Global pharma market outlook - with focus on emerging markets. Elisabeth Beck, President East Europe, IMS Health

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1 Global pharma market outlook - with focus on emerging markets Elisabeth Beck, President East Europe, IMS Health

2 SALES US$BN %GROWTH CONST US$ Global spending on drugs will reach more than $1.2 trillion by 2017 with a rising growth rate Global Sales and Growth, % 7.3% 5.5% 5.1% 2.5% 2-4% 4-6% 4-6% 5-7% 6-8% % % 600 4% % 0 $799 $832 $881 $953 $ $995-1,005 $1,040-1,060 $1,105- $1,125 $1,175- $1, (f) 2014 (f) 2015 (f) 2016 (f) 2017 (f) 0% Global sales Global growth Source: IMS Health Market Prognosis, Mar , IMS HEALTH

3 Brand growth balanced by Loss of Exclusivity (LOE), Pharmerging driving the growth Components of Change in Total Spending $1,145-1,175Bn $955Bn (-130) 2011 Brand LOE Generic Developed markets Pharmerging Other* 2016 Source: IMS Market Prognosis, *Other includes Rest of World absolute growth and exchange rate changes

4 IMS Health increases Pharmerging countries to 21 as healthcare improvement becomes global priority PHARMERGING Tier 1 China Tier 2 Brazil Russia India Tier 3 Algeria (new) Argentina Colombia (new) Egypt Indonesia Mexico Nigeria (new) Pakistan Poland Romania Saudi Arabia (new) South Africa Thailand Turkey Ukraine Venezuela Vietnam Pharmerging markets definition : $1Bn incremental sales in 5 years Pharmerging countries Tier 1 & 2 Countries Tier 3 Countries New Tier 3 Countries , IMS HEALTH

5 The 17 Tier 3 markets represent a wide array of income levels, growth rates and healthcare sophistication 2012 Pharma sales >$85 per capita 2012 Pharma sales <$85 per capita PL AR TR MX VZ RO SA CO VN ZA AL TH ID EG PK NG UA Population (2012) 397M GDP (PPP 2011) $6.4T 2017 Pharma Sales $82bln Pharma sales per capita range $96-$222 Population (2012) 982M GDP (PPP 2011) $4.3T 2017 Pharma Sales $45bln Pharma sales per capita range $7-$81 Majority urban population Higher government healthcare spend Stricter cost containment measures Typically better intellectual property (IP) protection Majority rural population (ex AL+ ZA) Higher poverty rate Higher out of pocket spend More limited access to healthcare Source: IMS Health Market Prognosis, March 2013, at ex-manufacturer price levels, LC$. Contains Audited + Unaudited data,cia Factbook, IMF T: Trillion M: Million , IMS HEALTH

6 Value Sales in US$ Billion Global pharmaceutical growth is driven by pharmerging markets while EU 5 will show only slight recovery : Global Sales & Market Growth 1, Developed Markets CAGR Pharmerging Markets CAGR ,200 1,100 1, Global Growth EU5 Growth Value Previous Period Growth % (LCUS$) US 1-4% Japan 2-5% Germany 1-4% France (-1) - 2% Italy 0-3% Canada 1-4% Spain (-4) (-1)% UK 1-4% Tier 1 China 15-18% Tier % Brazil 11-14% Russia 9-12% India 11-14% Tier % Pharmerging 11-14% (f) 2014 (f) 2015 (f) 2016 (f) 2017 (f) -1.0 Developed 1-4% Global growth Global Sales EU5 growth Source: IMS Health Market Prognosis, March 2013, at ex-manufacturer price levels, not including rebates and discounts , IMS HEALTH

7 Many of these countries are implementing healthcare reforms to ensure universal coverage Brazil Plans for expansion and improvement of the public health infrastructure and more widespread provision of subsidised medicines National List of Essential Drugs and Popular Pharmacy Programme increased the number of drugs covered under the scheme and will see further improvements over the next years Vietnam Plans to increase universal health insurance coverage to 75-80% population by 2015; 90% by 2020 National Target Program for Health 2015 Programme includes diabetes focus, increasing early diabetes detection by providing screening programmes and a nation-wide disease treatment network by 2015 Healthcare reforms will lead to greater patient population coverage India India aims to introduce universal health coverage during the 12th five year plan ( ), but the public health system faces massive problems with inadequate infrastructure, poor funding and inefficiency Public health experts have recommended that the government move from 'insuring' to 'assuring' health by investing in primary care , IMS HEALTH

8 Although diabetes accounts for a large proportion of spend, oncology has seen one of the biggest rise in pharmerging Pharmerging: Top TAs by Value over last 10 years Rank Cephalosporins 2 Vitamins and Minerals 3 Anti-Rhuematics 4 Penicillins 5 Non-Narcotic Analgesics 6 Anti-Ulcerants 7 Anti-Diabetes 8 Respiratory 9 Macrolides 10 Respiratory 11 Hospital Solutions 12 Lipid Regulators 13 Fluoro-Quinolones 14 Anti-Depressants 15 Oncologics 16 Calcium Antagonists 17 Dietetics 18 Vasotherapeutics 19 Functional GI Disorders 20 Expectorants Rank year CAGR YoY Growth 1 Cephalosporins 15% 3% 2 Anti-Diabetes 23% 18% 3 Oncologics 27% 18% 4 Vitamins and Minerals 14% 11% 5 Anti-Ulcerants 20% 14% 6 Hospital Solutions 21% 13% 7 Angiotensin II Inhibitors 31% 16% 8 Anti-Rhuematics 12% 10% 9 Non-Narcotic Analgesics 14% 12% 10 Lipid Regulators 21% 14% 11 Penicillins 12% 10% 12 Respiratory 17% 10% 13 Dietetics 17% 12% 14 Vasotherapeutics 19% 14% 15 Hormonal Contraceptives 17% 12% 16 Anti-Depressants 18% 8% 17 Anti-Epileptics 20% 14% 18 Expectorants 18% 16% 19 Calcium Antagonists 16% 14% 20 Platelet Aggregation Inh. 24% 12% Source: IMS Health, MIDAS, MAT June Growth calculated on LCUS$ , IMS HEALTH *Excluding Chinese Medicines

9 Funding for the high growth in pharmerging markets remains one of the biggest challenges Patients are still a key source of funds OOP: a key funding source in developing countries International Aid: common in frontier markets Affordable Prices Pharmaceuticals funding Government funding: severely impacted in times of austerity Health insurance: gaining in importance OOP: Out of pocket , IMS HEALTH

10 In the future, three trends will change the face of generic market in Pharmerging markets FUTURE TRENDS IN THE GENERIC MARKET Branded generics slow down Improved manufacturing standards A few dominant players & business models It will decrease over time due to payer pressure to reduce costs via commoditization, with two important caveats: In many countries it will be years if not decades before the balance shifts from the branded model Brands will remain strong in the out-of-pocket and OTC market It will reduce the power of the brand as a surrogate for product quality With more consistent quality standards, the price differentials between originals, branded and unbranded generics will narrow Many local players will find GMP compliance difficult and be bought or may exit the market With fast consolidation ongoing, some manufacturers will reach sufficient size, organically or through M&A, to be dominant players Manufacturers can focus on more differentiated prescription products and consumer medicines where brand power will remain strong. Biosimilars will be an important niche within this business model , IMS HEALTH

11 But payers and R&D players are trying to find a trade off between innovation and affordability PRICE TO REFLECT INNOVATION PRICE TO IMPROVE AFFORDABILITY RISK FOR R&D PLAYERS: Lower volumes Patent revocation and compulsory licensing Fewer opportunities to engage governments to mutual benefit OPPORTUNITY FOR R&D PLAYERS: Higher volumes Less risk of adverse government action Better corporate image , IMS HEALTH

12 Access to innovation

13 Vietnam at a glance Prognosis show double digit growth up to $ 5m annual sales US$* (billion) 5,0 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 2,0 0,7 1, ,4 0,8 1, ,8 1, Retail 3,3 1,1 +18% CAGR 3,9 1,2 14% 14% 14% 14% 14% 1,9 2,2 2,7 19% 19% 20% 20% 20% Hospital 4,6 1,4 3, Source: IMS Health Market prognosis, March 2013: *Constant exchange rate (Qtr IV 2012) Retail Growth has been driven by both volume and price increases Price growth of existing products will slow as rates of inflation and currency depreciation slow Rapid economic growth and rising incomes have translated into growth in out-of-pocket spending Hospital Strong growth will continue, driven by the expansion of the social health insurance system Control over government hospital budgets is tightening as more people are being enrolled in the social health insurance scheme Sharp increase in hospital fees will impact accessibility for poorer patient groups , IMS HEALTH

14 Vietnam will increase public healthcare scheme with incentives mainly for locally produced generics What are the drivers? Expansion of social health insurance coverage, with the objective to have 85% in Expansion of the hospital sector in order to ease overcrowding, with the aim of shifting the focus of healthcare provision from the central hospitals to the provincial and district hospitals Foreign investment will help expand the private hospital market What are the constrains? Greater emphasis on cheaper products for public healthcare facilities and promotion of locally produced generics, aiming to increase their market share to 70% by Increased fees for healthcare services at public hospitals affecting affordability for those who are not covered by social health insurance. Delays in the drug registration system for new drugs due to the need of local clinical trails What are MNCs doing in Vietnam? Companies increasingly focus sales efforts on community pharmacists (substitution) Preparations for an increase in primary care/ GP environment Foreign companies seeking to build production capacity via acquiring/partnering with local manufacturers , IMS HEALTH

15 Brazil at a glance Pharma market will reach $50m annually by 2017 US$* (billion) ,2 18,2 7,1 27,6 20,5 7,1 31,1 23,5 7,6 35,3 26,8 8,5 +13% CAGR 39,7 30,4 44,6 34,3 18% 13% 15% 14% 13% 13% 50,2 38,9 9,4 10,3 11,3 1% 7% 12% 10% 10% 10% Retail Non-Retail Retail Prices growth decelerated significantly in 2004 following the government price controls Volume sales saw a strong increase in 2012 and 2011 due to policies and increased public access to medicines. Volume sales will remain the dominant driver Non-Retail Plans to improve levels of quality and efficiency in the public hospital sector Scheme for more effective home care for elderly patients with chronic health conditions will shift costs from hospital to retail Source: IMS Health Market prognosis, March 2013: *Constant exchange rate (Qtr IV 2012) , IMS HEALTH

16 Drivers and constrains will change the Landscape in Brazil in the next years What are the drivers? Market entry of premium priced innovative drugs Government's commitment to delivering better healthcare provision and improve the quality of services provided by the public health system Strengthening primary care provision will remain a key health policy goal Demand for generics will continue to rise What are the constrains? Retail prices will come under growing pressure reflecting competition for market shares and the introduction of tighter price regulatory controls. A period of slower economic growth affecting both patient expenditure and public health budgets Efforts to regulate promotional activity more effectively, this will erode the degree to which manufacturers can influence prescribing trends What are MNCs doing in Brazil? Tech transfer as part of public-private partnership for a total of 55 drugs Increased interest in OTC-sector of local and multinational manufacturers Heavy discounting for Generics has begun to erode industry margins , IMS HEALTH

17 The New Normal : Innovation driven pharmacos have to strike a balance between mature and pharmerging Overall value growth in the mature markets remains flat Treatment volume continues to increase but not for original brands Generic opportunities are ruthlessly explored by payers Laggards are putting policies in place to catch up (eg Japan, Spain) Pharmacos are banking on emerging markets to provide much needed growth opportunities These markets still struggling to find a sustainable form of healthcare financing with big gaps between aspiration and delivery (eg Russia) Very strong focus on generics and older original brands (eg Poland) , IMS HEALTH

18 Pricing & Market Access is considered the most critical issue in pharmerging countries Senior Executives shared key issues affecting growth prospects Over the next 12 months Over the next 3 5 years # of mentions # of mentions Pricing & Market Access Volatile RegulatoryCompetition business environment Pricing & Market Access* Competition Volatile business Regulatory environment 8 3 Shift in demand Source: IMS Client Survey to Senior executive of the pharma industry in emerging markets, November 2012 N=85 Q2: What are the most important business issues that you face over the next 12 months? Q3: What business issues do you expect will become more important over the next 3-5 years? , IMS HEALTH *Can have more than 1 mention in the response E.g response: market access, price cuts, reimbursement, corruption includes 3 mentions of PMA

19 In each pharmerging country companies have a wide set of choices to define the appropriate strategy Product specialisation Product protection Key strategic choices Portfolio Priorities Typically decided regionally or globally Consumer Primary care Specialty care Niche Protected originals Unprotected originals Branded generics INN generics Local Business Structure Typically decided for each country separately Priority Investments Partnerships Organization None None None Single entity Via distributors Portfolio licensing Sales Business units Minimal presence Local manuf. Manufacturing Separate operating entities Full affiliate Local acquisition /stake Other , IMS HEALTH

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21 A professor hands out the documents for the final examination. One student jumps up and says: But professor, those are the same questions you asked us last semester! The professor says: True, but the answers have changed!

22 Elisabeth Beck President, East Europe, Telephone: , IMS HEALTH