Is Asia the Answer? Dr. Brian W Tempest The 2008 IMS Pharma Strategy Conference New York –12 th February 2008

DR. BRIAN W. TEMPEST CSci, CChem, MRSC, BSc, PhD Dr. Brian Tempest advises companies and investment funds on their strategy in Asia based on his wide experience in China, Japan, SE Asia and India where he has lived for the last 9 years and continues to have a home. Tempest has previously been President, Managing Director, CEO, Chief Mentor and Executive Vice Chairman of Ranbaxy Laboratories(the leading Indian Pharmaceutical Company) during the 12 years between 1995 and He is one of the few westerners (if not the only westerner) to lead a Sensex Nifty 50 Indian blue chip MNC and as a result has a valuable insight into India. Tempest has also been Regional Director Far East for Glaxo responsible for Japan, China, Korea and Taiwan. Tempest has worked in the Pharmaceutical Industry for the last 37 years and led Global Healthcare businesses, R&D and Global Manufacturing Organisations. Tempest has also led Investor meetings across Asia, Europe and USA. He is now a Non Executive Director of Ranbaxy India, an advisor to the JM Financial India Private Equity Fund and a Honorary Professor of the Management School at Lancaster University, UK. He speaks at worldwide conferences on the Challenge from India and China and more information on these presentations is available on / Mobile / Tel:

Asia’s Share of the World GDP (at PPP in %) Year China 17% 9% 5% 5% 12% India 12% 8% 4% 3% 5% Japan 2% 3% 3% 8% 7% Rest of Asia 7% 5% 7% 9% 13% Total Asia 38% 25% 19% 25% 37% Source – WEF - was 59% in 1820 with India 16%, China 33%

The View from Europe – the Challenge Source – FT

The View from India - a Global Competition

The View from the USA – Asian Cars

The View from Japan - a Race to Prosperity

Japan’s Wealth Advantage Canada 2% Rest of World 10% Japan 27% Germany 4% Italy 4% France 5% UK 6% USA 37% Netherlands 2% Spain 1% Switzerland 1% Taiwan 1% Source: The World Distribution of Household Wealth

Is Asia the Answer?  Market drivers  Competition is rising  Branded generics from Asia  IP changes in USA  M&A and Private Equity  East-West Alliances  Drug Development

The Asian Productivity Advantage Indiaa usa Pharma view USA 1 chemist Better education x chemist 70 hours/week Longer working time x hours/week $ 800 monthly Lower cost x 20 $ 12,000 monthly Sources: IPHMR Conferences, New Delhi August 2004

The Asian Education Advantage

Engineers/Science graduates p.a – India 0.7m, China 0.5m, EU 0.5m, USA 0.4m, Japan 0.3m

Asia’s Youthful Advantage Percentage of Population aged 65 and older ChinaIndiaEuropeNorth America 2000 A 2025 E 2050 E

Sources: AXA Framlington Company Expiry 2010 Expiry 2012 Expiry 2011 PfizerAricept - $800mLipitor - $12.1bn Xalatan - $1.6bn Viagra - $1.7bn Detrol - $860m Geodon - $1.1bn Astra ZenecaArimidex - $2.2bnSeroquel - $4.7bnSymbicort - $3.7bn Sanofi-AventisTaxotere - $2bnUS Plavix - $3.8bn Avapro - $2.1bn Lovenox - $3.1bn BMSUS Plavix - $4.8bn Avapro - $1.3bn Abilify - $2.1bn GSKAdvair - $3.8bnAvandia - $2.5bn Patent Expiry Dates 41% 38% 34% 30% 23% % at Risk

Asian Competition is Rising CPHI Attendees, Milan, 2 nd – 4 th Oct’07 1.China467 – 33% 2.India189 – 13% 3.Germany96 4.Italy80 5.USA75 6.UK55 7.France55 8.ROW387 Total1404 As registered on July 25, 2007

Generics – API’s USA DMF filings by India % Share of USA DMF filings India China % 10% % 14% Q1’07 48% 17% Q2’07 37% 18% Q3’07 42% 16% Source: US FDA / J P Morgan, 2 may 2007 Source: US FDA, Credit Suisse India China Source: US FDA / J P Morgan, 6 th August 2006

- One in every four ANDAs filed by Indian Companies in top USA FDA filers Source: KPMG - No Chinese generic company has yet filed a USA FDA ANDA but expected in 2008 Generics - ANDAs ANDA Filings in USA by Indian Companies 250

Sources: Goldman Sachs 2007 Top 5 Global Pharma Markets 2020 RankCountrySize USA China Japan France India $ 475b $ 125b $ 61b $ 51b $ 43b

The Rise of the Indian Middle Class

R&D Productivity is Falling

Global Pharmaceuticals Sales Trends

Global Pharmaceuticals Equity Trends

Shareholder Value

BCG 100 Challengers CountryTotal State Private China India Brazil Russia Source BCG

Speed of Clinical Trials in India EU India Patients Sites 225 Time 36m18m Neck Cancer CT Plan Actual Patients Sites 109 Time 5m2.5m Overactive bladder CT  300 patients, 30 sites $5.6m EU/USA vs $ 1.8m plus 30% faster at $800K per day savings  No. of USA investigators: ,000 18,000 Sources: CT Outsourcing Conference, 24 th July 2007, Mumbai

Electronic Data Capture in India % Trials in EDC % 45% Savings Paper EDC $2.8m $ 0.5m 2004 data Sources: CT Outsourcing Conference, 24 th July 2007, Mumbai Accuracy GSK Staff - 2.2m Clinical Data sheets Trials - No data security issues - Error rate <0.01 / 100k Source: BCG report “Looking Eastward, Sept’2006”

Branded Generics  Promotion to doctors rather than pharmacists  Consistent sales year on year  No huge highs & lows for sales and profits  Need field force to promote products  Tend to be profitable  Promoted in conventional manner  Global generic brands  Relevant to Central Europe, East Europe, Latam, Asia  Ranbaxy half branded generics & half commodity generics

Branded Generics - the Analyst’s view  “Branded Generics are the most profitable place to be in generics and there are a few markets with better branded characteristics than those of the Middle East and North Africa region” Frances Cloud Nomura September

Different Global Generic Market Sizes $bn RegionSandoz 2006 IMS 2008 USA2368 West Europe1419 East Europe13NA Japan33 Latam/Canada103 (Canada only) ROW377 Total100

ROW Top 10 Generic Markets - $bn

IP – USA Pendulum “A key USA Supreme Court ruling KSR VS Teleflex led to Pharmaceutical patents being more easily challenged on the grounds of obviousness, a ruling which immediately came into play when J&J & Merck had a US patent for Pepcid Complete (Famotodine) found to be obvious”. Scrip, July 6 th 2007, p3 The full beneficial impact of this ruling on the generic industry is yet to be seen.

Bilateral FTAs - USA Pendulum  Democrats now chairing Committees- Ways & Means  USTR legally required to work within TRIPS  USA has been incorporating TRIPS PLUS IP protection into bilateral free trade agreements  Corrections to bilateral trade agreements eg Peru, Columbia, Panama FTAs TRIPS  Basic product patent  Data protection TRIPS PLUS + Data exclusivity + New forms, isomers etc + New Indications + New Combinations

Sources: 1.IMS Midas, March Earth Trend Data Tables % of the world population accounts for only 12% of the Global pharmaceutical sales RegionPharma SalesPopulation North America Europe Japan $255 b 47% $158 b 30% $59 b 11% 332 5% % 128 2% Asia/Africa/Aus Latam 88% $41 b 8% $20 b 4% 18% % 558 9% 12% 82% Worldwide$533 b 100% %

Should IP be the same across all Countries? USAThaiChinaIndiaBrazil USD Sources: World Health Report 2005 Per Capita Expenditure on Healthcare 2002

Enforcement or Evergreening ? India IP 02/03 06//07 Filed Examined Granted patent examiners more planned - Attrition an issue - Weekly patent journal - IP Appellate Court Source: Business Standard, 16 th Aug’ – 2005 FDA cleared 327 drugs 95% pre 1995 – before WTO deal 16 basic patent molecules possible However 9000 Pharma applications - for evergreen changes - for new indications Source: Gopa Kumar “Centre for Trade & Development, Delhi”

PCT Filings from Asia PCT Files from Developing Countries Huawei - China 2. LG - Korea 3. Samsung - Korea 4. LG Cem - Korea 5. Elec Telecom – Korea 6. 2TE – China 7. STR – Singapore 8. Ranbaxy – India 9. CSIR – India 10. NHN - Korea Ranbaxy Patent Filings to

M&A activity in India is rising

M&A in India YearDeals Investments $ 18 b $28 b 2007>1000 $ 70 b Source Grant Thornton Deal Tracker

M&A Building the Top Players in the Global Generic Market

% PE/VC Share of all Global M&A Deals 5% 6% 9% 16% 17% 21% Sources: Thomson One Banker, BCG Analysis

Asian PE Deals CountryNo. of dealsSum Invested - $m China India Hong Kong5186 Australia2671 Taiwan633 S.Korea3029 Thailand229 Singapore416 New Zealand93 Total Sources: Thomson Financial in H excluding Japan

Private Equity Investment in India YearDeals Investments $ 1 b $ 2 b $8 b $ 19 b Source Grant Thornton Deal Tracker

Key Challenges to the Asian Scenario

Potential Challenge – Asian Flu* *50% of world chickens bred in Asia

CO 2 emission - % of World total in USA23% EU 2517% China14% Russia7% Japan5% India4% – source: WRI, EIA Potential Challenge – Climate Change

Potential Challenge – Infrastructure Source – Manmohan Singh “Our greatest potential will be realised only if we can ensure that our Infrastructure does not become a severe and critical handicap”

Corruption Perception Index RankCountry 1Finland, Iceland, NZ 5Singapore 11Austria, Luxemburg, UK 16Germany 20Belgium, Chile, USA 42Mauritius, S.Korea 51South Africa, Tunisia 70Brazil, China, India, Mexico 121Philippines, Russia 163Haiti Sources: Transparency International 2006, selected countries only

Potential challenge – Oil prices Source – Assocham A war against Iran could drive oil > $200 a barrel - ‘Times’ 22 nd June 2006 India is expected to import 85% of crude oil by 2012 from 70% today Source – BP

Potential Challenge – over the border

Potential Challenge - Currency Volatility

The Tempest Crystal Ball India will continue to be a Key Driver in the Global Generic Industry Competition is rising – Post TRIPs Indian companies will evolve Discovery companies will continue to be attracted to India for CT, EDC, MO. China will be perceived to be stronger in biology/ toxicology IP changes in US will slowly favor Generics Alliances between Western Biotech and Asians companies will expand. M&A PE deals will grow. Singapore, Vietnam, Bangladesh & Nepal will take a rising importance How to use Asia in Drug Development will become the key opportunity

Early discovery leads from USA, Europe or Singapore Molecular optimisation from India Toxicology from China, Central Europe, Singapore Electronic Data Capture India API Manufacture India Drug Formulation Manufacture India, USA Phase 1 Clinical Trials Europe Phase 2,3 heavy use of India Corporate back office India Is Asia the Answer for Drug Development ?

“The Indian System looks ramshackle and improvised. But at its best it is capable of brilliance” “When we say the Silicon Valley is built on ICs we don’t mean integrated circuits – we mean Indians & Chinese” “The UK needs to wake up to what India is becoming” Source: DEMOS report – January 2007 Perceptions of Asia

Asia economic strength is returning to levels seen in the past India is a global strategic asset for developed markets having many advantages with some challenges. India is a rich location for R&D alliances and CT outsourcing MNCs will dip in & out of India & China South East Asian economies will be driven by India & China Japan will continue to represent a huge share of global wealth “China & India represent the future of Asia and quite possibly the future for the global economy” – Steve Roach, Morgan Stanley Summary

Thank You