1. Downward Trends in Traditional Sourcing Markets and the Rise of Pharmerging Markets Kate Kuhrt CPhI Virtual Experience October 2010 © Thomson Reuters 2010

2. Agenda Key drivers of sourcing decisions –Quality –Cost Evolution of various sourcing markets Predictions about the future © Thomson Reuters 2010

3. About Thomson Reuters Generics & API Intelligence 20 years experience in tracking API manufacturing and generics An industry pioneer in research and analysis of global API manufacturing activity Develop and market the Newport database family More than 300 customers and 3,000 users across 43 countries in the Innovator, Generic, OTC and API manufacturing industries Serving the needs of –Business Development & Licensing Professionals –Portfolio Selection Teams –R&D and Regulatory Specialists –API Sourcing Specialists Team based in Portland, Maine, USA © Thomson Reuters 2010

4. Many Drivers of Sourcing Decisions, Including… Capabilities Capacity Quality Speed Relationships Cost Regulations Risk PR © Thomson Reuters 2010

5. World generic API manufacturing landscape Experience in supplying regulated markets Source: Newport Premium © Thomson Reuters 2010

6. Of the 400+ experienced manufacturers… Close to 1/3 are located in India and China Only 160 are pure API players Source: Newport Premium © Thomson Reuters 2010

7. Comparing Indian API Manufacturer Ratings, 2006 to 2010 Source: Newport Premium © Thomson Reuters 2010

8. Comparing Chinese API Manufacturer Ratings, 2006 to 2010 Source: Newport Premium © Thomson Reuters 2010

9. Comparing Italian API Manufacturer Ratings, 2006 to 2010 Source: Newport Premium © Thomson Reuters 2010

10. Challenges in the European API Sourcing Market Constraining SPCs in Italy introduced in 1991 No Bolar provisions until 2006 Reluctance to change Expensive labor Environmental controls © Thomson Reuters 2010

11. Drivers for India as a Major API Sourcing Destination No product patents until 2005 Cost advantage Rich talent pool No language barrier Improving IP protection Large and increasing number of FDA approved facilities © Thomson Reuters 2010

12. Drivers for China as a Major API Sourcing Destination Rich talent pool Leadership in certain product classes over India –Fermentation-based APIs –Steroid APIs –Intermediates –Base chemicals Cost advantage Improving IP and anti-counterfeiting environment Better infrastructure than India Government support for R&D © Thomson Reuters 2010

13. US DMF Filings (1999 – 2009) Source: Newport Premium © Thomson Reuters 2010

14. FDA Inspections of API Manufacturers (2001 – 2009) Source: Newport Premium © Thomson Reuters 2010

15. Progression of Indian Manufacturers Domestic FD, API WW API WW Formulation CRAMS NDDS NCE CostRisk Source: Piramal Investor Presentation 2008 © Thomson Reuters 2010

16. Total ANDA Approvals by Indian Generics Source: Newport Premium © Thomson Reuters 2010

17. US ANDAs belonging to Chinese companies Only 3 companies with final ANDA approvals All approved ANDAs have been acquired –Zhejiang Huahai (Huahai US Inc) ANDAs for 5 products acquired from Kali, KV, Par, Actavis Nevirapine tentative approval under PEPFAR –Beijing Pharmaceutical (Beijing Double Crane) ANDAs for 2 products acquired from Ranbaxy –Yabao Pharma Group (Beijing Yabao) ANDAs for 2 products acquired from Par and Ivax © Thomson Reuters 2010

18. Challenges in Indian and Chinese Sourcing Markets: Cost Cost TypeChinaIndiaEuropeU.S. Labor $ $$$$ Environmental$$$$$$ Energy$$ $$ IP Protection$$ cGMP Monitoring $$$$$$$ © Thomson Reuters 2010

19. Additional Challenges in Indian and Chinese Sourcing Markets Language barrier in China Inadequate infrastructure in India Uneven enforcement of rules in China Possibility of fraud Long-distance management Lack of senior level talent in top level management, QA, IP protection Focus on quick targets rather than long-term opportunities Cultural differences © Thomson Reuters 2010

20. Looking Ahead ? © Thomson Reuters 2010

21. Will Manufacturing Move to the 2 nd Wave Emerging Markets? Little experience with regulated markets Small API industry Limited Dose capabilities No indications of significantly better price at acceptable quality than in India or China © Thomson Reuters 2010

22. Whats Next for India? Increased emphasis on FD for regulated markets Increased CRAMS business Greater reliance on China for APIs and advanced intermediates Increased costs as Chinese materials become more expensive © Thomson Reuters 2010

23. Whats Next for China? Strengthened SFDA oversight Greater EHS, waste treatment enforcement Increased costs of labor Improvements in quality, technical packages, IP Additional companies will expand into finished dose for regulated markets Many companies will stay focused on local market © Thomson Reuters 2010

24. Whats Next for Europe? Benefitting from increased focus on reliability and quality in Europe, US, Brazil Focus on niche products (high potency, peptides, controlled substances) and biopharmaceuticals Innovative technologies Global production facilities and strategic relationships Forward integration into dose Further consolidation © Thomson Reuters 2010

25. Thank You! Kate Kuhrt Director, Generics and API Intelligence Thomson Reuters +1 207 871 9700 x26 kate.kuhrt@thomsonreuters.com © Thomson Reuters 2010