• New opportunities in the global pharmaceutical market will appear as

the business and market models are evolving.
• Liposomal technologies have the potential to increase the effectiveness
of compounds especially in the anti-cancer, neurological and anti-fungal
drug areas.
• By 2015 opportunities will Pre
2005
be more prominent in niche Blockbuster Model
drugs and research and
development. 2015
Opportunities
• By 2020 integrated in the Global Niche Drugs and R&D
Pharma
packages of products and Market

services will focus on patient 2020

monitoring & compliance. Integration & Supply Chain
• Integration of pharma,
diagnostics, medical devices,
Source: Frost & Sullivan
patient monitoring and
healthcare IT.

23
Introduction to Chemical Excipients for Pharmaceuticals

• Excipients are inactive ingredients used to formulate active ingredients

into finished dosage forms.
• Excipients are used to:
• provide a matrix in which the drug can be handled
• control rate of dosage
• aid in the processing of the drug delivery system during its
manufacture
• protect, support or enhance stability, bioavailability or patient
acceptability
• assist in product identification
• enhance any other attribute of the overall safety, effectiveness or
delivery of the drug during storage or use
• improve comfort when taking drug such ease of swallowing and better
taste

24
Chemical Excipients - Main Product Types

Flavourants &
Colourants
Disintegrants Glidants &
Lubricants

Coatings Preservatives &

Antioxidants

Binders & Fillers Sweeteners

Excipients

25
Major Challenges

• The global adoption of Current Good Manufacturing Practices (cGMPs) is the

major challenge for this industry representing the required total commitment of a
company to a set of regulations, codes, and guidelines for the highest possible
quality in manufacture of drugs, medical devices, diagnostic products, food
products and Active Pharmaceutical Ingredients (APIs).
• Asian companies are trying to incorporate
cGMPs with various degrees of success.
• Since 2004, several blockbuster drugs have
lost patent protection and this trend is
expected to become more prominent up to
2011. Source: Colorcon

• The active promotion of generics as a high-

quality low-expense alternative is expected to
widen the market base for these products.

Source: Innercap Technologies

26
Major Drivers

• The fastest growing region is Asia, due to its growing economy, and
continued improvement in the health care system.
• The changing attitude of pharmaceutical industry towards excipients
considering them more than just inactive ingredients but crucial in improving the
performance of the end-product (medicinal drug).
• The outsourcing of services in the
pharmaceutical industry is growing. The reasons
include the declining investments in research and
development (R&D), increasing generic
penetration, and the growing development costs.
• Modern contract manufacturing organisations
(CMOs) offer a wide range of services ranging from
pre-clinical development to commercial batch
manufacturing to active/non-active manufacturing,
as well as packaging and distribution.
• Smooth delivery of a consistent dosage over time is the objective, with
the need for fewer administrations, optimal use of the delivered drug, and
increased patient compliance with the treatment programme.
27
The global pharmaceutical excipients market will perform
better than other chemicals markets

• The downturn in growth is expected to last throughout 2009 and 2010

affecting at a different degree different regions.
• The market is expected to
return to previous level of
activities and growth from
2011.
• Even amidst the current
challenging economic climate
the market for pharmaceutical
excipients will perform better
than other chemicals markets.
• The CAGR of the period
2009-2015 will be 3.3%.

Source: Frost & Sullivan

28
Technologically advanced excipients and environmentally friendly
products will grow faster than commoditised excipients

• The Global Pharmaceutical Excipients market is valued at $2.28 billion and

was divided among the following excipients market segments as shown below.
• The market for pharmaceutical excipients will perform better than other chemicals
markets.
• Binders represent the largest market segment, albeit mostly including
commoditised products.
• Disintegrants are expected to
exhibit a CAGR of 4.6% during
the period 2009-2015.
• The market for controlled-
release pharmaceuticals is
growing rapidly with companies
increasingly turning to drug
delivery technologies as a means
of expanding product lifecycles,
enhancing drug efficacy and
maximizing revenues.
Source: Frost & Sullivan

29
Major Industry Participants

Pharmaceutical Excipients - Materials for Medical Applications

30
Conclusion

• The healthcare sector (medical & pharmaceutical) continues to provide

opportunities for innovative companies, even in the current economic scenario
• Companies willing to enter/strengthen their position in the market will however
have to invest in developing the R&D capabilities, and also strong business
development and technical service teams to cater to this segment
• In the pharmaceuticals segment, industry participants need to forge business
relationships with generics manufacturers and align accordingly their distribution
networks.
• Individual markets researched by Frost & Sullivan recently including the
plastics in medical devices and packaging and the global pharmaceutical
excipients are all showing excellent potential for market participants

31
Next Steps

Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep
abreast of innovative growth opportunities
(www.frost.com/news)

Register for the next Chairman’s Series on Growth:

(www.frost.com/growthEU)

Join us at our 3rd Annual Customer Contact Executive MindXchange (June

2009, Europe)

Join us in London on 19 – 20 May at Growth, Innovation and Leadership

2009: A Frost & Sullivan Global Congress on Corporate Growth Event
(www.frost.com/giluk)

Request a proposal for a Growth Partnership Service to support you and your
team to accelerate the growth of your company.

32
Your Feedback is Important to Us

What would you like to see from Frost & Sullivan?

Growth Forecasts?

Competitive Structure?

Emerging Trends?

Strategic Recommendations?

Other?

Please inform us by taking our survey.

33
 For Additional Information

Steve Lee
Strategic Account Manager
Chemicals, Materials and Food, Asia Pacific
(65) 6890 0914
steve.lee@frost.com

Medical & Pharmaceutical Trends Impacting the Chemicals and Materials Industry

34