Identifying And Exploiting API Opportunities Across Emerging Markets API SOURCING STRATEGIES 2008 BERLIN, GERMANY DAVID HARDING NOVEMBER 24, 2008

API INTELLIGENCE AT THOMSON REUTERS Newport Strategies founded in 1990 and acquired by Thomson Scientific in 2004 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 Newport Horizon and Newport Vision used by over 200 companies across the globe

3 Backdrop Pharma Market: 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 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 *2009 IMS Global Pharmaceutical and Therapy Forecast

4 A quick look at some figures in regulated markets Reviewing the changing dynamics of the API market Benchmarking API opportunities from and into emerging generic markets Pros and Cons of working in emerging markets Agenda

Number of API Manufacturing Plants Inspected by US FDA: 2001 – 2007 Source: Newport Horizon Premium™

Number of API Manufacturing Plants Inspected by US FDA: 2001 – 2007 Source: Newport Horizon Premium™

Availability of High-Quality API: A Global perspective Source: Newport Horizon Premium™

Number of US DMFs filed by country: 1998 – 2007 Source: Newport Horizon Premium™

US DMF Filings by API Manufacturers: 1998 – 2007 Source: Newport Horizon Premium™

Number of European COS filed by country: 1998 – 2007 Source: Newport Horizon Premium™

COS Filings by API Manufacturers: 1998 – 2007 Source: Newport Horizon Premium™

Indian Landscape for API Manufacture 12 Abundant amount of API manufactured for local market Abundant amount of API Exported; plenty imported

Availability of API: India Source: Newport Horizon Premium™

14 Markets for API: India ~1300 Indian Import Registrations filed since Feb 2003 Companies with most IIRs –Schering-Plough –Teva –DSM –BASF –Sanofi-Aventis –Novartis (Sandoz, Lek) –Pfizer –Bayer –North China Pharmaceutical Group –Kyowa Hakko Kogyo Products with most IIRs –Clavulanate Potassium –Erythomycin Thiocyanate –Levonorgestrel –Vancomycin Hcl –Cyclosporine Source: Newport Horizon

15 Are there many opportunities to sell API into India? Pros –Not self-sufficient in all products Fermentation Steroids Prostaglandins Polypeptides –Demand for Intermediates –Costs rising in China and India –Opportunities in high- quality API for export dose Cons –Abundance of locally manufactured API –Many local facilities FDA approved –Extensive importing from China –Local API manufacturers enjoy cost advantage –Restrictive duty on API imports

Indian Corporate Groups Pursuing Regulated API Markets 16

17 Are there many opportunities to source API from India? Pros –Many companies with regulatory filings –Many companies that are FDA approved –Lower cost of API –Rich talent pool (125,000 chemical engineers each year alone) –No Language Barrier Cons –Increased FDA inspections could lead to unfavorable results Example: Ranbaxy –cGMP standards not always met

Chinese Landscape for API Manufacture 18 Abundant amount of API manufactured for local market Abundant amount of API Exported; some imported

Availability of API: China Source: Newport Horizon Premium™

20 Markets for API: China ~400 Chinese Import Registrations filed since September 2003 Companies with most CIRs –Kyowa Hakko Kogyo –Novartis (Sandoz, Lek) –Ajinomoto –DSM Fine Chemicals –Pfizer –Chong Kun Dang –Ranbaxy –Dr Reddys –BASF Products with most CIRs –Clavulanate Potassium –Amoxicillin –Clarithromycin –Diltiazem Hcl –Cysteine –Pioglitazone Source: Newport Horizon

Changing Dynamics of API Market: China The days of cheaper API prices could come to an end Effects of the Olympic games + Implementation of more stringent EHS regulations + Waste water treatment standards + Increasing cost of labor, inflation and energy =Higher API prices 21

IMPACT OF THE OLYMPICS Will intermediate manufacturing start moving to India? Europe? U.S.? Will API outsourcing into China slow down?

23 Are there many opportunities to sell API into China? Pros –Rising costs in China –Demand for difficult to manufacture APIs “nibs” –Demand for high-quality API from dedicated facilities Newer cephalosporins Cons –China has manpower, intellect and raw materials to manufacture most products locally –Heavy focus on cost –Importing from low-cost countries –High-value of Euro

Chinese Corporate Groups Pursuing Regulated API Markets 24

25 Are there many opportunities to source API from China? Pros –Lower cost base (than India) –Improving IP and anti- counterfeiting environment –Good at intermediate manufacturing Cons –Still lacking at meeting strict GMP standards –Cost of materials increasing –Language barrier –“Buyer Beware” Heparin scare

Russian Landscape for API Manufacture 26 Some API manufactured locally, but for local market Overwhelming majority of API imported INTO Russia

Availability of API: Russia Source: Newport Horizon Premium™

Top API imported to Russia (2007) 1.Cefazolin Sodium 2.Amoxicillin Trigitrate 3.Sorbitol 4.Metamizole Sodium 5.Aminosalicylic Acid 6.Ampicillin 7.Ascorbic Acid 8.Acetylcalicylic Acid 9.Paclitaxel 10.Ceftriaxone Sodium 28 Source: PharmExpert™ 11.Paracetamol 12.Tolperizone Hcl 13.Vinpocetine 14.Doxorubicin Hcl 15.Cefotaxime Sodium 16.Mannitol 17.Cefotaxime 18.Chlorpromazine Hcl 19.Docetaxel Anhydrous 20.Choline Alfoscerate

29 Are there many opportunities to sell API into Russia? Pros –Almost all API is imported Little local production Little local expertise outside of supplements Local products w/ inconsistent quality –Large number of local dose companies Cons –A lot of the API is coming from India, China –Many local dose companies buy from offshore distributors Suspect quality –Red tape

Brazilian Landscape for API Manufacture 30 Some API manufactured for local market Very little exported Overwhelming majority of API imported INTO Brazil

Availability of API: Brazil Source: Newport Horizon Premium™

32 Are there many opportunities to sell API into Brazil Pros –Most of API is imported –Low import taxes –Dose companies becoming more quality minded –Regulatory environment becoming tougher –Dose exports into neighboring countries –Opportunities in High-quality hormones Controlled substances Cons –Currently most API imports from India and China –Still heavy focus on cost rather than quality –Euro to Real

33 Are there many opportunities to source API from Brazil Pros –Universities and private enterprise work together –Recent push for new drug development Cons –Lack technical documentation or expertise –Lack of scale –Lack of specialization –Lack of export policy –Can’t compete on cost

34 Opportunities exist for sourcing API from China and India Opportunities exist for selling API into China, India and Brazil Knowledge of API manufacturer is key –Are they really manufacturing this API? –Are they able to supply regulated markets with API? Conclusion

35 Thank you! David Harding Newport API Intelligence Specialist Thomson Reuters Scientific 215 Commercial Street Portland, Maine USA + 1 (207) x27