Identifying Commercial Opportunities to Sell API to Emerging Markets

DCAT 2009 NEW YORK KATE KUHRT MARCH 18, 2009

Agenda
API and Regulatory Intelligence at Thomson Reuters Why are regulated market players interested in Emerging markets? Opportunities and challenges of selling API to BRIC countries Q&A

API and Generics Intelligence at Thomson Reuters

Newport Strategies founded in 1990 and acquired by Thomson Scientific in 2004 Since 2008, part of Thomson Reuters Industry pioneer in research and analysis of the impact of global API development on competition in generic products
Strategic competitive intelligence Tools for API sourcing and business development

Used by over 220 companies and 3000 users across the globe

Regulatory Intelligence at Thomson Reuters

IDRAC founded in 1993 and acquired by Thomson in 2004 Since 2008, part of Thomson Reuters Unique regulatory intelligence An authoritative source of global regulatory requirements Proprietary Regulatory Intelligence created by dedicated team of regulatory experts
In-depth regulatory summaries Reference texts Global coverage Alerts

Used by over 200 companies and 4000 users across the globe

Industry Backdrop
Growth Expectations for 2009
Will hold steady at 2008 levels*
US: 1-2%, EU5: 3-4%, Japan: 4-5% BRIC: 14-15%

Brand pharma
Innovation slump Blockbusters losing patent protection Outsourcing of manufacturing and R&D

Generics
Increasing competition, especially from India Low cost API coming from India, China Margin pressures in U.S., UK, Germany Drop in small molecule opportunities post-2011

Will growth in BRIC markets translate into opportunities for regulated market API manufacturers?
*2009 IMS Global Pharmaceutical and Therapy Forecast

Outlook for Regulated Market Players in a Particular Market Improves with

Weak local API supply
Limited number of local API manufacturers Limited number of regulated market players with local API manufacturing presence Gaps in technology among local API manufacturers Increasing costs

Strong demand for API

Strong local dose manufacturing Emphasis on quality over price

Favorable import environment

Transparent and inexpensive import registration process Low import duties Limited red tape

INDIA

Population: 1.1 billion Pharmaceutical market: $7.4 billion

Source: VOI, 2007 Pharma Handbook

Indian Landscape: API Supply

Strong local API manufacturing
600 Indian groups involved with API manufacturing
25 Established, 25 Less Established, 84 Potential Future

52 groups with manufacturing sites inspected by US FDA

Strong local API manufacturing by regulated market players

Trifarma (Italy), PharmaZell (Germany), Albany Molecular (US) AZ (UK), Bayer (Germany), Daiichi (Japan), Novartis (Switzerland)

Increasing costs
Salaries, energy, raw materials from China

Gaps in technology
Fermentation, steroids, narcotics Filled by acquisitions (Strides-Diaspa, Sun-Chattem)

Indian Landscape: Demand for API

Strong local dose manufacturing
10,000+ pharmaceutical manufacturers registered in India With products meant for local and other less regulated markets, focus continues to be on price
Maharashtra hit list of 110 drug makers

Increasing number of Big Pharma with manufacturing presence (ex: Glaxo, Pfizer)

Increasing amount of manufacturing of finished dose for export to regulated markets

27 Indian groups have presence in the U.S. generic market Increasing number of foreign dose companies with Indian manufacturing presence (Watson, Sandoz, Mylan) Indian contract manufacturers making products for U.S. and European generics (Intas)

Indian Landscape: Import Registration

A license for import necessary for the import of any bulk API or finished dose Since January 2003, manufacturing sites of foreign manufacturers and individual imported APIs have to be registered with Drug Controller General of India
Valid for 3 years API in transit does not need to be registered

All the paperwork needs to be submitted by a single Indian agent

Exclusive representation for the duration of the certificate Registration done in English

Bureaucratic system
Amount of time required to get a product registered varies Paperwork can be held up on minor technicalities Open for potential abuse

Source: Thomson Reuters IDRAC

Indian Landscape: Duties and Fees

Import license fee Rs 1000 for a single drug, Rs 100 for additional drugs paid by the importer Import registration fees paid by the manufacturer or agent
$1500 USD for overseas manufacturing premises $1000 USD for every drug $5000 USD for inspection, if required
None so far?

Payment for testing, if required

Import Duties
In 2007, maximum customs duties on APIs and intermediates were reduced from 12.8% to 7.7%.
Import duties are waived if the finished dose product is ultimately exported

VAT of 4% on medicines in most states Excise duty of 8% per 2008-2009 budget

Source: Thomson Reuters IDRAC, VOI 2007 Pharma Handbook

What are Indian Import Registration Certificates Telling Us?

Unique IIRs
Other 17% South Korea 3% China 36%

Almost 1200 unique Indian Import Registration (IIR) Certificates issued since introduction (Jan 2003) >1/3 from China 55% from regulated markets Filings for prestige? APIs in transit not registered

Netherlands 3% Switzerland 3% Israel 4% France 4% Japan 5% Italy 7% Germany 10% USA 8%

Source: Newport Horizon

What are Indian Import Registration Certificates Telling Us?

Unique IIRs
500 400 300 200 100 0 2003 2004 2005 2006 2007 2008 Emerging Regulated

Rush by regulated market players to get their products registered in 2003 New filings primarily coming out of emerging markets

Source: Newport Horizon

Products with Most Unique Registration Certificates

Product Name Total IIRs IIRs from Regulated Markets 2 5 3 4 3 2 3 2 1 2 4 3 8 4 5 4 5 5 4 5 6 5 3 4 IIRs from Emerging Markets Confirmed Indian Mfrs 7 0 3 13 7 1 0 2 2 1 3 2
Source: Newport Horizon

Cefotaxime sodium Clavulanate potassium Ofloxacin Amoxicillin Erythromycin Vancomycin hcl Thiamine mononitrate (Vit B1) Penicillin G Potassium Gatifloxacin Erythromycin thiocyanate Cefuroxime sodium Cefoperazone sodium

10 9 8 8 8 7 7 7 7 7 7 7

Products with Most Unique Registration Certificates from Regulated Markets

Product Name IIRs from Regulated Markets 5 4 4 4 4 4 4 4 IIRs from Emerging Mkts (China) 4 (1) 4 (3) 1 (0) 0 (0) 3 (2) 0 (0) 0 (0) 1 (0) Confirmed Indian Mfrs (w/ US DMFs) 0 (0) 13 (3) 3 (0) 3 (1) 3 (2) 2 (0) 0 (0) 1 (0)

Clavulanate potassium Amoxicillin Amoxicillin sodium Beclomethasone dipropionate Cefuroxime Sodium Hydrocortisone sodium succinate Lactulose Pancreatin

Source: Newport Horizon

Regulated Market Manufacturers with Most Unique Registration Certificates

Name Teva ScheringPlough BASF SanofiAventis DSM Kyowa Hakko Novartis Pfizer E.ON AG Ergon Capital (Farmabios) Country Israel USA Germany France Netherlands Japan Switzerland USA Germany Belgium (Italy) IIRs 45 39 37 26 26 23 20 16 16 13 Examples Beclomethasone, cabergoline, cyclosporine, leuprolide, rocuronium Desogestrel, estradiol, fentanyl, insulin, leuprolide, pancuronium Dopamine, pseudoephedrine, ibuprofen Dinoprostone, ketoprofen, ramipril, spiramycin Beta carotene, cefadroxil, cephalexin, riboflavin Acetylcysteine, glutamine, ornithine, pravastatin Amoxicillin,clavulanic, benazepril, ergotamine, levothyroxine gabapentin, neomycin, oxytetracycline, misoprostol Alanine, aspartic acid, lysine acetate, methionine Beclomethasone, cefuroxime, medroxyprogesterone Dose Site in India No Yes No Yes No No Yes Yes No No API Site in India Yes No No Yes Yes No Yes No No No

Source: Newport Horizon

Where are the Opportunities?

Fermentation based products Steroids Controlled substances Neuromuscular blockers Ergot alkaloids Peptides Prostaglandins Large volume products from specialized plants Innovator APIs APIs to support regulated market dose launches

CHINA

Population: 1.3 billion Pharmaceutical market: $12 billion

Source: VOI, 2007 Pharma Handbook

Chinese Landscape: API Supply

Strong local API manufacturing
1000+ Chinese groups involved with API manufacturing
11 Established, 23 Less Established, 145 Potential Future

62 groups have had manufacturing sites inspected by US FDA

Increasing local API manufacturing by regulated market players

Actavis (Iceland), Esteve (Spain), Hovione (Portugal) GSK (UK), BMS (US), Schering-Plough (US)

Increasing costs
Salaries, energy, workforce turnover, regulatory, environmental

Gaps in technology?

Chinese Landscape: Demand for API

Strong local dose manufacturing
3500 drug manufacturers Increasing number of foreign dose companies with Chinese manufacturing presence
Big Pharma (ex: Pfizer, AstraZeneca, Novartis) Generics (ex: Stada, Sandoz, Teva)

Limited manufacturing of finished dose for export to regulated markets

Beijing Double Crane ANDA for meloxicam Huahai tentative approval under PEPFAR Perrigo ibuprofen OTC

Chinese Landscape: Import Registration

Registration prior to import required for both API and dose
API in transit does not need to be registered

Import Drug Licenses introduced in 1987

Dossier review at sFDA followed by quality testing at a testing institute
Must meet highest quality specs of all other IDL holders for the product

Registration certificate valid for 5 years A single agent per product required in China sFDA follows established timelines
Can track the process of dossier review on sFDA website About 18 months to register API

Source: PharmaVantage; Thomson Reuters IDRAC

Chinese Landscape: Duties and Fees

Application fee for import drug license charged by SFDA with dossier submission: RMB 45,300 (~$6,600) Quality testing fee dependent on product type Import Duties
Dependent on indication
In most cases 3%-5%

Duties are waived if the finished dose product is ultimately exported (lailiao jiagong)
Must import and export through the same port Quantity of incoming API must match quantity in outgoing finished dose

Source: PharmaVantage; Thomson Reuters IDRAC

What are Chinese Import Drug Licenses Telling Us?

Netherlands 4% Other 8% France 4% Japan 29% England, UK 5%

Unique IDLs

Over 400 unique Chinese Import Drug Licenses approved since January 2004
Considerably less than in India How many are for PR reasons?

Italy 5%

Almost 1/3 from Japan

Switzerland 7% Germany 8% South Korea 8% India 10% Source: Newport Horizon USA 12%

80% from regulated markets

What are Chinese Import Drug Licenses Telling Us?

Unique IDLs
140 120 100 80 60 40 20 0 2004 2005 Emerging 2006 2007 2008 Regulated

Rush by regulated market players to get their APIs registered (or re-registered) in 2004 New filings continuing to come out of regulated markets

Source: Newport Horizon

Products with Most Unique IDLs

Product Name Total IDLs IDLs from Regulated Markets 3 5 3 3 1 2 2 1 2 2 1 1 2 0 1 1 4 2 2 3 2 2 3 3 IDLs from Emerging Markets Confirmed Chinese Mfrs 5 1 5 10 1 6 7 1 5 1 1 6
Source: Newport Horizon

Clavulanate potassium Ubidecarenone (coenzyme Q10) Clarithromycin Amoxicillin Ceftizoxime sodium Cephalexin Cefuroxime sodium Cefuroxime axetil Cefaclor Cefpodoxime proxetil Cefminox sodium Cefixime

5 5 4 4 5 4 4 4 4 4 4 4

Products with Most Unique Chinese Import Drug Licenses from Regulated Markets
Product Name IDLs from Regulated Markets 5 3 3 3 3 3 3 IDLs from Emerging Mkts (India) 0 (0) 1 (0) 0 (0) 1 (1) 2 (0) 0 (0) 0 (0) Confirmed Chinese Mfrs (US DMFs) 1 (0) 10 (2) 9 (0) 5 (2) 5 (0) 0 (0) 2 (0)

Ubidecarenone (CoQ10) Amoxicillin Cephradine Clarithromycin Clavulanate potassium Lactulose Minocycline hcl

Source: Newport Horizon

Regulated Market API Manufacturers with Most Unique Chinese IDLs

Name Kyowa Hakko Ajinomoto DSM Fine Chemicals Novartis AG Daiichi Sankyo Pfizer GSK Country Japan Japan Netherlands Switzerland Japan USA UK IDLs 35 21 17 17 16 15 10 Examples Acetylcysteine, adenosine, arginine, cysteine, glutamine Cysteine, glutamine, isoleucine, nateglinide, histidine Cefadroxil, clavulanate potassium, nystatin, vitamin A acetate Benazepril, clavulanate potassium, penicillin V potassium, valsartan Olmesartan, pravastatin, cefpodoxime, ofloxacin Atorvastatin, celecoxib, fluconazole, sildenafil, sulbactam sodium Amoxicillin, clavulanate potassium, cefuroxime sodium, rantidine, rosiglitazone, zidovudine Domperidone, galantamine, ketoconazole, risperidone Cefaclor, cefazolin, cefuroxime, cilastatin, imipenem Dose Site in China No No No Yes Yes Yes Yes API Site in China Yes Yes Yes No No No Yes

J&J ACS Dobfar

USA Italy

9 9

Yes No

No No

Source: Newport Horizon

Where are the Opportunities?

New products
Brand new APIs APIs used in specialized formulations

Products with a marketing message Specialized anti-cancers Vaccines Diagnostics Very complex and hazardous chemistries Select small volume drugs Large volume products with economies of scale Products requiring dedicated facilities

RUSSIA

Population: 144 million Pharmaceutical market: $7 billion

Source: VOI, 2007 Pharma Handbook

Russian Landscape: API Supply

Very limited local API manufacturing
<50 Russian-owned groups involved with API manufacturing
0 Established, 0 Less Established, 0 Potential Future

No manufacturing sites inspected by US FDA

No local API manufacturing by regulated market players

ICN Kursk owned by Millhouse Capital (UK)

Gaps in technology
Everything except certain biologics

Russian Landscape: Demand for API

Most finished dose is imported Strengthening local dose manufacturing
700 Russia-based groups manufacturing products
Up from <100 in 1990

Increasing number of foreign companies with manufacturing presence

Stada, Polpharma, Actavis, Krka Servier, Nycomed, Pfizer

Very limited manufacturing of finished dose for export to regulated markets

Nizhpharm allowed to make products for EU Limited export to CIS countries

Russian Landscape: Import Registration

Import of drugs and pharmaceutical substances prohibited without first registering each product with Roszdravnadzor (RZD)
Registration procedure takes abut 6-9 months API in transit does not need to be registered

Medicines Import Licenses granted by Ministry for Economic Development Since January 2007, system of Declaration of Conformity
Replaced prior system of mandatory certification Applies to a particular consignment Valid until the expiration date of the pharmaceuticals in the consignment

Source: Thomson Reuters IDRAC

Russian Landscape: Duties and Fees

Drug Registration
RZD fee for registration 2000 RUR ($80) Pre-registration expertise fee depends on the volume of expertise needed
for an API: ~$5,000, for finished dose: ~$19,000 Performed by division of RZD and Institute of Standardization and Control of Medicinal Products

Import license 0.05% of contract price Import Duties, VAT, and Custom Fees
Import duties: 5%, 10% or 15% depending on product VAT: 0% or 10% depending on product Custom fees: variable, including for custom legalization, custom escort, and storage
Source: Thomson Reuters IDRAC

Sample of Regulated Market Players With Registered APIs in Russia

Manufacturer ACS Dobfar (Italy) Bardiafarma (Italy) Bioindustria L.I.M. (Italy) DSM (Netherlands) Erregierre (Italy) Farmabios (Italy) ICI (Italy) Linnea (Switzerland) Pro Bio Sint (Italy) Sandoz Industrial Products (Germany) Sifavitor (Italy) Swords Labs (BMS) (Ireland) Products Registered in Russia Sulbactam sodium, cefazolin sodium, cefamandole nafate, cefuroxime Cefazolin sodium, cefoxitin sodium Indapamide Nystatin, ampicillin, vitamins Arbidol, afobazole Budesonide Ampicillin Sodium, cefazolin sodium Vinpocetin, ginkgo extract Adenosine triphosphate Amoxicillin, clavulanate potassium, ceftriaxone, cefotaxime, erythromycin Cromolyn sodium Captopril
Source: Register of Medicines of Russia

Where are the Opportunities?

Products not used in India and China Products not manufactured in India and China Large-scale products from dedicated facilities
Cost-competitive vis a vis India and China

BRAZIL

Population: 187 million Pharmaceutical market: $11 billion

Source: VOI, 2007 Pharma Handbook

Brazilian Landscape: API Supply

Weak local API manufacturing
<40 local Brazilian groups involved with API manufacturing
0 Established, 1 Less Established, 4 Potential Future

3 groups have had manufacturing sites inspected by US FDA

Some local API manufacturing by regulated market players

ACS Dobfar (Italy), Italfarmaco (Italy), DSM (Netherlands) Eli Lilly (USA), Pfizer (USA), Sanofi-Aventis (France)

Many gaps in technology

Brazilian Landscape: Demand for API

Strong local dose manufacturing
~270 pharmaceutical companies All international pharma companies have set up manufacturing facilities (Eli Lilly, Novo Nordisk, Roche, etc.) International generic manufacturers with limited success

Focus continues to be on price Limited manufacturing of finished dose for export to regulated markets
Significant amounts exported to other Latin American countries

Brazilian Landscape: Import Registration

ANVISA regulates and controls importation of substances and drug products through Import Licenses
API distributors and wholesalers must register with MoH Import license applied for by the importer For most products Import Licenses approved after inspection of the shipment during customs clearing process

No registration process for foreign manufacturers products or manufacturing sites

Legislation under evaluation API sources registered as part of finished product registration
Finished dose registrations valid for 5 years Registration file limited to 3 API sources

Future plans by MoH to inspect foreign API facilities

Source: Thomson Reuters IDRAC

Brazilian Landscape: Duties and Fees

Fees based on company size (micro to large) and number of products imported (<10 to 100)
For a large company, 100R$ to import up to 10 active ingredients ($40)

Import Duties
0% to 17% based on product Member countries of MERCOSUL (Argentina, Paraguay, Uruguay) exempted

Source: Thomson Reuters IDRAC

Where Are the Opportunities?

Products not manufactured in India and China Narcotics and other controlled substances High-quality hormones Products for select quality-minded laboratories

CONCLUSIONS

Each Market Comes With Its Unique Opportunities

India
Not self-sufficient in all products
Need good representation on the ground

API for export dose

China
New and better products
Must have relationships, marketing message, long-term strategy

Russia
Products not manufactured in India and China Products used only in Russia

Brazil
Products not manufactured in India and China Regulatory environment getting tougher

Each Market Comes With Its Unique Challenges

India
Competition from manufacturers that enjoy cost advantage

China
Capacity to manufacture most products locally Dose export into regulated markets just starting

Russia
Focus on price Complex and changing regulations

Brazil
Focus on price Rules and interpretation constantly changing

Assessing Your Opportunities

Take a close look at your portfolio
Do you have a superior product? Is it cost-competitive? What are your strengths? Do you have unusual capabilities? What additional products could you make using these capabilities?

Take a close look at your capabilities

Analyze the market: Is there need for these products in individual BRIC countries?
Has the finished dose been launched? Can this be used in novel formulations? Is the API manufactured locally? If not, what are the barriers to manufacturing it locally? Are others from regulated market already selling this product into BRIC countries? Are you ready to commit for long term?

Choose partners carefully!

Opportunities exist, but there are no low hanging fruits

Thank you!
Consultants and industry friends Data and Research teams of Thomson Reuters API Intelligence Team IDRAC

Q&A

Kate Kuhrt Director, Generics and API Intelligence Thomson Reuters 215 Commercial Street Portland, Maine 04101 USA + 1 (207) 871-9700 x26 kate.kuhrt@thomsonreuters.com