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1、PHARMERGING MARKETS Julian ThurstonCo-Chair Global Lifesciences GroupMorrison&Foerster7th Floor,CitypointOne Ropemaker StreetLondonEC2Y 9AWTelephone:+44 20 7920 4050,Pharmerging Markets,Who are they?BBrasilRRussiaI IndiaCChinaMexicoSouth KoreaTurkey,Pharmerging Markets,IMS predicts:33%global pharmac
2、eutical sales will be in pharmerging markets by 201150%global pharmaceutical sales will be in pharmerging markets by 2020In 2001 this was just 13%Reasons:Growing middle classesWealth brings Western diseases eg obesity,diabetes,Pharmerging Markets,Classic development in 4 stages:Local generics busine
3、sses,no real IP lawsIP laws based on TRIPS harmonisation,local science base starts to offer services to other countries clinical trials/manufacturing(India,China,Brasil).Base line recognition of IP necessary for services contracts.Commencement of local sales with some IP(local trade marks,patents)Lo
4、cal businesses start innovating“IDCs”innovative developing countriesLocal innovative businesses want to internationalise.Just starting in Korea and Brasil.,Pharmerging Markets Strategic and Financial Impact,No longer the just the“triad”USA,EU,JapanStrategies developing to capture the valueAffect on
5、NPV/DCF models for:FinancingsPartneringsM&A,China-Healthcare Market,Strong economic growth and increasing demand for better healthcare have made the country one of the most important emerging markets for multinational pharmaceutical companiesOne of Chinas top priorities,as highlighted in its 11th fi
6、ve year economic development plan is the provision of basic healthcare services to the entire Chinese population by 2020.All forecasts indicate that China will become one of the worlds top five pharmaceutical markets by 2015.,The Chinese market is big and growing,With 1.3 billion people,China accoun
7、ts for 22%of the worlds total Chinas purchasing power is second only to the US In 2006 China ranked fifth worldwide in terms of overall economic power with a total GDP of US$2.5 trillion Chinese consumers spent about$47 billion on drugs in 2006,with spending growing at a compound rate of nearly 20 p
8、ercent between 2002 and 2006(compared to global growth rate of only about 5 percent for the same period)By the end of 2007 the total Chinese healthcare market was valued at US$86.8 billion*(compared with the US market at US$2.26 trillion*)In 2007,the Chinese healthcare market grew by 25.5%*compared
9、to the previous year surpassing growth for most developed countries,Sales to hospitals,main players,7.2%5%5%5%5%4%4%4%2%2%,Chinas Pharmaceutical Industry,Chinas pharmaceutical sector is young and still evolvingShanghai,as the countrys main commercial hub,has emerged as the preferred location,helped
10、by the presence of the Zhangjiang Hi-Tech Park.The Industry comprises:Pharmaceutical Manufacturers/SuppliersOther Service ProvidersInnovatorsBig Pharma R&D,Pharmaceutical Manufacturers/Supplies,China has developed a vibrant manufacturing industry to supply:lower-priced alternatives to branded pharma
11、ceuticals for sale and use in China,and reliable sources of low-cost active pharmaceutical ingredients(APIs)Generics industry historically promoted by:absence of patent protection in China for pharmaceutical products prior to January 1,1993 andmany key blockbuster drugs not having patents in Chinath
12、erefore local pharmaceutical companies could legally copy new drugs developed and patented in other countriesrelatively low barriers of entry associated with this work,Pharmaceutical Manufacturers/Supplies,The majority of manufacturers derive much of their income from domestic sales of finished form
13、ulations China has the lowest global cost base for API production and has now become a major producer of APIs for the global industry At the end of 2007 over 6,600 pharmaceutical manufacturers were registered with the State FDAAs yet no single firm has emerged as the dominant market leader,Pharmaceu
14、tical Manufacturers/Supplies,2005Yangtze River Pharmacy GroupHarbin Pharmaceutical Group CoShijiazhuang Pharma(CSPC)North China Pharmaceutical Group Xiwang Group CoShenghua GroupNortheast Pharmaceutical Group Shandong Xinhua Pharmaceutical GroupTianjin Zhongxin Pharmaceutical GroupTianjin TASLY Phar
15、maceutical Group,2006 Harbin Pharmaceutical Group Co Shanghai Pharmaceutical(Group)CoTainjin Pharmaceutical HoldingsGuangzhou PharmaceuticalYangtze River Pharmacy GroupShijiazhuang Pharma(CSPC)North China Pharmaceutical Group XiuZheng Pharmaceutical GroupNortheast Pharmaceutical Group Sichuan Kelun
16、Pharmaceutical,2007Yangtze River Pharmacy Group Xiwang Group Co Harbin Pharmaceutical Group Co Shijiazhuang Pharma(CSPC)Shenghua GroupNortheast Pharmaceutical Group Xian-Janssen PharmaceuticalNorth China Pharmaceutical Group XiuZheng Pharmaceutical GroupLuzhou Group,The top 50 local pharmaceutical c
17、ompanies by revenue saw significant change between 2005 and 2007 as a result of consolidation,Service Providers,As a low cost,high skill centre,China can provide productive and cost effective execution of laboratory tasks,preclinical and clinical testing and manufacturing and will continue to move i
18、nto processes previously considered the core activities of biotechnology companies With entry into the World Trade Organisation in December 2001 and the subsequent improvement in Intellectual Property Rights protection international pharmaceutical companies became more willing to disclose their tech
19、nologies to Chinese manufacturers and clinical trial service providers and benefit from lower cost servicesChinas effort to improve its laboratory practices resulted in the creation of a Good Laboratory Practices(GLP)system in 1999-closely modeled on the US equivalent,Service Providers An Example,Wu
20、Xi PharmaTech pharmaceutical and biotechnology CRO founded in 2000 specializes in laboratory services,preclinical development,and manufacture No speciality in any disease area but tailors service to its clients needsmore than 700 customers in the US,Europe,and Japan including include Merck and Pfize
21、rAugust 2007-raised$185 million through IPO on NYSEhas shown robust growth over the past three yearsWuXi PharmaTech says it plans to remain a service company.It has a passion for researching possible compounds for new-concept drugs,but no interest in the financial risks associated with the low succe
22、ss rate of candidate drugs.,Innovators,China is just beginning to enter a phase of Innovation and develop innovative products.At present,only about 5%of the medicines on the Chinese market are innovative and patent-protected In some ways China remains an unlikely innovator its education system remai
23、ns rigid Chinese culture leans toward conformity rather than imaginationintellectual property protection is less than ideal however:the Government is supportive of innovation costs are low resulting in high productivitythere is a flow of Chinese scientists returning to China motivated by entrepreneu
24、rialism and ambition who have studied and worked in laboratories in the USsome Big Pharma are moving R&D to China and Chinese scientists are rapidly developing the ability to innovate and create their own intellectual property,Innovation is on the rise,There has been a marked increase in the number
25、of applications filed in the State Intellectual Property Office in China.In 2006,570,000 patent applications were filed surpassing the 410,000 patent applications filed in the US Patent and Trademark Office.From 2000 to 2006 an there has been an average growth rate year-on-year in the number of pate
26、nt applications filed of 20%.Domestic applications experienced higher growth than foreign applications.,Innovation is on the rise,Innovators,Innovation in China is largely funded by continuing to offer manufacturing,clinical trial and contract research servicesAt present relatively few local compani
27、es are engaged in the discovery and development of new-concept drugs due both to the high initial capital investment such drugs require and to their high failure rate.In 2008 there are approximately 160 new drug candidates in Chinas pipeline,most of which are modest evolutions,Innovators,Institutes
28、and UniversitiesMain source of novel drugsLack the funding and personnel for clinical trialsPharmaceutical companiesLack the size,knowledge and resources for innovationMay manage clinical trials for Institutions and UniversitiesBiotechnology companiesMore innovative and efficient than Pharmaceutical
29、 companiesIndustry consolidationconsolidation of the industry is loomingbut this needs paper and finance,Supportive Governmental Policies,In general,the climate in China is moving towards favouring innovationIn April 2007 China issued its first five-year development plan for its bioindustry 2006 to
30、2010To build systems to benefit the bioindustry including policy technology innovation,bio-security,industry organisation and service.To increase R&D investmentTo upgrade the structure of the industry by cultivating biotech enterprises and forming large-scale biotech enterprisesTo grow industry scal
31、eChina has acted firmly against corruption with the arrest and execution of the former head of the State FDA.6 fake medicines approved,bribes of$850.,Data Exclusivity,Undisclosed test data will not be disclosed by authorities prior to approval of market authorisationFor a period of 6 years from the
32、date of approval of marketing authorisation,a generics manufacturer cannot refer to the undisclosed test data Authorities will not disclosed undisclosed test data except:As necessary to protect the publicWhere steps are taken to protect against unfair commercial use,Big Pharma R&D,Cost Advantages of
33、 R&D in China for Big PharmaThe push into China is partly a response to the spiralling cost of drug discovery which can reach$1 billion by the time a new drug is approvedGenerally the cost of R&D in China is about 20 to 25%of the cost in developed countries Generally the cost of conducting clinical
34、trials is about 70%of the cost of conducting such trials in the US.Sample cost savings from ShanghaiBio relative to US:30-60%on Drug Discovery and Development 50-70%on Pre-Clinical Testing in Animal and In-Vivo Models,Business model of selected companies,Government Business Incentives for R&D,Prefer
35、ential income tax rate of 15%for R&D facilitiesR&D centers can get their land use fees and land transfer costs refunded for the first three yearsThe Zhangjiang park(Shanghai)offers fast-track approvals for customs and some other proceduresUnder Chinese law,if a foreign company with an R&D centre in
36、China applies for the approval of a new medicine,it is handled by the relevant provincial level FDA,whereas if a company with no R&D presence in China does so,it is handled by the State FDA which generally takes longer,Benefits in Penetrating the Chinese Market,Building research centres in China hel
37、ps foreign companies establish relationships with Chinese physicians and government officials,which can be pivotal when those companies try to launch products and seek regulatory approvals.Having a local presence and ties with the local community can help ensure that intellectual property is better
38、protected.,Large,High-Quality,Inexpensive Talent Pool,The talent pool in China is improving to a globally competitive level.Many western-trained scientists and engineers have returned to China taking good knowledge of drug discovery and development,leadership skills and especially English language s
39、kills.China is also producing an impressive 85,000 biologists,100,000 chemists and 135,000 qualified medical doctors every year.,Big Pharma R&D Investment in China,AstraZenecaMay 2006,AstraZeneca announced it would invest over$100 million into China-based R&D over a three year periodused to build an
40、 R&D center that will focus on cancers prevalent in China especially liver and gastric cancers2006,AstraZeneca also announced a$14 million,two-year compound synthesis pact with WuXi PharmaTechwork will focus on lead identification and provide chemical compounds to supplement AstraZenecas chemical li
41、braryNovartisspending$100 million for the design and construction of two R&D facilitiesfocus of research will be virally induced cancers and infectious diseases,R&D Investment by Big Pharma,GlaxoSmithKlinespending$40M outfitting a Shanghai-based R&D center to direct its global discovery and developm
42、ent in neurodegenerationbuilding up drug discovery capabilities related to disorders such as multiple sclerosis,Parkinsons disease,and Alzheimers diseaseexpected to become one of GSKs bigger facilities when it is completed predicted that in 10 years it will employ more than 1000 scientistsRocheJanua
43、ry 2004,Roche established an R&D center in Shanghai with a$11 million investmentmedicinal chemistry research for lead generation and optimization,R&D Investment by Big Pharma,LillyIn 2007,Lilly announced a$100 million investment into R&D in China over five yearswill invest into Chinese partners for
44、chemistry and biology projects instead of establishing wholly owned facilitiesPfizerOctober 2005,Pfizer announced the establishment of an R&D center in Shanghai,IPO of Chinese Companies,IPO Enthusiasm,Industry watchers highlight the need for caution around Chinese IPOsChinese pharmaceutical companie
45、s have been rushing to IPO in the U.S.before the enthusiasm disappears,Mergers and Acquisitions,The highly fragmented pharmaceutical industry seems like a natural candidate for M&A Consolidation is underway as hotshots with IPO cash have started scooping up smaller rivals Only five months after its
46、April 2007 NYSE listing,Simcere took a$15 million,51 percent stake in fellow drug maker Boda.In late November,Simcere paid$4.4 million for Master Luck,majority owner of Nanjing Tung Chit Pharmaceutical,which makes cancer drugs.In September 2007,a subsidiary of Tongjitang,which listed in March 2007,b
47、ought Guizhou Long-Life Pharmaceutical Company for$5.6 million in cash.,Mergers and Acquisitions,In perhaps the biggest and boldest deal towards the end of 2007,after its successful IPO,WuXi PharmaTech signed a definitive agreement to acquire US-based AppTech Laboratory Services(AppTec)for approxima
48、tely$151M WuXi assumes AppTec debt totaling approximately$11.7M The purchase expanded WuXis offerings to include biologics services and enabled WuXi to gain a significant US operational footprint,and expand its customer base and addressable market size.,Mergers and Acquisitions 2007,BRASIL IS CHANGI
49、NG TOO,BRAZIL,SOME KEY FACTS,2007 GDP(purchasing power party)$1.836 trillionGrowth5.4%Population191 millionMiddle Class22.5 millionFixed line phones33.8 millionCellphones99 millionImports and Exports approx 9%to China50%of all fuel sold for cars is ethanolCLEANTECH IS BIG IN BRASIL5TH largest landma
50、ss in the world huge natural resourcesHas 10%of world population of dentists!,Brazil Pharmaceutical Market,In 2007 the pharmaceutical market grew 9%to$10.1 billion growing at 7.1%per annum projected to be US$18.3 billion by 2012200 pharmaceutical companies consolidation opportunitiesMore than 300 bi
