The Future of The Global Pharmaceutical Industr y

Key Topics

1. 2. 3. 4.
Where has the Where is the A study of the Key innovations
pharma industry pharma industry shape of the that will impact
been? going? global pharma the industry in
sector the future

2
 How Much Has the
1. Pharmaceutical
Sector Grown?
Where Have We
Been?

4
Some Perspective. In the 1920s…
The combined market cap of the pharma sector was
less than a half billion dollars.

Penicillin had not been invented…

Insulin was extracted from pig bladders.

The leading treatment for CNS diseases was

lobotomy.

Chinese pharma sector was 99% TCM. (Traditional Chinesse Medcine

Merck and Wyeth were small chemical companies in

Eli Lilly worker operating
New Jersey. Pfizer was making progress in machine for producing insulin
confectionery. J&J was building market leadership in by grinding pig pancreases.
band-aids. Some Lilly labs closed for the winter.
6
Today…
Global Pharmaceutical sales exceed $1 trillion (by just
how much we are going to discuss).

Mortality rates from major diseases including heart

disease, cancer and stroke are down dramatically.

Most drugs on the market have proven efficacy and

safety.
Mortality from major disease is down
Widespread reliance on evidence in evaluating
dramatically – due in part to
medical treatment. pharmaceutical interventions

U.S. consumers spent nearly a fifth of their income on

healthcare and more than 3% of their income on
pharmaceutical products.

The pharmaceutical business has globalized with

modern drugs available in most countries in the
world.
7
 How Much Will the
2. Pharmaceutical
Where are We
Going?
Sector Grow in the
Future?

8
 Healthcare Spending Rises with GDP (Gross Dom Pdt)

Healthcare Spending in the US Has Gone Up Faster than GDP Over The Last 90 Years

16,000 3,000
US GDP VERSUS TOTAL MEDICAL CARE SPENDING ON AN
INFLATION ADJUSTED BASIS, 1929-2016
14,000
2,500

Medical Care Spending (Current $ billion)

12,000

2,000
10,000
GDP (Current $ billion)

Real GDP
8,000 1,500
Healthcare Spend

6,000
1,000

4,000

500
2,000

0 0
1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007 2013
Time

Source: Bureau of Economic Analysis, National Income and Product Accounts. 9

 Pharma Spending Also Rises Disproportionately with
Total Consumption

U.S. Pharmaceutical Spending in the US Has Gone Up Faster than Total Consumption
Over The Last 90 Years
90,000
INDEXED US TOTAL CONSUMER EXPENDITURES VERSUS
TOTAL PHARMACEUTICAL SPENDING ON AN INFLATION
80,000 ADJUSTED BASIS, 1929-2016 (INDEXED 1929 = 100)
Normalized Index of Expenditures (1929 = 100)

70,000

60,000

Total Consumption
50,000
Pharma Spend
40,000

30,000

20,000

10,000

0
1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007 2013
Time

Source: Bureau of Economic Analysis, National Income and Product Accounts. 10

 Pharma Spending Versus Total Spending Over Time in
the U.S. Has Risen Five Times in Less than a Century

Pharmaceutical Spending as a Percent of Total Consumer

Spending Has Risen Substantially Since 1930

3.80%
Pharmaceuticals / Total Consumption
Spending on Prescription and OTC

3.23%

2.33%

1.54%

1.05% 1.13% 1.07%

0.84% 0.78%
0.71%

1930 1940 1950 1960 1970 1980 1990 2000 2010 2016

Source: Bureau of Economic Analysis, National Income and Product Accounts. Torreya Calculations. 11
GDP Growth Forecasts, Top 20 Countries, OECD

GDP Forecast (%) Between now and 2060 (43 years), World GDP is
Country 2017-2030 2030-2060 expected to more than triple in real terms.
World 3.7 2.3
USA 2.3 2.0 World GDP Growth Forecast ($millions, current)
China 6.6 2.3 $300,000,000
Japan 1.2 1.4
Germany 1.3 1.0
$250,000,000
Russia 3.0 1.3
France 2.0 1.4
Italy 1.3 1.5 $200,000,000
Mexico 3.4 2.7
United Kingdom 1.9 2.2
$150,000,000
Canada 2.1 2.3
South Korea 2.7 1.0
Spain 2.0 1.4 $100,000,000
Brazil 4.1 2.0
Australia 3.1 2.2
$50,000,000
Poland 2.6 1.0
Saudi Arabia 4.2 2.4
India 6.7 4.0 $-
Argentina 3.6 2.2
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
2041
2043
2045
2047
2049
2051
2053
2055
2057
2059
Indonesia 5.3 3.4
South Africa 3.9 2.5

Source: Looking to 2060: Long-Term Global Growth Prospects, OECD 2012. 13

 Forecast “Real” Pharmaceutical Sector Growth
Pharmaceutical Expenditures
Future Size / Size Today (Current $millions)

Country 2017-2030 2017-2060 2017 2030 2060

World 160% 317% $ 1,042,545 $ 1,671,932 $ 3,307,407
USA 134% 243% $ 385,191 $ 517,678 $ 937,702
China 230% 454% $ 122,728 $ 281,701 $ 557,260
Japan 117% 177% $ 103,006 $ 120,285 $ 182,536
Germany 118% 159% $ 64,007 $ 75,710 $ 102,045
Russia 147% 216% $ 46,693 $ 68,570 $ 101,023
France 129% 196% $ 45,524 $ 58,890 $ 89,367
Italy 118% 185% $ 36,909 $ 43,657 $ 68,239
Mexico 154% 343% $ 36,263 $ 56,006 $ 124,551
United Kingdom 128% 245% $ 33,235 $ 42,448 $ 81,543
Canada 131% 259% $ 29,113 $ 38,144 $ 75,456
South Korea 141% 191% $ 28,350 $ 40,084 $ 54,027
Spain 129% 196% $ 27,123 $ 35,087 $ 53,246
Brazil 169% 305% $ 25,915 $ 43,693 $ 79,144
Australia 149% 286% $ 15,575 $ 23,164 $ 44,497
Poland 140% 188% $ 14,082 $ 19,660 $ 26,499
Saudi Arabia 171% 348% $ 13,345 $ 22,782 $ 46,408
India 232% 754% $ 12,863 $ 29,887 $ 96,934
Argentina 158% 304% $ 11,599 $ 18,370 $ 35,289
Indonesia 196% 534% $ 10,858 $ 21,249 $ 57,936

Source: Torreya Partners forecast based on OECD GDP projections and historical 14
relationship between country GDP growth and pharmaceutical consumption.
Future Growth Amongst the Six Largest Markets
US market will double while China market up 4X. Japan, Germany and France markets
will grow less than 2X.

Projected Global Pharma Expenditures For Six Largest Countries ($millions), 2017-2060
$1,000,000

$900,000

$800,000

$700,000

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

$-
USA China Japan Germany Russia France

2017 2030 2060

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 Pharma Sector Outlook:

The pharmaceutical sector is

going to triple in real size between
now and 2060.

The China sector will become four

times larger and will only be
rivalled by that of the United
States

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 3. Torreya’s Study of
Composition of the
the Global Pharma
Pharmaceutical
Sector Sector

17
 Growing
Importance of
the Chinese
Pharma Market

2
Growing Importance of Chinese Pharmaceutical Sector
Chinese companies have added $84 billion in Top 20 Chinese Pharma Companies by Value
shareholder value in just 18 months. This is August 30, 2017
despite major changes in the regulatory
regime and increasing pressure on prices 2016
Value Value Estimate Revenue
(especially via Essential Drug Lists). Company Rank ($ mil) ($mil)
Yangtze River Pharma 1 $ 50,630 $ 8,300
Hengrui 2 $ 22,391 $ 1,606
Valuation of the Leading CR Pharma Rx Segment 3 $ 19,087 $ 3,129
Chinese Private and Qilu Pharma 4 $ 16,520 $ 1,666

Publicly-Traded $534,066 Kangmei Pharma 5 $ 15,239 $ 3,159

Pharmaceutical $518,640
Yunnan Baiyao
Fosun Pharma
6
7
$ 13,505
$ 12,275
$
$
3,245
2,125
Companies, Last 18 Sinopharm - Rx Segment 8 $ 12,163 $ 1,994
Months CSPC Pharma 9 $ 9,252 $ 1,522
Huadong Medicine 10 $ 6,863 $ 3,634
Tasly Pharma 11 $ 6,209 $ 2,017
$460,894 Sino Biopharma 12 $ 6,097 $ 1,990
$449,916 Neptunus Group 13 $ 5,831 $ 956
Chongqing Zhifei Bio 14 $ 5,765 $ 65
Kanghong Pharma 15 $ 5,038 $ 365
Salubris Pharmaceuticals 16 $ 5,010 $ 543
Kelun Pharma 17 $ 5,008 $ 1,241
Apr 2016 Nov 2016 Mar 2017 Aug 2017
Humanwell 18 $ 4,782 $ 1,784
Dongbao Pharma 19 $ 4,670 $ 286
GPC 20 $ 4,389 $
26 2,939
 4. Sources of Future
How Will the Innovation in
Pharma
Pharma Sector
Change in the
Future?

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Four Innovation Trends that We are Following

Peptide Manufacture
01 Peptides are going to a larger part of the pharma business due in
part to dramatic improvements in manufacturing methods

Inflammation in Cancer
02 Increasing evidence suggests that inflammation
control will play a major role in managing cancer

Nucleic Acids
There is strong evidence that nucleic
03 acids will play an important role in
genetic disease

Implantables
Implantable devices for
04 disease detection and drug
delivery will become
increasingly important 28
First Innovation
Better Manufacture Will
Facilitate Dramatic Growth in
Peptide Therapeutics

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Peptides Today Come From Nature, Recombinant
Methods or Solid State Synthesis

Peptide
Manufacture
Today

“Peptide manufacturing can be achieved entirely through chemical synthesis, either in the solution
phase (top left), coupled to a solid phase (top right) or by the combination of both. Alternatively,
peptides can be produced by recombinant microorganisms (bottom left) or by extraction from their
natural (plants or animal) source.”

Source: Uhlig, et.al, “The emergence of peptides in the pharmaceutical business: From
exploration to exploitation,” EuPA Open Proteomics, Sep 2014.
Peptides Will be Increasingly Important in the
Pharmaceuticals

1 2 3
Today, the peptide However, the challenge Manufacturing is
market is around $20 is that new peptides are especially difficult for
billion. In the future this longer and much more long peptides where
market will double or difficult to make with impurities from SPS are
triple. Solid State Synthesis or show stoppers.
recombinant methods.

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Manufacturing Innovation is Going to Change This
Field

1 2

Enzymatic Synthesis of Better Recombinant

Peptides Production and
Processing

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Two Companies to Watch
Has patented methods for
using enzymes to dramatically
reduce the cost and
complexity associated with
manufacture of long peptides.
New generations of peptides
such as Semaglutide will be
far easier and cheaper to
make in the future.
Has developed much cheaper
and more efficient methods
for manufacturing peptides
using recombinant methods.
Able to make quite complex
peptides that involve
microbial methods at a low
cost.
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 Second
Innovation
Control of Inflammation May
Substantially Reduce Mortality
from Cancer & Heart Disease

34
Inflammation Hypothesized by Dr. Paul Ridker to be a
Key Cause of Heart Attacks

Source: Novartis Website, August 2017. 35

Third Innovation
Nucleic Acid Therapeutics Will
Grow the Pharmaceutical Field

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Nucleic Acids Are Increasingly Being Developed as
Therapeutics

Our genes (DNA or deoxyribonucleic

acid) regulate protein expression which Three Exciting Young Companies
affects all aspects of our body through
transcription of gene factors that are Using RNAi to prevent
regulated by RNA (ribonucleic acid) and, transcription of
ultimately, messenger RNA (mRNA) disease-causing
proteins
We refer to the class of companies Using CRISPR-cas9
working with DNA delivery, DNA gene editing to
conquer disease
modification (gene editing, gene
therapy) and modified RNA/mRNA as
being involved in Nucleic Acid Delivering mRNA
Therapeutics directly as a drug

Some of the most exciting young biotech

companies worldwide are in the field of
nucleic acid therapeutics

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 Fourth
Innovation
Implantables and
Electroceuticals Will Change
Parenteral Medicines

44
Advent of Bioelectronics & Electroceuticals:
Electrical Management of the Body
The human body The future will involve electroceuticals:
can be thought electronic intervention of/in the
of an electronic
nervous system.
device which can
be measured and One key idea advanced by GSK and their joint
modulated. venture with Google called Galvani Bioelectronics is
to use miniature devices that change nerve
electrical signals to address disease:
• Strong prior evidence that this approach works
for a number of diseases
• Technology is at the point where this approach
is feasible
• Potential for revolutionary change in medicine –
could be quite disruptive
• The associated area of Body Mind Interface
(BMI) also receiving substantial investment

45
Advent of Smart Implantables
Delivering Drugs When they are Needed
The future will We believe that the field of parenteral
involve medicines will be changed profoundly by
implantables that
implantable systems that deliver
monitor the body
and deliver drugs
pharmaceutical products on demand.
when needed.
A second idea advocated by Medtronic is that digital
Sensing technologies and endogenous sensors can facilitate the
microprocessors creation of digitally-enabled pharmaceutical drug / device
monitor and treat combinations where the innovation is around the drug
your body before
not in the drug itself. In particular, Medtronic has
you know you need
developed closed loop systems where drug dosing is
treatment.
automatically controlled endogenously. Groups like Baxter
and Qualcomm recognize the potential to radically
change hospital and subacute care and are racing to
innovate.

46
Both Ideas Are Enabled by Advances in Electrical
Engineering and Digital Technology
Better sensors
Extreme miniaturization of electronics
Advances in ASIC (application specific integrated circuits)
Advances in FPGA’s (field programmable gate arrays)

Closed Loop
Bioelectronics Pharmaceutical
Systems

Digital Technology Also Important

Big data / inexpensive analytics

Sharing of data using TCP/IP
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“Neural Dust” Implantable Sensors
This simple design
An ASIC chip involves less than 1 mm
(transistor) in cubic space and
processes sensor
measurements involves a fully
and creates functioning internal
signals which are electrophysiological
to be transmitted
out of the body. sensing and
transmission system.
Geometries as small as
50 microns possible.

Electrodes or related
sensors can measure Signals are received from the
a wide variety of outside and transmitted back
body states (e.g., using ultrasound. No power is
nerve impulses, required here because
temperature, ultrasound is converted to
presence of power using a piezocrystal (and
cytokines) vice-versa). A piezocrystal has
the effect of converting
Source: “Sprinkling of neural dust opens door to electroceuticals,” Berkeley News, August 6, 2016. mechanical stress into electric
power.

50
 Neural Dust
Sensors are Small

51
Examples of Interesting Companies To Watch in
Bioelectronics & Implantables Field

Body Computer Interface /

Mind Computer Interface
Bioelectronic Implantables

Pharmaceutical Implantables Hospital and Implantables

53
Thank you!

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