Pharmaceutical Industry in India

Presentation at CPhI,Shanghai
by

ORS Rao CEO and Director Cygnus Business Consulting & Research (www.cygnusindia.com) INDIA 20th June 2007
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Agenda
Industry Segments Pharmaceuticals Biopharmaceuticals Bulk drugs and APIs Contract Research and Manufacturing Services (CRAMS)

Other related Segments Traditional Systems of Medicine Healthcare Industry Dental Industry

Major Players Mergers & Acquisitions Opportunities Issues and Challenges Future Outlook China and India - Competition or collaboration? About Cygnus

Industry Scenario

Indian Pharmaceuticals Industry over years

8 7 6 5 4 3 2 1 0 7.42 15% 10% 5% 0% 2002 2003 2004 2005 2006 Market size (LHS)
Source: Cygnus Research

4.54

5.12

5.74

6.57

USD bn

Grow th rate (RHS)

The industry has grown at a compounded annual growth rate (CAGR) of 13% during the last five years.
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Pharmaceuticals Industry - 2006

Amongst Global pharmaceutical producers, India ranks 4th in volume terms and 13th in value terms. Indian pharmaceutical market - USD7.42 billion in 2006 (Growth rate 12.9% over previous year). Domestic market contributed USD2.61 billion and exports touched USD 4.81 billion (65% of the market). About 65% of bulk drugs and 6% of formulations are imported and balance requirements met from domestic manufacturing. Out of the total formulation sales, about 90% is accounted by generics, balance being patented drugs. Generics segment grew by 13% to USD5.89 billion in 2006. Patented drugs sale was USD389.36m in 2006 growing at a rate of 18.9% over the previous year.

Pharmaceuticals Industry Value Chain

Exports Products Size- USD 4.81 bn Growth 17.5%

Indian Pharmaceutical Industry Market Size USD7.42 bn Growth -12.9%

ExportsServices USD- 1030 mn Growth 45%

Production Bulk Drugs Market SizeUSD2.48 bn Growth 21% Formulations Market SizeUSD2.33 bn Growth 14% Bulk Drugs Growth 19% Formulations Growth 13%

Contract Manufacturing Market SizeUSD 660 mn Growth 48%

Contract Research Market SizeUSD 140 mn Growth 45%

Generics Market SizeUSD 5.89 bn Growth 13%

Patented Market SizeUSD 390 mn Growth 19%

Clinical Trials & CDM SizeUSD 230 mn Growth 40%

Indian Pharmaceuticals Industry - 2006

In 2006, R&D expenditure of 50 major companies totaled USD495.19m , growth of 26% over previous year. FDI in pharma industry was USD172m in 2006, growing at a CAGR of 62.6% during the last four years. Contract Research (including clinical trials &CDM) during 2006 is estimated to be USD366 million, a growth of 45 % over previous year Contract manufacturing in 2006 was USD659 million and growing at 48% over pervious year Bio Pharma market is valued USD 1.3 million. Vaccines are the largest segment of Biopharma accounting for 50% of the sectoral revenue.

Indian Pharmaceuticals Industry - 2006

Therapeutic segmentation
Vitamins / Food supplements 9.20% Dermatology 5.40% CNS 5.40%

Analgesics 9.60% Respiratory 10.50% Gastro Intestinal 10.70%

Gynaecology 5.00% Others 13.80% Anti-infectives 14.70% Anti Diabetics 4.60%

CVS 11.10%

Source: Cygnus Research

Anti-infectives,CVS and Gastro-intestinal- top 3

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Top 5 market segments India versus other regions

Country - wise major segmental Pharma market and contribution (%) to total market - 2006
100% 90% 27.5 80% 70% 60% 50% 9.4 40% 13.6 30% 20% 10% 7.8 0% US Anti-infectives CVS Japan Germany Respiratory Mexico Analgesics CNS Brazil Cytostatics Genito-Urinary India Others 10.5 8.6 20.0 14.1 14.6 18.7 22.83 8.8 8.2 16.09 8.4 12.27 11.59 9.6 11.8 15.35 10.5 9.6 10.7 16.5 11.1 38.5 35.1 33.8 33.0 43.4

18.8

17.2

9.1

14.3

13.9

14.7

Alimentary/ Metabolism

Anti-infectives dominate the Indian pharmaceutical market whereas lifestyle disorders dominate in other major markets
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Indian Generic Market

India has 6 Companies amongst top ten filers of ANDAs Over 80 US FDA approved facilities, largest outside of USA and 20 other certified plants Adopting Global sustainability Standards for growth and

Investment in R&D increased from 3% of gross revenue to 10% Increase in capacities with focus Integration on Vertical
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Indian Bulk drugs/API Industry- 2006

Indian API manufacturing industry is the third largest in the world with sales of US$3.29 billion in 2006 , expected to touch USD6.5 billion by 2010, at a CAGR of 19%.

7 Indian Companies among top ten filers of DMFs in 2006 ( 30% by approvals and 58% by new applications ) and cumulative share in the global DMFs at over 14%
India has 4354 manufacturing units which produce a range of formulations (top 200 over 70% of market) 1333 bulk manufacturing units producing around 465 main bulk drugs. (top 100 over 70%)

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DMFs Filed in US by Leading Indian Companies in 2006

120 DMFs Filed in 2006 100 80 60 40 20 0 Dr. Aurobindo Reddy's Cipla Ranbaxy Matrix Lupin 103

99 87 80 71 50

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Top Export Products in 2006

Rank 1 2 3 4 5 6 7 8 9 10 Name of the Drug Amoxycyllinin capsules, injections etc. Omeprazole and Lansoprazole Ibuprofen with or without Paracetamol or Other Compounds Analgin with or without other compounds such as Paracetamol Cimetidine, Rantidine, Nizatidine and Roxatidine Verapamil, Nifedipine, Amlodipine and Lacidipine Ciprofloxacin (Fluoroquinolones) Ampicillinein capsules, injections etc. Captopril, Enalapril, Lisinopril, Perindopril and Ramipril Ciprofloxacine in capsules and Tablets forms Export in 2006 (USD million) 755 58 54 33 32 30 25 24.6 24.5 24.1 Top 5 Destinations USA , Nigeria, South Africa, Netherland, UK Russia, UK, Algeria, Bangladesh, Vietnam UK, Nigeria, USA, South Africa, Ghana UK, Finland, Russia, Nigeria, Guinea USA, UK, Ireland, Afghanistan, Russia UK, Ukraine, Malawi, Kazakhstan, Netherland Russia, USA, Brazil, Ukraine, Ireland Nigeria, Nepal, Brazil, Turkey, Angola USA, Russia, Germany, UK, Brazil Russia, USA, Nigeria, Brazil, UK, Israel

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Major players in India- 2006

45 40 35 30 25 20 1 5 1 0 5 0

Turnover (Rs. bn)

Nicholas Piramal

Dr. Reddy's

Sun Pharmaceuticals

Ranbaxy*

GSK

Source: Company Annual Reports FY2006-07, * Annual Reports 2006 Dec ending

Wockhardt*
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Cipla

Cadila Healthcare

Lupin

Aurobindo

Market structure
Indian Pharmaceutical Market Structure
Raw materials/ Chemical intermediates manufacturers API manufacturers

Formulation manufacturers

Importers

C&F agents

Distributor/ Dealer

Retailers

Hospitals

Patients

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Bio-Pharmaceuticals
Bio Pharma market is valued USD 1.3 million in 2007. Vaccines is the largest segment of Biopharma accounting for 50% of the sectoral revenue. India is leader in global vaccine market (over 33% market as per E&Y 2007 report) . India is the largest producer of recombinant Hepatitis B vaccine in the world Vaccines market in India in 2007 was USD 0.65 million registering a 40.26% growth over the previous year. Diagnostics contributed 19% with USD 0.25 million market size in 2007 ,over 50% growth over previous year. Therapeutics, 3rd largest contributed 14% of the total biopharma sales USD 0.18 million in revenues, growth of 28% in 2007. In 2007 Biopharma contributed USD 0.65 million worth exports.
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Biopharmaceuticals industry major players

Serum Institute of India was the largest biopharma company recording revenue of USD 168 million in 2006. Major products include rubella, MMR and BCG vaccines . Biocon occupied the second position with a turnover of USD 164 million in 2006. However, in 2007 its turnover is Rs 208 million Panacea was the third largest company with revenues of USD 104 million Venkateshwara Hatcheries was the No 4 company with revenues of Rs 66million in 2006 and USD 100 million in 2007.

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Contract Research and Manufacturing Services (CRAMS) in India Contract Research (including clinical trials and CDM) during 2006 is estimated to be USD 366 million, a growth of 45 % over previous year and is expected to scale up to USD 2.5billion by 2011 Contract manufacturing in 2006 was USD 659 million and growing at 48% over pervious year and expected to be worth USD 2.5 billion in India by 2011.

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CRAMS - Major Players

Contract manufacturing:
Large Pharma companies - Ranbaxy, DRL, Wockhardt, Cipla, Nicholas Piramal and Lupin covering formulations, APIs, generics, NDDS, NCEs and biopharma Medium sized companies - Focused contract mfg companies- Matrix Labs, Shashun , Strides Arocolabs, Cadila, Jupiter biosciences, Jubilant Organosys, Orchid Pharmaceuticals, Dishman, IPCA, and Divis Labs - contract manufacturing of APIs for global MNCs.

Contract Research:
Large Companies dedicated units/companies Medium sized CROs - Chembiotek (TCG Group), Reliance Research and Development Services

Integrated contract Research and contract mfg synergy Strategies followed

International certifications of plants FDA/MHRA Acquisition of mfg plants abroad for customer acquisition (Dr Reddys,Nicholas)

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Clinical Trials - Major Players

MNC CTOs ,like Quintiles Indian CTOs

Large Pharma companies independent units/companiesWellquest (NPIL), Clingene(Biocon), SRL Ranbaxy, Lambda, (Intas) Corporate hospitals Apollo, Manipal Acunova Independent/stand alone Vimta Labs, Asian clinical Trials ,Metroplois

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Clinical Data Management

Management of clinical trial data Needs multi-disciplinary skills (IT/Clinical terminology/Physician) Current market- USD 100 mn, growing 80% per annum Indian players
IT companies ( IBM, TCS, Cognizant, Satyam, HCL, Infosys) Clinical trial companies (Quintiles,Manipal Acunova)

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Indian Traditional Medicine System (ISM) -2006

Traditional Medicine Market Size, 2004 (USD m)

9.5 57.2

0.5

Ayurveda Homeopathy Unani

333.3
Source: Cygnus Research

Siddha

ISM market for products in India in 2006 USD 400m, grew at 8% Over 82% of it - Ayurveda, 14% Homeopathy and balance by others.

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Indian Healthcare Services

Indian Healthcare m arket size 60 USD bn 40 20 0 2002 2003 2004 2005 2006 28.9 32.3 39.0 47.3 55.7

Source: Cygnus Research

Market is growing at an annual rate of 18%. The private sector accounts for 86% of the market while public sector accounts for the balance. The health tourism industry in India, worth US$333 million, is expected to rise to US$2,200 million by 2011.
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Indian Dental care Services

Indian dental care services market size
14 12 10 USD m 8 6 4 2 0 2003
Source: Cygnus Research

11.5 10.2 8.9 5.4

2004

2005

2006

The services market is growing at 12% annually The Indian dental equipments and appliances market size was US$66m in 2005. India is a net importer of dental equipments and supplies. Indias major dental products for import are dental furniture (US$9.76m in 2006) followed by dental cements (US$6.71m) and radiation apparatuses (US$5.39m).
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India Competitive Advantage

Significant depth in engineering and science Lower cost of innovation and highly motivated scientists. Large pool of English speaking employees, a comfort for international customers and regulatory agencies Low cost scientific pool on shop floor leading to high quality documentation and process understanding Outsourcing services culture Global business management skills (including patents and legal aspects)

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Trends in the Industry

Research & Development Indian companies are focusing on new product development by increasing the R&D spending on generics. In the next three years blockbuster drugs worth US$26.5billion are set to go off patent in US alone. Therapeutic coverage Indian companies are enhancing the coverage of as many therapeutic areas as possible. Marketing Large companies have been setting up sales operations / partnerships in developed markets M&A Large companies have been acquiring companies in US, Latin America and Europe ,with a focus on customer acquisitions. Focus on services Small/Medium sized companies focusing on niche services markets
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Regulatory bodies
National Pharmaceutical Pricing Authority (NPPA)
Organization of the Government of India Established in 1997 Revises the prices of controlled bulk drugs and formulations Enforces prices and availability of the medicines in the country Recovers amount overcharged by manufacturers for the controlled drugs from the consumers Monitors the prices of decontrolled drugs in order to keep them at reasonable levels

Central Drugs Standard and Control Organization

Department of Chemicals & Petrochemicals (DCP)

Functions under the Ministry of Chemicals & Fertilizers Established in 1991 Responsible for the policy, planning, development, and regulation of the chemical, petrochemical, and pharmaceutical industries in India

(CDSCO)
Functions under the Directorate General of Health Services Established in 1940 Laying down standards of drugs, cosmetics, diagnostics and devices Laying down regulatory measures, amendments to Acts and Rules Regulates clinical trials & market authorization of new drugs Approve licenses to manufacture certain categories of drugs Regulate the standards of imported drugs Testing of drugs by Central Drugs Labs Publication of Indian Pharmacopoeia

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Key regulations
Ministry of Health & Family Welfare Directorate General of Health Services The Drugs and Cosmetics Act, 1940 Regulates import, manufacture, distribution and sale of drugs and cosmetics whether imported or made in India

The Drugs Price Control DPCO, 1995 is an order issued by the GoI under Section 3 of the Order (DPCO), 1995 Essential Commodities Act, 1955 to regulate the prices of drugs Currently 74 bulk drugs and their corresponding formulations are under price control The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954 The Pharmacy Act, 1948 Patents (Amendment) Rules, 2005 Prohibits the advertising of remedies alleged to possess magic qualities Deals with levy and collection of taxes on medicinal and toilet preparations containing alcohol, opium, Indian hemp, or any other narcotic drug Regulates the profession of pharmacy and deals with various pharmacy issues such as professional education and requirements for registration Recognition of product patents for food, drug, and pharmaceuticals from January 1, 2005
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Recent Mergers and Acquisitions in Indian Pharma Industry Indian companies acquiring global firms to consolidate their overseas presence. Major giants like Ranbaxy, Dr.Reddys, Wockhardt top the list with major acquisitions Dishman and

Major contracts are also signed in the CRAMS segment Acquisition of CROs in Europe to leverage on existing client relationships of acquired companies These acquisitions help in bridging the gaps in the services offered to become full service industry players. Industry benefited by acquisitions in terms of gaining access to new technologies, platforms for improving custom synthesis, clinical research and working with new clients.
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Recent Mergers and Acquisitions in Indian Pharma Industry

Major acquisitions by Indian companies Acquirer Target Generics Dr. Reddy's Ranbaxy Ranbaxy Ranbaxy Aurobindo Jubilant Organosys Betapharm (Germany) Terapia (Romania) Ethimed NV (Spain) Allen Spa (Italy) Milpharma (UK) Target Research Associates (US) Branded formulation Sun Pharma Able Laboratories (US) Valeant Pharma (2 facilities) (Hungary, US) Active pharmaceutical ingredient (API) Dr. Reddy's Matrix Source: Cygnus Research Roche's API Business (Mexico) Docpharma (Belgium) 59 263 Nov-05 Jun-05 24 10 Dec-05 Aug-05 574 324 13 34 Feb-06 Mar-06 Mar-06 Mar-06 Feb-06 Oct-05 Value USD million Date

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Major Agreements Signed in CRAMS Segment Company Nicholas Piramal Innovator AMO Allergan Fortune 500 company Astra Zeneca Global hospital products company Pfizer AstraZeneca GSK Eli Lilly Boots Plc Abbott Solvay AstraZeneca GSK Merck Altana Mayne DSM GSK Eli Lilly Area Neutralizing tablets API Formulations for many products APIs & Intermediates for many products APIs for many products APIs/formulations for Veterinary products APIs & Intermediates for many products API for Ranitidine APIs for Nizatidine and Cyclosorine API for Ibuprofen NA API for Eposaratan Mesylate Intermediates for Esomeparzole Intermediates for 3 products Intermediates for 3 products Two intermediates for Pantaprazole Intermediates for 8 oncology products API for Cephalosporins API for Acyclovir CCS for 3 molecules

Shasun Chemicals

Divi's Lab Dishman

Cadila (through JV) Lupin Matrix Jubilant Organosys

Source: Pharma Summit 2006/KPMG

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Opportunities

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Pharmaceuticals Growing Generics A strong generic market in India is a favouable destination for many MNCs Low- Cost Manufacturing Skills Indian manufacturers offer low cost in producing complex synthesis within short frame of time. The sharp decline in generic prices raises the importance of low-cost manufacturing even further. World class practices Majority of the Indian firms comply with cGMP standards. India has the largest number of USFDA approved manufacturing sites (about 80) outside the US EMR in US - Indian companies have been able to win rights on blockbuster drugs. For instance Ranbaxy received 180 day exclusivity (80gm.) for Simvastatin and Dr.Reddy's became the authorized generic for Merck for Zocor.

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CRAMS & Clinical Trials India is fast becoming a leading destination for CRAMS with advantages like cGMP and FDA compliant facilities, manufacturing capabilities, R&D base, superior information technology capability, cost efficiency and pool of skilled personnel. There is an increasing visibility in the Contract Research and Manufacturing Services (CRAMS) space, which is being considered as the next emerging and scalable opportunity for the Indian pharma industry. India is fast becoming a hub of pharmaceutical outsourcing thanks to its cost and quality advantage. Not only manufacturing, but research contracts and clinical trials are coming into India.
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Indias advantage as a clinical trials center

Parameter Low Cost Variety of diseases carried by population Diverse ethnic pool Benefits A trial in India leads to cost savings of over 60% compared to US and European trials. Cardiovascular disease and stroke cause three million deaths per year in India. Incidence of diabetes, lung cancer, and oral cancer are also rising, while a wide variety of infectious diseases are endemic Several ethnic populations coexist in India, allowing greater insights into genetic components of disease. The high population density facilitates speedy recruitment of patients into trials, which shortens the entire trial process. Highly qualified principal investigators and trained clinical research staff are available. Data, from trial patients who are already taking drugs for the condition, is difficult to interpret. Patients on drugs for other conditions may also suffer from drug interactions, again complicating data analysis. Patients in India rarely fit these descriptions, providing a more specific and qualified patient pool.
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Rapid recruitment process Qualified human resources Treatment-nave population

Issues and Challenges

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Pharmaceuticals Domestic market price controls on several drugs. The draft New Drug Policy intends to bring an additional 354 drugs under price control. Drug prices in India are already amongst the lowest in the world Sustainability of growth in exports: in the face of competitive pricing pressures , high cost of international marketing and increasing salaries of employees Logistics infrastructure : under pressure R&D Expenses: Continuous rise in R&D expenditure puts pressure on the industry to increase productivity. Dominating generic drugs: Indian companies are more focused on generics whereas branded drugs market is yet to be fully captured

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Bio Pharmaceuticals

Human Resources - Biopharma is an emerging knowledge-driven industry and requires specific skill sets for product development and marketing . Products - Identifying the right unmet need of products and alliances is challenge. Faster commercialization of the product is very important. Early stage funding Non availability of large VC/angel funding

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Indian Pharmaceutical Industry

Strength Matured Industry / Large home market Fast changing lifestyles Low cost manufacturing High chemistry and process reengineering skills Quick adoption of new technology Weakness Lack of pricing power impacts growth Lack of product patents Characterized by low margins Investments in R&D Highly fragmented industry Opportunities Potential to absorb high priced products Changing demographic and socio economic profile Emerging biologics opportunities India gearing up. Product patent protection from 2005 Opening of OTC segment Large number of drugs going off patent Establish as a global sourcing hub
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Threats 2005 IPR regime implies drying up of product pipeline for Indian companies China Non tariff barriers Internal fragmentation

Future Outlook

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Indian Pharmaceutical Market Projections

20 USD bn 15 10 5 0 2007 2008 2009 2010 2011 8.47 9.77 11.26 12.94 14.70

Source: Cygnus Estimates

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Indian Pharmaceuticals by 2011

Expected to double to USD14.7billion Domestic market driven by :
Aging population, Increase in consumption of life style disorder drugs, Improving healthcare awareness of the economically growing population New product launches

Exports to grow at 20% CAGR . Contract research to India to grow to US$2 -3 billion (2-3% of global R$D spend)
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Generics Segment Mergers of Pharmacies, wholesalers increasing bargaining power, Corporate mergers, Restructuring of product sourcing / supply chain . Value to drift towards cost efficient, low cost countries. Significant business in less regulated market or old generics with scale and technology superiority New Generic opportunities are becoming highly complex and the business shall migrate to strong India R&D players The diversity of product dosage forms, strengths, packaging and regulatory challenge across continents offers a competitive advantage for modern Indian companies.

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Biopharmaceuticals India's fledging biotech industry is expected to grow still further to reach a value of approximately USD5.37 billion in 2010 Revenues of Indian Biopharmaceuticals are expected to reach approximately US$3.90 billion by 2010 Monoclonal antibodies, human and animal biologics will be the limelight products in the future. The areas of clinical trials, contract research and government support will be the future growth drivers for the industry.

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CRAMS Contract Manufacturing and Contract Research are expected to scale up to USD2.5billion and USD1.5billion respectively by the same period Growth in Contract Research will be driven by the vast pool of abundant English-speaking manpower skilled in chemistry and biotechnology. A sharp increase in Clinical Trials activities due to large subject pools in all major therapeutic areas, improved healthcare infrastructure, increased awareness of the ICH Guidelines for Good Clinical Practice (GCP) and availability of specialized pool of research investigators.

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China and India competition or co-operation? China is an important source of chemical and APIs , whereas India is stronger on the finished product / formulation side.
India Focus on Late stage Intermediates Complex Synthetic APIs (Custom Synthesis) Dosage Form Manufacture R&D led generics industry Global Sales organisations M&A capability China Focus on Early Stage intermediates Large Volume API mfg Expertise in Fermentation Large scale production capacities Low cost production Better logistics infrastructure

India - second largest export destination for bulk drugs/APIs for China (after US) and exports to India grew at 42% in 2006 ,whereas exports to US grew at 9% China and India can collaborate - CHINDIA can lead the world pharma market !!!
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