Outlook 2011 presentation

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Global Bio-Pharmaceutical OUTLOOK 2011

Rising StarRising Star

What is Going Right For the sector?

What Are the Challenges?

Is investment in innovative therapeutics warranted? Which innovative therapeutics has or will make an impact on the quality of our lives in the next two to three years? What therapy areas present investment opportunities?

What events in the sector will win thumbs down or be an outright –ve?

Value creation: Our portfolio and top pick recommendations

What Is Going What Is Going ““RightRight””??

• Moving beyond the “wait and watch” for Proof-of-Concept (PoC), Big pharma are giving

importance to Proof-of-Relevance *-Paradigm shift in Partnering Deals: Tap Them Young

• While the HC Reform bill served a blow to profitable Pharma and Biotech companies in US,

it has boosted the Spirit of Research for the non-profitable biotech/ biopharma companies,

Rising stars (RS). R&D may turn the corner as Obama has increased the R&D tax credit by

20% and made it permanent..

• Drug approval in 09 and 2010 was not depressing and some novel approaches have made it

to the market- Provenge (Prostate cancer vaccine) Prolia (PM, osteoporosis), Gileniya (oral

MS drug). The report discusses important upcoming regulatory and clinical milestones

*Proof-of-Relevance: To identify the indisputable clinical and commercial value of early stages compounds.

What Are the Challenges?What Are the Challenges?

• Regulatory Pathway and Reimbursements- Our Focused Sector Report discusses these in depth

• Biosimilars and Patent Expiry- How Close and Real is the “Bio-generic Era”?• Safety continues to be the key factor in approval of drugs• Will Lupus, Obesity, Melanoma etc, See a New Drug?- Analysis and Our Take on

the Outcome of the regulatory events.• Binary Events- Another Intermune like Debacle in 2011? Select milestones in 2011

which could make or break a Company are included in the Report.

Therapy Areas Offering Investment OpportunitiesTherapy Areas Offering Investment Opportunities• HCV- Protease Inhibitors to The Rescue - Will sweep the HCV market, as they did in the

case of AIDS. At least two compounds will be approved (telaprevir, boceprevir) before 2012. Analysis of the therapy Area and Leading Companies- Vertex, Pharmasset. Market Dynamics and unmet Need.

• Autoimmune/ Inflammation diseases have seen the best outcome –both in targeting unmet needs and better patient friendly treatment options. Oral drug (INCB28050, R788, RDEA594, Gilenya) options are likely to make way for many diseases, such as, RA, MS; where injectables and biologics are the only options. Lupus and Gout will finally see approval of safer and more efficacious products (RDEA594, Benlysta, Epratuzumab) by 2011-14.

• Rare Genetic - Orphan diseases continue to be pursued as a preferred area by Innovators - premium pricing, low regulatory bar, etc. are incentives. Besides ERT (Enzyme Replacement Therapy), drugs for MPN (Myeloproliferative Neoplasms), IPF, HoFH (Homozygous Hypercholesterolemia) should be approved by 2011-14.

• Melanoma – MAbs may finally deliver –With 120,000 diagnosis of melanoma annually, and 300 agents investigated thus far, it is amazing that effective products for melanoma remain elusive. Benlysta Approval???

Mature BiotechMature Biotech

Resembling Global Pharmas and Specialty Pharmas of last decade

“Is the age of the biotech monopoly about to end ?”

MatureMature Biotech Biotech –– IssuesIssuesCY 2010 affected all Pharma companies by “Obamanisation and Implementation of

the Health Care Reforms (HC)” wiping off their market value significantly in the first half of 2010.

• Drying new product launches, thin pipeline and intensifying competition

• New Drugs Approved, but will they boost the sales or is the wait going to be longer?

• Patent Expiry Impact is Modest and Built into the Current Price; However outcome of Para IV Filing from Global Generic Players can surprise and will remain a “Hanging Sword” for the innovator. Report includes the patent expiry, sales table of major biologics and regulatory pathway being framed in US and for mAB in EU.

• Life cycle management approach by making better biologics, me toos. Report highlights the 2nd generation tools and technologies for making better biologics, mAB based drugs.

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Mature Biotech Mature Biotech –– IssuesIssues• Discounted pricing for patented follow-on drug launches could become a norm

• Re-imbursement issues:• CMS support to MCOs and PBMs for price negotiations should limit pricing

flexibility • Off label re-imbursement cuts • German/ EU reference pricing, NICE & Japanese health reforms seeking stringent

cost control

• FOB or Biosimilars:• Coming closer to reality as guidelines already placed in EU and in the works in US.• Lack of products to make up for the biosimilar erosion and sales loss.

• M&A and In-licensing remains key for future growth• Compete with cash rich Global Pharmas • Fewer opportunities with inflated valuation

Silver LiningSilver Lining

• Mature Biotech Can still afford to choose good products in the making…

• Outsourcing is the Mantra for Fueling the Pipeline

• Healthy cash position and depressed valuations = opportunity to buy back shares and improve valuations.

Valuation Methodology

• MP Advisors’ Proprietary Sum-of-The-Parts Valuation enables us to quantify the difference between the current equity value and the value arrived using our valuation method comprising three parts, i.e., Part A, Part B, and Part C as described below:

• Value the marketed products till their respective patent expiries (Part A);

• Value the late stage pipeline as of today (Part B) (Consider only the late stage PhIII and registered products).

• Value the management’s ability to convert early stage R&D activities into mainstream products and company’s strategic approach- historical and visionary, by giving a premium to their future cumulative R&D investment (Part C).

• The difference between the current equity value and Part A plus cash and other income value represents the gap that needs to be met through the company’s late stage R&D pipeline (Part B) and other strategic efforts (Part C) and drives our recommendations

3Bs: 3Bs: Biologics, BioBiologics, Bio--Generics, Generics,

and Betterand Better--biologics: biologics: A Value PropositionA Value Proposition

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Dawn of the Biologics/BioDawn of the Biologics/Bio--Generics EraGenerics Era• Worldwide sales of all biologic drugs, including therapeutic proteins, vaccines, and mAbs,

reached ~$130 billion (2009 IMS)

• Evolving pharma landscape: Gradual strengthening of the biologic drug portfolio in preparation of the patent cliff as well as improving the profitability

• We predict a shift towards more R&D and higher valued M&A in biologics over the next few years, as the regulatory pathway for approvals of “Me Toos, Biosimilars” including mAbs comes into effect

• Potential market for biosimilars: >$30b in the second half of the decade as multiple patents expire

• Affordability to accelerate the demand

• Over time, we expect Affordable Biosimilars to take a significant market share and/or force Innovators to cut prices significantly

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Maturing Technology Platforms For Better BiologicsMaturing Technology Platforms For Better Biologics

• Second Generation Monoclonal Antibodies

• Antibody Drug conjugation (ADC)

• Protein Engineering: Humaneering, Glyco-engineering, Half-Life Extension technologies etc.

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Regulatory Pathway For BiogenericsRegulatory Pathway For BiogenericsEU and USAEU and USA

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Global Pharmaceuticals – 2011 Outlook

Opportunities - Emerging Markets and Innovation - Taking longer to deliver

Challenges - Patent Expiry and Regulatory pressures - Imminent

Global Pharma’s Cutting Cost to Manage the Gap

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Highlights for 2011 Highlights for 2011 –– Global PharmaGlobal Pharma’’s Nearing the Patent s Nearing the Patent CliffCliff

Global pharmaceuticals – Emerging Market Strategy

Outcome from Major Clinical Studies/Events expected to reshape Competitive Dynamics across several therapy classes

New Drug Approvals for 2011 and their potential

Healthcare Reforms

How will patent expiry impact margins for Global Pharma companies

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Global Pharma Global Pharma -- Emerging Market Strategy Emerging Market Strategy

Who is doing it’s best in Emerging Markets?

Who will emerge eventually in Emerging Markets?

Pricing Mantra – Who has got it Right?

Branded Generics Strategy – Will it Deliver?

China – Growing Prominence

Notable Launches from Global Giants

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Outcome from Major Clinical Studies/Events expected to reshape Outcome from Major Clinical Studies/Events expected to reshape Competitive Dynamics across several therapy classesCompetitive Dynamics across several therapy classes

Dyslipidemia

Stroke Prevention in Atrial Fibrillation

Acute Coronary Syndrome

Hypertension

Diabetes

Metastatic Melanoma

Wet Age AMD

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New Drug Approvals in 2011 and their PotentialNew Drug Approvals in 2011 and their Potential

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Healthcare ReformsHealthcare Reforms

• What will be the impact?

• Who shall be worst hit?

• Who is immune?

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Health Care Reform: Doughnut Hole Discounts Health Care Reform: Doughnut Hole Discounts –– Impact on Therapy ClassImpact on Therapy Class

Share Of Part D Enrollees Who Reached Doughnut Hole And Catastrophic Coverage

Therapy Class% that reached gap but

not catastrophic coverage

% that reached catastrophic coverage

% of Part D enrollees who use the drug

Companies likely to bear the brunt because of major

presence

For Alzheimer's 49 15 4 Pfizer

Oral anti-diabetics 41 10 12 Merck, Astrazeneca, BMY

Proton-pump inhibitors 40 11 18 Astrazeneca, JNJ

Antidepressants 35 10 18 Lilly, Pfizer, Astrazeneca

Angiotensin receptor blockers 35 7 17 Novartis, Sanofi,

Astrazeneca

Statins 33 6 40 Astrazeneca

Osteoporosis drugs 32 7 15 Roche, GSK, Novartis

ACE inhibitors 30 5 28 Sanofi Aventis

Source: MP Advisors, Company reports, Georgetown University/ IMS health LRX database 2007

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Patent Exposure: Global PharmaceuticalsPatent Exposure: Global Pharmaceuticals

Company

Cumulative 2008 WW Sales of Products Expiring between

2010-14($b)

Total WW Pharma Sales

($b)

WW Sales Expiry -

2010-14 as % of 2008

Sales

2010 2011 2012 2013 2014 2010-12 Cumulative Patent Exposure%

2013-14 Cumulative Patent Exposure%

LLY 12.2 17.0 71.9 10.1 29.4 6.3 10.2 15.9 45.8 26.1

NOVO 4.0 6.2 63.9 20.6 0.0 0.0 0.0 43.3 20.6 43.3

AZN 17.8 31.6 56.3 8.9 9.9 18.7 2.3 16.5 37.5 18.8

PFE/WYE 34.8 63.1 55.2 7.6 26.1 10.7 6.3 4.5 44.4 10.8

BMY 8.1 17.7 45.6 0.0 31.6 7.5 6.5 0.0 39.1 6.5

SAN 17.3 40.3 42.9 10.6 10.9 14.6 4.6 2.3 36.1 6.9

JNJ 9.7 24.6 39.6 0.0 6.4 0.0 14.7 18.4 6.4 33.1

NOVN 10.8 28.3 38.3 0.0 4.0 26.7 7.5 0.0 30.7 7.5

MRK/SGP 13.0 38.1 34.1 9.3 0.0 15.1 2.3 7.5 24.4 9.8

GSK 10.5 36.7 28.7 21.7 0.0 6.7 0.3 0.0 28.4 0.3

ABT 3.6 16.7 21.5 0.0 8.0 0.0 0.0 13.8 8.0 13.8

ROG 2.3 36.0 6.4 0.0 3.5 3.2 0.0 0.0 6.7 0.0

Total ($b) 144.12 356.2 40.4

Source: MP Advisors, Company Reports

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Emerging Markets : Will Take Longer To DeliverEmerging Markets : Will Take Longer To Deliver

Size Of Emerging And Developed Markets

Country Mkt Size ($b)GDP ($b)

Per Capita Income $

Population in million Prescription drugs

Spending per CapitaPrescription spending as %

of Per capita income(Nominal)

DEVELOPING COUNTRIES

China 15 4,327 3,241 1335 18 0.55%

India 5 1,206 1,026 1175 6 0.57%

Russia 5 1,676 11,887 141 49 0.41%

Brazil 12 1,572 8,188 192 44 0.54%

Turkey 9 729 10,268 71 124 1.21%

South Africa 9 276 5,633 49 39 0.70%

DEVELOPED COUNTRIES

US 281.6 14,441 47,039 307 1141 2.43%

Japan 57.2 4,910 38,661 127 448 1.16%

Germany 34.4 3,673 44,793 82 756 1.69%

UK 22.6 2,680 43,934 61 311 0.71%

France 37.2 2,866 44,781 64 796 1.78%

Canada 16.6 1,499 45,424 33 1000 2.20%


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Indian Pharma Indian Pharma -- TomorrowTomorrow’’s s Global GenericsGlobal Generics

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Para IVs Para IVs –– The New India AdvantageThe New India Advantage

Indian Pharma companies are involved in 50% of the ongoing Para IV litigations!

Snapshot of Indian Cos. Para IV Challenges


Indian cos.No. of Para

IVs

No. of Para IVs where 30 mths stay will expire in 12

mths

No. of FTF claimed

No. of products settled / won /

unlitigatedSun Pharma 19 13 6 3Dr Reddy's 17 16 5 6Lupin 14 5 4 3Ranbaxy 13 13 8 5Wockhardt 8 5 3 NilGlenmark 6 3 3 2Aurobindo 5 3 2 NilTorrent 5 4 1 3Orchid 4 3 Nil 2Cadila 3 2 Nil Nil

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Para IVs Para IVs –– The New India AdvantageThe New India Advantage

Indian cos. have 180-day exclusivity in 6 of the top 11 products under litigation

Rank Drug Name Innovator Sales '08 $m Cos. as FTFs

1 Lipitor Pfizer 12401 Ranbaxy2 Plavix Bristol Myers 9004 Apotex6 Diovan Novartis 5740 Ranbaxy8 Nexium AstraZeneca 5200 Ranbaxy

10 Zyprexa Eli-Lilly 4697 Dr Reddy’s15 Seroquel AstraZeneca 4452 Teva16 Singulair Merck 4336 Teva17 Actos Takeda 3958 Ranbaxy18 Effexor XR Wyeth 3928 Teva

19 Atacand AstraZeneca 3702Sandoz / Teva /

Mylan

20 Gleevec/Glivec Novartis 3670 Sun Pharma

Source: MP Advisors

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Domestic Formulations Domestic Formulations –– Growth GuaranteedGrowth Guaranteed

GMP norms earlier and GLP norms now to help consolidation of a highly fragmented market

(1)(3) (2)

9

4 5

9

(1)

1

1

10 9 9 8

8

8 7

8

0

1

1

0 1

(1)

-8

-4

0

4

8

12

16

20

2002 2003 2004 2005 2006 2007 2008 2009

%

Volume Value New Products

→ GMP guidelines in July '05

→ Excise duty on MRP in Jan. '05

5% 7% 9% 18% 13% 13% 17%8%

Source: IMS

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Contract Manufacturing Contract Manufacturing –– Generics Gain The MostGenerics Gain The Most

Gain For Generics is Loss for Contract Manufacturer

Why manufacturing alliances happen only with generic cos. and not with contract manufacturer?

• Generic cos. are present in various manufacturing technologies with competitive cost efficiencies as against a contract manufacturer that is limited to a handful of technologies.

• Generic cos. are anyways selling the manufactured product to one or the other generic market and thus have well oiled manufacturing operations. As against this, a contract manufacturer will have to go through a lengthy validation procedure.

• For a generic company, most of the time, contract manufacturing would be a way to leverage spare capacity and thus can offer much more competitive pricing as against a contract manufacturer that has to recover entire overheads from the contract manufacturing deal.

• Most of the facilities of generic manufacturers are already validated by regulated market’s authorities – something that is not so easily found with a pure play contract manufacturer.

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Acquisitions Acquisitions –– Can One More Big One Happen?Can One More Big One Happen?

Why are Global companies interested in Indian Pharma?

• Manufacturing cost efficiency

• Chemistry skills

• Growing India pharma market

• Indian cos. presence in critical emerging markets like Russia, Africa.

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Japan Pharma 2011Japan Pharma 2011 日本の製薬会社日本の製薬会社

Top Picks : Daiichi Sankyo, Takeda, ShionogiTop Picks : Daiichi Sankyo, Takeda, Shionogi and Toriiand Torii

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• In 2009 and 2010, our thesis for Japan Pharma Inc was based on drive to reduce healthcare cost in Japan thru government lead incentives for genericization.

• The Generics thesis has played out for now and spotlight for next 18 months will be on the clinical & regulatory outcome from Innovators.

• Hybrid Pharma will start from 2011. We believe that the new business model will start showing its tangible and significant numbers from FY/12. Daiichi Sankyo is the only company in Japan in Hybrid Pharma.

• Consolidation in Japan Generic may Start: Foreign/ non-generic companies have started taking Japan generic as one of the growth drivers.

• Early Stage Pipeline of Japanese Companies shows that cancer is priority: Japanese majors have focused on acquiring companies or in-licensing compounds in Onco therapy. Takeda, Astellas, Daiichi-Sankyo, Eisai, Chugai and Kyowa Hakko Kirin – each of them possess decent number of cancer compounds.

• Japanese Companies have Lost Their ‘Cash Rich’ Status: Except Takeda and Chugai, none of the Japanese companies carry >20% of their market-value in form of cash.

2011-12, Innovation milestones will drive the valuation of stocks

SummarySummary

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Segment Key Success Factors Top Picks

Innovators

Torii

Daiichi Sankyo, Takeda, Shionogi

Domestic focused Low % sale coming from long listed products

Late stage R&D – own as well as in-licensed.

Internationalization capabilities

Willingness to consolidate Strong marketing abilities in Japan such that it improves the chances of licensing-in good products

Global Higher overseas exposure

Lower long listed drugs contribution

Rich PhIII pipeline

Generics

GP1/DP2 Strong marketing infrastructure with sales force and rapport with GP / DP

Oral formulations etc.

DPC3 Distribution capabilities

Injectable facilities, availability of all strengths of drug

Cost effectiveness, stable supply 1. General Practitioner; 2. Dispensing Pharmacy; 3. Diagnostic Procedure Combination

JP Specific Drivers Continue To determine Success

Segments Specific Segments Specific ‘‘Key Success FactorsKey Success Factors’’

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Japanese Companies show that cancer is a priority

Large Pharma Large Pharma –– Rich PipelineRich Pipeline

Source: MP Advisors; Company Reports

Company

PhI candiidates

PhII candidates

PhIII candidates Major Focus Comments

Takeda 19 9 13 Cancer Novel, varied targets for cancer

Astellas 20 15 8 Cancer & metabolic

R&D portfolio with some novel first in class targets, like survivin suppressant, GPR119 agonist

Eisai 0 10 7 Neurology & cancer

Antibody against folate receptor alpha, taregting cancer, can be a useful anticancer agent

Mitsubishi Tanabe 11 10 5

Diabetes, Neurology, Cardio & immunology

Good novel targets in different therapeutic class

Daiichi Sankyo 7 10 5Cancer & infectious diseases

R&D porfolio consisting of antibodies for cancer, with some good target like PPARY

Shionogi 8 9 4Metabolic & infectious diseases

Neuropeptide Y Y5 receptor, a very attractive target for obesity, but success rate low

Kyowa Hakko Kirin 13 6 2 Cancer Has two first in class targets, Chemokine receptor 4 antagonist & A33 for cancer

Chugai 9 10 1 Cancer Novel validated targets for cancer, working on Raf/MEK pathway

Dainippon Sumitom 7 4 0Diabetes & immunological disorders

First in class targets like TLR7 & PPARα/Y can be attractive

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Low Margin Business = Better Room for Improvement

Cost Cutting : Japan vs. Other SectorsCost Cutting : Japan vs. Other Sectors

GPM R&D OP M NP M

% of Sales % of sales% of Sales% of Sales

Takeda 80.02 31.50 19.95 28.57 18.96

Astellas 70.17 33.48 21.55 15.13 9.83

Daiichi Sankyo 70.84 39.13 20.17 11.53 5.55

Eisai 78.73 46.42 21.73 10.58 5.50

Mitsubishi Tanabe 63.66 28.21 20.76 15.47 7.75

Kyorin 62.50 37.17 11.92 13.41 8.92

Dainippon Sumitomo 67.33 40.41 17.84 9.08 5.19

Kyowa Hakko 43.47 23.09 10.43 9.95 5.44

Shionogi 73.29 34.84 18.61 19.84 12.72

JAPAN AVG 67.78 34.92 18.11 14.84 8.87

US Global 77.44 28.16 18.77 30.09 22.84

EU Global 74.65 30.90 17.03 31.99 22.01

M. Biotech 82.15 22.21 17.65 40.92 33.52

India 60.59 25.41 4.91 21.78 19.72

Diff vs. US-Global -12.48% 24.01% -3.53% -50.69% -61.14%

Diff vs. EU Global -9.21% 13.01% 6.30% -53.61% -59.68%

Diff vs. M. Biotech -17% 57% 3% -64% -74%

Diff vs. Indian 12% 37% 269% -32% -55%

*Average of three years (2010-2012)

SG&A (% of Sales)


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Good Opportunities Exists Even if Uncertainties Turn Negative

‘‘Sum of PartsSum of Parts’’ Relative StandingRelative Standing

NPV of Mktd Prod

(1)

Net Cash & marketable

secu. (2)

R&D Expense

(FY 03/11 -16)

NPV Pipeline

(3)

Market Cap (4) (1+2)/4 (1+2+3)/4

Global Innovator PharmaTakeda 1580.4 897.0 1153.1 389.1 3070.6 81% 93%Astellas 699.8 176.2 933.9 160.9 1419.4 62% 73%Shionogi 291.8 15.4 233.8 63.2 516.4 59% 72%Daiichi Sankyo 591.5 68.7 922.8 191.3 1289.7 51% 66%Eisai 377.4 -145.7 601.2 137.3 816.9 28% 45%Domestic Innovator PharmaKyorin 55.8 14.0 63.8 6.8 101.7 69% 75%Chugai 315.6 173.1 273.6 73.9 819.9 60% 69%Dainippon Sum 240.7 -79.0 286.3 35.3 291.1 56% 68%Mitsubishi tana 289.0 70.9 394.7 129.8 738.8 49% 66%Kyowa Hakko 190.8 33.4 135.0 46.0 488.3 46% 55%Source: MP Advisors; Company reports

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Cash Position of Japanese Pharma CosCash Position of Japanese Pharma Cos

Japanese Companies have Lost Their ‘Cash Rich’ Status


CompanyCash (1)

Marketed Securities (2)

Total Cash

(1+2)

Total Liabilities

(3)

Net cash

(1+2)-3

M Cap Net Cash as % of M Cap

Takeda 280.5 616.5 897.0 0.0 897.0 3074.6 29.2%Chugai 120.9 52.2 173.1 0.0 173.1 819.9 21.1%Kyorin 16.0 5.0 21.0 6.2 14.8 101.7 14.5%Astellas 184.0 22.2 206.2 30.0 176.2 1419.4 12.4%Mitsubishi tanabe 29.2 77.6 106.9 36.0 70.9 738.8 9.6%Kyowa Hakko NA NA 46.7 13.3 33.4 488.3 6.8%Daiichi Sankyo 101.1 281.5 362.3 293.6 68.7 1289.7 5.3%Shionogi 42.3 72.1 114.4 99.0 15.4 516.4 3.0%Eisai 116.1 88.0 204.1 349.8 -145.7 816.9 NAD Sumitomo 14.7 74.4 89.1 168.2 -79.0 291.3 NA

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High Dependence on Domestic Markets + Long Listed Products

Makes Do. Cos Vulnerable to Healthcare Reforms

Domestic Cos Confronting Several FrontsDomestic Cos Confronting Several FrontsMar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Company

Long L As % of DO Sales 43.51 38.61 38.39 34.63 48.14 50.16 50.21 46.17 43.61 38.35Overseas Sales % 46.77 45.77 43.49 42.08 40.02 42.89 44.15 46.30 48.29 51.21Long L As % of DO Sales 32.12 26.80 18.51 21.82 19.44 23.17 26.82 19.66 18.12 16.65Overseas Sales % 9.72 9.70 6.25 7.05 8.00 9.41 9.51 9.54 9.27 9.36Long L As % of DO Sales 28.98 31.81 47.26 56.14 52.37 48.59 45.79 44.46 43.43Overseas Sales % 38.6 44.7 50.4 50.9 52.0 54.8 54.2 57.5 58.0Long L As % of DO Sales 16.68 41.04 71.73 70.01 67.55 61.51 57.91 59.96 55.51 51.37Overseas Sales % 7.31 7.99 7.27 17.80 36.41 34.62 35.18 32.09 30.15 25.26Long L As % of DO Sales 28.02 26.21 28.69 27.95 45.27 78.57 75.68 74.64 71.40 62.18Overseas Sales % 57.30 58.53 64.26 61.58 59.42 55.99 58.49 58.00 60.03 65.13Long L As % of DO Sales 41.40 39.32 32.81 29.71 28.07 27.14 25.63 24.32 23.09 21.91Overseas Sales % 4.15 3.70 2.75 2.36 2.12 1.93 1.78 1.74 1.61 1.49Long L As % of DO Sales 23.72 21.15 23.86 34.96 33.04 31.33 32.16 36.53 34.89 33.32Overseas Sales % 3.44 4.16 6.69 4.89 5.16 5.05 5.00 5.04 5.08 5.11Long L As % of DO Sales 65.11 60.68 60.93 59.41 61.62 57.29 52.71 49.21 59.85 57.77Overseas Sales % 5.81 6.10 5.65 5.20 4.94 4.73 4.46 4.18 3.95 3.83Long L As % of DO Sales 44.85 39.67 49.65 42.22 37.66 32.24 26.95 22.17 18.37 15.74Overseas Sales % 14.44 15.81 24.65 36.33 38.50 39.18 40.05 39.28 39.08 38.26Long L As % of DO Sales 14.93 19.31 19.51 23.00 28.91 27.97 27.37 45.31 44.43 43.64Overseas Sales % 33.82 49.69 54.80 53.16 50.51 52.38 45.27 46.43 47.23 49.68

Astellas

Chugai

Takeda

Kyorin

Dainippon Sumitomo

Daiichi Sankyo

Kyowa Hakko Kirin

Mitsubishi Tanabe

Eisai

Shionogi


38Incentives for Pharmacies are playing out their maximum impact

Revised Incentives For Pharmacies and GE Usage RateRevised Incentives For Pharmacies and GE Usage Rate

Relative number Cumulative TotalRelative number

Cumulative Total

9.7 9.7 65％≦ 0.1 0.24.3 14 60％≦ 65％ 0.2 0.45.5 19.6 55％≦ 60％ 0.3 0.77.4 27 50％≦ 55％ 0.5 1.29.9 36.9 45％≦ 50％ 1.0 2.213.3 50.3 40％≦ 45％ 1.5 3.716.5 66.7 35％≦ 40％ 2.4 615.3 82 30％≦ 35％ 4.0 10.18.1 90.1 25％≦ 30％ 7.3 17.45.1 95.2 20％≦ 25％ 13.3 30.62.6 97.8 15％≦ 20％ 25.5 56.11.3 99.1 10％≦ 15％ 30.7 86.80.6 99.7 5％≦ 10％ 11.5 98.30.3 100 0％≦ 5％ 1.7 100

Average rateMedian rate

42.6 18.240.1 16.0

Rate of GE (%)(on prescription basis) GE usage rate

Rate of GE (%)(on volume basis)

Since April, 2010

Incentive points (¥)

GE drug 30％≦ 4 points + 13 points 17 points (170yen)usage rate 25％≦ 0 points ＋13 points 13 points (130 yen)

20％≦ 0 points ＋6 points 6 points (60 yen)20％＞ 0 points ±0 points 0 points

Standard for calculation

Until March, 2010

on prescription basis

Generics Investment Thesis:

• Increase in incentives for pharmacies has led to a spur in generic sales (~50% increase in 1Q FY 03/11)

• Growth will not continue as number of pharmacies (~82% of total) have now reached the ‘bracket’ that gets the maximum benefit of ‘Rx incentive for generics


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Generic Cos at a GlanceGeneric Cos at a Glance

Generics Investment Thesis:

• Broadly generic market is divided into two segments: GP/Dispensing market and DPC market • Companies focusing on the GP/Dispensing market: Companies ability to offer better margins remains the key success factor. Growth in

dispensing Pharma market due to increase in incentive of pharmacies. Companies like Towa and Sawai focus on these segments. • Companies focusing on the DPC market : Number of DPC hospitals are >1500 and likely to grow further. Stable supply, availability of

formulations at different strengths, and a strong distribution channel with wholesalers are key growth drivers. Companies like Nippon Chemiphar, Eisai’s and Kyorin’s generic divisions etc. focus on this segment.

• We expect generics penetration to reach ~8% (by value) by 2012 (Government’s target is 15%. The new patent expiries of ~900b yen in next three years will help generic companies maintain current pace of growth.

¥ b 03/10

A 03/11

E03/12

E03/13

E03/14

E03/10

A03/11

E03/12

E03/13 E

03/14 E

03/10 A

03/11 E

03/12 E

03/13 E

03/14 E

Sales 50.1 61.6 72.3 82.6 90.5 39.0 44.2 49.5 56.2 63.0 24.0 28.6 30.9 33.7 36.1% Change YoY 13.1 23.0 17.4 14.3 9.5 8.7 13.2 12.1 13.4 12.2 7.5 19.3 7.9 9.1 7.1 COGS 26.3 32.6 38.3 44.2 48.2 18.8 21.3 23.7 26.8 30.0 11.4 14.7 15.8 17.3 18.6 SG&A 11.7 12.8 15.2 17.5 19.1 9.9 11.0 12.3 14.2 16.0 11.8 12.8 13.7 15.0 15.9 % of sales 23.3 20.8 21.0 21.2 21.1 25.5 25.0 24.8 25.3 25.3 47.8 44.8 44.3 44.6 44.1 R&D 3.6 4.2 5.0 5.6 6.4 2.6 3.1 3.4 4.0 4.5 % of sales 7.2 6.8 6.9 6.8 7.1 6.6 7.1 7.0 7.1 7.2OP 8.5 12.0 13.8 15.3 16.8 7.8 8.8 10.1 11.2 12.5 0.8 1.1 1.4 1.4 1.6% Margin 17.0 19.4 19.2 18.6 18.6 19.9 19.8 20.4 19.9 19.9 3.2 3.9 4.6 4.0 4.5NP 5.0 6.6 8.2 9.1 10.0 4.6 5.3 6.1 6.5 7.3 0.3 0.5 0.7 0.7 0.9% Margin 10.0 10.7 11.4 11.0 11.0 11.8 12.0 12.3 11.5 11.5 1.1 1.9 2.4 2.1 2.4

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Date post:	05-Dec-2014
Category:	Business
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