Global Industry Insight -2006

Pharmaceuticals

•The pharmaceutical industry is one of the vital and distinct industries as it deals
with the lives of the people. At present, pharmaceutical drugs are the most
preferred therapeutic treatments for the global population of 6.45 billion.

•Pharmaceutical industry is defined as the market for drugs of chemical or

biological origin. These drugs are approved through modern, scientific approval
process.

•The coverage of the market is on the basis of therapeutic segment to which the
drugs belong.

•Major components of the pharmaceutical industry’s value chain are R&D,

manufacturing, marketing and distribution. The Global Pharmaceutical Industry
Survey 2005 covers all these major domains of the value chain, focusing at
industry and company levels.

•All figures in Major Markets and Major Players are converted to USD with
conversion rates as on December 31 of the respective years.

•Estimates are provided wherever data for 2005 is not available

 THEMES

• HIGHLIGHTS

• INDUSTRY OVERVIEW

• GROWTH DRIVERS

• ISSUES & CHALLENGES

• TECHNOLOGY

• MAJOR MARKETS

• MAJOR PLAYERS

• REGULATORY ASPECTS

• MERGERS & ACQUISITIONS

• CRITICAL SUCCESS FACTORS

• FUTURE OUTLOOK
 HIGHLIGHTS

•The global pharmaceutical market has grown by 5.95% to USD582.71 billion in

2005. The market has witnessed the lowest growth rate in the last five years
owing to increase in patent expiries and measures taken in major markets to
curtail the increasing healthcare budget.

•In 2005, the three major markets – North America, Europe and Japan – were
valued at USD491.22 billion, accounting for 84.30% of the global pharmaceutical
market

•Sales in Europe (including the UK market) totaled USD169.26 billion in 2005,

registering the highest regional sales growth of 10.63% compared with 2004

•North America, the largest pharmaceutical market recorded sales totaling

USD262.43 billion and a growth rate of 5.82% in 2005 compared with the
previous year

•Asia, Africa and Australian market value in 2005 was USD40.86 billion and has
grown by 2.14% compared with 2004
 HIGHLIGHTS

•In 2005, cardiovascular, CNS, anti-infective, metabolism and oncology segments

contributed USD273.42 billion, accounting for 46.92% of the total pharmaceutical market

•Cardiovascular was the largest therapeutic segment with the sales value of USD79.03
billion in 2005, growing by 3% compared with 2004

•Cholesterol and triglycerides lowering class is the largest therapeutic class of the
cardiovascular segment with the sales value of USD31.60 billion in 2005 and accounted
for 5.42% of the total pharmaceutical market

•The top 10 therapeutic classes contributed USD177.60 billion, accounting for 30.47% of
the total pharmaceutical market.

•The top 10 best-selling drugs accounted for USD53.2 billion, contributing about 9.13% of
the total pharmaceutical market.

•Lipitor, with a sale of USD12.19 billion, was the largest selling blockbuster drug in 2005
and accounted for 2.09% of the global pharmaceutical market

•The recent product withdrawals including Tysabri in 2005, and Vioxx and Bextra in 2004
have affected the image of the pharmaceutical industry. This in turn has led the FDA to
focus more on safety issues prior to drug approval.
 HIGHLIGHTS

•Determination of pharmacokinetic data of a new compound by microdosing takes 4 to 6

months and costs USD0.35m

•The number of new drugs approved in the US by the FDA decreased by 53% to 17 in 2005
from 36 in 2004. Drugs worth USD21.2 billion are estimated to lose their patent rights in
2006, which is an increase of 76% compared with 2005

•On an average, the value of the M&A in the last 10 years was more than USD40 billion. The
number of M&A deals in 2005 was 247 and the total deal value was USD68.20 billion. The
deal number has seen a decline of 8% compared with 2004

•The top 10 global pharmaceutical companies spent USD45.79 billion on R&D in 2005. The
amount spent on consumer advertising of prescription and non-branded drugs was USD4.51
billion in 2004

•The market size of global pharmaceutical outsourcing in 2005 is estimated to be around

USD60 billion and has grown at a compounded annual growth rate of 8.37% in the last 5
years.

•According to Cygnus estimates, the global pharmaceutical market is projected to grow

between USD624 to 629 billion in 2006, an increase of 7 to 8% over 2005.
 INDUSTRY OVERVIEW

•The pharmaceutical industry is complex, dynamic and highly globalized with many
companies operating as multinationals in various countries. The geographical boundaries
are blurring in the pharmaceutical industry with more than one country involved in the
manufacture of a single finished product.
Global Pharmaceutical Market Size and Growth Rate (2000 -2005)
•The global pharmaceutical market is
700 16%
valued at USD582.71 billion in 2005. 600 14%
500 12%
10%
•The market grew at an annual rate of 400
8%
300

USDbn
5.95% over the previous year; it is the 200
6%
4%
lowest growth rate in the last five years. 100 2%
0 0%
2000 2001 2002 2003 2004 2005
•The lower growth rate during the year
Industry Size (LHS) Growth Rate ( RHS)
compared with 11.83% y/y in 2004 is
owing to the increased competition from Source: IMS world Reviews and Cygnus Research

generic products, cost containment strategies of some of the major markets to curtail their
rising healthcare budgets and impact of the drug withdrawals (Vioxx and Bextra) from the
market.

The global pharmaceutical market is valued at USD582.71billion in 2005 and grew by 5.95%
over that of in 2004.
 INDUSTRY OVERVIEW

•North America, Europe (including

Regional nature of the Pharmaceutical Industry - 2000 and 2005
the UK market) and Japan North North
America, America,
constituted nearly 84.30% of the Others,
9.94% 43.39% 45.04%

global pharmaceutical market in

Others,
2005, up from 79.39% in 2000. 5.40%
Europe,
Japan, Japan, Europe,
Asia, Africa 17.83%
14.62% UK, 3.55%
Asia, Africa Latin UK, 3.43%
•The collective share of these Latin
& Australia, America,
5.31%
10.22%
& Australia, America,
25.61%

5.37%
regions has increased from Market size in 2000: USD352.19bn
7.01%
Market size in 2005: USD582.71 bn
3.29%

USD279.59 billion to USD491.22 Source: Cygnus Research

billion. Major Therapeutic Segments of the Industry- 2005
•Among the regions, Europe (including the UK) has reported a 11.08% 7.99%
13.56%
higher growth of 124.81% with the total market size of 7.39%

USD169.26 billion in the period, followed by Asia, Africa and 6.90%

Australia (excluding Japan) over same with the market size of

5.70%
USD40.86 billion in 2005 grew by 118.48% in the period. 30.89% 5.83%
4.22%
1.34% 1.72% 3.38%
Cardiovascular CNS Anti-Infectives
•In therapeutic segment, the pharmaceutical market is largely Metabolism Oncology
Musculoskeletal & Pain
Gastro-intestinal
Respiratory
Genito-Urinary
Dermatology Ophthalmology Others
dominated by the drugs related to CVS,CNS, anti-infective,Source: Cygnus Research
metabolism and oncology segments. These segments account
for USD273.42 billion and made up 46.92% of the total market
in 2005, down from 47.43% in 2004.

North America, the largest pharmaceutical market accounted for 43.04% of the global
pharmaceutical market in 2005 with sales of USD262.43 billion.
 INDUSTRY OVERVIEW

Annual Sales of the Top Ten Therapy Classes 2003 – 2005

2003 2004 2005†
S Sales Sales Sales
.No Therapy Class (USDb Therapy Class (USDb Therapy Class  (USDbn
  n) n) )
Cholesterol. & Triglyceride Cholesterol & Cholesterol & Triglyceride
1 26.1 30.2 31.6
reducers Triglyceride Reducers reducers
2 Anti-ulcerants 24.3 Antiulcerants 25.5 Anticancer* 26.6
3 Anti-depressants 19.5 Anticancer 23.8 Antiulcerants 26.3
Anti-rheumatic non-
4 12.4 Antidepressants 20.3 Antidepressants 20.1
steroidals
5 Antipsychotics 12.2 Antipsychotics 14.1 Antipsychotics 15.5
Antirheumatic Non-
6 Calcium Antagonists, plain 10.8 13.1 Erythropoietins 12.1
Steroidals
7 Erythropoietins 10.1 Angiotensin-II Inhibitors 12 Calcium antagonists 11.9
Calcium Antagonists
8 Anti-epileptics 9.4 11.6 Antiepileptics 11.7
Plain
Antirheumatic non
9 Oral Anti-diabetics 9 Erythropoietin Products 11.4 11.4
steroidals
Cephalosporins &
10 8.3 Anti-Epileptics 11.3 Oral antidiabetics 10.4
combinations
Top 10 Therapy classes 142.1 Top 10 Therapy classes 173.3 Top 10 Therapy classes 177.6
Share of top10 therapy
Share of top10 therapy class to Share of top10 therapy
28.89% class to the total 31.51% 30.47%
the total market class to the total market
market
Source: IMS, * Cygnus Research estimate, † MAT June 2005

The top ten therapy classes contributed USD177.6 billion to the total market. The decline in share of
the top ten therapy classes from 31.51% to 30.47% in 2005 is mainly owing to the lower sales of
antirheumatic non-steroidals and angiotensin-II inhibitors.
 INDUSTRY OVERVIEW

Top 10 Best Selling Drugs 2003 - 2005

  2003 2004 2005

Sales Sales Sales

S.No Products Products Products
(USDbn) (USDbn) (USDbn)
1 Lipitor 9.23 Lipitor 10.86 Lipitor 12.19

2 Zocor 5.00 Plavix 5.64 Plavix 6.21

3 Ogastro/Prevacid 4.71 Zocor 5.20 Seretide/Advair 5.34

4 Norvasc 4.34 Advair,seretide 4.74 Norvasc 4.71

5 Zyprexa 4.28 Norvasc 4.46 Nexium 4.63

6 Plavix 4.13 Zyprexa 4.42 Zocor 4.40

Erypo
7 3.98 Prevacid, Ogastro 4.14 Zyprexa 4.20
(Eprex/Procrit)
8 Seretide/Advair 3.94 Nexium 3.88 Prevacid/Ogastro 4.00

9 Nexium 3.30 Erypo(Eprex, Procrit) 3.59 Pravachol 3.82

10 Zoloft 3.12 Risperdal 3.05 Diovan/Co-Diovan 3.70

Top 10 drugs 46.03 Top 10 drugs 49.99 Top 10 drugs 53.2

Share of the top 10
Share of the top 10 drugs to Share of the top 10 drugs
9.36% 9.09% drugs to the total 9.13%
the total market to the total market
market
Source: Annual Reports, compiled by Cygnus Research

The top 10 best selling drugs during 2005 accounted for USD53.2 billion and constituted about 9.13%
of the total pharmaceutical market. Among the top 10 drugs, Diovan/Co-Diovan – a
hypertensive drug – recorded a higher growth of 19.62% y/y with sales of USD3.70 billion
 INDUSTRY OVERVIEW

Trends shaping the pharmaceutical industry

•The pharmaceutical industry is increasingly consolidating over the past 20 years. The market
share of the top 10 pharmaceutical companies that was about 20% of the global pharmaceutical
market in 1985 has increased to around 47-48% in 2005.
•The global pharmaceutical outsourcing market is increasing by compounded annual growth rate
of around 8.37% in the last 5 years. The market size in 2005 is estimated to be around USD60
billion. Outsourcing is leading to an unbundling of pharmaceutical value chain. The number of
specialist companies in the traditional value chain has been rising over the last 5-10 years,
whereas the number of integrated companies is declining.
•In the last 20 years, the pharmaceutical industry’s “centre of activity” has shifted from the
Europe to that to America. This is quite evident from the fact that the European and American
markets were of equal size around 20 years back and at present, the size of the American market
is almost double that of the European market.
•The R&D costs of a drug that is the costs associated with bringing a drug into the market are
increasing at a phenomenal rate over the years. According to the Tufts centre for study of drug
development of Tufts University, the costs associated with the drug development were around
USD897m in 2003 and these costs have increased by around 59.32% from 1999, which was at
USD563m.
Higher consolidation and increasing focus on outsourcing to the specialist companies by the main
stream research based companies are the major trends in the global pharmaceutical industry.
 GROWTH DRIVERS

•The likely shift in the disease pattern from communicable to non-communicable diseases
would mainly drive the pharmaceutical industry in the future. The DALYs due to non-
communicable diseases has been projected to increase from 47% in 2002 to 57% in 2030. This
significant increase is being fuelled by the growth in aging population and changes in life style,
which includes poor eating habits, less physical exercise, and a stressful work atmosphere
(WHO, 2005).
•The increase in Healthcare expenditure across the globe owing to rapid advances in medical
technologies, population ageing and higher quality expectations from the public would drive
the demand for the pharmaceuticals. The growth in pharmaceutical spending is more than that
of the total healthcare spending of the OECD countries in the last few years.
•Biotechnology based drugs are major contributors in the new product sales growth and
accounted for 27% of the overall products in R&D pipeline in 2004. The new technologies will
accelerate the development of biotech drugs in the future. Though biotech products accounted
for 8-10% of the total pharmaceutical market in 2004, this proportion is expected to increase in
future (IMS, 2004) backed by a robust R&D pipeline.
•Technology has been making dramatic changes at the drug development level, enabling an
analysis of 100,000 compounds per day using combinatorial chemistry and high throughput
screening. Technologies like medical imaging and pharmacogenomics are shortening the
development timelines and the costs along with the increase in the effectiveness of the drug.
Rising healthcare expenditures and the life style based diseases are the major drivers of the global
pharmaceutical industry.
 ISSUES & CHALLENGES

•Despite the increase in R&D expenditure by

pharmaceutical companies for the development of new Number of new drugs approved and R&D spend
(2001-05)
drugs, the number of new drugs getting approved by
60 50
USFDA are decreasing. 50 40
40
30
•The tightened regulatory environment, especially for

USDbn
30
20
20
drug approvals has become one of the major issues being 10 10

faced by the industry. This is one of the reasons behind 0 0

1996 199719981999 20002001 200220032004 2005
the 53% decline in drug approvals in 2005 compared with R&D spend of PhRMA member companies (RHS)

2004. After the Vioxx withdrawal issue came into Number of new drugs approved (LHS)

Source:Source:
PhRMA, Cygnus
PhRMAResearch
limelight, the USFDA is focusing more on safety of the and FDA

drug, especially for drugs that are to be administered

for chronic ailments.
•Between 2006 and 2010, the value of branded drugs losing their patents is USD75.5 billion.
(The estimate is based on the sales value of the products in 2004). In 2006 alone, drugs
worth USD21.2 billion are estimated to lose their patent rights, which is an increase of 76%
compared with 2005.

Increase in Research & Development spending by the pharmaceutical companies are not
turning out towards higher drug approvals
 ISSUES & CHALLENGES

•In order to curtail pharmaceutical spending in the healthcare budgets, governments of

various countries are encouraging the use of generic medicines in hospitals. This has
been particularly evident in Germany and the UK. The result of this has been an
increasing number of generic companies, which in turn has increased competition in the
generic market exerting downward pressure on prices.

•The returns on the promotions spent by the pharmaceutical companies are not
proportionate to the amount spent on promotions. This is exerting considerable pressure
on the pharmaceutical firms to get maximum returns from their increased marketing
expenditures, for which they have to identify the poorly performing markets, ineffective
promotional campaigns and make corrective measures to maximize the amount spent on
promotions.

•Parallel trade has a significant negative impact on the R&D investment and size of the
work force of research-based pharmaceutical companies in Europe. Within the European
Union, parallel trade was estimated at USD3.3 billion in 2001 and projected to reach
USD7.4 billion in 2006.

To curtail the healthcare budgets, governments across the globe are encouraging the use
of generic medicines and even are reducing the prices of the generics regularly.
 TECHNOLOGY

Technology in drug development Benefits of transdermal drug delivery

(Prominent Technologies)
•Combinatorial chemistry and high
throughput screening
•Chemoinformatics
•Medical imaging
•Pharmacogenomics
Technology in drug delivery
•Nanotechnology in drug delivery
•Transdermal drug delivery
•Chronopharmaceutical delivery
Technology in manufacturing
•Process Analytical Technology
Technology in marketing
•Customer relationship management
•Improved bioavailability
•Uniform plasma levels
•Longer duration of action
•Reduction in dosing frequency
•Reduced side effects
•Maintenance of drug plasma levels up to
the end of the dosing interval
Applications of PAT
•Inbound and outbound logistics
•Manufacture of active pharmaceutical
ingredients
•Bulk formulation
•Filling and packaging of drugs

Process Analytical Technology would be made mandatory in the years to come by the
regulators globally because of its inherent advantages in control of the operations.
 TECHNOLOGY

New technologies
•Super computers in drug discovery
Microdosing of new experimental drugs to human volunteers helps to determine the key pharmacokinetic
data before phase-I clinical trial and save considerable amount of money. Determination of
pharmacokinetic data of a new compound by microdosing takes 4-6 months and costs USD0.35m. It is an
improvement over the conventional phase-I studies which take 12-18 months, costing USD3-5m for the
determination of the same data (Bryan, 2005b). In the microdosing technique, volunteers are given radio-
labeled doses of new experimental drugs and accelerator mass spectroscopy (AMS) is used to count
radioactive carbon atoms in blood, urine and fecal samples taken from the volunteers.

•Polymorph screening
ReactArray Solo, a new polymorph screening technology from Anachem Ltd, the UK-based instrumentation
company, launched in February 2006, provides fast and efficient polymorph screening by enabling
simultaneous runs of up to 48 different reaction conditions. This technology will benefit the research-
based pharmaceutical companies to a greater extent by protecting the patents of their novel drugs.

•Microdosing in clinical trials

•Georgia Institute of Technology is bringing into using one of the world’s most powerful supercomputing
clusters, the 1000-node Cluster 1350 system based on IBM BladeCenter systems and powered by dual-core
AMD Opteron processors. It can perform more than 8.5 trillion calculations per second.It helps in the
development of more targeted drugs by determining the biological and chemical processes of human
cancer genes and proteins through fast and accurate analysis of complex DNA and proteins.

Polymorph screening would be a major technology in the years to come as the protection of the
intellectual property rights would be very crucial for the research based pharmaceutical
companies in the scenario of the lower drug approval rates.
 MAJOR MARKETS

The US Major market share of the global pharmaceutical industry - 2005

•The US is the highest spender on the 25.61%

healthcare, globally. According to the latest

13.37%
figures available, the healthcare spending
in the US during 2004 was USD1.9 trillion 42.56%

and has grown by 7.9% over 2003. This 10.22%

constitutes about 16% of the country’s GDP 1.18% 1.66%1.96%

3.43%

(Medical News Today, January 11, 2006). US Europe others Japan UK China Mexico Brazil

Source: Cygnus Research

•The pharmaceutical market in the US has
witnessed a lower growth rate of 7.83 % y/y Pharmaceutical market in the USA (2001-2005)
in 2005 with total sales of USD248 billion.
300 20%
250
•The growth rate during the year is the 15%

USDbn
200
lowest in the last five years. This is due to 150 10%

%
100
the increased competition from the generic 50
5%

drugs and impact of the drug withdrawals 0

2001 2002 2003 2004 2005
0%

(Vioxx and Bextra) from the market. Market Size (LHS) Growth Rate (RHS)
Between 2001 and 2005, the CAGR was Source: Cygnus Research
9.9%.
The US is the largest pharmaceutical market globally with the total sales of USD248 billion in
2005 with the growth rate of 7.83%.
 MAJOR MARKETS

Pharmaceutical market segmentation in the US, 2005

•The central nervous system (CNS) stood as
13.60%
the largest therapeutic segment in the US 22.86%
18.77%
pharmaceutical retail sales with sales of
USD42.45 billion in 2005 and accounted for
9.37%
22.86% of the total pharmaceutical sales. 5.78%
7.86%
2.56% 3.01% 4.46% 5.96% 5.78%

•The decline in the sales of the products Cardiovascular

Respiratory
Central Nervous System Alimentary/Metabolism
Anti-Infectives Musculo-skeletal
Genito-Urinary Cytostatics Dermatologicals
Neurontin, Paxil and Zyprexa in the segment Blood Agents Others

in 2005 has largely been offset by the higher Source: Cygnus Research
sales of Seroquel, wellbutrin, Cymbalta and
Pharmaceutical market share by value in the US, 2005
Risperdal of CNS segment.
10.97%
8.02%

•The top 10 major players accounted for 42.14% 6.45%

57.86% of the total pharmaceutical sales in

the US market during 2005. 6.13%

5.20%
3.39% 3.51% 4.44% 4.80% 4.96%
•Pfizer, the largest company, accounted for Pfizer
Merck & Co
GlaxoSmithkline
Astrazeneca
Johnson & Johnson
Novartis
10.97% of the market during the year with Amgen
Bristol Myers Squibb
Sanofi-Aventis
Others
Lilly

sales of USD27.2 billion. Source: Cygnus Research

Drugs related to the Central Nervous System are the largest therapeutic segment in the US
with total sales of USD42.45 billion.
 MAJOR MARKETS

JAPAN Pharmaceutical market in Japan (2001-2005)

•The pharmaceutical market in Japan has 70 15%

60
reported a growth rate of 5.95% y/y in 2005 with 50
10%

total sales of USD59.53 billion. 40 5%

USDbn
30 0%
20
-5%
•The growth rate is the lowest in the last three 10
0 -10%
years but is better than the negative growth 2001 2002 2003 2004 2005

rates seen in 2001 and 2002 owing to the Market Size (LHS) Growth Rate (RHS)

economic recession, and was above the 2001- Source: Cygnus Research
2005 CAGR of 5.75%.
Pharmaceutical market segmentation in Japan, 2005

•The lower growth rate in the market is mainly 6.92% 5.86%

21.84%
6.92%
owing to greater emphasis on the prescription of
generic drugs by the government and the drug 8.67%
price reductions forced by insurance companies. 8.68%
15.37%
10.16% 11.96%
Cardiovascular Alimentary/Metabolism
•Cardiovascular is the leading therapeutic Anti-Infectives Cytostatics
Central Nervous System
Respiratory
segment in Japan with sales totaling USD13 Musculo-skeletal
Others
Dermatologicals

billion in 2005 and accounts for about 21.84% ofSource: Cygnus Research
the total pharmaceutical market.
Pharmaceutical sales in Japan in 2005 is USD59.53billion and the drugs related to
cardiovascular disorders are the largest selling drugs
 MAJOR MARKETS

EUROPE Pharmaceutical market in Europe (2001-2005)

•The pharmaceutical market in Europe (excluding 200 35%

the UK) has grown by 9.86% y/y in 2005 with the 150
30%
25%

USDbn
total sales of USD149.26 billion. 100
20%
15%
50 10%
• This is the second year of the continuous 5%
0 0%
decline in growth rate in the last five years, 2001 2002 2003 2004 2005

which has seen a CAGR of 19.29%. It is mainly a Market Size(LHS) Growth Rate(RHS)

result of market loss owing to the parallel trade Source: Cygnus Research
estimated to the extent of USD5 billion in 2005
Major Pharmaceutical markets in Europe, 2005
(IMS, 2005). Germany 32.5
France 31
Italy 19.6

•Germany is the major market in Europe with Spain 15.25

Netherlands 4.9
Belgium 4.78

sales of USD32.5 billion in 2005, accounting for Poland

Greece
Portugal
4.4
4.25
3.7
about 21.77% of the European market. Sweden
Switzerland
3.68
3.62
Austria 3.1
Finland 2.25

•The top four markets of Germany, France, Italy

Hungary 2.1
Denmark 1.92
Denamrk 1.86

and Spain collectively account for about 65.89% Czech Republic

Norway
Ireland
1.8
1.71
1.6
Value in USDbn

of the European market with the total sales of Slovakia

Slovenia
0.76
0.55

USD98.5 billion. Source: Cygnus Research

Pharmaceutical market size in Europe (excluding UK) in 2005 is USD149.26 billion and
Germany is the leading pharmaceutical market in the region with sales of USD32.5 billion
 MAJOR MARKETS

The UK
Pharmaceutical market in the UK (2001-05)
•The pharmaceutical market in the UK has 25 18%

reported a growth rate of 16.75% y/y, well above 20

16%
14%
the 2001-2005 CAGR of 8.72%, and registered the

USDbn
12%
15

sales of ofUSD20 billion in 2005.

10%
8%
10
6%

•The growth rate is one of the highest in the last 5 4%

2%

five years owing to higher spending in both public 0

2001 2002 2003 2004 2005
0%

and private health expenditures. Market Size(LHS) Growth Rate(RHS)

Source: Cygnus Research

•Although the UK is one of the markets having a

higher generic penetration, the growth in thePharmaceutical market segmentation in the UK, 2005
branded prescriptions in 2005 is higher compared 23.82%
12.47%
with generics. 24.24%

•Cardiovascular is the leading therapeutic

13.47%
segment in the retail pharmaceutical market of 10.88% 4.00%
1.47%3.88% 5.76%
the UK with sales of USD4.12 billion, about 24.24% Cardiovascular Alimentary/Metabolism
Anti-Infectives Cytostatics
of the total pharmaceutical sales. The segment is Respiratory Central Nervous System
Musculo-skeletal Dermatologicals
driven by leading cholesterol lowering drugs Others
including Lipitor, Zocor and Lipostat. Source: Cygnus Research

Pharmaceutical sales in the UK market is valued at USD20 billion in 2005 with the
cardiovascular as the leading therapeutic segment in 2005.
 MAJOR MARKETS

Mexico Pharmaceutical market in Mexico (2001-2005)

12 50%
•The pharmaceutical market Mexico has 10 40%
reported a growth rate of 5.43% in 2005 with 8

USDbn
30%
6
total sales of USD9.7 billion. The 2000-2005 20%
4
CAGR was 15.23%. 2 10%
0 0%
2000 2001 2002 2003 2004 2005
• In conjunction with eased export restrictions Market Size(LHS) Growth Rate(RHS)
and the Mexican governments restrictions of Source: Cygnus Research
manufacturing capacity in the country has led
to huge market growth with increased exports Pharmaceutical market segmentation in Mexico, 2005

to other Latin American markets and the 7.25% 7.08% 17.14%

established markets including the US and 7.32%
15.11%
Canada.
8.51%
•Anti-infective is the leading therapeutic 12.99% 13.22%
11.45%
segment in the market with retail sales of Anti-Infectives Others
Respiratory Alimentary/Metabolism
USD1.45 billion, accounting for 17.14% of the Cytostatics
Central Nervous System
Cardiovascular
Musculo-skeletal
total retail pharmaceutical market. Dermatologicals

Source: Cygnus Research

Source: IMS retail sales and Cygnus estimates

The pharmaceutical market in Mexico is valued at USD9.7 billion in 2005 and Anti-infective
is the leading therapeutic segment of the market.
 MAJOR MARKETS

Brazil Pharmaceutical market in Brazil (2001-2005)

•The pharmaceutical market in Brazil has 8 30%

20%
reported growth of 23.48% y/y in 2005 with 6

USDbn
10%

total sales of USD6.89 billion. The high growth 4 0%

-10%
is as a result of the complete recovery of the 2
-20%

economy from recession and the increased 0

2001 2002 2003 2004 2005
-30%

spending on healthcare. Market Size(LHS) Growth Rate(RHS)

Source: Cygnus Research

•Brazil is a potential market as it is highly
Pharmaceutical market segmentation in
untapped, with medical facilities inaccessible to Brazil, 2005 13.57%
about 50% of the population. Nearly 80% of the 19.01%
0.65% 15.24%
raw material requirement of the
pharmaceutical market is imported. 11.54%
7.65%
16.55%
6.24% 9.64%
•Alimentary or metabolism is the leading Cardiovascular Central Nervous System
therapeutic segment in the market with sales of Alimentary/Metabolism Respiratory
Anti-Infectives Dermatologicals
USD1.14 billion, accounting for 16.55% of the Genito-Urinary Cytostatics
Others
market in 2005
Source: Cygnus Research

The pharmaceutical market in Brazil is valued at USD6.89billion in 2005 and Alimentary or

Metabolism is the leading therapeutic segment of the market.
 MAJOR MARKETS

Pharmaceutical market in China (2001-2005)

China 12 30%
10 25%
•The pharmaceutical market in China is valued at 8 20%

USDbn
USD11.4 billion in 2005 and has reported a growth 6 15%

of 20% year in year (figure 7.20). Over the past 4 10%

2 5%
few years, the Chinese pharmaceuticals market 0 0%
has grown at an amazing rate, recording a CAGR 2001 2002 2003 2004 2005
Market size(LHS) Growth Rate(RHS)
of 21.91% between 2001 and 2005.
Source: Cygnus Research

•The excellent growth of the market has been driven by an expanding Chinese urban
population, which combined with an increasing standard of living, has created a growing
awareness of the importance of healthcare.

•Nearly 80% of the drugs in the country is distributed through hospitals whereas 15% is sold
through retail outlets and the rest is through convenience stores that mostly sell over-the-
counter drugs (Burril and Co, 2005).

•The major players in the market are JS Yangzijiang Fty, Pfizer, GlaxoSmithKline, Roche,
Fresenius, AstraZeneca, Novartis, HLJ Harbin Pharm, Merck & Co and Johnson & Johnson.

The pharmaceutical market in China is valued at USD11.4 billion in 2005 and about 80% of
the drugs in the market is distributed through the hospitals.
 MAJOR PLAYERS

Net
Top ten firms in 2005
Market
Net Market Capitalizat Market
Grow
Earning Net Capitaliz i Capitaliz
Revenues Revenues
Earnings o ation
S.No. Company ’05 ’04
‘05 Growth t n Growth
(USDbn) (USDbn) Rate
(USDbn Rate ion ’05 Rate
% 2
(USDbn) 04 %
(2.32 (USDbn) 0
1 Pfizer 51.29 52.51 8.08 11.36
’04 -28.87% 171.59 0 -14.62
(USDbn) .
2 Johnson & 9
Johns 50.51 47.35 6.67 10.41 8.51 22.33% 178.78 197.86
7 -17.12
on
(3.19
3 GlaxoSmithKli 37.27 38.50 8.28 7.74 6.98% 142.68 281.38 -10.67
ne (5.93
4 Sanofi-Aventis 32.34 34.38 7.50 6.85 9.49% 117.51 56.52 -97.21
14.4
5 Novartis 32.31 28.24 6.14 5.60 9.64% 143.77 123.97 51.90
(2.35
6 Roche 26.99 27.64 5.11 6.24 -18.11% 26.65 21.21 13.77
11.8
7 AstraZeneca 23.95 21.42 4.72 3.68 28.26% 77.27 59.86 20.41
(3.93
8 Merck 22.00 22.9 4.63 5.81 -20.31% 69.55 95.65 22.53
9 Bristol-Myers
(0.92
Squi 19.20 19.38 3.00 2.38 26.05% 44.95 49.75 -37.53
bb
10 Wyeth 18.75 17.35 8.06 3.65 1.23 196.75% 61.92 57.68 -10.68
Source: Company Websites and Annual Reports
Revenue includes pharmaceutical, consumer healthcare & others

Pfizer is the largest company in the global pharmaceutical market with sales of USD51.29
billion in 2005.
 MAJOR PLAYERS

Pfizer Inc
•Pfizer has three business segments: Health care, Animal health and consumer health care.
•Health care constitutes the core of Pfizer Inc and accounted for 86.32% of the total revenue
in 2005.
•Consumer health care segment accounts for 7.56% of the total revenue in 2005.
•Animal health segment accounted for 4.3% of the total revenues in 2005.

Top ten products: Pfizer 2005

Key Financials: Pfizer Inc. 2003 - 2005
S.No. Brand Name Sales in 2005
Financial Year Ending Dec-05 Dec- Dec- (USDbn)
04 03 1 Lipitor 12.2
Revenues (USDbn) 51.29 52.51 44.73 2 Norvasc 4.7
Marketing & Admin. 16.99 16.90 15.10 3 Zoloft 3.3
Expenses (USDbn)
4 Celebrex 1.7
R & D expenses (USDbn) 7.44 7.68 7.48 5 Viagra 1.6
Net Earnings (USDbn) 8.08 11.36 3.91 6 Xalatan/ 1.4
Xalacom
Net EPS (USD) 1.10 1.51 0.54
7 Zyrtec 1.4
Net Margin (%) 15.75 21.63 8.74
8 Detrol 0.988
Op. Income (USDbn) 11.53 14.00 3.24
9 Camptosar 0.91
Dividends (USD) 0.76 0.68 0.60 10 Genotropin 0.808
Source: Company Website & Annual Reports Source: Annual Report, 2005

Pfizer’s leading block buster drug Lipitor with sales of USD12.2 billion accounts for 2.09% of
the global pharmaceutical market.
 MAJOR PLAYERS

Johnson & Johnson (J&J)

•J&J has three business segments: consumer, pharmaceutical and medical devices & diagnostics.
•The consumer segment has reported sales of USD9.1 billion in 2005, an increase of 9.2% over
last year.
•The sales of pharmaceutical segment were USD22.3 billion in 2005, an increase of 0.9% than in
2004.
•Medical devices and diagnostics segment reported sales of USD19.1 billion in 2005, which has
grown by 13.1% over 2004.

Key Financials: Johnson & Johnson 2003 - 2005 Top products: J & J 2005
Financial Year Ending Dec-05 Dec-04 Dec- S.No Brand Name Sales in 2005
03 . (USDbn)
Revenues (USDbn) 50.51 47.35 41.86 1 RISPERDA 3.552
Marketing & Admin. Expenses 16.87 15.86 14.13 2 PROCRIT®/EPREX 3.324
(USDbn)
R & D expenses (USDbn) 6.31 5.20 4.68
3 REMICADE 2.535
Net Earnings (USDbn) 10.41 8.51 7.19
4 TOPAMAX 1.68
Net EPS (USD) 3.46 2.87 2.42
5 DURAGESIC 1.585
Net Margin (%) 20.61 17.97 17.17
6 LEVAQUIN®/FLOXIN 1.492
Op. Income (USDbn) 13.65 12.83 10.30
7 ACIPHEX®/PARIET 1.169
Dividends (USD) NA 1.095 0.925
Source: Annual Report, 2005
Source: Company Website & Annual Report, NA-Not Available

Pharmaceutical and Medical devices & diagnostics sales accounted for USD22.3 billion and
USD19.1 billion respectively in 2005.
 MAJOR PLAYERS

Glaxo Smithkline Plc

•The company has two business segments: Pharmaceuticals which includes prescription
pharmaceuticals & vaccines and Consumer Healthcare consists of over-the-counter medicines,
oral care and nutritional healthcare.
•Pharmaceuticals and vaccines contributed USD32.11 billion in 2005, which accounted for 86% of
the total revenues in 2005.
•Consumer healthcare reported USD5.16 billion in 2005, which accounts for 13.85% of the total
revenues in 2005. Top ten products: GSK 2005
Key Financials: GlaxoSmithKline 2003 - 2005 S.No Brand Name Sales in 2005 (USD
. bn)
Financial Year Ending Dec-05 Dec-04 Dec-03 1 Seretide/Advair 5.17
Revenues (USDbn) 37.27 38.50 37.47 2 Avandia 1.99
Marketing & Admin. Expenses 12.47 13.87 14.02 3 Zofran 1.44
(USDbn)
4 Lamictal 1.46
R & D expenses (USDbn) 5.39 5.59 5.09
5 Wellbutrin 1.27
Net Earnings (USDbn) 8.28 7.74 7.66
6 Imigran/Imitrex 1.20
Net EPS (USD) 1.42 1.31 1.28
7 Valtrex 1.20
Net Margin (%) 22.21 20.10 20.44
8 Augmentin 1.15
Op. Income (USDbn) 11.82 11.09 10.76
9 Flixotide/Flovent 1.10
Dividends (USD) 0.75 0.81 0.73
10 Seroxat/Paxil 1.06
Source: Company Website & Annual Report
Source: Annual Report, 2005

Glaxo Smithkline is the second leading pharmaceutical company globally with major focus
into Respiratory products and Anti-infectives.
 MAJOR PLAYERS

Sanofi-Aventis
•The company has two business segment: pharmaceuticals (principally prescription drugs) and
human vaccines.

Top ten products: Sanofi-Aventis 2005

Key Financials: Sanofi-Aventis 2003 - 2005
S.No. Brand Name Sales in 2005 (USDbn)
Financial Year Dec-05 Dec-04 Dec-03
Ending 1 Lovenox 2.54
Revenues (USDbn) 32.34 34.38 30.50
2 Plavix 2.40
Marketing & Admin. 9.77 10.76 9.43
Expenses (USDbn) 3 Taxotere 1.91
R & D expenses 4.79 5.40 5.10 4 Eloxatine 1.85
(USDbn)
Net Earnings (USDbn) 7.50 6.85 5.59 5 Stilnox 1.80
Net EPS (USD) 5.61 5.14 4.13 6 Allegra 1.59
Net Margin (%) 23.19 19.92 18.32 7 Lantus 1.44
Op. Income (USDbn) 10.80 10.47 9.10 8 Delix 1.20
Dividends (USD) NA 1.62 1.28 9 Copaxone 1.07
Source: Company Website & Annual Report 10 Aprovel 1.06
NA-Not Available
Source: Annual Report, 2005

Sanofi-Aventis is the third largest pharmaceutical company (considering only the pharmaceutical
sales)with higher net margins of about 23% in 2005 when compared to other major players
 MAJOR PLAYERS

Novartis
•Novartis has three business divisions – Pharmaceuticals, Sandoz (generic pharmaceuticals) and
Consumer Health.
•The sales of Novartis’ Pharmaceutical division increased 10% to USD20.3 billion backed by a
dynamic growth ahead of the market and in all regions.
•Sandoz has reported generic pharmaceutical sales of USD4.7 billion in 2005.
•Consumer Health net sales increased by 8% to USD7.3 billion, bolstered by a double-digit growth
performance in OTC.
Top ten products: Sanofi-Aventis 2005
Key Financials: Sanofi-Aventis 2003 - 2005
S.No. Brand Name Sales in 2005 (USDbn)
Financial Year Ending Dec- Dec-04 Dec-03
1 Lovenox 2.54
Revenues (USDbn) 32.34 34.38 30.50
2 Plavix 2.40
Marketing & Admin. Expenses 9.77 10.76 9.43
(USDbn) 3 Taxotere 1.91
R & D expenses (USDbn) 4.79 5.40 5.10
4 Eloxatine 1.85
Net Earnings (USDbn) 7.50 6.85 5.59
5 Stilnox 1.80
Net EPS (USD) 5.61 5.14 4.13
6 Allegra 1.59
Net Margin (%) 23.19 19.92 18.32
7 Lantus 1.44
Op. Income (USDbn) 10.80 10.47 9.10
8 Delix 1.20
Dividends (USD) NA 1.62 1.28
9 Copaxone 1.07
Source: Company Website & Annual Report, NA-Not Available
10 Aprovel 1.06
Source: Annual Report, 2005

Novartis revenues in 2005 is about 32.34 billion with the major focus into oncology
products.
 MAJOR PLAYERS

Roche
•Roche has two business divisions –Pharmaceuticals & Diagnostics.

•Roche’s Pharmaceutical division has reported sales of USD20.73bn in 2005.

•Roche Diagnostics has reported sales of USD6.26 billion in 2005 as compared with USD6.91
billion in 2004.

Top ten products: Roche 2005

Key Financials: Roche 2003 - 2005 S.No. Brand Name Sales in 2005 (USDbn)
Financial Year Dec-05 Dec-04 Dec-03 1 MabThera/ Rituxan 3.16
Ending
Revenues (USDbn) 26.99 27.64 25.14 2 NeoRecormon, Epogin 1.71
Marketing & Admin. 9.05 9.21 8.29 3 Herceptin 1.63
Expenses (USDbn)
4 CellCept 1.30
R & D expenses 4.33 4.50 3.83
5 Avastin 1.27
(USDbn)
Net Earnings 5.11 6.24 2.47
6 Tamiflu 1.18
(USDbn)
Net EPS (USD) 5.20 6.94 2.94
7 Pegasys 1.07
Net Margin (%) 18.93 22.58 9.82
8 Rocephin 0.70
Op. Income (USDbn) 6.59 7.93 4.50
9 Xeloda 0.61
Dividends (USD) 1.90 1.76 1.32
10 Xenical 0.48
Source: Company Website & Annual Report
Source: Annual Report, 2005
 MAJOR PLAYERS

Astra Zeneca
•AstraZeneca has only one business segment: Pharmaceuticals.

•AstraZeneca’s flagship product Nexium sales were up 18% to USD4.63 billion. Sales in the US
were up by 15% to USD3.12 billion, and this strong volume growth continues despite being
partially offset by lower price realization. Nexium sales in other markets have grown by 25%.
Top ten products: AstraZeneca 2005
Key Financials: AstraZeneca 2003 - 2005
S.No. Brand Name Sales in 2005 (USDbn)
Financial Year Dec-05 Dec-04 Dec-03
Ending 1 Nexium 4.633
Revenues (USDbn) 23.95 21.42 18.85
2 Seroquel 2.761
Marketing & Admin. 8.69 8.26 7.39
Expenses (USDbn) 3 Seloken/Toprol-XL 1.735

R & D expenses 3.37 3.46 3.01 4 Losec/Prilosec 1.652

(USDbn)
Net Earnings (USDbn) 4.72 3.68 3.04 5 Crestor 1.268

Net EPS (USD) 2.91 2.18 1.77 6 Arimidex 1.181

Net Margin (%) 19.70 17.18 16.12 7 Pulmicort 1.162

Op. Income (USDbn) 6.50 4.54 4.00 8 Casodex 1.123

Dividends (USD) 1.30 0.94 0.795 9 Symbicort 1.006

Source: Company Website & Annual Report 10 Zoladex 1.004

Source: Annual Report, 2005

Nexium of Astra Zeneca sales increased in 2005 all across the US and and other regions with
Seroquel following at the seconf bestselling product
 MAJOR PLAYERS

Merck
• Revenues of Merc in 2005 dropped marginally to USD22 billion from USD22.9 billion in
2004
• R&D expanses of the company reduced to USD3.84 billion in 2005 from USD4.01 billion in
2004
• Zocor is top product of the company in 2005 posting a total sales of USD4.38 billion

Top ten products: Merck & Co 2005

Key Financials: Merck & Co 2003 - 2005
S.No. Brand Name Sales in 2005
Financial Year Ending Dec- Dec- Dec- (USDbn)
1 Zocor 4.381
05 04 03
2 Fosamax 3.191
Revenues (USDbn) 22.0 22.9 22.48
3 Cozaar/Hyzaar 3.037
Marketing & Admin. Expenses 7.15 7.23 6.39
(USDbn) 4 Singulair 2.975
R & D expenses (USDbn) 3.84 4.01 3.28
5 Proscar 0.741
Net Earnings (USDbn) 4.63 5.81 6.83
6 Primaxin 0.739
Net EPS (USD) 2.10 2.61 3.03
7 Vasotec/Vaseretic 0.623
Net Margin (%) 21.05 25.37 30.38
8 Cosopt/Trusopt 0.617
Op. Income (USDbn) 7.36 7.97 8.42
9 Cancidas 0.57
Dividends (USD) 1.52 1.49 1.45
10 Maxalt 0.348
Source: Company Website & Annual Report
Source: Annual Report, 2005

Merc experiencing a lean result in 2005 in terms of revenues, net return and net margin
although the R&D spending of the company decreased
 MAJOR PLAYERS

Bristol Myers Squibb

•BMS has three divisions: Pharmaceuticals, Healthcare and Nutritionals.
•In 2005 throughout the world pharmaceuticals sale of BMS has declined by 2% to USD15.25
billion compared with its previous year.
•The healthcare division of Bristol-Myers Squibb has accounted sales of USD1.75 billion, a decline
of 3.69% compared with its previous year.
•The worldwide sales of nutritionals in 2005 were USD2.20 billion.
Top ten products: Bristol Myers Squibb 2005
Key Financials: Bristol Myers Squibb 2003 - 2005 S.No. Brand Name Sales in 2005 (USDbn)
Financial Year Ending Dec-05 Dec- Dec- 1 Plavix 3.82
04 03
Revenues (USDbn) 19.20 19.38 18.65 2 Pravachol 2.25
Marketing & Admin. Expenses 5.10 5.01 4.62 3 Avapro/Avalide 0.982
(USDbn)
R & D expenses (USDbn) 2.74 2.50 2.27 4 Abilify 0.912
Net Earnings (USDbn) 3.00 2.38 3.09 5 Taxol 0.747
Net EPS (USD) 1.53 1.23 1.60 6 Reyataz 0.696
Net Margin (%) 15.62 12.28 16.56 7 Sustiva 0.68
Op. Income (USDbn) 4.51 4.41 4.68 8 Erbitux 0.413
Dividends (USD) 1.12 1.12 1.12 9 Efferalgan 0.283
Source: Company Website & Annual Report 10 Zerit 0.216
Source: Annual Report, 2005

Bristol Myers Squibb suffers decline of sales in two of its three business divisions-
pharmaceuticals and healthcare
 MAJOR PLAYERS

Wyeth
•Wyeth has three divisions: Wyeth Pharmaceuticals, Wyeth Consumer Healthcare, and Fort
Dodge Animal Health.
•Wyeth Pharmaceuticals revenues were increased by 10% to USD15.32 billion in 2005 as
compared with 2004.
•Wyeth Consumer Healthcare has reported sales of USD2.6billion in 2005.
•Animal Health has grown by 5% for the year 2005 to USD0.88 billion compared with 2004.
Top ten products: Wyeth 2005
Key Financials: Wyeth 2003 - 2005
S.No. Brand Name Sales in 2005 (USDbn)
Financial Year Ending Dec-05 Dec-04 Dec-03
1 Effexor 3.458
Revenues (USDbn) 18.75 17.35 15.85
2 Protonix 1.684
Marketing & Admin. Expenses 6.11 5.80 5.46
(USDbn) 3 Prevnar 1.508
R & D expenses (USDbn) 2.74 2.46 2.09
4 Enbrel 1.083
Net Earnings (USDbn) 3.65 1.23 2.05
5 Nutrition 1.04
Net EPS (USD) 2.73 0.93 1.54
6 Premarin 0.908
Net Margin (%) 19.46 7.08 12.93
7 Zosyn/Tazocin 0.891
Op. Income (USDbn) 4.78 -0.12 2.36
8 Zoton 0.375
Dividends (USD) 0.96 0.92 0.92
9 BeneFIX 0.343
Source: Company Website & Annual Report
10 Rapamune 0.3
Source: Annual Report, 2005

Wyeth posts growth in its pharmaceuticals and animal health business by 10% and 5%
respectively in 2005
 REGULATORY ASPECTS

Regulatory Bodies
Major divisions of FDA
The US
•The Center for Biologics Evaluation and Research
United States Food & Drug administration
•The Center for Devices and Radiological Health
European Union •The Center for Drug Evaluation and Research
•The Center for Food Safety and Applied Nutrition
•The Center for Veterinary Medicine
The European Medicines Agency (EMEA)

Japan Major committees – EMEA

Ministry of Health, Labor & Welfare •Committee for Medicinal Products for Human Use

•Pharmaceutical and Food Safety Bureau office •Committee for Medicinal Products for Veterinary
Use
•Health Policy Bureau •Committee on Orphan Medicinal Products
 REGULATORY ASPECTS
Regulations in the US
•Pure Food and Drug Act, June 30 1906.
•Food, Drug, and Cosmetic Act of 1938
•The Kefauver-Harris Drug Amendments of 1962
•The FDA Modernization Act of 1997.
Regulations in Japan
•The Pharmaceutical Affairs Law
•The Pharmacists’ Law
•The law concerning the Organization for
Pharmaceutical Safety and Research
•The Blood Collection and Blood Donation Services
Control Law
•The Poisonous and Deleterious Substances Control
Law
•The Narcotics and Psycho tropics Control Law
•Cannabis Control Law
•The Opium Control Law
•The Stimulants Control Law
Regulations in European Union
•In 1975, the Commission establishes a
multistate procedure to allow a
pharmaceutical company to market a
product in all member states if just one
of them approved the product
application – a procedure referred to as
‘mutual recognition’. The Commission
also created the Committee for
Proprietary Medicinal Products (CPMP).
•In 1987, the Commission established
another process, ‘the concertation
procedure’ designed to foster a single
market. Under this procedure, the CPMP
reviewed all biotechnology and other
high technology pharmaceutical products
for approval across the EU.
 REGULATORY ASPECTS

International agreements on intellectual property rights protection

The major international agreements to protect intellectual property are

•General Agreement on Tariffs and Trade (GATT)

•Trade Related Aspects of Intellectual Property Rights (TRIPS)
•The Paris Convention for the Protection of Industrial Property (PCPIP)
•The Patent Co-operation Treaty (PCT)

Prolonging Patent Protection

•GATT & TRIPS

•The Waxman-Hatch Act

The world is massively heading towards an uniform business environment in pharmaceuticals

through a series of international agreements and laws
 REGULATORY ASPECTS

Recent regulatory amendments

The US
USFDA sets up Drug Safety Oversight Board
In line with the regulatory reforms announced by the FDA in the last quarter of 2004, USFDA
set up a Drug Safety Oversight Board (DSB) February 2005 to oversee the management of
drug safety issues and to increase the transparency of approval process and safety of drugs.

USFDA tightens approval process

The public criticism in the wake of high-profile withdrawals such as Vioxx and Bextra has
forced the USFDA to adopt a cautious approach toward new drug approvals. Now the USFDA
is not only taking longer time to approve drugs but is also studying side effects more closely
than it did in the past. Some of the new drugs that could have otherwise made it to the
market a year ago, no longer find place on the shelf.

USFDA becomes more cautious in approving new drugs amid widespread public outcry against
the approval of high profile drugs
 REGULATORY ASPECTS

EU
FDA and EU extend Confidentiality Agreement
The USFDA, the European Commission (EC), and the EMEA extended their confidentiality
agreement on medicinal products for human and veterinary use for five more years. This
agreement, signed in September 2003, was set to expire in 2005. This confidentiality
agreement allows the three agencies to exchange information on legal and regulatory
issues, scientific advice and orphan drug designation, inspection reports, marketing
authorization procedures and post-marketing surveillance.

Japan
Application for approval of generic drugs modified
In September 2005, the MHLW modified the application for the approval of generic drugs
with single active pharmaceutical ingredient. Now, the manufacturers of generic drugs
have to specify in the application, details such as the brand name of the generic drug,
active pharmaceutical ingredient, dosage form, quantity and the company name. The new
additions to the application are ‘the name of the generic company’ and ‘active
pharmaceutical ingredient.’

Generic drug manufacturers in Japan now needs to declare the name of the active
pharmaceutical ingredient
 MERGERS & ACQUISTIONS

M&A drivers Generics retail market estimates (USDbn) – 2005 -

10

•Need for low cost pharmaceuticals 120 106

100

USDbn
80 65
•Growing generics market 60 CAGR - 11%
40

•Focus on areas of core competence 20

0
2005 2010
•To replenish decreasing R&D pipeline and
shrinking patented drug list Source: *IMS Health *Denotes: Inhouse estimates

Big pharmaceutical firms are acquiring specialty pharmaceutical and biotech firms owing
to decrease in the success rate of their R&D, increase in patent expiries and product
recalls, which are shortening their list of patented drugs and ultimately hitting a large
source of revenue.
 MERGERS & ACQUISTIONS

M&A Trends
•Pharmaceutical M&A accounted for more than one-fourth of total healthcare M&A in deal
value

•Pharmaceutical deals declined in terms of number and value in 2005

•Smaller value deals dominated the M&A scenario in 2005

Number of Pharmaceutical M&A (2001-2005) Deal value of Pharmaceutical M&A (2001-2005)

350 303 120 105.85

300 268

USDbn
246 247 100
250
80 73.38 68.20
200 176
60 40.00
150 37.88
100 40
50 20
0 0
2001 2002 2003 2004 2005 2001 2002 2003 2004 2005

Source: Cygnus Research Source: Cygnus Research

 MERGERS & ACQUISTIONS

Top 10 M&A 2005

Deal value
Rank Acquirer Target (USDm)

1 Sankyo Co (Japan) Daiichi Pharmaceutical Co (Japan) 7,700

2 Teva (Israel) IVAX Corp (US) 7,400

3 Novartis AG (Switzerland) Chiron Corp (56% stake) (US) 5,780

4 Sandoz (Novartis AG) - (Switzerland) Hexal AG (Germany) 5,280

5 Abraxis BioScience (formerly APP) (US) American BioScience (US) 4,170

6 Allergan Inc Inamed Corp (US) 3,100

7 Sandoz (Novartis AG) - (Switzerland) Eon Labs (US) 2,600

8 Nycomed A/S (Finland) Nycomed Holding A/S (Finland) 2,270

9 Amgen (US) Abgenix (US) 2,200

10 Dainippon Pharmaceuticals (Japan) Sumitomo Pharmaceuticals (Japan) 2,120

 MERGERS & ACQUISTIONS

Top 10 M&A 2004

Deal value
Rank Acquirer Target (USDm)

1 Sanofi-Synthelabo (France) Aventis (France) 62,600

2 Yamanouchi Pharmaceuticals (Japan) Fujisawa Pharmaceuticals (Japan) 8,000

3 Private Equity Consortium (US) Warner Chilcott (UK) 3,000

4 Bayer (Germany) Roche OTC business (Switzerland) 2,900

5 UCB (Belgium) Celltech (UK) 2,700

6 Amgen (US) Tularik (79%) (US) 1,300

7 Genzyme (US) ILEX Oncology (US) 1,000

8 Perrigo (US) Agis Industries (Israel) 818

9 QLT (Canada) Atrix Laboratories (US) 855

10 Sandoz (Novartis AG) - (Switzerland) Sabex (Canada) 565

Source: Cygnus Research

 MERGERS & ACQUISTIONS

Top 10 M&A 2003

Rank Acquirer Target Deal value (USDm)

1 Biogen (USA) Idec (USA) 6,700

2 Teva Pharmaceuticals (Israel) Sicor (USA) 3,400

3 Johnson & Johnson (USA) Scios (USA) 2,400

4 DSM (Netherlands) Roche vitamin unit (Switzerland) 2,000

5 Merck & Co (USA) Banyu (Japan) 1,500

6 Roche (Switzerland) Igen (USA) 1,400

7 Pfizer (USA) Esperion Therapeutics (US) 1,300

8 CSL (Australia) Aventis Behring vaccines arm (France) 925

9 Chiron (USA) PowderJect (UK) 880

10 King Pharmaceuticals (USA) Elan (Ireland) primary care franchise 750

 CRITICAL SUCCESS FACTORS

To exploit the benefits of alliances and

•Alliances and acquisitions
•Outsourcing to low cost destinations
•Absorption of technological
innovations
•Improving sales force effectiveness
• Need for Critical mass
•Need for blockbuster drugs
partnerships, pharmaceutical companies need
to:
•Streamline the exchange of information
about partner resources, drugs, and clinical
trials and molecule synthesis processes to
improve time-to-market
•Avoid drug discovery dead ends by keeping
their partners abreast of developments
while safeguarding their own intellectual
property
•Improve quality and reliability of clinical
trials
•Speed up regulatory approvals

Smooth communication between the partners are important to reap the maximum benefit of
alliances and acquisitions
 FUTURE OUTLOOK

•The global pharmaceutical market is expected to grow between 7% to 8% to between

USD624 billion and USD629 billion in 2006.

•The US would still be the leading market with sales of about USD267-270 billion, with
a growth rate between 8-9% y/y in 2006.

•The higher growth rate in the market is owing to the increased spending on the
prescription drugs with the new Medicare Part D of Medicare Prescription Drug
Program, which has come into effect on January 1, 2006. It provides prescription drug
coverage to more than 40m people of the US.

•Japan is estimated to grow at 3% in 2006 with sales of USD61.07 billion.

•The Latin American market is expected to grow at a higher rate of 10%, with
increasing share of healthcare spending as a percentage of GDP in the market and
higher economic growth.

•The Chinese pharmaceutical market is expected to witness exceptional growth

between 15% and 20% in 2006.

The US is still the leading market in pharmaceuticals with a higher growth rate mainly due to
increased spending on the prescription drugs
 FUTURE OUTLOOK

•In the future, an aging global population; the shift in the disease pattern towards lifestyle
disorders; and increase in biotechnology based drugs will continue to be the prime driving factors
of the pharmaceutical industry.

•Increase in number of patent expiries is a growing concern for the major pharmaceutical
companies among the research-based pharmaceutical companies. In 2006 alone, drugs worth
USD21.20 billion are going off-patent.

•Generic variants of five major biopharmaceutical drugs are expected to hit the market in 2006.
Amgen’s anti-anemic drug Epogen, with a global sale of USD2.5 billion in 2005, is one of the major
biopharmaceutical drugs going off-patent in 2006.
Major Pharmaceutical and Biopharmaceutical Drugs Losing Patents in 2006
Pharmaceuticals Biopharmaceuticals
Patent
Brand holder Brand Patent holder
Zocor Merck & Co. Epogen Amgen Inc
Zoloft Pfizer Neupogen Amgen Inc
Lamisil Novartis Avonex Biogen Inc
Ambien Sanofi-Aventis Ceryzyme Genzyme Corp
Immugene Corp and Wyeth Ayerst
Pravachol BMS Enbrel
Labs
Zofran GSK  
Source: Cygnus Research

The biopharmaceutical market is all set to flood the market taking the advantage of patent
expiry of some blockbuster drugs
 FUTURE OUTLOOK

•The pharmaceutical industry will witness further consolidation in the future too.

•In February 2006 alone, a total of 16 M&A worth USD965m happened in the industry.
The largest deal for in the first three months of 2006 being Indian-based Dr Reddy’s
Laboratories acquisition of Betapharm Group of Germany for USD570m.

•M&As will be driven mainly by the need to refill drying blockbusters of big
pharmaceutical companies, which will push they into acquiring biopharmaceutical
companies by the need to tap the growing generics market.

•The FDA is concerned more about the safety of the new drugs that comes up for its
approval. In the near future it might mandate the requirement of long-term safety
data for approving the drugs used to treat chronic ailments mandatory.

•In order to improve the manufacturing standards further, the FDA is also expected to
make compliance to process analytical technology mandatory mandatory in the future.

Keeping a healthy product pipeline would be the major concern of the pharmaceutical
companies in the future and this will lead to M&A deals