CONFIDENTIAL

7 SEPTEMBER 2010

HEALTHCARE &PHARMACEUTICALS INDUSTRY

Healthcare & Pharmaceutical Industry in Brazil

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

Table of Contents

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

Brazilian Healthcare & Pharmaceuticals Industry Overview

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

Pharmaceutical

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

Pharmaceuticals Market Overview

s

The Brazilian pharmaceuticals market generated total revenues of $12,011.3M in 2009, representing a compound annual growth rate (CAGR) of 8.4% for the period spanning 20052009 In comparison, the US and Canadian markets grew with CAGRs of 2.8% and 5.6% respectively, over the same period, to reach respective values of $276,681.9M and $23,213.9M in 2009 Alimentary/metabolism sales proved the most lucrative for the Brazilian pharmaceuticals market in 2009, generating total revenues of $1,810M, equivalent to 15.1% of the market's overall value
s

In comparison, sales of central nervous system generated revenues of $1,591.3M in 2009, equating to 13.2% of the market's aggregate revenues

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

BRAZIL PHARMACEUTICALS MARKET VALUE (2005-2009)

$in billion $15 9% 10 7% 10% 7% % Grow th 12% 10% 8% 6% 5 $ .7 8 $ .3 9 $0 1 .2 $1 1 .2 $2 1 .0 4% 2% 0 2005 2006 2007 2008 2009 0%

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

Pharmaceuticals Market Segments

s s s s s s s

The Healthcare & Pharmaceuticals market comprises of six segments: Therapeutic purposes Alimentary/Metabolism Central Nervous System Cardiovascular Respiratory Oncology
BRAZIL PHARMACEUTICALS MARKET GEOGRAPHIC SEGMENTATION

BRAZIL PHARMACEUTICALS MARKET SEGMENTATION

Re spira tory 9.5% Ca rdiova ula sc r 13.0% Onc ology 0.6%

The pe Purpose ra utic s 48.6% US 83.2%

Ca da na 7.0% Bra zil 3.6% Me o xic 3.2% Re of theAme a st ric s 3.0%

Ce l Ne ntra rvous Sy m ste 13.2%

Alime ry Me bolism nta / ta 15.1%

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

Pharmaceuticals Market Forces

s

s s

The key buyers of prescription drugs in the pharmaceutical market are end users such as institutions like hospitals, clinics, private and national health services, Individuals and health practitioners The market is highly competitive, forcing a high level of customer service and meeting pricing and regulatory pressures The process of producing a novel drug is extremely costly and includes high intellectual knowledge and expensive marketing strategies New entrants may be enticed by growing revenues, however will face extreme competition from large international incumbents like Novartis and GlaxoSmithKline Substitute products are few and far between Alternative therapies have become popular, however they are heavily scrutinized by the medical profession Generic substitute products are more of a threat to OTC medicines rather than prescriptive medicines

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

FORCES DRIVING COMPETITION IN THE PHARMACEUTICALS MARKET IN BRAZIL (2009)

Buye Pow e r r 5 4 3 2 1 0

DRIVERS OF BUYER POWER IN THE PHARMACEUTICALS MARKET IN BRAZIL (2009)

De eof Riva gre lry

Supplie Pow e r r

Produc dispe bility t nsa Buye inde nde e r pe nc Ba kw a inte tion c rds gra

Buy r size e 5 4 3 2 1 0

Oligopsony thre t a Low-c switc ost hing Undiffe ntia d produc re te t Te nc to sw itc nde y h

Thre t of Substitute a s

Ne Entra w nts

Fina ia musc nc l le Pric se e nsitivity

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

Pharmaceuticals Market Forces

DRIVERS OF SUPPLIER POWER IN THE PHARMACEUTICALS MARKET IN BRAZIL (2009)
Supplie size r 5 4 Forwa inte tion rd gra Oligopolythre t a 3 2 1 Diffe ntia d input re te Switc hing c osts 0 Importa eof nc qua / c lity ost No substituteinputs Pla r inde nde e ye pe nc Pla r dispe bility ye nsa

FACTORS INFLUENCING EXPECTED NEW ENTRIES IN THE PHARMACEUTICALS MARKET IN BRAZIL (2009)
Low-c switc ost hing 5 Ma t grow th rke Undiffe ntia d produc re te t 4 3 We k bra a nds Sc leunimporta a nt 2 1 0 LittleIP involve d Low fixe c d osts Supplie a c ssible rs c e Distribution a c ssible ce Littlere tion gula Inc umbe a quie e nts c sc nt

FACTORS INFLUENCING THE THREAT OF SUBSTITUTES IN THE PHARMACEUTICALS MARKET IN BRAZIL (2009)
Low-c switc ost hing 5 4 3 2 1 0 Be fic l a rna ne ia lte tive Che p a rna a lte tive

DRIVERS OF DEGREE OF RIVALRY IN THE PHARMACEUTICALS MARKET IN BRAZIL (2009)

Compe titor size 5 Ze ro-sum ga ? me Numbe of pla rs r ye 4 3 Stora c ge osts Low-c switc ost hing 2 1 0 Simila of pla e rity y rs Undiffe ntia d produc re te t La k of dive c rsity Ha to e rd xit Low fixe c d osts Ea to e nd sy xpa

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

Pharmaceuticals Market Indicators

BRAZIL GDP (CURRENT PRICES, $ BN), 2005-2009
$ in billions % Grow h t

BRAZIL SIZE OF POPULATION (MILLION) , 2005-2009

$ in billions % Growt h

$2,000 1,500 1,000 500 0 2005 2006 2007 10.9% 13.3% $1,138.1 $1,262.6 $1,430.8

$1,704.3 19.1%

$1,761.0

25% 20% 15%

$250 200 150 100 50 0 2005 189.0

1.3%

1.3%

1.3%

1.2%

1.5% 1.0%

3.3%

10% 5% 0%

191.5

193.9

196.3

198.7

0.5% 0.0%

2008

2009

2006

2007

2008

2009

BRAZIL INFLATION (2004-2008)

Init l Ra e % ia t % Grow h t

8.0% 6.0%

6.9%

58.3% 5.7% 4.2% 14.3% 3.6% (39.1%) 4.4% (23.3%)

80% 60% 40% 20% 0% (20%) (40%) (60%)

4.0% 2.0% 0.0% 2005 2006

2007

2008

2009

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

Pharmaceuticals Future Outlook

s

The Brazilian pharmaceuticals market generated total revenues of $12,011.3M in 2009, representing a compound annual growth rate (CAGR) of 8.4% for the period spanning 2005200. In 2014, the Brazilian pharmaceuticals market is forecast to have a value of $17 bn, an increase of 41.6% since 2009 The performance of the market is forecast to decelerate, with an anticipated CAGR of 7.2% for the five-year period 2009-2014, which is expected to drive the market to a value of $17,004.5M by the end of 2014 Comparatively, the US and Canadian markets will both grow with CAGR of 2.5% over the same period, to reach respective values of $312,927M and $26,302.6M in 2014
s

BRAZIL PHARMACEUTICALS MARKET VALUE (2009-2014)

$ in billion % Growt h

$18 15 12 9 6 3 0 2009 2010 2011 2012 2013 2014 22.1% 25.4% 27.2% 29.2% 31.3%

35% 30% 25% 20% $5 1 $6 1 $7 1 15% 10% 5% 0%

23.7%

$2 1

$3 1

$4 1

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

Pharmaceuticals Key Players

BRAZIL PHARMACEUTICALS MARKET SHARE: % SHARE, BY VALUE ( 2009)
Nova AG rtis 9.7% Gla xoSmithK linePlc 8.8% 120% 9 .9 9 % 8 .7 7 % 80% EMS SigmaPha rma 7.5% Othe r 74.0% 8 .0 7 % 60% 02-Ja n-08

100%

12-Jun-08

22-Nov-08 Nova rtis

03-Ma -09 y GSK

13-Oc t-09

24-Ma r-10

03-Se p-10

S&P Pha rma

KEY FINANCIALS (2009)

COMPANY

M. Cap $122,363

Revenue $45,075

Net Income $8,400

P/E 14.4 x
s

DESCRIPTION

Engages in the research, development, manufacture and marketing of branded drugs, generic pharmaceutical products, preventive vaccines, diagnostic tools and consumer health products Engages in the discovery, development, manufacture and marketing of pharmaceutical products, over the counter medicines and health related consumer products
s

99,835

43,667

8,514

11.7 x

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

PHARMACEUTICAL

NA

NA

NA

NA

Engages in the development, manufacture and commercialization of pharmaceuticals (generic and branded), consumer healthcare, hospital and personal hygiene products
s

10

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC Pharmaceutical

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

OTC Pharmaceuticals Market Overview

s

The Brazilian OTC pharmaceuticals market generated total revenues of $3.6 bn in 2008, representing a compound annual growth rate (CAGR) of 8.9% for the period spanning 20042008 In comparison, the US and Canadian markets grew with CAGRs of 3.3% and 3.6%, respectively, over the same period, to reach respective values of $23.6 bn and $2.4 bn in 2008 The cough and cold preparations segment was the most lucrative for the Brazilian OTC pharmaceuticals market in 2008, generating total revenues of $662.6M, equivalent to 18.4% of the market's overall value In comparison, the vitamins and minerals segment contributed revenues of $654.2M in 2008, equating to 18.1% of the market's aggregate revenues
s

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

BRAZIL OTC PHARMACEUTICALS MARKET VALUE (2004-2008)

$billion % Grow h t

$4.0

10.3% 9.1% 8.5% 7.8%

12% 10% 8%

3.0

2.0 $ .6 2 1.0 $ .8 2 $ .1 3 $ .3 3

$ .6 3

6% 4% 2%

0.0 2004 2005 2006 2007 2008

0%

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

OTC Pharmaceuticals Market Segments

s s s s s s

The Healthcare &Pharmaceuticals market comprises of six segments: Cough and cold preparations Vitamins and minerals Analgesics Traditional medicines Indigestion preparations
BRAZIL PHARMACEUTICALS MARKET GEOGRAPHIC SEGMENTATION

BRAZIL PHARMACEUTICALS MARKET SEGMENTATION

Other 30.4%

Cough a cold nd prepa tions ra 18.4%

Ca da na 10.7% Bra zil 7.2% Mexico 6.3% US 70.1% Rest of the America s 5.7%

Indigestion prepa tions ra 6.4% Tra ditiona l medicines 9.1%

Vita mins a nd minera ls 18.1 %

Ana lgesics 17.6%

10

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

OTC Pharmaceuticals Market Forces

s

Local distributors have less buyer power than the large supermarkets, due to their smaller size. However, certain buyers integrate backwards in this market, which increases pressure on market players, thus increasing buyer power at the same time Suppliers include manufacturers of active pharmaceutical ingredients (API) and are most often supplied to pharmaceutical companies under contractual arrangements, increasing switching costs and enhancing the power of suppliers Market entry is made more difficult by the product development costs where a new drug is concerned and by the need to obtain approval for products from the regulatory authorities Prescription drugs are the main substitute, but the threat they pose is weak: they are often only used in situations where no adequate OTC remedy exists. Rivalry is strong, with increasing consolidation among the market players leading to bigger companies and more competition. However, the market growth in the Brazilian OTC drugs market mitigates rivalry somewhat, which is assessed as a moderate force
FORCES DRIVING COMPETITION IN THE OTC PHARMACEUTICALS MARKET IN BRAZIL (2008) DRIVERS OF BUYER POWER IN THE OTC PHARMACEUTICALS MARKET IN BRAZIL (2008)

De eof Riva gre lry

Buye Pow e r r 5 4 3 2 1 0

Produc dispe bility t nsa Buye inde nde e r pe nc Ba kw a inte tion c rds gra Fina ia musc nc l le

Supplie Pow e r r

Buy r size e 5 4 3 2 1 0

Oligopsonythre t a Low-c switc ost hing Undiffe ntia d re te produc t Te nc to sw itc nde y h

Thre t of Substitute a s

Ne Entra w nts

Pric se e nsitivity

11

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

12

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

OTC Pharmaceuticals Market Forces

DRIVERS OF SUPPLIER POWER IN THE OTC PHARMACEUTICALS MARKET IN BRAZIL (2008)
Supplie size r Forwa inte tion rd gra Diffe ntia d input re te I mporta eof nc qua / c lity ost No substituteinputs
5 4 3 2 1 0

FACTORS INFLUENCING EXPECTED NEW ENTRIES IN THE OTC PHARMACEUTICALS MARKET IN BRAZIL (2008)
Low-c switc ost hing 5 Undiffe ntia d re te Ma t grow th rke 4 produc t 3 We k bra a nds Sc leunimporta a nt 2 1 0 LittleIP involve d Low fixe c d osts Supplie a c ssible rs c e Distribution a c ssible ce Littlere tion gula Inc umbe nts a quie e c sc nt

Oligopolythre t a Switc hing c osts

Pla r inde nde e ye pe nc Pla r dispe bility ye nsa

5 Undiffere SUBSTITUTES FACTORS INFLUENCING THE THREAT OFntiated Marke g t row th 4 product IN THE OTC PHARMACEUTICALS MARKET IN BRAZIL 3 (2008) Weak brands Scale unim portant 2 1 Low-c 0 switc ost hing Little IP involved Low fixed costs 5 4 3 Supplie acce rs ssible Little re ulation g 2 Distribution accessible 1 Incum nts acquie nt be sce 0 Be fic l a rna ne ia lte tive Che p a rna a lte tive

Low-cost switching

DRIVERS OF DEGREE OF RIVALRY IN THE OTC PHARMACEUTICALS MARKET IN BRAZIL (2008)

Compe titor size 5 Ze ro-sum ga ? me Numbe of pla rs r ye 4 3 Stora c ge osts Low-c switc ost hing 2 1 0 Undiffe ntia d re te Simila of pla rs rity ye produc t La k of dive c rsity Ha to e rd xit Low fixe c d osts Ea to e nd sy xpa

13

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

OTC Pharmaceuticals Market Indicators

BRAZIL OTC PHARMACEUTICALS DISTRIBUTION (% SHARE, BY VALUE, 2008) BRAZIL SIZE OF POPULATION (2004-2008)
$in m illions % Grow h t

Inde nde pe nt Re ile ta rs 10.0%

Othe r 6.6%

$200 150

$184.1

$186.1 1.1%

$188.1 1.1%

$190.0 1.0%

$191.9 1.1%

1.5% 1.0% 0.5% 0.0%

Supe rke rma ts / hype rke rma ts 20.7%

Pha c s rma ie / drugstore 62.7%

100 50 0 2004 2005 2006 2007 2008

BRAZIL GDP (CONSTANT 2000 PRICES, $ BN), 20042008

$ in billions % Grow h t $ in billions

BRAZIL INFLATION (2004-2008)

$900 $699.2 600 300 0 2004 2005 2.6% $717.4

$743.9 3.7%

$783.3

$820.9 4.8%

8.0% 6.0% 4.0% 2.0% 0.0%

8.0% 6.0% 4.0% 2.0% 0.0%

6.6%

6.9% 5.8% 4.2% 3.6%

5.3%

2006

2007

2008

2004

2005

2006

2007

2008

14

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

OTC Pharmaceuticals Future Outlook

s

The Brazilian OTC pharmaceuticals market experienced a deceleration in rate of growth over the period spanning 2004-2008. This trend is expected to continue over the next five years The performance of the market is forecast to decelerate, with an anticipated CAGR of 6.5% for the five-year period 2008-2013, which is expected to lead the market to a value of $4.9 bn by the end of 2013 Comparatively, the US and Canadian markets will grow with CAGRs of 3% respectively, over the same period, to reach respective values of $27.3 bn and $2.8 bn in 2013
s

BRAZIL OTC PHARMACEUTICALS MARKET VALUE (2008-2013)

$ in billion % Growt h

$6 7.8% 4 7.3%

10% 8% 6.4% 6.1% 5.8% 6% 4% 2%

6.8%

$ .6 3

$ .9 3

$ .1 4

$ .4 4

$ .7 4

$ .9 4

0 2008 2009 2010 2011 2012 2013

0%

15

HEALTHCARE & PHARMACEUTICAL INDUSTRY IN BRAZIL

OTC PHARMACEUTICAL

OTC Pharmaceuticals Key Players

BRAZILOTC PHARMACEUTICALS MARKET SHARE: % SHARE, BY VALUE, 2009
J ohnson & Johnson 12.2% Sa nofi-Ave ntis 11.6%
120% 90.9% 100% 80% 60% 89.4%

8 .7 7 % 7 .1 5%
12-Jun-08 22-Nov-08 03-May-09
J&J Abbott

Othe r 66.8%

02-Jan-08

13-Oct-09

24-Mar-10

03-Se p-10

Abbott La bora torie s 9.4%

Sa nofi

S&P Pha rma

KEY FINANCIALS (2009)

COMPANY

M. Cap $162,319

Revenue $61,897

Net Income $12,266

P/E 13.4 x
s

DESCRIPTION

Engages in the manufacture of health care products and provides health care related services for the consumer, pharmaceutical and medical devices and diagnostics markets Engages in the research, development, manufacture and marketing of healthcare products Engages in the discovery, development, manufacture and sale of pharmaceuticals and medical products

78,555

39,592

6,779

11.6 x 13.7 x

78,321

30,765

5,746

16