Globalization of the Pharmaceutical Marketplace

May 6, 2008

Presented by:
Marc Kikuchi

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Agenda
• Marketplace Dynamics

• Benefits and Challenges of Global Generics Sourcing

• Possible Approaches

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Agenda
• Marketplace Dynamics

• Benefits and Challenges of Global Generics Sourcing

• Possible Approaches

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Generics continue to gain traction

Branded generics are allocated to brands and generics

% Dollars % Total Prescriptions Dispensed

100%
12% 12% 13% 15% 16%
90%

80%
50% 53%
70% 57%
61% 65%
60%

50%
88% 88% 87% 85% 84%
40%

30%
50% 47%
20% 43%
39% 35%
10%

0%
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007

Brands Generics

Source: IMS Health, IMS National Prescription Audit Plus, National Sales Perspectives, Dec 2007

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U.S. Generics Market Opportunity
$70 210

$60 180

$50 150

Units (billions)
$ (billions)

$40 120

$30 $60.8 90
$53.9
$47.8
$20 $42.4 60
$35.8
$31.4
$10 30

$0 0
2006 2007 2008 2009 2010 2011
Source: IMS HEALTH

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US Generics Usage of Emerging Manufacturers’ Products is Increasing

Company Prescriptions Share % Company Prescriptions Share %

(millions) (millions)
Teva 423 19.1 Apotex 61 2.8
Mylan 283 12.8 Ranbaxy 52 2.3
Sandoz 195 8.8 Dr. Reddy’s 38 1.7
Watson 189 8.6 Caraco 35 1.6
Barr (incl. 106 4.8 Lupin 32 1.4
Pliva)
Mallinckrodt 90 4.1 KV 30 1.4
(Covidien)
Greenstone 80 3.6 Lannett 30 1.4
(Pfizer)
Qualitest 80 3.6 URL/Mutual 26 1.2
Actavis 78 3.5 Taro 26 1.2
Par 69 3.1 Bedford/Roxane 25 1.1
Top 10 1,594 72.2 Top 20 1,947 88.1

Top 20 companies in 2007 by numbers of prescriptions dispensed in the US with unbranded generics
Source: IMS Health

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Agenda
• Marketplace Dynamics

• Benefits and Challenges of Global Generics Sourcing

• Possible Approaches

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Benefits of Global Generics Sourcing

• Most emerging manufacturers have favorable cost structures
– Labor rates – Ability to recruit high quality talent at lower wages
– Capital investment – Land and construction costs are significantly lower

• Technological capabilities
– Most companies have evolved from Active Pharmaceutical Ingredient
(API) suppliers to Finished Dosage Form (FDF) manufacturers to
creating their own product line
– Vertical integration from R&D to API and FDF through final packaging
also results in reduced costs
– Contract Research and Manufacturing Services (CRAMS) model
becoming more prevalent in co-development deals

• Capability to source globally provides another lever to ensure

company is receiving competitive COGS

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Challenges of Global Generics Sourcing
• Do you really know your manufacturer?

• Where is your product made?

• What due diligence is being done?

• What investment in time and people is the company willing to make?

• How much product and financial risk is the company willing to take?

• Do you partner with a wholesaler or go direct?

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Agenda
• Marketplace Dynamics

• Benefits and Challenges of Global Generics Sourcing

• Possible Approaches

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Design Phase Framework Overview
1 •Define Project Scope
•Gain executive alignment and sponsorship
Project Initiation •Create governance structure
•Assemble project team

2 •Rules of engagement
•Communications plan
Project plan •Project schedule
•Partner selection criteria and methodology

3 •Cultural education
•Partner meetings and visits
Due Diligence •Industry analysis
•External factor evaluation (regulatory, legal, etc.)

4 •Develop vision and mission for future state

•Evaluate business impact and various scenarios
Business Case
•Risk mitigation strategies (retaliation, etc.)
Development
•Gap analysis
•Implementation plan with trade-off analysis

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Cultural Education
• Logistics
– Is a VISA required for this country?
– What are the VISA requirements?
– Medications and vaccinations recommendations
• Behaviors
– How do you greet someone?
– What are common practices?
– What are things to avoid doing?
• Companies
– Are you meeting with the right people?
– How are you getting from place to place?
– Where do you stay?

Travel team must have camaraderie and trust

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Execution Phase Framework Overview
5 •People, process and technology
•Project schedule with key events and milestones
Plan of attack •Opportunity prioritization
•Short-term transition, mid-term execution and
long-term strategy

6 •Internal and external expectation alignment

•Metrics to track progress, savings, deals, etc.
Define the win •Synergies, gaps and opportunities
•Cost, scope and schedule

7 •Organizational design
•Process creation, implementation and execution
Process •Contract management, audit, etc.
Infrastructure •Alliance management capabilities
•International Law and In-country Legal Issues

8 •At a pace comfortable for your company

•Direct or via Wholesaler?
GO •Does your company want to invest in creating
these capabilities and taking on these risks?

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Expectations need to be aligned with both internal

executives and external manufacturing partners
• Voice of your company Executives
– What defines “winning” for this organization?
– What does the ideal manufacturer relationship look like?
– What level of risk is the company willing to take?
• Short-term
• Long-term

• Voice of the Manufacturer

– What defines “winning” for your organization?
– What does the ideal relationship with our company look like?
– What is your perception of our company?
• Short-term
• Long-term
– What are your key issues / pain points?

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Partner Selection Process – Example

Screening Filters
1

2
3

Company Reputation

Capabilities
5

Product Portfolio

Capacity

Sales
Intl
Due Detailed
Possible Diligence Visits
Partners “Lite”

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Qualification approach for Generics manufacturers

1• New manufacturers complete required documentation
– Ensure proper insurance policies and licenses are in place
– Conduct credit checks on the manufacturers
– Verify that the company has received FDA approval for all products that
are going to be purchased
2• Select Products
– New manufacturers typically initiate their relationship by supplying lower
volume products to establish a track record
– Provides opportunity to evaluate manufacturer capabilities with regards
to consistent supply and meeting service level targets
– Closely monitor regulatory agencies and field reports of any issues with
product, if any
3• Gradually award additional products to manufacturer

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Global manufacturers evaluated on four primary criteria
1. Regulatory
– Review quality and manufacturing policies and procedures as well as
corporate regulatory philosophy
– All manufacturers currently approved and recently inspected by FDA

2. Financial
– Review available public and non-public financial data
– All manufacturers are financially stable and well capitalized

3. Ownership
– Evaluate ownership structures
– Meet with original owners or direct family descendants from originators in
senior management roles

4. Manufacturing and Quality

– Evaluate operational strategy for business continuity
– Most companies have redundant capabilities mitigating supply risk if one plant
is closed
– Conduct site visits to determine if plant meets your company standards of
quality and risk

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India – Some Facts and Figures

• Population >1 Billion
• >16,000 Hospitals
• >500,000 Doctors
• >550,000 Nurses
• >3 million employed in pharmaceutical sector
• Graduate approximately 100,000 scientists and 100,000 engineers
every 12 months
• Scientific talent pool of >4 million
• Education and communication primarily in English

Indians are 2nd largest English speaking group

worldwide after USA

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India – Some Facts and Figures continued

• Labor costs
– For qualified labor, rates tend to
be 50% less than US
– For unqualified labor, rates tend
to be 70-80% less than US

• Infrastructure
– Capital investment on facilities is
approximately 80% less than US
– Time to complete is ~4x faster

• Freight
– Freight costs tend to be 3x
higher than US

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Top 10 Pharmaceutical Companies in India

1. Cipla
2. Ranbaxy
3. Glaxo Smithkline
4. Cadila Healthcare
5. Nicholas Piramal
6. Sun Pharma
7. Alkem Labs
8. Lupin Labs
9. Pfizer India
10. Dr. Reddy’s

Source: ORG-IMS, Feb-08 MAT

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Thank you!

Contact information:

Marc Kikuchi
Vice President – Global Generics Supply Chain Management
AmerisourceBergen Drug Corporation
E-mail: mkikuchi@amerisourcebergen.com

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