Entering the American Market “The Land of Opportunity” Size, Challenges, Opportunities and Dynamics By IMS Consulting and Services

Key Objectives for Today’s Session Introduction Global market trends (key trends) Review of the American market size and structure Regulations from the USA The question of generics or patented products Review of American Key Success Factors (KSF) Case study on a successful US market entrant – it’s not impossible and it’s not always expensive! Conclusions

IMS Consultants work in supporting key business needs Five practice groups strategically aligned to client core activities Product & Portfolio Development Pricing & Market Access Promotion Management Sales & Account Management Performance Management Forecasting Competitive intelligence Scenario gaming Licensing and partnerships Portfolio strategy Brand growth strategies Brand promotional optimization (Promo.360) Cross portfolio promotional optimization Pricing and reimbursement Government and commercial contracting Health economics and outcomes research Designed evaluation platform to objectively and transparently identify multiple licensing opportunities, Establish partnership firms regionally and globally Developed innovative new segmentation strategies and resource optimization approaches that lead to new sales models in 16 countries Assessed promotional mix for a pre-launch brand across 21 countries to advise on optimal allocation of resources within and across countries Identified key performance indicators and enabled consistent metrics and measurements across products and commercial functions Developed pricing and market access strategy in the EU and US for two newly in licensed products in the context of an overall strategy for the product portfolio SOLUTION PROJECT EXAMPLE Product performance assessment Longitudinal patient- level data consulting Dynamic capture rate brand diagnostics Key performance indicator monitoring Patient segmentation Strategy: physician value metrics, influence networks, new selling models Sales diagnostics Segmentation/RO Call planning Compensation

Two key areas include Portfolio development and Market access & pricing Product & Portfolio Development Pricing & Market Access Forecasting Competitive intelligence Scenario gaming Licensing and partnerships Portfolio strategy Pricing and reimbursement Government and commercial contracting Health economics and outcomes research Designed evaluation platform to objectively and transparently identify multiple licensing opportunities, Establish partnership firms regionally and globally Developed pricing and market access strategy in the EU and US for two newly in licensed products in the context of an overall strategy for the product portfolio SOLUTION PROJECT EXAMPLE

Key Objectives for Today’s Session Introduction Global market trends (key trends) Review of the American market size and structure Regulations from the USA The question of generics or patented products Review of American Key Success Factors (KSF) Case study on a successful US market entrant – it’s not impossible and it’s not always expensive! Conclusions

Source: IMS Market Prognosis International, September 2006 Global pharma market will grow to over $665bn in 2007: So Where will Korean companies seek expansion opportunities? Global Sales and Growth

Key Objectives for Today’s Session Introduction Global market trends (key trends) Review of the American market size and structure Regulations from the USA The question of generics or patented products Review of American Key Success Factors (KSF) Case study on a successful US market entrant – it’s not impossible and it’s not always expensive! Conclusions

Global market 2007 forecast to grow 5-6% Japan Size: US$ bil Growth Forecast: 5-6 % Source: IMS Market Prognosis International, September 2006 US Size: US$ bil Growth Forecast: 4-5 % Top 5 Europe Size: US$ bil Growth Forecast: 3-4 % Emerging Markets (41 countries) Size: US$ bil Growth Forecast: % Rest of World Size: US$ bil Growth Forecast: 5-6 %

Total pharma Market $280bn Original brands $219bn Others (Never protected) $31bn Copy Products $0.0bn Generic Products $31bn Not coded, under investigation, OTC $30bn No longer Protected $28bn Protected $187bn Unbranded $21.8bn Company Branded $0.2bn Branded $9.0bn The Generics Market $31bn Never protected $4bn Sources: IMS management consulting analysis, IMS Midas analysis Korean Companies face two key decisions when looking at the American market, patented products or generics

Total pharma Market SU 350.4bn Original brands SU 96.0bn Others (Never protected) SU 156.9bn Copy Products SU 0.0bn Generic Products SU 156.9bn Not coded, under investigation, OTC SU 97.5bn No longer Protected SU 20.1bn Protected SU 61.6bn Unbranded SU 122.6bn Company Branded SU 1.0bn Branded SU 33.2bn The Generics Market SU 156.9bn Never protected SU 14.2bn Sources: IMS management consulting analysis, IMS Midas Analysis 45% of the US pharma market in volume terms will be generic products, this scale is vast and has significant production implications

Key Objectives for Today’s Session Introduction Global market trends (key trends) Review of the American market size and structure Regulations from the USA The question of generics or patented products Review of American Key Success Factors (KSF) Case study on a successful US market entrant – it’s not impossible and it’s not always expensive! Conclusions

Events to watch in 2007 across worldwide markets US market US continues to move introduce pharma-related legislation: –Waxman/Hatch introduce legislation on biosimilars in the US –Rockefeller introduce bill to prevent authorized generics during 180-day exclusivity period –Homeland Security report allows for 90-day personally transported importation Traction gained by US Institute of Medicine (IOM) recommendations related to drug safety US legislation to reduce Medicaid spending on pharmaceuticals by $3.9bn takes effect January 2007 Source: IMS Market Prognosis International September 2006 Update

In the US, positive effects of Medicare Part D not enough to counter patent expiries US 4-5% Sales Forecast 2007 Baseline RESULT = +4-5% Medicare Part D Slower Rx-OTC switching % growth Generic competition New legislation on Medicaid prices Brand price increases Aging demographics Increasing demand for existing products Biologics growth Minor improvements in economic conditions Source: IMS Market Prognosis International, IMS Consulting, September 2006

Key Objectives for Today’s Session Introduction Global market trends (key trends) Review of the American market size and structure Regulations from the USA The question of generics or patented products Review of American Key Success Factors (KSF) Case study on a successful US market entrant – it’s not impossible and it’s not always expensive! Conclusions

Key factor for consideration with the US Market Impact of generics on therapy class Pricing level for new and existing drugs Macroeconomic impact on prescription volume Market uptake of new drugs and impact on therapy class Regulatory and technology assessment rulings How will these uncertainties play out in 2007? What are the leading indicators of change? How will my portfolio be affected? How can I best anticipate these changes? How can I manage these uncertainties? Changes in the US government

Korean companies still need to develop a strong USP for sales and marketing purposes Cost to payer Safety risks Health outcomes Health economics Are the value arguments for my products compelling? Are my comparators changing and what are the implications? Are early signal detection approaches proving effective? How can risks be proactively managed?

The generic market is forecast to reach $120bn by 2015 with mostly new patent expiries and Medicare reform driving growth Strong influencing factors include: government policy, increasing public healthcare spending, increased insurance schemes patent expiry of blockbuster products Value growth (CAGR) = 15% Volume growth (CAGR) = 7% Value growth (CAGR) = 15% Volume growth (CAGR) = 7%

Korean companies must choose a strategic along a continuum of choices to best position themselves Low price Basic quality Imitation Limited service Commodity features Standard offerings High price Premium quality Innovation Superior service Differentiate d benefits Customised offerings Strategic options are influenced by: Key customer groups Competitive forces Access to skilled resources Optimal risk management short and longer term Follower First mover Stretched portfolio Focus on core competency

Whilst this value chain is relatively standardised, Korean companies need to carefully map out there capability across the key areas of the business The generics value chain and the key decision points facing Korean Pharmaceutical companies for the US Market Market entry Single country Multiple countries Organic Partner Acquirre

Korean companies need to assess current production skills and approaches to generic business models Technically difficult products Basic oral formulations Basic oral formulation require low cost and high volume manufacturing facilities Technically difficult generics or modified formulations will provide greater competitive advantage

Generic erosion is becoming steeper and faster each year Source: IMS National Prescription Audit, September 2006 Average Brand Share of Molecule after Generics Available 2006, 2005, and 2004

Launch uptake is slower for 2003 and 2005 class Sales of new products from launch, class of Source: IMS MIDAS, Market Insights team analysis, October 2006 LIVE AREA Slide auto layout FOR REFERENCE ONLY

Korean companies need to understand and benchmark the American environment thoroughly! Competition is significant in the USA Korean companies need to prepare with this as a primary mentality Generic penetration (% volume of total size) High Low High Number of competitors Competitive pressure increases as the markets become more attractive 50% 30% C; 620 P: 45% USA Japan C;216 P: 19% 10%

Competitive in volume terms comes from expected generic players a well as originator companies!

Korean companies face labour cost issues compared to other cGMP compliant global manufacturers, especially India Some Indian companies have established plants in Bangladesh to reduce labour costs!

The three optimal strategies must be carefully considered to ensure both successful entry and long term strategic positioning success Partnering Organic M&A Time vs revenue generation Low High Whilst M&A is very successful and provides fast market entry, the cost is also high and integration and management issues require large time investment This approach provides a more complete ability to manage the value chain however the time required is much greater limiting short term profits Partnering is the lowest cost but contains the greatest risk, often companies find challenges in reaching a consensus on decisions Long term Strategic goals Market entry short term

So the question is Patented or generic products or both? This question needs careful consideration. Our company strengths? Our value proposition? Our manufacturing facilities and capabilities Our long term strategic goals Our capability to develop technically challenging products Our real understanding of the market place Our ability to challenge patents (legal team capability, defend/attack)

Key Objectives for Today’s Session Introduction Global market trends (key trends) Review of the American market size and structure Regulations from the USA The question of generics or patented products Review of American Key Success Factors (KSF) Case study on a successful US market entrant – it’s not impossible and it’s not always expensive! Conclusions

USA: Key Success Factors. Secondary market Drivers for US market Strong Sales team promotion for the USA market (multi channel) Pricing negotiation capability, wholesalers, government, health insurer The ability to sustain price drops of up to 60+% and continuous price drops DTC advertising as a key promotional tool for US product – drive demand Product branding is increasingly important, even for generics Strong local management and effective decision making Secondary market Drivers for US market Strong Sales team promotion for the USA market (multi channel) Pricing negotiation capability, wholesalers, government, health insurer The ability to sustain price drops of up to 60+% and continuous price drops DTC advertising as a key promotional tool for US product – drive demand Product branding is increasingly important, even for generics Strong local management and effective decision making Key Success Factors for the US market: Strong financial and product margin management, access to largest customers (chains), cGMP/FDA approved production standards and certification Key Success Factors for the US market: Strong financial and product margin management, access to largest customers (chains), cGMP/FDA approved production standards and certification

USA Market entry success story Sun Pharma USA by IMS Consulting & Services

Background to Sun Pharma Background and Key facts: Large Indian manufacturer API and bulk materials manufacturer, full value chain Took a local approach to sales and marketing in the USA Has a strong Unique Selling Proposition (USP) “Customer focus: Speciality therapy area leadership ” Three plants in India FDA and EU approved, Most recent plant built in Bangladesh (lower cost than India!) Launched into the US market via partnership, then acquisition Multiple plants in the USA (3) approved by the FDA (including controlled substances capability) Commits USD approximately $36m to research annually (2005 figure)

Whilst the total portfolio is extensive, 3 key products have driven growth in the US market (diabetes, heart Failure and pain management are key therapy focuses)

It has taken Sun Pharma 4 years to generate USD$60 Million in revenue driven primarily by three specialty generic products

USA launch strategy Agreement to transfer of 25 products over the course of five years. The increased ANDA filings by Caraco over the years has upped Sun Pharma ’ s stake to the current 64%. Caraco built sales from 0.8M in 1997, to 60 Million in 2005 (taking 4-5 years to build to 60 Million even with acquisition) Purchased troubled Able Labs in the USA for Million dollars acquiring their production facilities at two sites with over 275,000 feet of manufacturing capacity (December 2005) They also purchased products from Women ’ s First Healthcare (2004) and a dosage form plant at Bryan Ohio (Sept 2005).

Launch Success Story initiatives Purchased Able Labs For Million USD Acquired 2 branded Products from Women’s First Healthcare Supplied products to Caraco pharmaceuticals in partnership Acquired 64% in Caraco Pharma through special development, filing success deal Purchased dosage plant in USA Launched 2 new products Launched 6 new products

Overall competency analysis leading to successful American entry Skills in specialty manufacturing to create product differentiation cGMP standards from Indian plants (3 now have EU and US approval) & US plants Research and development skills in specialising products to create difference Utilise partners for Sales and marketing in foreign countries Utilise foreign production (cGMP in the USA) to meet capacity demands Uses foreign companies to support regulatory requirements Uses local distribution network

Key Objectives for Today’s Session Introduction Global market trends (key trends) Review of the American market size and structure Regulations from the USA The question of generics or patented products Review of American Key Success Factors (KSF) Case study on a successful US market entrant – it’s not impossible and it’s not always expensive! Conclusions

The American market is extremely attractive yet highly competitive Thorough planning and research is required for successful entrance Core competencies are required across the pharmaceutical value chain Korean Companies need to balance competencies with partners or acquisitions. Production scale and costs need to be managed optimally Decision making must be quick and opportunistic Korean companies must be willing to invest continually to strengthen market position (manufacturing plant, people, regulatory, Sales/Marketing )

IMS Consultants work in supporting key business needs Five practice groups strategically aligned to client core activities Product & Portfolio Development Pricing & Market Access Promotion Management Sales & Account Management Performance Management Forecasting Competitive intelligence Scenario gaming Licensing and partnerships Portfolio strategy Brand growth strategies Brand promotional optimization (Promo.360) Cross portfolio promotional optimization Pricing and reimbursement Government and commercial contracting Health economics and outcomes research Designed evaluation platform to objectively and transparently identify multiple licensing opportunities, Establish partnership firms regionally and globally Developed innovative new segmentation strategies and resource optimization approaches that lead to new sales models in 16 countries Assessed promotional mix for a pre-launch brand across 21 countries to advise on optimal allocation of resources within and across countries Identified key performance indicators and enabled consistent metrics and measurements across products and commercial functions Developed pricing and market access strategy in the EU and US for two newly in licensed products in the context of an overall strategy for the product portfolio SOLUTION PROJECT EXAMPLE Product performance assessment Longitudinal patient- level data consulting Dynamic capture rate brand diagnostics Key performance indicator monitoring Patient segmentation Strategy: physician value metrics, influence networks, new selling models Sales diagnostics Segmentation/RO Call planning Compensation

Thank you. IMS Global Management Consulting: Korea, Asia Pacific, USA, Europe Contact: Young-Ho Lee Country Principal, Korea IMS Consulting & Services