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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.
Globa Pha a l rm ceutica Ma l rket Size a Growth Ra (2000 -2005) nd te

•The global pharmaceutical market is valued at USD582.71 billion in 2005. •The market grew at an annual rate of 5.95% over the previous year; it is the lowest growth rate in the last five years. •The lower growth rate during the year compared with 11.83% y/y in 2004 is owing to the increased competition from
USDbn

700 600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 Industry Size (LHS) Source: IMS world Rev iews and Cy gnus Research Growth Rate ( RHS)

16% 14% 12% 10% 8% 6% 4% 2% 0%

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 North the UK market) and Japan North America, America, Others, constituted nearly 84.30% of the 45.04% 43.39% 9.94% global pharmaceutical market in Others, 2005, up from 79.39% in 2000. 5.40% •The collective share of these regions has increased from Market size in 2000: USD352.19bn Market size in 2005: USD582.71 bn USD279.59 billion to USD491.22 Source: Cygnus Research billion. Major Therapeutic Segments of the Industry- 2005 11.08% •Among the regions, Europe (including the UK) has reported a 7.99% 13.56% 7.39% higher growth of 124.81% with the total market size of 6.90% USD169.26 billion in the period, followed by Asia, Africa and 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%
1.34% Cardiovascular CNS 4.22% 1.72% 3.38% Metabolism Oncology •In therapeutic segment, the pharmaceutical market is largely Musculoskeletal & Pain astro-intestinal G Dermatology Ophthalmology 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. Anti-Infectives Respiratory Genito-Urinary Others Japan, 14.62% Europe, 17.83% Asia, Africa UK, 3.55% Latin & Australia, America, 5.31% 5.37% Japan, 10.22% Asia, Africa Latin UK, 3.43% & Australia, America, 7.01% 3.29% Europe, 25.61%

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
S.No   2003 Therapy Class Sales (USDbn) 2004 Therapy Class Sales (USDbn) 2005† Therapy Class  Sales (USDbn) 31.6 26.6 26.3 20.1 15.5 12.1 11.9 11.7 11.4 10.4 177.6 30.47%

1 2 3 4 5 6 7 8 9 10

Cholesterol. & Triglyceride reducers Anti-ulcerants Anti-depressants Anti-rheumatic non-steroidals Antipsychotics Calcium Antagonists, plain Erythropoietins Anti-epileptics Oral Anti-diabetics Cephalosporins & combinations

26.1Cholesterol & Triglyceride Reducers 24.3Antiulcerants 19.5Anticancer 12.4Antidepressants 12.2Antipsychotics 10.8Antirheumatic NonSteroidals 10.1Angiotensin-II Inhibitors 9.4Calcium Antagonists Plain 9Erythropoietin Products 8.3Anti-Epileptics 142.1Top 10 Therapy classes 28.89%Share of top10 therapy class to the total market

30.2Cholesterol & Triglyceride reducers 25.5Anticancer* 23.8Antiulcerants 20.3Antidepressants 14.1Antipsychotics 13.1Erythropoietins 12Calcium antagonists 11.6Antiepileptics 11.4Antirheumatic non steroidals 11.3Oral antidiabetics 173.3Top 10 Therapy classes 31.51%Share of top10 therapy class to the total market

Top 10 Therapy classes Share of top10 therapy class to the total market

The top ten therapy classes contributed USD177.6 billion to the total market. The decline in share of Source: IMS, * top ten therapy classes MAT June 2005 to 30.47% in 2005 is mainly owing to the lower sales of the Cygnus Research estimate, † from 31.51% antirheumatic non-steroidals and angiotensin-II inhibitors.

INDUSTRY OVERVIEW
Top 10 Best Selling Drugs 2003 - 2005
  S.No 1 2 3 4 5 6 7 8 9 10

2003 Products
Lipitor Zocor Ogastro/Prevacid Norvasc Zyprexa Plavix Erypo (Eprex/Procrit) Seretide/Advair Nexium Zoloft

2004 Sales Products (USDbn)
9.23Lipitor 5.00Plavix 4.71Zocor 4.34Advair,seretide 4.28Norvasc 4.13Zyprexa 3.98Prevacid, Ogastro 3.94Nexium 3.30Erypo(Eprex, Procrit) 3.12Risperdal 46.03Top 10 drugs 9.36%Share of the top 10 drugs to the total market

2005

Sales Products (USDbn)
10.86Lipitor 5.64Plavix 5.20Seretide/Advair 4.74Norvasc 4.46Nexium 4.42Zocor 4.14Zyprexa 3.88Prevacid/Ogastro 3.59Pravachol 3.05Diovan/Co-Diovan 49.99Top 10 drugs 9.09%Share of the top 10 drugs to the total market

Sales (USDbn)
12.19 6.21 5.34 4.71 4.63 4.40 4.20 4.00 3.82 3.70 53.2 9.13%

Top 10 drugs Share of the top 10 drugs to the total 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 noncommunicable 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 drugs, the number of new drugs getting approved by USFDA are decreasing.

Number of new drugs approved and R&D spend (2001-05)
60 50 40 50 40

30 •The tightened regulatory environment, especially for 20 20 drug approvals has become one of the major issues being 10 10 0 0 faced by the industry. This is one of the reasons behind 1996 199719981999 20002001 200220032004 2005 the 53% decline in drug approvals in 2005 compared with R&D spend of PhRMA member companies (RHS) Number of new drugs approved (LHS) 2004. After the Vioxx withdrawal issue came into Source: PhRMA, Cygnus Research Source: PhRMA and FDA limelight, the USFDA is focusing more on safety of the 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

USDbn

30

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 (Prominent Technologies) Benefits of transdermal drug delivery
•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

•Combinatorial chemistry and high throughput screening •Chemoinformatics •Medical imaging •Pharmacogenomics •Nanotechnology in drug delivery •Transdermal drug delivery •Chronopharmaceutical delivery

Technology in drug delivery

Applications of PAT
•Inbound and outbound logistics •Manufacture of active pharmaceutical ingredients •Bulk formulation •Filling and packaging of drugs

Technology in manufacturing

•Process Analytical Technology

Technology in marketing
•Customer relationship management

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 radiolabeled 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 researchbased 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
25.61%

•The US is the highest spender on the healthcare, globally. According to the latest figures available, the healthcare spending in the US during 2004 was USD1.9 trillion and has grown by 7.9% over 2003. This constitutes about 16% of the country’s GDP (Medical News Today, January 11, 2006).

13.37%

42.56% 10.22% 1.96% 3.43% 1.18% 1.66%

US

Europe

others Japan

UK

China

Mexico

Brazil

•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. •The growth rate during the year is the lowest in the last five years. This is due to the increased competition from the generic drugs and impact of the drug withdrawals (Vioxx and Bextra) from the market. Between 2001 and 2005, the CAGR was 9.9%.
300 250 200 150 100 50 0

Source: Cygnus Research

20% 15% 10% 5% 0%

USDbn

2001

2002

2003

2004

2005

Market Size (LHS) Source: Cygnus Research

Growth Rate (RHS)

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
•The central nervous system (CNS) stood as the largest therapeutic segment in the US pharmaceutical retail sales with sales of USD42.45 billion in 2005 and accounted for 22.86% of the total pharmaceutical sales.
Pharmaceutical market segmentation in the US, 2005
22.86% 18.77% 13.60%

9.37% 5.78% 2.56% 3.01% 4.46% 5.96% 5.78% 7.86%

Cardiovascular Central Nervous System Alimentary/Metabolism •The decline in the sales of the products Respiratory 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% 6.45%

•The top 10 major players accounted for 57.86% of the total pharmaceutical sales in the US market during 2005. •Pfizer, the largest company, accounted for 10.97% of the market during the year with sales of USD27.2 billion.

42.14%

6.13% 3.39% 3.51% 4.44% 4.80% 4.96% 5.20%

Pfizer Merck & Co Amgen Bristol Myers Squibb

GlaxoSmithkline Astrazeneca Sanofi-Aventis Others

Johnson & Johnson Novartis Lilly

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
•The pharmaceutical market in Japan has reported a growth rate of 5.95% y/y in 2005 with total sales of USD59.53 billion.
Pharmaceutical market in Japan (2001-2005)
70 60 50 40 30 20 10 0 15% 10% 5% 0% -5% -10% 2003 2004 2005 Growth Rate (RHS)

•The growth rate is the lowest in the last three 2001 2002 years but is better than the negative growth Market Size (LHS) rates seen in 2001 and 2002 owing to the economic recession, and was above the 2001- Source: Cygnus Research 2005 CAGR of 5.75%. •The lower growth rate in the market is mainly owing to greater emphasis on the prescription of generic drugs by the government and the drug price reductions forced by insurance companies.
6.92% 6.92%

Pharmaceutical market segmentation in Japan, 2005
5.86% 21.84%

USDbn

8.67% 8.68% 10.16%

15.37% 11.96% Alimentary/Metabolism Cytostatics Central Nervous System Dermatologicals

•Cardiovascular is the leading therapeutic Respiratory Musculo-skeletal segment in Japan with sales totaling USD13 Others billion in 2005 and accounts for about 21.84% of Source: Cygnus Research the total pharmaceutical market.

Cardiovascular Anti-Infectives

Pharmaceutical sales in Japan in 2005 is USD59.53billion and the drugs related to cardiovascular disorders are the largest selling drugs

MAJOR MARKETS
EUROPE
•The pharmaceutical market in Europe (excluding the UK) has grown by 9.86% y/y in 2005 with the total sales of USD149.26 billion. • This is the second year of the continuous decline in growth rate in the last five years, which has seen a CAGR of 19.29%. It is mainly a result of market loss owing to the parallel trade estimated to the extent of USD5 billion in 2005 (IMS, 2005). •Germany is the major market in Europe with sales of USD32.5 billion in 2005, accounting for about 21.77% of the European market. •The top four markets of Germany, France, Italy and Spain collectively account for about 65.89% of the European market with the total sales of USD98.5 billion.
Pharmaceutical market in Europe (2001-2005)
200 35% 30% 25% 20% 15% 10% 5% 0% 2001 2002 Market Size(LHS) 2003 2004 2005 Growth Rate(RHS)

USDbn

150 100 50 0

Source: Cygnus Research

Major Pharmaceutical markets in Europe, 2005
Germany France Italy Spain Netherlands Belgium Poland Greece Portugal Sweden Switzerland Austria Finland Hungary Denmark Denamrk Czech Republic Norway Ireland Slovakia Slovenia 31 19.6 15.25 4.9 4.78 4.4 4.25 3.7 3.68 3.62 3.1 2.25 2.1 1.92 1.86 1.8 1.71 1.6 0.76 0.55 32.5

Value in USDbn

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
•The pharmaceutical market in the UK has reported a growth rate of 16.75% y/y, well above the 2001-2005 CAGR of 8.72%, and registered the sales of ofUSD20 billion in 2005. •The growth rate is one of the highest in the last five years owing to higher spending in both public and private health expenditures.
Pharmaceutical market in the UK (2001-05)
25 20 18% 16% 14% 12% 10% 8% 6% 4% 2% 0 2001 2002 Market Size(LHS) Source: Cygnus Research 2003 2004 2005 Growth Rate(RHS) 0%

USDbn

15 10 5

•Although the UK is one of the markets having a Pharmaceutical market segmentation in the UK, 2005 higher generic penetration, the growth in the 23.82% branded prescriptions in 2005 is higher compared 12.47% with generics. 24.24% •Cardiovascular is the leading therapeutic segment in the retail pharmaceutical market of the UK with sales of USD4.12 billion, about 24.24% of the total pharmaceutical sales. The segment is driven by leading cholesterol lowering drugs including Lipitor, Zocor and Lipostat.
10.88% 13.47% 4.00%

1.47%3.88% 5.76% Cardiovascular Alimentary/Metabolism Anti-Infectives Cytostatics Respiratory Central Nervous System Musculo-skeletal Dermatologicals Others 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
•The pharmaceutical market Mexico has reported a growth rate of 5.43% in 2005 with total sales of USD9.7 billion. The 2000-2005 CAGR was 15.23%. • In conjunction with eased export restrictions and the Mexican governments restrictions of manufacturing capacity in the country has led to huge market growth with increased exports to other Latin American markets and the established markets including the US and Canada. •Anti-infective is the leading therapeutic segment in the market with retail sales of USD1.45 billion, accounting for 17.14% of the total retail pharmaceutical market.
Pharmaceutical market in Mexico (2001-2005)
12 10 50% 40% 30% 20% 10% 0% 2000 2001 2002 Market Size(LHS) 2003 2004 2005 Growth Rate(RHS)

USDbn

8 6 4 2 0

Source: Cygnus Research

Pharmaceutical market segmentation in Mexico, 2005 7.25% 7.32% 7.08% 17.14% 15.11%

8.51% 12.99% 11.45%
Anti-Infectives Respiratory Cytostatics Central Nervous System Dermatologicals Others Alimentary/Metabolism Cardiovascular Musculo-skeletal

13.22%

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
•The pharmaceutical market in Brazil has reported growth of 23.48% y/y in 2005 with total sales of USD6.89 billion. The high growth is as a result of the complete recovery of the economy from recession and the increased spending on healthcare. •Brazil is a potential market as it is highly untapped, with medical facilities inaccessible to about 50% of the population. Nearly 80% of the raw material requirement of the pharmaceutical market is imported. •Alimentary or metabolism is the leading therapeutic segment in the market with sales of USD1.14 billion, accounting for 16.55% of the market in 2005
Pharmaceutical market in Brazil (2001-2005)
8 30% 20% 10% 0% -10% -20% -30% 2001 2002 Market Size(LHS) Source: Cygnus Research 2003 2004 2005 Growth Rate(RHS)

USDbn

6 4 2 0

Pharmaceutical market segmentation in Brazil, 2005 13.57%
19.01% 0.65% 15.24%

11.54% 7.65% 6.24% 9.64% 16.55%

Cardiovascular Alimentary/Metabolism Anti-Infectives Genito-Urinary Others Source: Cygnus Research

Respiratory Dermatologicals Cytostatics

Central Nervous System

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
China
Pharmaceutical market in China (2001-2005)
12 10 8 6 4 2 0 2001 2002 2003 Market size(LHS) 2004 2005 Growth Rate(RHS) 30% 25% 20% 15% 10% 5% 0%

•The pharmaceutical market in China is valued at USD11.4 billion in 2005 and has reported a growth of 20% year in year (figure 7.20). Over the past few years, the Chinese pharmaceuticals market has grown at an amazing rate, recording a CAGR 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-thecounter 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.

USDbn

MAJOR PLAYERS
Top ten firms in 2005
S.No. Company Revenues ’05 (USDbn) Revenues ’04 (USDbn) Growth Rate % Net Earnings ‘05 (USDbn) Net Earnings ’04 (USDbn) Net Earnings Growth Rate Market Market Capitaliza Capitalization t 04 ion ’05 (USDbn) (USDbn) Market Capitaliz ation Growth Rate %

1

Pfizer

51.29

52.51

(2.32)

8.08

11.36

-28.87%

171.59

20 0.9 7

-14.62

2

Johnson & Johnson GlaxoSmithKline Sanofi-Aventis Novartis Roche

50.51

47.35

6.67

10.41

8.51

22.33%

178.78

197.86

-17.12

3 4 5 6 7

37.27 32.34 32.31 26.99

38.50 34.38 28.24 27.64

(3.19) (5.93) 14.41 (2.35)

8.28 7.50 6.14 5.11

7.74 6.85 5.60 6.24

6.98% 9.49% 9.64% -18.11%

142.68 117.51 143.77 26.65

281.38 56.52 123.97 21.21

-10.67 -97.21 51.90 13.77

Pfizer is AstraZeneca

the largest company in the global pharmaceutical market with sales of 59.86 USD51.2920.41 28.26% 23.95 21.42 11.81 4.72 3.68 77.27 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.
Key Financials: Pfizer Inc. 2003 - 2005
Financial Year Ending Dec-05 Dec-04 Dec-03

Top ten products: Pfizer 2005
S.No. Brand Name 1Lipitor 2Norvasc 3Zoloft 4Celebrex 5Viagra 6Xalatan/ Xalacom 7Zyrtec 8Detrol 9Camptosar 10Genotropin
Source: Annual Report, 2005

Sales in 2005 (USDbn) 12.2 4.7 3.3 1.7 1.6 1.4 1.4 0.988 0.91 0.808

Revenues (USDbn) Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD)
Source: Company Website & Annual Reports

51.29 16.99 7.44 8.08 1.10 15.75 11.53 0.76

52.51 16.90 7.68 11.36 1.51 21.63 14.00 0.68

44.73 15.10 7.48 3.91 0.54 8.74 3.24 0.60

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
Financial Year Ending Revenues (USDbn) Marketing (USDbn) & Admin. Expenses Dec-05 50.51 16.87 6.31 10.41 3.46 20.61 13.65 NA Dec-04 47.35 15.86 5.20 8.51 2.87 17.97 12.83 1.095 Dec-03 41.86 14.13 4.68 7.19 2.42 17.17 10.30 0.925

Top products: J & J 2005
S.No. Brand Name 1RISPERDA 2PROCRIT®/EPREX 3REMICADE 4TOPAMAX 5DURAGESIC 6LEVAQUIN®/FLOXIN 7ACIPHEX®/PARIET Source: Annual Report, 2005 Sales in 2005 (USDbn) 3.552 3.324 2.535 1.68 1.585 1.492 1.169

R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD)

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 Top ten products: GSK 2005 revenues in 2005.
Key Financials: GlaxoSmithKline 2003 - 2005
Financial Year Ending Revenues (USDbn) Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD) Dec-05 37.27 12.47 5.39 8.28 1.42 22.21 11.82 0.75 Dec-04 38.50 13.87 5.59 7.74 1.31 20.10 11.09 0.81 Dec-03 37.47 14.02 5.09 7.66 1.28 20.44 10.76 0.73 1Seretide/Advair 2Avandia 3Zofran 4Lamictal 5Wellbutrin 6Imigran/Imitrex 7Valtrex 8Augmentin 9Flixotide/Flovent 10Seroxat/Paxil Source: Annual Report, 2005 5.17 1.99 1.44 1.46 1.27 1.20 1.20 1.15 1.10 1.06 S.No. Brand Name Sales in 2005 (USD bn)

Source: Company Website & Annual Report

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.

Key Financials: Sanofi-Aventis 2003 - 2005
Financial Year Ending Revenues (USDbn) Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD) Dec-05 32.34 9.77 4.79 7.50 5.61 23.19 10.80 NA Dec-04 34.38 10.76 5.40 6.85 5.14 19.92 10.47 1.62 Dec-03 30.50 9.43 5.10 5.59 4.13 18.32 9.10 1.28

Top ten products: Sanofi-Aventis 2005
S.No. Brand Name 1Lovenox 2Plavix 3Taxotere 4Eloxatine 5Stilnox 6Allegra 7Lantus 8Delix 9Copaxone 10Aprovel Source: Annual Report, 2005 Sales in 2005 (USDbn) 2.54 2.40 1.91 1.85 1.80 1.59 1.44 1.20 1.07 1.06

Source: Company Website & Annual Report NA-Not Available

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 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
S.No. Dec-04 Dec-03 Brand Name 1Lovenox 2Plavix Revenues (USDbn) Marketing & Admin. (USDbn) R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD) Expenses 32.34 9.77 4.79 7.50 5.61 23.19 10.80 NA 34.38 10.76 5.40 6.85 5.14 19.92 10.47 1.62 30.50 9.43 5.10 5.59 4.13 18.32 9.10 1.28 3Taxotere 4Eloxatine 5Stilnox 6Allegra 7Lantus 8Delix 9Copaxone 10Aprovel Source: Annual Report, 2005 Sales in 2005 (USDbn) 2.54 2.40 1.91 1.85 1.80 1.59 1.44 1.20 1.07 1.06 Dec-05

Novartis

Key Financials: Sanofi-Aventis 2003 - 2005
Financial Year Ending

Source: Company Website & Annual Report, NA-Not Available

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

Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD)

Source: Company Website & Annual Report

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%.
Key Financials: AstraZeneca 2003 - 2005
Financial Year Ending Revenues (USDbn) Marketing & Admin. Expenses (USDbn) R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD) Dec-05 23.95 8.69 3.37 4.72 2.91 19.70 6.50 1.30 Dec-04 21.42 8.26 3.46 3.68 2.18 17.18 4.54 0.94 Dec-03 18.85 7.39 3.01 3.04 1.77 16.12 4.00 0.795

Top ten products: AstraZeneca 2005
S.No. 1 2 3 4 5 6 7 8 9 10 Brand Name Nexium Seroquel Seloken/Toprol-XL Losec/Prilosec Crestor Arimidex Pulmicort Casodex Symbicort Zoladex Sales in 2005 (USDbn) 4.633 2.761 1.735 1.652 1.268 1.181 1.162 1.123 1.006 1.004

Source: Company Website & Annual Report

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
• 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
Financial Year Ending Revenues (USDbn) Marketing (USDbn) & Admin. Expenses Dec-05 Dec-04 Dec-03 1 22.0 7.15 3.84 4.63 2.10 21.05 7.36 1.52 22.9 7.23 4.01 5.81 2.61 25.37 7.97 1.49 22.48 6.39 3.28 6.83 3.03 30.38 8.42 1.45 2 3 4 5 6 7 8 9 10 Zocor Fosamax Cozaar/Hyzaar Singulair Proscar Primaxin Vasotec/Vaseretic Cosopt/Trusopt Cancidas Maxalt S.No. Brand Name Sales in 2005 (USDbn) 4.381 3.191 3.037 2.975 0.741 0.739 0.623 0.617 0.57 0.348

Merck

R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD)

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
S.No. Dec-03 18.65 4.62 2.27 3.09 1.60 16.56 4.68 1.12 Brand Name 1Plavix 2Pravachol 3Avapro/Avalide 4Abilify 2.74 3.00 1.53 15.62 4.51 1.12 2.50 2.38 1.23 12.28 4.41 1.12 5Taxol 6Reyataz 7Sustiva 8Erbitux 9Efferalgan 10Zerit Source: Annual Report, 2005

Key Financials: Bristol Myers Squibb 2003 - 2005
Financial Year Ending Revenues (USDbn) Marketing (USDbn) & Admin. Expenses Dec-05 19.20 5.10 Dec-04 19.38 5.01

Sales in 2005 (USDbn) 3.82 2.25 0.982 0.912 0.747 0.696 0.68 0.413 0.283 0.216

R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD)

Source: Company Website & Annual Report

Bristol Myers Squibb suffers decline of sales in two of its three business divisionspharmaceuticals 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.
Key Financials: Wyeth 2003 - 2005
Financial Year Ending Revenues (USDbn) Marketing (USDbn) & Admin. Expenses Dec-05 18.75 6.11 2.74 3.65 2.73 19.46 4.78 0.96 Dec-04 17.35 5.80 2.46 1.23 0.93 7.08 -0.12 0.92 Dec-03 15.85 5.46 2.09 2.05 1.54 12.93 2.36 0.92

Top ten products: Wyeth 2005
S.No. Brand Name 1Effexor 2Protonix 3Prevnar 4Enbrel 5Nutrition 6Premarin 7Zosyn/Tazocin 8Zoton 9BeneFIX 10Rapamune Source: Annual Report, 2005 Sales in 2005 (USDbn) 3.458 1.684 1.508 1.083 1.04 0.908 0.891 0.375 0.343 0.3

R & D expenses (USDbn) Net Earnings (USDbn) Net EPS (USD) Net Margin (%) Op. Income (USDbn) Dividends (USD) Source: Company Website & Annual Report

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

REGULATORY ASPECTS Regulatory Bodies
The US
United States Food & Drug administration

Major divisions of FDA
•The •The •The •The •The Center Center Center Center Center for Biologics Evaluation and Research for Devices and Radiological Health for Drug Evaluation and Research for Food Safety and Applied Nutrition for Veterinary Medicine

European Union
The European Medicines Agency (EMEA)

Japan
Ministry of Health, Labor & Welfare •Pharmaceutical and Food Safety Bureau office •Health Policy Bureau

Major committees – EMEA
•Committee for Medicinal Products for Human Use •Committee for Medicinal Products for Veterinary Use •Committee on Orphan Medicinal Products

REGULATORY ASPECTS
Regulations in the US
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.

•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

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
•Need for low cost pharmaceuticals

Generics retail market estimates (USDbn) – 2005 10
120
USDbn

106 65
CAGR - 11%

100 80 60 40 20 0 2005 2010

•Growing generics market •Focus on areas of core competence •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)

350 300 250 200 150 100 50 0 2001 2002 246 176

303

247

USDbn

268

120 100 80 60 40 20 0

105.85 73.38 37.88 40.00 68.20

2003

2004

2005

2001

2002

2003

2004

2005

Source: Cygnus Research

Source: Cygnus Research

MERGERS & ACQUISTIONS

Top 10 M&A 2005
Rank Acquirer 1Sankyo Co (Japan) 2Teva (Israel) 3Novartis AG (Switzerland) 4Sandoz (Novartis AG) - (Switzerland) 5Abraxis BioScience (formerly APP) (US) 6Allergan Inc 7Sandoz (Novartis AG) - (Switzerland) 8Nycomed A/S (Finland) 9Amgen (US) 10Dainippon Pharmaceuticals (Japan) Target Daiichi Pharmaceutical Co (Japan) IVAX Corp (US) Chiron Corp (56% stake) (US) Hexal AG (Germany) American BioScience (US) Inamed Corp (US) Eon Labs (US) Nycomed Holding A/S (Finland) Abgenix (US) Sumitomo Pharmaceuticals (Japan) Deal value (USDm) 7,700 7,400 5,780 5,280 4,170 3,100 2,600 2,270 2,200 2,120

MERGERS & ACQUISTIONS

Top 10 M&A 2004
Rank Acquirer 1Sanofi-Synthelabo (France) 2Yamanouchi Pharmaceuticals (Japan) 3Private Equity Consortium (US) 4Bayer (Germany) 5UCB (Belgium) 6Amgen (US) 7Genzyme (US) 8Perrigo (US) 9QLT (Canada) 10Sandoz (Novartis AG) - (Switzerland) Source: Cygnus Research Target Aventis (France) Fujisawa Pharmaceuticals (Japan) Warner Chilcott (UK) Roche OTC business (Switzerland) Celltech (UK) Tularik (79%) (US) ILEX Oncology (US) Agis Industries (Israel) Atrix Laboratories (US) Sabex (Canada) Deal value (USDm) 62,600 8,000 3,000 2,900 2,700 1,300 1,000 818 855 565

MERGERS & ACQUISTIONS
Top 10 M&A 2003
Rank Acquirer 1Biogen (USA) 2Teva Pharmaceuticals (Israel) 3Johnson & Johnson (USA) 4DSM (Netherlands) 5Merck & Co (USA) 6Roche (Switzerland) 7Pfizer (USA) 8CSL (Australia) 9Chiron (USA) 10King Pharmaceuticals (USA) Target Idec (USA) Sicor (USA) Scios (USA) Roche vitamin unit (Switzerland) Banyu (Japan) Igen (USA) Esperion Therapeutics (US) Aventis Behring vaccines arm (France) PowderJect (UK) Elan (Ireland) primary care franchise Deal value (USDm) 6,700 3,400 2,400 2,000 1,500 1,400 1,300 925 880 750

CRITICAL SUCCESS FACTORS

•Alliances and acquisitions •Outsourcing to low cost destinations •Absorption of technological innovations •Improving sales force effectiveness • Need for Critical mass •Need for blockbuster drugs

To exploit the benefits of alliances and 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 Brand Zocor Zoloft Lamisil Ambien Pravachol Zofran Patent holder Merck & Co. Pfizer Novartis Sanofi-Aventis BMS GSK Biopharmaceuticals Brand Epogen Neupogen Avonex Ceryzyme Enbrel   Patent holder Amgen Inc Amgen Inc Biogen Inc Genzyme Corp Immugene Corp and Wyeth Ayerst Labs

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

Source: Cygnus Research

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