Outlook 2007 March 12, 2007 Mehta Partners and/or its affiliates - PowerPoint PPT Presentation

Global Pharmaceutical and Biotechnology Outlook 2007 March 12, 2007 Mehta Partners and/or its affiliates may hold a position in any security or financial instrument mentioned herein. The information contained in this communication is solely intended for the addressee. Access by anyone other than the addressee is unauthorized. Disclosure or copying or distribution of this information is prohibited.

BioPharma – Shortening Lifecycles In the Footsteps of the IT Industry? 2 MEHTA PARTNERS

Global Highlights • Is R&D Really About to Turn the Corner? • More Me-Too’s, but Also Many True First-in-Class in Larger Crop of New Approvals From 2008 • Result: Patents a Necessary But Not Sufficient Key for Success • Evidence Based Reimbursement vs. Limited Objective Drug Data • Despite Declining Pricing Power, Op Margins Likely Steady as R&D and SG&A Ratios Reverse • Therapeutic Substitution a Reality; Bio-similars On the Way Around the Turn of the Decade • US Share Falling to 40% of World Market, Down From Over 50% • Europe Willing to Pay a Fair Price, though Volume Remains Variable • Top-10 Markets Mature, Emerging Markets Growing Rapidly (From 10% to 20% to ?) • Consolidation—A Love-Hate Exercise Non-Stop • Valuation In the Eye of the Beholder 3 MEHTA PARTNERS

Japanese Pharma – Gradual Improvement • Over the past decade, young and worldly savvy managements at a handful of Japanese pharma are leading the tough task for transforming their global competitive outlook, and beginning to show a pipeline of products with potential worldwide • Only these select companies may have the luxury of staying independent, though they are the more likely and open minded to accelerate their growth via M&A • Longer term outlook depends on the nature and magnitude of government reimbursement reforms; but smaller companies likely to have declining number of options, esp. if Chuikyo finally stops $25 billion “subsidy” on long listed products and enacts rational rules for use of generic drugs • Generics: A modest threat for the near-term, but can the “Positive Box”, already being checked on 20% of prescriptions, be made into a “negative box”? • Pharmaceuticals accounts for 20-25% of every healthcare Yen spent, but on a relatively modest GDP base; and this is down from ~40% two decades ago! • Further reforms and “right incentives” are essential • Interesting pipeline drugs include MRA, CS-747, E-2007 , TAK-242, YM-150, SYR-322, TAK-390 MR, TAK-475 4 MEHTA PARTNERS

But Increasingly Eager to Act Aggressively • If spending shifts from long listed products and “me too” focused R&D to true innovation—key for Japanese pharma to become global competitors—Only a short distance to global success • This in turn can free up new drug pricing for true innovations in line with Western prices • Eight new drug launches for 2007, but only one has more than $750m peak sales potential. Only two are in-house drugs • Outlook for 2008 notably improves with 17 launches, out of which four have blockbuster potential: Daiichi-sankyo’s Prasurgel (CS-747), expected peak sales potential of >$ 2.5b; and Takeda’s TAK-242 (sepsis), peak sales $ 1.25-1.5b • Sankyo, Chugai, Takeda and Eisai all face 2008 as a crucial year shaping their future as their pipeline at that stage promises peak sales of ~$13b • Any setback will compromise growth around 2010 when key products see their patents expire • Takeda and Astellas aggressively licensing in products to expand and support their global infrastructure 5 MEHTA PARTNERS

Is R&D Really About to Turn the Corner? 6 MEHTA PARTNERS

A Sustainable Inflection Point? Peak Sales <$500m Peak Sales $500-$1000m Peak Sales >$1000m 140 15 120 18 100 12 42 40 No. Of Drugs 80 34 8 11 60 17 15 40 72 66 59 47 20 40 0 2006 2007 2008 2009 2010 7 MEHTA PARTNERS

More Me-too’s (M) AND More First in Class (N) M2=Me too, small M1=Me too, N2=NCE but following first N1=New Mechanism, First Impact relatively large n class in Class, New Science impact 140 19 120 25 100 32 26 No. of Drugs 80 33 30 25 60 17 22 15 3 17 40 23 14 49 19 41 20 28 27 14 0 2006 2007 2008 2009 2010 Year Source: Mehta Partners, Company Reports 8 MEHTA PARTNERS

Expected Drug Launches 2007 - 2011 Launch Tally by Sector* 2007 2008 2009 2010 2011 Peak Sales <$500m 42 73 86 73 64 % of Total 64% 70% 67% 59% 63% Rising Stars 11 24 41 34 16 Mature Biotechs 4 7 6 7 8 Specialty Pharma 9 9 8 6 9 Global Pharma US & EU 12 24 23 15 13 Japan 6 9 8 11 18 Peak Sales $500-$1000m 20 40 53 51 36 % of Total 30% 38% 40% 41% 35% Rising Stars 4 7 14 14 7 Mature Biotechs 1 2 6 5 2 Specialty Pharma 2 3 8 9 1 Global Pharma US & EU 12 24 20 21 18 Japan 1 4 5 4 8 Peak Sales >$1000m 15 15 20 25 20 % of Total 23% 14% 15% 20% 20% Rising Stars 2 2 5 8 6 Mature Biotechs 2 1 0 2 0 Specialty Pharma 1 1 0 2 0 Global Pharma US & EU 9 7 10 9 10 Japan 1 4 5 4 4 *Partnered drugs may be counted in multiple sectors Source: Mehta Partners, Company Reports Wither Mature Biotechs and Specialty Pharma? 9 MEHTA PARTNERS

Sustainable? Will Become Clear by 2009 • 15 and 21 launches in 2008 and 2009 respectively, each with peak sales of > $1b vs. eight and 11 in 2006 and 2007. Improvement certainly, but many of these are high risk • Mature Biotech facing same issues as Global Pharma—thin pipelines • Specialty Pharma even worse—thin pipeline + no potential blockbusters until 2008 • 2007 Ranking of Expected Launches • NOVN (>$4.0b for $29b of Total Pharmaceutical sales) • WYE ( > $3b for $19b of Total Pharmaceutical sales) • GSK (>$2b for $38b of Total Pharmaceutical sales) • SAN (>$2b for $38b of Total Pharmaceutical sales) 10 MEHTA PARTNERS

Selected Companies in Strong Position • Novartis with Tekturna, Exforge and Galvus (combined peak sales potential of $4b) , Wyeth with Pristiq, Bifeprunox and Bazedoxifene (combined peak sales potential of $3b) and GSK with Allermist, Cervarix and Tykerb (combined peak sales potential of $2b) to shine in 2007. • Other major launches • SAN’s Acomplia in US in MY07 (?) • LLY/Sankyo’s Prasugrel in ’08 • LLY/AMLN/ALK’s Byetta LAR in 09 • Roche’s CERA in 07(?), Roche/Chugai Actemra/MRA in “08 • SGP’s HCV PI in 2010 • UCB’s Cimzia for Crohn’s in early 07 • 2008 will be crucial for Japan Pharma, as several launches are expected, Daiichi Sankyo (CS -747), Takeda (TAK-242), Eisai (E-2007, E-7389) , Shionogi (doripenam/S-4661), Kyowa Hakko (KW-6002) and Astellas (Regadenoson, Telavancin and RSD-1235) 11 MEHTA PARTNERS

Patents Necessary, But No Longer Sufficient 12 MEHTA PARTNERS

Electronics Industry Mold the Future? • Medicare Part D give MCO and PBM much broader role to achieve savings, beyond simple generic substitution • In this age of information overflow, managers can’t hide behind the veil of regulatory barriers, so the industry model will change rapidly as has the electronics industry – reshaped by free market, with ever shortening life cycle of break-through innovations • Competition intensifying everywhere, from statins to MS to RA • Vectibix of Amgen, only a second drug in its category after Erbitux, with a significantly improved market platform is priced at a 20-30% discount to Erbitux—would have fetched a 30% premium as recently as three years ago Lucentis Macugen E yetech Share price Lucentis 250.00 25 Data Released 217 200.00 20 s 19.12 19.02 e l a S 153 150.00 15 y e e c r l r a e h i r P 11.43 11.36 S t 10.8 r a 100.00 10 u Q Lucentis Launch 50.9 36.7 50.00 5 31.5 9.1 2 0.00 0 4Q 05 A Q1 06A Q2 06A Q3 06A Q4 06A 5/20/2005 5/23/2005 5/25/2005 5/26/2005 5/27/2005 13 MEHTA PARTNERS

Competition Intensifying across Therapy Area’s: Oncology ONCOLOGY PIPELINE : 155 Mechanism of Action, 474 Compounds MOA Molecule DNA antagonist Teniposide, nimustine TheraCys, melanoma Immunostimulant vaccine DNA topoisomerase ATP Mitoxantrone, amrubicin hydrolysing inhibitor hydrochloride DNA topoisomerase inhibitor Topotecan, rubitecan Homoharringtonine, Apoptosis agonist Urocidin DNA synthesis inhibitor Clofarabine, nelarabine 49 Tubulin antagonist Vinorelbine, E-7389 Endothelial growth factor Pazopanib hydrochloride, receptor-2 kinase inhibitor Vatalanib Microtubule stimulant Docetaxel, ixabepilone 90 Temoporfin, Porfimer Radical formation agonist sodium Toremifene citrate, Estrogen antagonist Tamoxifen Histone deacetylase inhibitor Vorinostat, Romidespin 51 RNA synthesis inhibitor Zorubicin, Bisantrene Thymidylate synthase inhibitor Carmofur, Doxifluridine 10 ErbB-1 inhibitor Gefitinib, Erlotinib Mechanism of NCE’s % Action % The Other 49% of Molecules Still Focused On the 90% of Mechanisms… 14 MEHTA PARTNERS

Evidence Based Reimbursement vs. Limited Objective Drug Data 15 MEHTA PARTNERS