The Challenge from India
Dr. Brian W Tempest
Chief Mentor & Executive Vice Chairman of the Board
Ranbaxy Laboratories Limited, Delhi, India
Manila – 29th May’06
Disclaimer
Except for the historical information contained herein, statements in this presentation and
the subsequent discussions, which include words or phrases such as “will”, “aim”, “will
likely result”, “would”, “believe”, “may”, “expect”, “will continue”, “anticipate”, “estimate”,
“intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “likely”, “project”,
“should”, “potential”, “will pursue” and similar expressions or variations of such
expressions
may
constitute
"forward-looking
statements".
These
forward-looking
statements involve a number of risks, uncertainties and other factors that could cause
actual results to differ materially from those suggested by the forward-looking statements.
These risks and uncertainties include, but are not limited to our ability to successfully
implement our strategy, our growth and expansion plans, obtain regulatory approvals, our
provisioning policies, technological changes, investment and business income, cash flow
projections, our exposure to market risks as well as other risks. Ranbaxy does not
undertake
any obligation to update forward-looking statements to reflect events or
circumstances after the date thereof.
Asia’s Share of the World GDP (at PPP in %)
Year
1870
1913
1950
1973
2001
China
India
Japan
Rest of Asia
17%
12%
2%
7%
9%
8%
3%
5%
5%
4%
3%
7%
5%
3%
8%
9%
12%
5%
7%
13%
Total Asia
38%
25%
19%
25%
37%
Source – WEF
- was 59% in 1820 with India 16%, China 33%
Stock Market Performance in Asia in 2005
1.
India
+84%
2.
Pakistan
+75%
3.
Korea
+54%
4.
Philippines
+39%
5.
China
+34%
Source: Rimes in GBP
Davos 2006
Source – FT
The Productivity Advantage
India
1 chemist
70 h/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 h/week
$ 12,000 monthly
Sources: IPHMR Conferences, New Delhi August 2004
The Ageing Advantage

Europe
- retirees grow faster than workers
- fertility rates lower, only 600k new Germans in 2005

Japan
- expansion of grey segment

USA
- over 50’s 88m will grow to 118m (2020)
- obesity will cap life expectancy

China
-

India
- will remain very young
- 50% <25years, 65% <35 years
- source of the extra needed global workforce
one child families
get older before becoming wealthy
labour costs will rise owing to labour shortage
South Guangdong province is short of 2m workers
The Economic Growth Advantage

GDP World growth marginally less in 06 than 05 (+4.3%)

USA expansion at a slower growth than 05 (+3.6%)
Euro zone – expected to perform better than USA

Asia :
Japan
PRC
India

– sustain current growth
– slightly slower growth to prevent hard landing
– increasing growth rate being talked up to 9%/10%
Chindia:
40% population, 8% economy
India sentiment: Largest foreign affairs caucus in US Congress (180)
China sentiment: 74,000 demonstrations reported in 2005 in China
The Billionaires Advantage






The world has 793 billionaires
USA has 371 – almost half
India - 23 billionaires, UK has 24
China - 8 billionaires
Net worth of 40 richest Indians - $106 b
40 richest Chinese - $26b
“2006 belongs to some of the emerging markets, and
no country more than India”
Source: Forbes
The R&D Investment Advantage
Most attractive R&D Investment locations:
1.
2.
3.
4.
5.
China
USA
India
Japan
UK
Source – UNCTAD 2005
The R&D Investment Advantage
-reasons why India

Qualified Scientists & Engineers

Global India players with Alliances

English speaking

TRIPs compliant – first patent March 2006

IIT, IIM & other scientific institutions
Source – UNCTAD 2005
The Knowledge Advantage

4th largest reservoir of Scientific Manpower (2nd largest
English speaking)

3m graduates pa, 115k MSc Chemistry, 345k IT, USA 75k


Knowledge super power in the making
Lead by a Nuclear Scientist as President – remote sensing
satellite technology, 1/6 countries

Diaspora network (25m across 120 countries)

In ancient days India invented the zero

US & Europe will not dominate Science, Maths, IT
The State of European Science Teaching
“This means that when pupils are in a science laboratory their
experience is unsafe, unsatisfactory or uninspiring for 65%
of the time. In addition, 13% of science classes are not taught
in a laboratory at all”
Laboratories in UK state schools:
Excellent
Good
Basic/uninspiring
Unsafe/unsatisfactory
5%
29%
41%
25%
Source – Royal Society of Chemistry, Policy Bulletin – Spring 2006
Closed UK University
Chemistry Departments:
Dundee
Kings
Surrey
Exeter
Lancaster
Queen Mary
under review-Sussex
The Information Advantage

34 News TV channels. Oldest 13 years old (NDTV)

5000 newspapers, circulation 17m. 12 with 1m copies each

200m daily readers. 21m new daily readers 2003/2005, +14%
with 50% rural and 50% urban readership

Principal internet languages to become English, Chinese and Hindi

STD Kiosks converted to Internet Cafes. India to become
the largest Internet market in 5-10 years

Indians are hungry for information
Source: World Business 26.2.2006, Larry Page (Google) zeitgeist conference may 2006
The Potential for Improvement Advantage

Manufacturing growth
- Chinese manufacturing +12%
- India manufacturing
+6.5%

Scope for improvement of Government Policies

Revitalization of agriculture
- beyond milk (1st globally), wheat (2nd), rice (2rd)

More privatization – public sector not so buoyant

Further encouragement of R&D for Pharmaceuticals

Expand further the prosperous middle class of 300m
The Medical Tourism Advantage

High quality healthcare, international standards

Patients from developed & developing countries

Growing privatization of hospitals, paperless hospitals

Analysis of serum samples from EU hospitals in India already

Low Costs:
- Open heart
- Hysterectomy
- Knee surgery

Thailand
India
$14250
$ 2012
$7000
$4400
$ 571
$4500
Better access through Indian immigration & airports likely
The FDI Advantage
2001/2
2002/3
2003/4
2004/5
2005/6
-
$b
6.1
5.0
4.7
5.5
6.5
4Q 2005 at $2b for the first time in India
But still only 10% of China or Singapore
Investment by top 15 Indian Domestic
Pharmaceutical Companies
2000
2001
2002
2003
2004
2005
$m
110
160
200
250
400
450
- Leading to even more Pharma R&D facilities and factories
Source – Citigroup
Investment by foreign Pharma companies
Investment by Microsoft in India

Microsoft Global Development Centre (GDCI)

Microsoft Global Services (MGSI)

Microsoft Global Technical Support Centre
(GTSC)

Microsoft Systems Research (MSRI)

Microsoft India Development Centre (MIDC)
India
A Global Strategic Asset for developed
World Market businesses
Leading Generic Companies
Annual Sales (US$ Millions)
7000
6000
5000
4000
3000
2000
1000
M
yl
an
R
an
ba
xy
R
at
io
p
ha
rm
av
is
A
ct
M
er
ck
at
so
n
W
oz
an
d
S
Te
va
0
Source : Company /Financial reports & presentations
The Pharma Advantage - ANDAs
Annual USA ANDA Filings
Ranbaxy
Sun
Orchid
Lupin
DRL
Cadilla
29
22
18
14
13
12
Source: Pharmabiz 8th Sept’ 2005
- One in every four ANDAs filed by Indian Companies
-
-
Source: KPMG
- 29 ANDAs p.a ranks in top 3 filers
The Pharma Advantage – API’s
USA DMF filings by India
1990
1995
2000
2004
Source: Crisil
1
4
36
162
Chindia filings
1999
2000
2001
2002
2003
2004
13%
17%
20%
30%
35%
40%
Source: Citigroup
*DMF – Drug Master Files
Q1 2006 India alone 43%
The Pharma Advantage
Competitive Advantage – Aggressive Home Market
The Pharma Advantage
Competitive Advantage - Cost of Manufacture
Active Pharmaceuticals Facility, Mohali
Dosage Forms Facility, Paonta Sahib
Highest number of FDA approved plants outside the US
No. of FDA approved plants:
Exports ($m):
1990
2005
2010E
15%
45%
70%
1990
1995
2000
2004
1
10
44
105
Source: IPA
Source: Crisil / IPA
The Pharma Advantage
Competitive Advantage - Cost of Innovation
R&D I
R&D II
R&D III
R&D IV
Fundamental drivers of Generic growth
- healthcare costs
16.0
15.0
Total Healthcare Spending, % of GDP
11.1
12.0
10.1
9.9
8.4
7.9
7.7
7.7
Japan
Spain
UK (1)
8.0
4.0
0.0
United
States
Germany
France
Canada
Italy
Source: World Bank, DB Global Pharma Report Aug 2005, OECD Health Data 2005 (1) – 2002, UBS European Pharma Report, Sep 2005
The collective healthcare bill for Ford, Chrysler & GM in 2006 will be > $12b
Fundamental drivers of Generic growth
- Demographics
30
Estimated % of regional population over 60
25
20
15
Europe
2005
2010
US
2015
2020
2025
Source: World Bank, DB Global Pharma Report Aug 2005, OECD Health Data 2005 (1) – 2002, UBS European Pharma Report, Sep 2005
Fundamental drivers of generic growth
– Patent Expiries
$Bn
20
Revenues
15
10
5
0
2006
2007
2008
2009
2010
Source : Global Generic Drug Stocks Citigroup Smith Barney, September 2004, IMS Health : MIDAS , MAT June 2005
The Global Generic Market
– growing everywhere
$b
2004
2009
USA
W Europe
Japan
Rest of America
ROW
15
9
3
6
25
27
14
4
9
40
Total
58
94
Source: Frost & Sullivan
“India could soon dominate the entire production chain for
generics”
IMS prediction No 4 Scrip April 5 2006
Ranbaxy Strategic Direction
• Growth through
- Organic
2012
- Inorganic
2007
2004
US $ 1 Bn
US $ 5 Bn
US $ 2 Bn
• Amongst the Top 5
generic Companies
• Significant income
from proprietary products
Potential Downsides to the
Indian Scenario
Potential downside – Asian Flu*
*50% of world chickens bred in Asia
Potential downside – Oil prices*
Source – BLS, ELA, The Conference Board
*Chindia consumes 40% oil
Potential downside – Infrastructure
A common view
Source – FT
Potential downside – Counterfeit products from India
-but not a global issue
Origin of fake products
seized in EU in 2004
Rank
1.
2.
3.
4.
5.
China
Thailand
Hong Kong
Turkey
USA
Countries where fake
pharma products seized in
2005
Rank
1.
2.
3.
4.
5.
Russia
China
South Korea
Peru
Columbia
Source: FT
Source: PSI
192,000 died from Counterfeit drugs in China in 2001
Source: IMS 27th Feb’2006
Summary
Asia economic strength is returning to levels seen in the
past
Many advantages for India – particularly R&D
India as a global strategic asset
Some downsides - infrastructure
The current feeling in India a turning point has been
reached and an inflexion point has been passed
“We have all grown up learning the story of the
unfinished voyage of Christopher Columbus
setting sail to reach India, he discovered America.
I now invite the people of America to complete the
Voyage of that great explorer”
Manmohan Singh
Prime Minister of India
July 2005
Thank You