Is Asia the Answer?
Dr. Brian W Tempest
www.briantempest.com
The 2008 IMS Pharma Strategy Conference
New York –12th 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 2007. 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 www.briantempest.com
brian.tempest@gmail.com / brian.tempest@clara.co.uk
Mobile +91-98100-91192 / Tel:+44 1753 864 616
Asia’s Share of the World GDP (at PPP in %)
Year
1870
1913
China
India
Japan
Rest of Asia
17%
12%
2%
7%
9%
8%
3%
5%
Total Asia
38%
25%
1950
5%
4%
3%
7%
19%
Source – WEF
- was 59% in 1820 with India 16%, China 33%
1973
2001
5%
3%
8%
9%
12%
5%
7%
13%
25%
37%
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
Taiwan
1%
Switzerland
1%
Spain
1%
Rest of World
10%
Netherlands
2%
Canada
2%
Germany
4%
Italy
4%
France
5%
USA
37%
UK
6%
Japan
Source: The World Distribution of Household Wealth
27%
Is Asia the Answer?

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

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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
India
1 chemist
70 hours/week
$ 800 monthly
a usa Pharma view
Better education x 1.3
Longer working time x 1.3
Lower cost x 20
USA
1 chemist
50 hours/week
$ 12,000 monthly
Sources: IPHMR Conferences, New Delhi August 2004
The Asian Education Advantage
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
29.2
22.7
21.5
21.4
18.7
14.8
14.7
13.2
2000 A
12.3
2050 E
8.3
6.9
5
China
India
2025 E
Europe
North America
Patent Expiry Dates
Company
Expiry
2010
Expiry
2011
Expiry
2012
% at Risk
Pfizer
Aricept - $800m
Lipitor - $12.1bn
Xalatan - $1.6bn
Viagra - $1.7bn
Detrol - $860m
Geodon - $1.1bn
41%
Astra Zeneca
Arimidex - $2.2bn
Seroquel - $4.7bn
Symbicort - $3.7bn
38%
Sanofi-Aventis
Taxotere - $2bn
US Plavix - $3.8bn
Avapro - $2.1bn
Lovenox - $3.1bn
34%
US Plavix - $4.8bn
Avapro - $1.3bn
Abilify - $2.1bn
BMS
GSK
Advair - $3.8bn
Avandia - $2.5bn
30%
23%
Sources: AXA Framlington
Asian Competition is Rising
CPHI Attendees, Milan, 2nd – 4th Oct’07
1.
China
467 – 33%
2.
India
189 – 13%
3.
Germany
96
4.
Italy
80
5.
USA
75
6.
UK
55
7.
France
55
8.
ROW
387
Total
As registered on July 25, 2007
1404
Generics – API’s
USA DMF filings by India
2004
2005
2006
India
187
252
357
China
48
87
128
Source: US FDA / J P Morgan, 6th August 2006
% Share of USA DMF filings
2005
2006
Q1’07
Q2’07
Q3’07
India
37%
44%
48%
37%
42%
China
10%
14%
17%
18%
16%
Source: US FDA / J P Morgan, 2 may 2007
Source: US FDA, Credit Suisse
Generics - ANDAs
ANDA Filings in USA by Indian Companies
300
250
250
200
144
150
100
46
50
64
24
0
2002
2003
2004
2005
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
Top 5 Global Pharma Markets 2020
Rank
Country
Size
1.
USA
$ 475b
2.
China
$ 125b
3.
Japan
$ 61b
4.
France
$ 51b
5.
India
$ 43b
Sources: Goldman Sachs 2007
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
Country Total
State
Private
China
41
29
12
India
20
0
20
Brazil
13
1
12
Russia
6
3
3
Source BCG
Speed of Clinical Trials in India
Patients
Sites
Time
EU
India
85
22
36m
650
5
18m
Patients
Sites
Time
Neck Cancer CT

300 patients, 30 sites
$5.6m EU/USA vs $ 1.8m plus
30% faster at $800K per day
savings
Plan
Actual
100
10
5m
130
9
2.5m
Overactive bladder CT

No. of USA investigators:
2001
2006
26,000
18,000
Sources: CT Outsourcing Conference, 24th July 2007, Mumbai
Electronic Data Capture in India
% Trials in EDC
Accuracy
2005
2007
- 300 GSK Staff
25%
45%
- 2.2m Clinical Data sheets
- 450 Trials
Savings
Paper
EDC
- No data security issues
$2.8m
$ 0.5m
- Error rate <0.01 / 100k
2004 data
Sources: CT Outsourcing Conference,
24th July 2007, Mumbai
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 14 2007
Different Global Generic Market Sizes $bn
Region
Sandoz
2006
IMS
2008
USA
23
68
West Europe
14
19
East Europe
13
NA
Japan
3
3
Latam/Canada
10
3 (Canada only)
ROW
37
7
Total
100
100
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 6th 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
TRIPS PLUS

Basic product patent
+ Data exclusivity

Data protection
+ New forms, isomers etc
+ New Indications
+ New Combinations
82% of the world population accounts for only
12% of the Global pharmaceutical sales
Region
North America
Europe
Japan
Pharma Sales
$255 b
$158 b
$59 b
47%
30%
11%
Population
332
725
128
88%
Asia/Africa/Aus
Latam
$41 b
$20 b
8%
4%
18%
4711
558
12%
Worldwide
Sources:
1.
IMS Midas, March 2005
2.
Earth Trend Data Tables 2005
$533 b
100%
5%
11%
2%
73%
9%
82%
6454
100%
Should IP be the same across all Countries?
USD
Per Capita Expenditure on Healthcare 2002
6000
5000
4000
3000
2000
1000
0
USA
Brazil
Thai
China
India
Sources: World Health Report 2005
Enforcement or Evergreening ?
India IP
Filed
Examined
Granted
-
02/03
11466
9538
1379
06//07
28882
14119
7359
140 patent examiners 2007
600 more planned
Attrition an issue
Weekly patent journal
IP Appellate Court
Source: Business Standard, 16th Aug’2007
•
1995 – 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 2006
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Ranbaxy Patent Filings to 2005
Huawei - China
LG - Korea
Samsung - Korea
LG Cem - Korea
Elec Telecom – Korea
2TE – China
STR – Singapore
Ranbaxy – India
CSIR – India
NHN - Korea
24
32
49
86
146
170
185
M&A activity in India is rising
M&A in India
Year
Deals
Investments
2005
467
$ 18 b
2006
782
$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
25
21%
20
17%
15
16%
10
9%
5
6%
5%
0
2000
2001
2002
2003
2004
2005
Sources: Thomson One Banker, BCG Analysis
Asian PE Deals
Country
No. of deals
Sum Invested - $m
China
103
1489
India
90
1369
Hong Kong
5
186
Australia
26
71
Taiwan
6
33
S.Korea
30
29
Thailand
2
29
Singapore
4
16
New Zealand
9
3
278
3233
Total
Sources: Thomson Financial in H1 2007 excluding Japan
Private Equity Investment in India
Year
Deals
Investments
2004
60
$1b
2005
124
$2b
2006
302
$8 b
2007
405
$ 19 b
Source Grant Thornton Deal Tracker
Key Challenges to the Asian Scenario
Potential Challenge – Asian Flu*
*50% of world chickens bred in Asia
Potential Challenge – Climate Change
CO2 emission - % of World total in 1990-2000
USA
EU 25
China
Russia
Japan
India
– source: WRI, EIA
23%
17%
14%
7%
5%
4%
Potential Challenge – Infrastructure
“Our greatest potential will be realised only if we can ensure that our
Infrastructure does not become a severe and critical handicap”
Source – Manmohan Singh
Corruption Perception Index
Rank
Country
1
5
11
16
20
42
51
70
121
163
Finland, Iceland, NZ
Singapore
Austria, Luxemburg, UK
Germany
Belgium, Chile, USA
Mauritius, S.Korea
South Africa, Tunisia
Brazil, China, India, Mexico
Philippines, Russia
Haiti
Sources: Transparency International 2006, selected countries only
Potential challenge – Oil prices
Source – BP
• A war against Iran could drive oil > $200 a barrel - ‘Times’ 22nd June 2006
• India is expected to import 85% of crude oil by 2012 from 70% today
Source – Assocham
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
Is Asia the Answer for Drug Development?
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
Perceptions of Asia
“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
Summary
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
Thank You