1. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China R&D: Life Line for pharmaceutical companies: A GM perspective Joseph Cho CEO, Astellas Pharma China Vice Chairman, RDPAC

2. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Disclaimer This is not a thorough research report by a consultant. This is the personal perspective of a General managers with 33 years of working experience in the pharma industry –20 years in Taiwan (sales, marketing, drug registration, clinical trial, business development) –13 years in Hong Kong and mainland China –20 years of working and engagement in industry groups in Taiwan (IRPMA), Hong Kong (HKAPI) and China (RDPAC). Some thought exchanged with government officials and experts in the industry and acadmics. Information supported by colleagues in the company, friends in IMS, colleagues in RDPAC and lessons from top management and colleagues in Astellas Pharma Group

3. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Protection of IPR: Essential for financing drug R&D

4. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China 出所：医薬産業政策研究所（ 2003 ）「財務データからみた製薬企業の 10 年」 リサーチペーパーシリーズ N ０．１３ Increasing R&D cost ratio in pharma and Bio industry

5. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China formulat ions Formula tion patent Substance formulat ion Drug Substance patent Automobile, Electronics appliances Pharmaceuticals a product is composed of hundreds and thousand of patent 、 impact of a single patent limited. Existence of a patent may not hinder the develop of other patents One Basic patent （ substance ） High royalty fee Giving up of new drug development due to patent infringement Characteristics of patent for pharmaceuticals

6. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Pre-clinical Clinical trial Screening 2～3Y2～3Y3～5Y3～5Y 5 ～ 10Y No. of compounds 5 ～ 10 compunds 10,000 1comp ound 10,00 0 5,000 ～ 10,000 compounds Cost of JY 80 Billion/ １ NCE Mode of action, AMDE pharmacokinetics, Pharmaco dynamics formulation Clinical trial P1→P2→P3 Efficacy and safety in human PK PD Optimizing Candidate compounds Investigation RA 2～3Y2～3Y total 10 ～ 20Y Apply approval launch regulatory Drug discovery develop ment ） 500,000 ～ 1000,000 compounds Library Synthesized Developed compounds Product

7. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Pre-clinical Clinical Discovery screening 2～3Y2～3Y 3～5Y3～5Y 5 ～ 10Y Animal studies Formu lation Clinical trials P1→P2→P 3 CMC Optimizing Invention research Basic research review 2～3Y2～3Y Application approval Review Patent application Launching of NCE Launch of generics 10 ～ 15years for R&D Exclusive period 10 ～ 15Y α Patent 20Yr ＋ α （ Max.5Yr ） =exclusivity （ Max.25Yr ） ※ α= extended IPR

8. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Specific Challenges in China pharma market for innovative drugs - market access In China, import or manufacture approval does not mean market accessible. –Pricing approval in provinces/cities –Listing into formulary of target hospitals –Winning in hospital bidding/price negotiations –Reimbursement by health insurance –Distribution to retail outlets Reduction of 5-7 years of real patent life Generics may be launched prior to original products Ensuring sufficient market exclusive period vital for R&D investment return Early entry to the market essential

9. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China How important is R&D? Emergence of a company. –If you have a break through new drugs. Rapid Growth of the Company –If you have a series of successful new product launch. Can keeping the company alive –When IPR of main products subsides. Change of healthcare practice –The case with H2 blockers for gastro-tectomy If R&D flops : –Likely lay off, –change of company, jobs and positions for many people, –Loss of investment, –Death of patients and Company no long exist: as shown next few slides

10. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Relationship between R&D investment and No. of new drugs launched R 2 R= 0.8328 0 5 10 15 20 25 30 010,00020,00030,00040,00050,00060,000 ■ Mega ◆ Major ● Japan ※新薬数は新規化合物 R&D expense (US $Million ）

11. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China EU companies ： Merger 、 scale up 、 restructure COG reduction 、 R&D increase 、 S&M increase

12. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China 8585 8686 87878 8989 9090 9191 9292 9393 9494 9595 9696 9797 989890 0101 0202 0303 0404 Roche Genentech JR Geigy Ciba Ciba-Geigy Sandoz Novartis Roche SyntexBoehringer Mannheim 94 買収 97 買収 90 資本参加 Chugai 02 買収 96 合併 70 合併 ICI Astra Zeneca AstraZeneca 99 合併 93 医薬品事業部門分離独立 Rhone-PoulencRhone-Poulenc Rorer W.H.Rorer Fisons Hoechst Aventis Roussel-Uclaf Hoechst Marion Marion Merrell Dow 90 買収 95 買収 99 合併 95 買収 89 acquisition of a majority holding 68 Sanofi Sterling Sanofi SI Synthelabo Sanofi-Synthelabo 94 99 合併 Prescription drug 部門 Sanofi ｰ aventis 04 買収 Merrell Dow GlaxoGlaxo Wellcome Glaxo SmithKline SmithKline Beecham SK Beckman Beecham Wellcome 95 合併 00 合併 89 合併

13. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Key Acquisitions in 2008~2009 in the industry

14. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Key Acquisition cases in Jan.~Feb. 2010 in the industry Time acquiring Corp.Target Corp. ( bil. USD )Strategy

15. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Leading MNC’s portfolio by development status Most of leading MNCs have a big discover products base. Source: Thomason Pharma

16. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Some thoughts about drug discovery

17. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China 180019001950196019701980199020002010 （年） Aspirin （ Rheumatoid Arthritis ） Β antagonist （ Angina ・ Hypertension ） α Antagonist （ Hypertension ・ BPH ） H 2 Antagonist （ Pepti-ucler ） Ｃ a antagonsit （ Hypertension ・ Angina ） ACE inhibitor （ Hypertension ・ Cardiac Failure ） HMG-CoA reductase （ Hyperlipidemia ） Insulin（DM） Growth hormone Epoch making New drugs VaccinesGene-chips Organic Chemistry Naturals Pharmacology Receptor Ion Channel Enzyme Biotechnology Recombined Genes Cell fusion Antibody Pioneer technologyGenomics First Golden Period 2nd golden period － 薬理学会公開講座「夢のくすり、今のくすり」 1998 年．京都市 － Patent Expiry

18. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Key steps to new drug discovery New treatment inspired by identified mechanism of diseases － information from papers, patients, healthcare professionals. Establishment of physical reactions and life syndromes of target diseases. Establishment of Methodology for screening － Papers and laboratory observations Creation of new drugs via new technology (organic chemistry, Bio-technology, Antibody, Vaccines ） － Team works of multi-disciplines in life science 発 想発 想 発 想発 想 発 見発 見 発 見発 見 発 明発 明 発 明発 明 Innovation （ Inspiration ） （ Discovery ） （ Invention ）

19. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China New challenges for drug discovery: The diseases, the causes and life styles Why some diseases occurs –In some ethnics –In some ages –In a gender –In a geographic location –In some weather conditions –In some occupations What are the causes –Extrinsic –Intrinsic What is the prognosis for different types of patients? How long will the disease last and how long does it takes to recover? The role of new drugs in the healing process. How to diagnose How to prevent from occurring? How change of life styles affect the treatment The recurrence and the causes. Can we prevent it from occurring? How to test anti-bodies, biologics for human use in animals? Scaling up of new biologics and genomic product?

20. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China The relationship between the level of satisfaction with medical treatment and the level of contribution that medication makes to treatment (Japan) Contribution of medication to treatment （％） Diseases mainly taken care of by PCPs Note: Questionnaire for Japanese doctors ( :15/10/1999-22/12/1999; postal survey; 128 responses;) Source: Japan Human Science Foundation: 2000 report on survey into basic technology in Japan, “Outlook on medical needs in 2010”; internal Astellas data; BCG analysis; Herpes virus infection Tuberculosis Dermatophytosis MRSA infection Chlamydia infection Candidiasis Stomach cancer AIDS Colon cancer Liver cancer Lung cancer Breast cancer Uterine cancer Prostate cancer Leukemia Fibroid Diabetes mellitus Diabetic neuropathy Diabetic retinopathy Diabetic nephropathy Hyperlipidemia Schizophrenia Depression Anxiety Parkinson’s disease Alzheimer’s disease Senile dementia Multiple sclerosis Epileps y Autonomic ataxia Neuromuscular disturbance and myopathy Myocardial infarction Arrhythmi a Hemorrhagic stroke Cerebral infarction Asthma Atopic dermatitis Pressure sores Rheumatoid arthritis Osteoarthritis SLE Spondylosis Low back pain Osteoporosis Gout Peptic ulcer Cirrhosis Hepatitis B Hepatitis C Nephrosis syndrome Chronic glomerulonephritis Chronic renal failure Prostate hyperplasia Endometriosis Glaucoma Cataracts 0 10 20 30 40 50 60 70 80 90 100 0102030405060708090100 Level of satisfaction with medical treatment （％） Chronic pelvic pain Stress urinary incontinence Transplantation Chronic obstructive pulmonary disease Irritable bowel syndrome Occlusive peripheral arterial disease Satisfaction is relatively high for diseases in the PCP market Hypertension Angina Pectoris Allergic rhinitis Urinary incontinence

21. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China New challenges of clinical research for unmet needs More aging population with many underlying diseases who use many drugs. Difficulty in conduct clinical trials for infants. Diagnostic method and parameters not established. Need to provide long term efficacy and safety. Not just for efficacy and safety, need to justify the value with health-economic models, accepted by the payers and, healthcare professionals and patients. How to justify value to quality of life and extension of life expectancy not in years. Early engagement in clinical trial design of marketing for proper positioning of the new drug

22. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China 6 phases of failed clinical development project Enthusiasm Disillusionment Panic Search for guilty Punishment for the innocent Praise and honors fir non-participants

23. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China The Global Scenario Envisioned by Astellas  Progress of policies to control health expenditure  New healthcare reforms in EU, USA and Japan all focusing in cost containment.  Who should pay for the drug and technology innovation? Government? Insurance? Patient?  Decrease in market growth rate  Market growth in EU, Japan and USA decreased to 5% of below, except pharmerging markets led by China.  Increased complexity of the market  Many diseases cared by primary care professionals are getting satisfactory treatment by medicines while good remedies for chronic diseases, CNS, DM, RA and diseases related to auto-immune system remains few.

24. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China The total number of blockbusters produced by the top 10 drug companies, the number of blockbusters being delivered to the market and the number of blockbusters with expiring patents * The number of products delivered to the market for 2001-2010 is based on risk-adjusted estimates Note: Blockbusters are those drug products with peak sales of US$500 million or more based on 2001 prices. The ranking of the top 10 drug companies was based on the 2001 market; since that time some of those companies have been amalgamated through the M&A process. Source: FDA, Lehman Brothers, Paine Webber, Scrip, BCG analysis Stagnation of new deliveries and the expiration of patents will simultaneously brake market growth. Number of blockbusters launched, Number of blockbusters with expiring patents Number of blockbusters 0 5 10 15 20 25 1986198819901992199419961998200020022004200620082010 0 20 40 60 80 100 120 （ Launch Year ） ResultForecast Total number of blockbusters sold on the market Number of blockbusters delivered to the market annually (average over 3 years*) Number of blockbusters expiring annually after average patent term (average over 3 years)

25. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China a. Super-scale players: 2-3 companies –Focusing on the conventional market, they compete with size as their advantage. –In order to resist the pressure of falling earnings brought about by decreasing market growth rates, they buy out their competitors (achieving cost synergies) and advance the process of consolidation between superior companies. –Global market share of the top player is 20-30%. b. Specialized players: many –As the market becomes increasingly complex, they capitalize on a single strength unrivaled by others. –A diverse range of specialized players exists and new players will continue to enter the market. c. Global category players: 5-10 companies –They have global reach, and construct top-level franchises in multiple highly specialized therapeutic areas/diseases. –While not greatly affected by the declining growth of conventional markets, they can sustain their level of growth by taking advantage of the increasing market complexity. d. Local players –Develop business in local markets by focusing on generics. ■ There will be four basic types of players in the future market

26. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Brief on China Pharma market About 400M covered by urban worker’s and resident insurance. About 800M covered by New Rural Cooperative health program for primary care Market size reached RMB 210 Billion with growth of 27% in 2009. Progress of new healthcare reform has profound impact on the industry. Healthcare technology assessment to be used for price negotiation for expensive drugs

27. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Total China hospital market Reached 243.9 billion RMB in 2009 Local companies were driving the increase of china pharma MKT. Source: IMS 4Q09 5 yr CAGR=22.8%

28. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Leading MNCs Ranking in past decade Besides company merging, new product launching is another engine for MNCs to improve ranking in China market.

29. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China

30. New products play an important role to China business New product= launched within 5 years

31. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Leading therapy class by Country in past years

32. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Affluence is changing lifestyle and prevalence of chronic condition such as diabetes, hypertension and cerebro-vascular is rising rapidly. 051015202530 Injury and poisoning Psychotic disorders Infectious Diseases Malignant tumors Neurological Diseases Eye Diseases Geriatric Chronic Bronchitis Arthritis Gallbladder Disorders Acute Gastritis Genitourinary Diseases Cerebrovascular Diseases Diabetes Heart Diseases Hypertension 2003 1998 1993 Source: MOH statistics yearbook 2008 Urban Patient Number (Mil) 7.4% 6.9% -3.3% 7.0% 1.4% 0.9% -2.2% -1.0% 0.5% - 2.4% 8.6% 16.7% 4.8% 12.5% 7.4% 6.9% -3.3% 7.0% 1.4% 0.9% -2.2% -1.0% 0.5% - 2.4% 8.6% 16.7% 4.8% 12.5% CAGR93-03

33. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China The elderly is taking a growing share of the China Total population giving another evidence to the increase of the chronic disease. Source: National Bureau of Statistics

34. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Antibiotics lost its share in the last decade while share of TCM and Oncology's are increasing drastically Chronic diseaes Source: IMS 4Q08

35. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China In 6 of top 10 TCIII in China market, the sales of generic product is even bigger than the origin product (red line) Source: IMS

36. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Comparison of Pharma Industry of China and India Similarity –Production of low cost, low concentration of industry –Mainly produce Generics –Small share of independent innovation research and the proportion of drugs Difference –The manufactures in china always copy low-tech product and compete in the market with low price but seldom choose high- tech product –The India manufactures choose a better way– innovative copy and get their own patent so that get more profit.

37. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Pharma R&D in China Majority of pharma industry have been focusing on copying in past few decades. China has decided to become an innovative state in 2007. Many budget allocated for life science, RMB 6.6Billion allocated to various projects since late 2008. –Projects included all types of collaboration of industry and research institutions and healthcare institutions. –Grant amount usually less than 200M per institute. R&D is encouraged by the government but not sufficient for return to investment for pharma R&D due to regulatory and risk sharing system in China.

38. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Key barriers for Pharma R&D in China under current registration system Requesting Pharma R&D may not be equipped with the production facilities Pharma R&D have to transfer the technology to drug manufacturer, the right and benefits are not well protected Key benefits of market authorization system for Pharma R&D in China Pharma R&D can be the Marketing Authorization Holder without production facilities Pharma R&D can collaborate with drug manufacturer for toll manufacturing with/without mandatory technology transfer Reasonable amount of return back to R&D as incentive for stimulating sustainable R&D Pharma R&D can focus on R&D with their key competence 38 Marketing Authorization System

39. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China About clinical trial in China

40. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China China Is Underrepresented Relative To Other Countries Based On Its Population And Market Size Source:Clinicaltrials.gov; Global Insight; IMS; team analysis *CAGR Cumulative Annual Growth Rate Phase III trials sponsored by industry 32 54 25 26 36 28 25 CAGR* of trials (2003-2007) China 106India 100Czech 144Poland 128Russia Argentina Brazil Mexico 963 378 90 250 48 85 Number of trials (2007) Number of trials per 100 million population (2007) 11 44 23 17 34 Number of trials per $1bn drug sales (2007)

41. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Global Clinical Trial in China According to SFDA record during Jan 2004 and Apr 2008, the average evaluate time of global clinical trial is 7 month.

42. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Benefits Submission to and review by relevant regulatory authorities at the same time Broader regulatory oversight and experiences Earlier availability of innovative drug therapy to emerging market population; ultimately leads to reduction in “drug lag” Enables science-based approach to better define intrinsic and extrinsic factors (risk-based) Identify clinically meaningful ethnic differences & discuss next steps Registration dossiers to include higher percentage of Asian data Advance knowledge, experience and competence of drug clinical development of investigators / medical community 42 Simultaneous Global Development

43. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Simultaneous Global Development-2 Challenges Longer CTA approval times (agency & ethics committee) & start-up times Other general barriers (not inclusive of all countries) Lack of harmonization – requirements, processes Unique requirements, outside international standards (e.g., country-specific Quality data) Lack of formal mechanism for agency consultation Inflexibility to CTA amendments (protocol & quality changes) Uncertainty of ICH/WHO GCP enforcement Inefficient/outdated review processes, lack of transparency Unpredictable requests Intellectual property concerns Insufficient resources within regulatory agencies

44. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Global development could speed up product launch in China.

45. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Separation administration of CTA and NDA Implementation of Special Review Procedures Speed up the approval process for clinical trial of innovative products Enhancement of clinical trial administration by allocating the responsibilities to all stakeholders Introduction of Marketing Authorization System Communication and interaction among stakeholders Harmonization, the principle of “ sameness” will direct the development path 45 RDPAC’s suggestion on SGD For SGD, it is a race to change! Who will be left behind ?

46. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Source: RDPAC Drug Registration Timeline Survey Trend – Increasing IMCT in China

47. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China - 47 - Drug Development Model in China Yesterday Today Global DevelopmentCPP R-CTA Review Clinical Trial IDL Review 4 Years Approval Outside China Approval In China A Linear Development Model Following International Approval ≥ 4 years drug lag A Parallel Development Model Global DevelopmentCPP R-CTA Review Clinical Trial IDL Review Clinical Trial GCTA Review IDL Review 2 Years CPP CPP = Certificate of Pharmaceutical Product R-CTA = Regional Clinical Trial Application IDL = Import Drug License GCTA = Global Clinical Trial Application ≥ 2 years drug lag

48. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China - 48 - The Road To Enlightenment…Follow The Lights

49. 2nd DIA China Annual Meeting | May 16-19, 2010 | Beijing, China Many thanks for your kind attention! Joseph.cho@cn.astellas.com www.astellas.com.cn www.rdpac.org 49