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Strategy Challenges
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France Houdard
Managing Director
January 2010
Table of Contents – Corporate Series (Part 2 of 6)
BIOPHARMA: China 2010 – 2020
♦ Preface – Overview of the China Life Science Industry
The PAST: Evolution of Biopharma Foreign Investment into China
The FUTURE: Virtual Integrations – 4th & 5th Generation Strategies
The PRESENT: Strengths, Weaknesses, Opportunities, Threats (SWOT)
The OPPORTUNITY: Virtually Integrated Pharma Company (VIPCO’s)
Future Operating Models (2010 – 2020): Value Chain Focus for Virtual Extensions (China)
INNOVATION / R&D: Big Pharma Research & Development (R&D) Trends in China
CLINICAL TRIALS: Drivers? Benefits?
NEXT GENERATION (2010 – 20120): Who is Migrating to VIPCO Extended Models?
2) REVENUES 3) INNOVATION
TS
TA
KE
Sales Engineering
LE
AR
N
M
T
Marketing IT HR R&D
Back
Office
F&A Procure
Distribution Sourcing
RESEARCH &
DEVELOPMENT
Production
SALES &
MARKETING
RESOURCES
PRODUCTION /
SOURCING
1) COSTS DRIVING
Shareholder Value
REVENUES INNOVATION
TS
TA
KE
LE
AR
N
Sales Engineering
T
Marketing IT HR R&D
Back CONTRACTS,
Office
PARTNERSHIPS
F&A Pro’c
SHARED
SERVICE
Distribution Sourcing CENTERS
SALES &
MARKETING
PRODUCTION /
RESOURCES SOURCING
DRIVING
COSTS Shareholder Value
♦ INNOVATION / TALENT
Pipeline Productivity Collapse. Big Pharma has doubled investment in R&D during past decade. Yet, the return
on this investment has plummeted. Today’s new drug yield is barely ½ the new drug production of 10 years ago -
despite a doubling in number of compounds being placed into early-stage clinical testing.
Globally Transformed Labor Dynamic – “World is Flat”. Extremely high priority and focus placed on
national development of scientific base and capabilities in China: already 1.6 million science and engineering
graduates per year in PRC (China has 10 x size of graduate pool compared to US). R&D heads /integrates East.
R&D and Clinical Trials head East. China clinical trial benefits include Costs Savings (30-50%); Time Savings
(30%); Large Technical Talent Pools; “Gene Pool” advantages in clients; broad infrastructure.
♦ REVENUES / MARKETS
Global Patent Expirations. Tidal wave of patent expiries this decade: USD150 billion between 2005 and 2015.
Future for Big Pharma companies rooted in products that are currently under research and development, or have
even yet to even be discovered.
Emerging Markets already Emerged. Fundamental shift in leading global market sizes, from developed to
emerging markets – e.g., BRIC (Brazil, Russia, India, China). Today, China is world’s #5 largest pharmaceutical
market and is projected to be the #2 largest in world by 2020 ($120bn); #1 in 2025.
Massive Middle Class + Aging Population + Disease Divergence + Insurance = Opportunity.
Immense revenue opportunities in China rooted in: divergence of disease profiles; fundamental shift in age profile
of its population; massive growth in middle class and incomes; expanding healthcare and insurance infrastructure.
FIPCO (Fully Integrated Pharma Co.) VIPCO (Virtually Integrated Pharma Co.)
Sales & Partnerships
Sales & Distribution CSOs
Distribution
Manufacturing CMOs
Manufacturing
Clinical
Development CROs
Clinical &
Regulatory
Preclinical
Preclinical CROs
Support
Research
Technology
R&D Academia,
Scientific,
Institutions
Copyright © 2010 Exolus. All rights reserved. Source: G. S. Burrill, ‘Biotech 2008: A 20/20 Vision to 2020’, The Burrill Indiana Life Sciences Meeting, October 2008. 6
Bio-Pharma (2010 – 2020): Next Generation Operating Models
Copyright © 2010 Exolus. All rights reserved. Source: All Publically Available Information, Company Websites 8
2. REVENUES: China Already World’s 2nd Largest Economy (PPP)
Germany (5)
US (1)
$5.1 tr
France (6) UK (4)
Japan (2) China (5)
IND(9)
531
500
53 170
400 355 461 525 Upper Middle US$21,501 – 53,900
300 239
255
200
157
100 106
73 Lower Middle US$13,500 – 21,500
0 35 Poor < US$13,500
Copyright © 2010 Exolus. All rights reserved. Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007; MGI Consumer Demand 2008. 10
NEXT GENERATION: Value Chain Focus for Virtual Extensions (China)
COST & TIME to DEVELOP 1 DRUG in WEST: 16 YEARS … USD1.3 billion
10 to 50 Pre-Clinical Testing
4-5
Phase I
2-3 Phase II
1 FDA
Market
1 Phase IV
years 0 2 4 6 8 10 12 14 16
Copyright © 2010 Exolus. All rights reserved. Source: A. DiMasi and HG Grabowski: Managerial & Decision Economics 28 (2007); Zinnov LLC 11
3. INNOVATION: Big Pharma Migrating R&D Functions to China
COSTS DISEASE DIVERSITY RESEARCH DEVELOPMENT CLINICAL TRIALS
Copyright © 2010 Exolus. All rights reserved. Source: All Publically Available Information, Company Websites 12
3. INNOVATION: China Mobilizes all Resources to Develop Talent
CHINA SCIENCE and ENGINEERING GRADUATES: 1.6 MILLION per YEAR
USA
China
Thousands
Copyright © 2010 Exolus. All rights reserved. Sources: National Science Board, Science & Engineering Indicators 2008 13
4/5. CLINICAL TRIALS: Drivers for Increasing Future Extensions to China
COST (50%) TIME (50%) INFRASTRUCTURE TALENT PATIENTS
INFRASTRUCTURE
• Numerous world-class medical facilities that meet global requirements for
clinical testing.
Copyright © 2010 Exolus. All rights reserved. Sources: Exolus Research; PWC, The changing dynamics of pharma outsourcing in Asia (2008) 14
5. NEXT GENERATION: Who Programming to VIPCO Extended Model?
MIGRATION to ADVANCED OPERATING MODELS in CHINA: CSO, CMO, CRO
Boehringer Ingelheim
First Big Pharma to have entrusted a sole distributor for all of its
products in China: Sinopharm.
Sinopharm is China’s largest pharmaceutical distributor by sales
and the only China distributor to cover the entire PRC.
Boehringer Ingelheim’s sales spiked upward by 45% from 2006
to 2007; Sinopharm saw an annual growth rate of 32%.
Copyright © 2010 Exolus. All rights reserved. Sources: Goldman Sachs: Healthcare Services: CROs, December 2007; Exolus Research 15
www.exolus.com
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