Presented by: Priya Rawat (57) Rakesh Negi (67) Shailendra Sharma (75) Ankita Gupta (90)

1. Trends in Indian Pharmaceutical Industry Presented by: Priya Rawat (57) Rakesh Negi (67) Shailendra Sharma (75) Ankita Gupta (90) Shefali Shrimali (96) Harsha Sikri (98)

2. Agenda • Global Pharmaceutical Industry – An Overview • Indian Pharmaceutical Industry - An Overview • Pharmaceutical Industry Value Chain • Key players in Indian Pharmaceutical sector • Exports and Imports • Mergers and Acquisitions • Case Studies Nicholas Piramal-Rhone Merger Dr. Reddy’s Labs – Betapharm Acquisition Ranbaxy and Daiichi Sankyo Acquisition • Conclusion

3. Global Pharmaceutical Industry – An Overview • The global pharmaceutical industry is a multinational industry , highly regulated, capital intensive, and driven by large research and development expenditures. • Its is forecasted to grow to US$ 842 billion in 2010, an equivalent CAGR of 6.9% over the next five years. • The Pharma industry of the Western World are the leading manufacturers of medicines. • The US and the UK together sell 2 out of 3 pharma product in the world. • The World’s top pharmaceutical company is Pfizer, US and the most selling drug is Lipitor produced by Pfizer.

4. Indian Pharmaceutical Industry- An Overview • India holds fourth position in terms of volume and thirteenth position in terms of value of production in pharmaceuticals. • The Indian pharmaceutical industry, has grown to about $19 billion (over Rs.78,000 crore) in 2008. • The total employment is about 340,000 in the sector and an estimated 400,000 doctors and 300,000 chemists are serving an over 1 billion customers market. • Today the Indian pharmaceutical sector meets 95% of the country’s medical needs.

5. Pharmaceuticals Industry Value Chain Bulk Drugs (API) Formulation (Generics & Patented) Contract Manufacturing Contract R&D & Clinical Trials Bulk Drugs (API) Formulation (Generics & Patented)

6. Emerging Models to Capture the Outsourcing Opportunity

7. Segment - wise sales

8. Key Players in the Indian Pharmaceutical sector

9. Exports and Imports • Exports of pharmaceuticals have been consistently outstripping the value of corresponding Imports in the period 1996-97 up to 2007 08. • The share of exports of Pharmaceuticals products to the total national exports have exhibited a long term upward trend from 2.01% in 1996-97 to 2.55% in 2007-08.

10. Exports and Imports The share of imports of Pharmaceuticals products compared to national imports fluctuated in a band of 0.16% (in 1996-97) to 0.39% (in 2002-03). In 2007-08, imports constituted 0.28% of the total national imports compared to 0.35% in the previous year. The sector attracted FDI amounting to US$ 1,401.60 million during 2000-01 to September 2008, of which, US$ 125.30 million occurred during April- September 2008.

11. Exports and Imports

12. Exports and Imports While Pharmaceutical products are exported mainly to USA, Germany, Russia, UK, Brazil, India’s imports emanate primarily from China, Switzerland, USA & Italy.

13. Entry strategies in Indian Pharmaceutical market Imports through agent Manufacture under license Investment in joint venture / subsidiary company Why M & A ?

14. Mergers and Acquisitions In 2006, the domestic pharma sector executed more than 40 deals with 32 cross border transaction worth US$ 2000 mn. In 2007, Indian pharma sector witnessed 25 Mergers & acquisition deals, with 15 cross border transaction worth US$ 600-700 mn. There were a total of eight acquisitions in the Jan-March period of 2008 with a total announced valuation of $152 million. In April 2008, Indian drug firms acquired six overseas companies. Dr Reddy's Laboratories was the most aggressive company during the four-month period, buying three companies in Europe and the US.

15. Prominent acquisitions concluded by Indian companies

16. Acquisition by Indian Players in CRAMS

17. Presence of Global Companies in India

18. Levels of integration in the generics industry Back-end manufacturing capability (API/formulation) Product integration (ANDA pipeline), and Front-end (marketing and distribution) in the developed world

19. Incentives for M&A by Indian Companies Build critical mass in terms of marketing, manufacturing and research infrastructure. Establish front end presence. Diversification into new areas: Tap other geographies / therapeutic segments / customers to enhance product life cycle and build synergies for new products. Enhance product, technology and intellectual property portfolio. Increasing market share.

20. Modes of growth in Pharma sector Mergers 65% of mergers are domestic in Indian Pharmaceutical industry Acquisition Cross border acquisitions are as high as 40% Strategic Alliances

21. Case Study – I Merger

22. NPIL India’s second largest pharmaceutical healthcare company. Came into existence in 1988, with acquisition of Nicholas Laboratories. Acquisitions include the Indian operations of Roche Products Ltd., Boehringer Mannheim India Ltd., Hoechst Marrion Roussel Ltd,'s Research Centre, Rhone Poulenc India Ltd., ICI India Ltd.'s Pharma Division and Aventis' Research facilities. NPIL has JV and alliances with F. Hoffmann-La Roche Ltd., Switzerland; Allergan Inc., USA; UK; Gilead Sciences, USA; Cheissi, Italy; and IVAX Corp; UK

23. Nicholas Piramal-Rhone merger Nicholas Piramal India Ltd (NPIL) completed its merger with Rhone Poulenc India Ltd (RPIL) in October 2001 that began in December 2000. Long-term cost benefit Closure of RPIL's Bhandup plant. Offered VRS package to its workers Integration of the CFAs and depots. Marketing and sales functioned independently. Optimisation of the complementary strengths created by the brand portfolio.

24. Effects • Wide range of therapeutic segments. • For the first half results showed a 73% growth in sales to Rs.477.8 crores as against Rs. 276.7 crores last year. • The formulation business expanded from 17% of sales to 86% of sales post merger, showing a growth of 94% while on adding last years figures for the two companies the growth rate had been only 10%.

25. Regulatory Framework Salient Features of Patent Act (1970) There will be no more product patent, these industrial sectors were covered by process patent only. The term of the patent was 7 years from the date of application or 5 years from the date of sealing of patent whichever was less. Salient Features of Patents Act (2005) Product patent will be allowed for all products including drugs, food and agro chemicals. Patent term for all existing and future patents are twenty years.

26. Case Study - II

27. Dr. Reddy’s Labs acquires Betapharm for $ 560mn. Delhi. In what is seen as India Inc’s first major M&A in pharma sector, DRL acquired 100% stake in Germany based Betapharm for $560mn. The stock closed a whopping 9.3 % up on the news.

28. - The Acquirer The second largest domestic pharma company in India Annual turnover of over INR 4900 Cr. Annual PAT of INR 438 Cr. Approved by US FDA, MHRA (UK) Formulations make 37% of company’s product mix; generic products account for 13%

29. - The Target • Fourth largest generic pharma company in Germany. • Market share of 3.5% • EBITDA margins between 24 – 26% • Portfolio of over 145 products

30. The Goodies • Distribution • Highly fragmented market and Unorganized sector • Reduce the efforts needed to establish (Identification, Promotion, Incentives) • Manufacturing • The manufacturing cost in India is 50% less than the global average • Source Betapharm’s business from India to reduce the COGS • Pipeline • R&D costs can be reduced considerably (around 35%) • Number of products launched per year would increase.

31. The Goodies • Branding • Brand Beta • Global Presence • Presence • Entry into Germany • Central & Eastern Europe • Size • DRL was able to reach the $1Billion size due to this acquisition • Leverage its generic business to grow in Drug discovery

32. BSE Code - 500124 Face value - Rs. 5.00 Promoter holding- 26.40% 52 week H/L – 739(16 June 08)/387(18 Nov 08) Stock jumps on acquisition news correction in prices

33. Side Effects: A case of wrong prescription? • Economic Optimization of Pharmaceutical Care Act (Germany, May, 2006) • Price caps in place • Reduced prices 15-25% • Longer than expected payback • Supply chain problems • Salutas terminates contract • Strict regulations in Germany • Delay in approval of Betapharm products in pipeline.

34. Case Study III: Ranbaxy and Daiichi Sankyo

35. Background: Ranbaxy Ranbaxy, witnessed $1.6 billion in global sales in 2007, It had a profit after tax of $190 million, a gain of 67% over the previous year. It has a footprint in 49 countries and manufacturing facilities in 11.  Ranbaxy is among the top 10 global generic companies.

36. Background: Daiichi Sankyo Daiichi Sankyo is the product of a 2005 merger between Sankyo and Daiichi. In the financial year ended March 2008, it had net sales of $8.2 billion and a profit after tax of $915 million. It is the second largest pharmaceutical company in Japan. Daiichi Sankyo makes prescription drugs, diagnostics, radiopharmaceuticals and over-the-counter drugs.

37. The Deal To begin with, Daiichi Sankyo Co. Ltd. signed an agreement to acquire 34.8% of Ranbaxy Laboratories Ltd. from its promoters. Daiichi Sankyo would pick up another 9.4% through a preferential allotment. According to SEBI norms, it has to a make an open offer to the shareholders of Ranbaxy for another 20%. There could also be a preferential issue of warrants to take the Daiichi Sankyo stake up by another 4.9%. At the end of the exercise, Ranbaxy would become a subsidiary of Daiichi Sankyo.

38. Concerns that prompted Ranbaxy for the deal The company has thrived on selling off-patent drugs in the U.S. which has become expensive proposition because of litigation. There is growing competition in generics at home and abroad. Finally, even as the Indian government has been insisting on stringent quality norms, it is extending its regime of price controls.

39. Benefits for Daiichi Sankyo The acquisition will help Daiichi Sankyo to jump from number 22 in the global pharmaceutical sector to number 15. Access to Ranbaxy’s low-cost manufacturing infrastructure and supply chain strengths. It gets a stake in a major player in generics, an area that is becoming increasingly important in Japan. Furthermore, Daiichi Sankyo’s portfolio will be broadened to include steroids and other technologies. Access to Ranbaxy's entire range of 153 therapeutic drugs across 17 diverse therapeutic indications.

40. Benefits for Ranbaxy Ranbaxy will gain easier access to the much-coveted Japanese market. Ranbaxy gains access to Daiichi Sankyo’s research and development expertise to advance its branded drugs business. It gets a broader product base. The immediate benefit for Ranbaxy is that the deal frees up its debt and imparts more flexibility into its growth plans.

41. Post acquisition concerns The recent ban on the US imports of more than 30 Ranbaxy drugs is a major pain point for the company now. It has affected Ranbaxy’s share performance since September 2008. The concerns about effective management.

42. Conclusion India’s pharmaceutical industry has evolved from almost non-existent to world’s leader in the production of high-quality, low-cost non-branded or generic drugs. Indian companies have made tremendous strides in the U.S. market and companies like Ranbaxy and Piramal Healthcare Limited are major sources of generic drugs. Indian companies have spent millions of dollars filing ANDAs with the U.S. FDA to gain exclusive production rights for many drugs losing their patent protection in the United States. This will mean greater opportunities for Indian Pharmaceutical Companies who enjoy cost advantages over other countries.