Moving from volume to value in the generic business model

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Charleen Myrtle Wood
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Moving from volume to value in the generic business model CPhI Pre-connect

2 Key drivers to 2021 Global growth moderating to 3-6% CAGR by The USA remains fundamental but increasing rebates erode margins, transparency and generate market distortions Key Emerging markets sales to take ~2 global value, ~5 volume sales in 2021 Emerging markets continued to be dominated by old brands and generics as major Pharma hasn t found yet successful operating model and adaptation to lower margins Rest of the World disappoints, Europe and Japan growth in low single digits. In Europe value growth mostly specialty and hospital budgets pressurized As # NMEs grow, payers will seek more intensive cost containment measures and use small step innovations to drive down prices China mega-growth is history but it will still be roughly the size of top 5 Europe combined, be #2 globally and have >4 of Pharmerging market sales in 2021 At the same time, smaller Asian countries are moving up the ranks Developing countries, especially in Africa and the Middle East, represent a growing opportunity in terms of patient population and increasing OOP affordability Protectionist policies will favour local players but opportunities exist as emerging markets set different health, wellbeing and high technology strategic priorities 2

3 Strategy challenges for the future Portfolio, legacy products and pipeline Where to play from morbidity to delivery? Geographical presence A widening gulf between developed and emerging markets Technology Devices and Apps linked to therapies 3

4 Sales (Bn LCUS$) Growth Global pharma to grow at 3-6% CAGR to $1.4tn by 2021 driven by the US; EU and Japan low single digits growth US and pharmerging growth rates are converging 1,600 1,400 1,200 1, Global Sales and Market Growth Global sales EU5 growth Pharmerging growth Pharmerging EU5 US Japan US growth Japan growth 9% 8% 7% 6% 4% 2% 1% 0% -1% -2% Developed Markets CAGR US 5-8% Japan (-1)-2% Germany 2- UK* 2- France 2- Italy 2- Spain 1-4% Canada 2- Developed 2- Notes: *Subject to PPRS rebate; Ex-manufacturer price levels, not including rebates and discounts. Contains Audited + Unaudited data; Growth considered on par if the there is overlap between country and region CAGR ranges Source: QuintilesIMS Market Prognosis March 2017 Pharmerging Markets CAGR LCUS$ China 6-9% Brazil 6-9% India 10-1 Russia 6-9% Turkey 10-1 Mexico 3-6% Indonesia 6-9% Pharmerging 6-9% At par with region CAGR Lower than region CAGR Higher than region CAGR 4

5 Infectious diseases continues to be a scourge in Africa while cardiovascular disease more prevalent in all areas Mortality rates ( ) Percentage of total deaths 1 16% 6% 7% 7% 9% 9% 7% 10% 6% 21% 6% 51% 2% 4% 10% 6% 2 4% 50% 2% 11% 11% 2% 4% 6% 1 14% 9% 12% 28% 16% 32% 39% 9% 8% 9% 1 12% 12% 12% % Other Injuries Diabetes Resp. disease Cancer Infectious diseases Cardiovascular 20% 10% 20% 6% The Americas Europe 7% 8% 9% 2% 14% 6% 4% 11% Eastern Mediterranean 7% 17% 2% 7% 20% 9% 8% 2 24% 31% S.E. Asia 58% 40% 8% 1 19% 34% Africa 2015 W. Pacific

6 A third of global value and half of growth comes from the top five therapy areas Global therapy area sales (2016) bn USD Share of global growth 2016 Oncology 46% 21% 10% 9% $96 bn 21% 34% of global value & 50% of growth Diabetes Autoimmune Pain 39% 6 9% 12% $77 bn 6 1 $55 bn 14% 2 $48 bn 16% 1 Respiratory 59% 14% 9% $42 bn Antihypertens. 2 14% 1 26% $41 bn Antibacterials Mental Health Viral Hepatitis Anticoagulants 11% 19% 49% $39 bn 52% 14% $32 bn 48% 22% $32 bn 39% 19% 16% $31 bn US EU5 Japan Pharmerging RoW Source: QuintilesIMS MIDAS MAT Q4 2016, Rx only 6

7 Specialty and biologics have seen double digit growth in the last decade Specialty and Traditional ( ) US$ Bn Biologics and small molecules ( ) US$ Bn 1,010 1,010 Specialty Traditional 29% Biologic Non-Biologic 24% % 1 71% 76% Specialty TA driving growth include oncology, diabetes and autoimmune, Viral Hepatitis and HIV Globally, specialty market holding 29% share (MAT ). USA represents ~5 of global sales >40% medications in pipeline (Pre-Clinical - Registered) are biologic drugs and >50% specialty medications Source: QuintilesIMS MIDAS MAT Q

8 The pace of innovation has been increasing in developed markets, putting pressure on payers Recent launches and the pipeline are less relevant to Emerging markets and will perpetuate the gap in sales with a focus on Specialty NCE launch between and periods* Top BRICTM US Germany UK Japan Italy Spain Canada France Mexico Russia Brazil Turkey India China 8 7 Indonesia 16 5 Increase in NCE launches Decrease in NCE launches Increasing NCE launches over the past 4 years in developed markets are putting pressure on payers, generating trade-off decision between medicines and use other access restrictions In the largest emerging markets innovation is less important with the pace of NCE launches slower over the past 4 years Notes: NCE launches between considered; an NCE is counted for a country if the local launch falls within the same time period as the global launch Source: QuintilesIMS MIDAS Q4 2016; *Provisional NCE data used 8

9 Generics are taking an increased share of the value market Generics market share (US$, Units) 2006 VS North America: 52% 70% Europe : 47% 62% Europe : 26% 29% Japan: 31% 40% Japan: 16% 18% North America: 16% 2 Asia/Australasia : 74% 71% Asia/Australasia : 31% 4 LATAM : 6 80% LATAM : 4 6 Africa/Middle East: 6 69% Africa/Middle East: 46% 49% Source: QuintilesIMS MIDAS MAT Q4 2016; Innovation (2016) Volume, Un Value, US$ 9

10 Injectable products represent >36% of RX pharmerging value market US Sales: $142.5bn CAGR: 10.7% 3 share of RX Injectable/infusion market sales and growth: Global $294bn, 8.7%CAGR, 32% of total RX market EU5 Sales: $48.6bn CAGR: 5.4% 36% share of RX Pharmerging Sales: $53.0bn CAGR: % share of RX Japan Sales: $18.9bn CAGR: 2. 2 share of RX Region % injectables that are biologic US 80% EU5 69% Japan 61% Pharmerging 20% Indonesia Sales: $1.0bn CAGR: 11.4% 36% share of RX Indonesia 27% 10 Source: QuintilesIMS MIDAS MAT Q4 2016; Innovation (2016); OTC excluded; Excludes traditional Chinese medicines

11 Forecast CAGR ( ) Fastest growing pharmerging markets are expected to be Bangladesh, Egypt, Pakistan, Turkey & India Wide dispersion in growth but the CAGR overall falls into single digits Top 20 Pharmerging Markets Forecast Growth Dynamics Bubble Size proportional to 2016 LCUS$ Sales Poland Mexico $100bn $20bn $5bn South Africa Philippines Saudi Arabia Indonesia Turkey Chile Nigeria Algeria Colombia Pharmerging Historic CAGR: 10.8% Bangladesh Russia Pakistan Vietnam Egypt Kazakhstan India Brazil China Pharmerging Forecast CAGR: 7.4% Source: QuintilesIMS Market Prognosis March 2017 BRICTM Pharmerging Tier 3 Indonesia (Pharmerging Tier 3) Historic CAGR ( ) 11

12 Share of sales 2016 Pharmerging is dependent on generic products Preference for branded generics is coupled with increase OOP spend 46% 30% 41% Pharmerging market share by product type, value and volume, 2016 Value (bn USD) Volume (bn SU) % 6% 8% 10% 7% 12% 20% 30% 17% 80% 46% 51% 2 34% 40% 27% 37% 10% China Brazil Russia 49 6% India Indonesia Other 438 4% 14% 8% 74% US % 3 14% China 100 2% 37% 50% 11% Brazil % 10% 4% 8% 11% 3 39% 17% Russia 76% 9% 41% 48% 7% 62% 19% India IndonesiaOther % 1 US Pharmerging product type growth Unbranded generics Non-Original Branded products Innovative branded products Value CAGR Vol CAGR % 7.0% 5.0% 6.1% 0.1% 4.9% Pharmerging market 4.1% 6.2% 12 Source: QuintilesIMS MIDAS MAT Q4 2016; Innovation (2016); OTC excluded; Excludes traditional Chinese medicines

13 Forecast Annual Growth Rate (%) Future OTC growth will continue come primarily from developing regions 10% 9% 8% 7% 6% 4% 2% 1% 0% 5.2% 5. Global (Exc Venezuela) Forecasted OTC Growth rate 5 yr CAGR % 9.4% EMEA N America L America (Exc Venezuela) 5.8% APAC Global OTC is forecast to grow at a Compound Annual Growth Rate of 5.2%, driven largely by emerging markets. EMEA can expect healthy growth, driven by MENA and CEE, with countries such as UAE, Kazakhstan, Bulgaria, Kuwait and Russia expecting double-digit growth. In MEA, the fastest growing segments have been skin care and CCR 1 (13. and 12. CAGR respectively) APAC, also continues to return strong growth with a large population, rising awareness of self-medication, favourable government policies and increased marketing activities all contributing In APAC, the fastest growing segments have been VMS 2 & tonics CCR and Digestive (9.4%, 7.2% & 7.0% CAGR respectively) Source: IMS OTC Review; (1) Cough Cold & Respiratory (including allergies) (2) Vitamins 13

14 As the gulf between developed and emerging markets widen, opportunities arise Identifying a strategy for value and volume is key The value route needs products which reflect local needs and where the growth in wealth (especially the middle classes) can afford them Identify a premier partner for high value products in emerging markets where major pharma wishes to focus in developed markets (e.g. Amgen, BMS, Lilly in selected markets) Oncology and diabetes would be key areas The volume route offers selective opportunities in classic chronic areas: cardiovascular, respiratory, diabetes and CNS but the opportunity is in emerging markets Branding essential to stand out from the crowd Margins low so product cost efficiencies are key 14

15 Key takeaways Big Pharma is shifting to a Specialty focus, how will this affect future strategies? Managing volume is different to high technology small volume dynamics Geographical expansion may become essential 15

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