The Challenge from India

1
The Challenge from India
Dr. Brian W Tempest Chief Mentor Executive Vice
Chairman of the Board Ranbaxy Laboratories
Limited, Delhi, India Manila 29th May06
2
Disclaimer
Except for the historical information contained
herein, statements in this presentation and the
subsequent discussions, which include words or
phrases such as will, aim, will likely
result, would, believe, may, expect,
will continue, anticipate, estimate,
intend, plan, contemplate, seek to,
future, objective, goal, likely,
project, should, potential, will pursue
and similar expressions or variations of such
expressions may constitute "forward-looking
statements". These forward-looking statements
involve a number of risks, uncertainties and
other factors that could cause actual results to
differ materially from those suggested by the
forward-looking statements. These risks and
uncertainties include, but are not limited to our
ability to successfully implement our strategy,
our growth and expansion plans, obtain regulatory
approvals, our provisioning policies,
technological changes, investment and business
income, cash flow projections, our exposure to
market risks as well as other risks. Ranbaxy does
not undertake any obligation to update
forward-looking statements to reflect events or
circumstances after the date thereof.
3
Asias Share of the World GDP (at PPP in )

• Year 1870 1913
  1950 1973 2001
• China 17 9
  5 5 12
• India 12 8
  4 3 5
• Japan 2 3
  3 8 7
• Rest of Asia 7 5 7
  9 13
• Total Asia 38 25
  19 25 37
• Source WEF
• - was 59 in 1820 with India 16,
  China 33

4
Stock Market Performance in Asia in 2005

• 1. India 84
• 2. Pakistan 75
• 3. Korea 54
• 4. Philippines 39
• 5. China 34

• Source Rimes in GBP

5
Davos 2006
Source FT
6
The Productivity Advantage
India a usa Pharma view
USA
1 chemist 1 chemist
Better education x 1,3
70 h/week 50 h/week
Longer working time x 1,3
800 monthly
12,000 monthly
Lower cost x 20
Sources IPHMR Conferences, New Delhi August 2004
7
The Ageing Advantage

• Europe - retirees grow faster than
  workers
• - fertility rates
  lower, only 600k new Germans in 2005
• Japan - expansion of grey segment
• USA - over 50s 88m will grow to
  118m (2020)
• - obesity will cap
  life expectancy
• China - one child families
• - get older before
  becoming wealthy
• - labour costs will
  rise owing to labour shortage
• - South Guangdong
  province is short of 2m workers
• India - will remain very young
• - 50 lt25years, 65
  lt35 years
• - source of the
  extra needed global workforce

8
The Economic Growth Advantage

• GDP World growth marginally less in 06 than 05
  (4.3)
• USA expansion at a slower growth than 05 (3.6)
• Euro zone expected to perform better
  than USA
• Asia
• Japan sustain current growth
• PRC slightly slower growth to
  prevent hard landing
• India increasing growth rate
  being talked up to 9/10
• Chindia
• 40 population, 8 economy
• India sentiment Largest foreign
  affairs caucus in US Congress (180)
• China sentiment 74,000 demonstrations
  reported in 2005 in China

9
The Billionaires Advantage

• The world has 793 billionaires
• USA has 371 almost half
• India - 23 billionaires, UK has 24
• China - 8 billionaires
• Net worth of 40 richest Indians - 106 b
• 40 richest Chinese - 26b
• 2006 belongs to some of the emerging markets,
  and
• no country more than India
• Source Forbes

10
The RD Investment Advantage

• 
  
• Most attractive RD Investment locations
• 1. China
• 2. USA
• 3. India
• 4. Japan
• 5. UK
• Source UNCTAD 2005

11
The RD Investment Advantage -reasons why India

• Qualified Scientists Engineers
• Global India players with Alliances
• English speaking
• TRIPs compliant first patent March 2006
• IIT, IIM other scientific institutions
• Source UNCTAD 2005

12
The Knowledge Advantage

• 4th largest reservoir of Scientific Manpower (2nd
  largest English speaking)
• 3m graduates pa, 115k MSc Chemistry, 345k IT,
  USA 75k
• Knowledge super power in the making
• Lead by a Nuclear Scientist as President remote
  sensing satellite technology, 1/6 countries
• Diaspora network (25m across 120 countries)
• In ancient days India invented the zero
• US Europe will not dominate Science, Maths, IT

13
The State of European Science Teaching
This means that when pupils are in a science
laboratory their experience is unsafe,
unsatisfactory or uninspiring for 65 of the
time. In addition, 13 of science classes are
not taught in a laboratory at all
Laboratories in UK state schools Closed UK
University Excellent
5 Chemistry Departments Good
29 Dundee Kings
Basic/uninspiring 41 Surrey
Exeter Unsafe/unsatisfactory
25 Lancaster Queen
Mary under review-Sussex
Source Royal Society of Chemistry, Policy
Bulletin Spring 2006
14
The Information Advantage

• 34 News TV channels. Oldest 13 years old (NDTV)
• 5000 newspapers, circulation 17m. 12 with 1m
  copies each
• 200m daily readers. 21m new daily readers
  2003/2005, 14
• with 50 rural and 50 urban readership
• Principal internet languages to become English,
  Chinese and Hindi
• STD Kiosks converted to Internet Cafes. India to
  become
• the largest Internet market in 5-10 years
• Indians are hungry for information
• Source World Business 26.2.2006, Larry
  Page (Google) zeitgeist conference may 2006

15
The Potential for Improvement Advantage

• Manufacturing growth
• - Chinese manufacturing 12
• - India manufacturing 6.5
• Scope for improvement of Government Policies
• Revitalization of agriculture
• - beyond milk (1st globally), wheat
  (2nd), rice (2rd)
• More privatization public sector not so buoyant
• Further encouragement of RD for Pharmaceuticals
• Expand further the prosperous middle class of
  300m

16
The Medical Tourism Advantage

• High quality healthcare, international standards
• Patients from developed developing countries
• Growing privatization of hospitals, paperless
  hospitals
• Analysis of serum samples from EU hospitals in
  India already
• Low Costs
• 
  Thailand India
• - Open heart
  14250 4400
• - Hysterectomy
  2012 571
• - Knee surgery
  7000 4500
• Better access through Indian immigration
  airports likely

17
The FDI Advantage

• 
  b
• 2001/2
  6.1
• 2002/3
  5.0
• 2003/4
  4.7
• 2004/5
  5.5
• 2005/6
  6.5
• - 4Q 2005 at 2b for the first time in India
• - But still only 10 of China or Singapore

18
Investment by top 15 Indian Domestic
Pharmaceutical Companies

• 
  m
• 2000
  110
• 2001
  160
• 2002
  200
• 2003
  250
• 2004
  400
• 2005
  450
• - Leading to even more Pharma RD facilities and
  factories
• Source Citigroup

19
Investment by foreign Pharma companies
20
Investment by Microsoft in India

• Microsoft Global Development Centre (GDCI)
• Microsoft Global Services (MGSI)
• Microsoft Global Technical Support Centre (GTSC)
• Microsoft Systems Research (MSRI)
• Microsoft India Development Centre (MIDC)

21
India

• A Global Strategic Asset for developed
• World Market businesses

22
Leading Generic Companies
Annual Sales (US Millions)
Source Company /Financial reports
presentations
23
The Pharma Advantage - ANDAs

• Annual USA ANDA Filings
• Ranbaxy 29
• Sun 22
• Orchid 18
• Lupin 14
• DRL 13
• Cadilla 12
• Source Pharmabiz 8th Sept 2005
• - One in every four ANDAs filed
  by Indian Companies
• Source KPMG
• - 29 ANDAs p.a ranks in top 3 filers

24
The Pharma Advantage APIs
Chindia filings
USA DMF filings by India

• 1999 13
• 2000 17
• 2001 20
• 2002 30
• 2003 35
• 2004 40
• Source Citigroup
• DMF Drug Master Files
• Q1 2006 India alone 43

• 
  
• 1990
  1
• 1995 4
• 2000 36
  
• 2004 162
• Source Crisil

25
The Pharma Advantage
Competitive Advantage Aggressive Home Market
26
The Pharma Advantage
Competitive Advantage - Cost of Manufacture
Active Pharmaceuticals Facility, Mohali
Dosage Forms Facility, Paonta Sahib
Highest number of FDA approved plants outside
the US

• No. of FDA approved plants
• 1990 1
• 1995 10
• 44
• 2004 105
• Source Crisil / IPA

• Exports (m)
• 1990 15
• 45
• 2010E 70
• Source IPA

27
The Pharma Advantage
Competitive Advantage - Cost of Innovation
RD I
RD II
RD III
RD IV
28
Fundamental drivers of Generic growth -
healthcare costs
Total Healthcare Spending, of GDP
Source World Bank, DB Global Pharma Report Aug
2005, OECD Health Data 2005 (1) 2002, UBS
European Pharma Report, Sep 2005
The collective healthcare bill for Ford, Chrysler
GM in 2006 will be gt 12b
29
Fundamental drivers of Generic growth-
Demographics
Estimated of regional population over 60
Source World Bank, DB Global Pharma Report Aug
2005, OECD Health Data 2005 (1) 2002, UBS
European Pharma Report, Sep 2005
30
Fundamental drivers of generic growth Patent
Expiries
Bn
Revenues
Source Global Generic Drug Stocks Citigroup
Smith Barney, September 2004, IMS Health MIDAS
, MAT June 2005
31
The Global Generic Market growing everywhere

• b 2004
  2009
• USA 15
  27
• W Europe 9
  14
• Japan 3
  4
• Rest of America 6
  9
• ROW 25
  40
• Total 58
  94
• Source Frost Sullivan
• India could soon dominate the entire
  production chain for generics
• IMS prediction No 4 Scrip April 5 2006
  

32
Ranbaxy Strategic Direction

• Growth through
• - Organic
• - Inorganic

2012
US 5 Bn
2007
US 2 Bn
2004

• Amongst the Top 5
• generic Companies

US 1 Bn

• Significant income
• from proprietary products

33
Potential Downsides to the Indian Scenario
34
Potential downside Asian Flu
50 of world chickens bred in Asia
35
Potential downside Oil prices
Chindia consumes 40 oil
Source BLS, ELA, The Conference Board
36
Potential downside InfrastructureA common view
Source FT
37
Potential downside Counterfeit products from
India -but not a global issue

• 
  
• 
  

• 
  
• Origin of fake products
• seized in EU in 2004
• Rank
• China
• Thailand
• Hong Kong
• Turkey
• USA
• Source FT

• 
  
• Countries where fake
• pharma products seized in
• 2005
• Rank
• Russia
• China
• South Korea
• Peru
• Columbia
• Source PSI

• 
  
• 
  

• 
  
• 
  

• 
  
• 
  

• 
  
• 
  

• 
  
• 
  

192,000 died from Counterfeit drugs in China in
2001 Source IMS 27th Feb2006
38
Summary

• 
  
• Asia economic strength is
  returning to levels seen in the past
• Many advantages for India particularly RD
• India as a global strategic asset
• Some downsides - infrastructure
• The current feeling in India a turning point
  has been
• reached and an inflexion point has been
  passed

39
We have all grown up learning the story of the
unfinished voyage of Christopher Columbus setting
sail to reach India, he discovered America. I
now invite the people of America to complete the
Voyage of that great explorer Manmohan
Singh Prime Minister of India July 2005
40
Thank You