Global Innovative Pharmaceutical Risk/Reward Index

Key View: Geographic diversification may be a favourable strategy for multinational

pharmaceutical companies, but it is vital that firms recognise both the rewards and the risks
present in a market, whether developed or emerging. Fitch Solutions' Risk/Reward Index
tool, which provides a globally comparative and numerically based assessment of a market's
attractiveness, was established to address this.

The global pharmaceutical market has a Risk/Reward Index (RRI) score of 50.0 out of 100 in
Q219. With a score of 75.7, Western Europe is the leading region, followed by Asia Pacific
(53.1), Central and Eastern Europe (51.2), the Americas (48.8), the Middle East & North
Africa (47.2) and Sub-Saharan Africa (26.8).

The RRI score is made up of a sum of the Rewards score (Industry Rewards and Country
Rewards) and the Risks score (Industry Risks and Country Risks). The weight assigned to
each sub-sector (such as Industry Rewards or Industry Risks) shows its influence within the
final Rewards or Risks score and the final RRI score. The Rewards component accounts for
65% of the final RRI, while the Risks component accounts for 35%.

The Industry Rewards, Country Rewards, Industry Risks and Country Risks sub-sectors are
each made up of a number of indicators. The weighting of each indicator (such as 'market
expenditure', which is used to assess Industry Reward, or 'economic diligence', which is used
to assess Country Risk) reflects its relative importance to the pharmaceutical industry and
the relative reward or risk that each factor poses to drug companies.

With regard to assessing rewards, we identify industry-specific factors, such as the size of
the pharmaceutical market, and country-specific factors, such as the size of the pensionable
population, which represent opportunities to would-be investors. With regards to assessing
risks, we identify industry-specific dangers, such as approvals expediency, and those
emanating from the state's political and economic profile, such as bureaucracy, which calls
into question the likelihood of anticipated returns being realised over the assessed time
period. With regards to the economic and political assessment, only the aspects most
relevant to the pharmaceutical industry are incorporated in the assessment.