Corporate Intelligence

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• Corporate Intelligence
• United Business Institute
• Serbia, Novi Sad April. 2004

Snežana Kikic
Vesna Gavran
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Trends in Pharmaceuticals industry for next 5
years

• Globalization
• Global sales
• Consolidation
• Diversification
• Demographic group-Silent population
• On-line pharmacy
• Generic
• Fast pharma

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GLOBALIZATION 1.Pharma Global Sales
Rank Audited World Therapy Class 2003 Sales (bn) Global sales () Growth (constant )
1 Cholest.Triglyceri Reducers 26.1 6 14
2 Anti-ulcerants 24.3 5 9
3 Antidepressants 19.5 4 10
4 Antirheumatic Non-Steroidals 12.4 3 6
5 Antipsychotics 12.2 3 20
6 Calcium Antagonists, Plain 10.8 2 2
7 Erythropoietins 10.1 2 16
8 Anti-Epileptics 9.4 2 22
9 Oral Antidiabetics 9.0 2 10
10 Cephalosporins Combinations 8.3 2 3
Total Leading 10 142.0bn 30 11
World Audited Market 2003 Sales (bn) Global Sales () Growth (constant )
North America 229.5 49 11
European Union 115.4 25 8
Rest of Europe 14.3 3 14
Japan 52.4 11 3
Asia, Africa and Australia 37.3 8 12
Latin America 17.4 4 6

TOTAL 466.3bn 100 9

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GLOBALIZATION
Top 20 Deliver 81 of Total Sales
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GLOBALIZATION 2. Consolidation

• Partnerships between the large pharmaceutical
  companies and small biotechnology companies allow
  the large pharmaceutical companies to gain access
  to the latest technology and allow biotechnology
  companies to finance the development of their
  drugs

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GLOBALIZATION 2. Consolidation

• The consolidation and internationalisation of the
  pharmacy company can be expected to continue.

• Consolidation activities
• acquisitions
• in-licensing
• co-development
• co-marketing
• distribution network

Cooperation between the large pharmaceutical
companies and small biotechnology companies.
2004
2009
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Diversification

• 1. Demographic group
• Silent Generation consumers over 65.
• An aging population will soon drive 65 million
  baby boomers into the ranks of late middle age
  and senior citizenship, driving prescription
  sales to explosive growth levels.
• (New York Times, feb.2000)
• According to IMS Health, prescription sales rose
  another 11.3 percent last year, to 182.7
  billion, with drug chain sales rising 8.4 percent
  to a commanding 73.4 billion.

Instead of serving and selling to one population
pharmaceutical companies now need to respond to
smaller groups based on age group, therapeutic
area or disease and in the future genetic
sub-group.
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Diversification

• 2. Online Drugs Market
• Progress on the electronic prescribing and
  communications front.
• Rapid onset of mail-order pharmacy, whose sales
  jumped 21.7 percent in 2002 .

The traditional pharmacy business model may no
longer work
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Diversification
3. Generics
Cheaper good copies.
INNOVATIVE MEDICINE GENERIC COPY
Drug Discovery Discovers millions of promising molecules for development using the latest research technologies. No discovery or advancement research. Chooses to copy the most commercially successful innovative products.
Development Risk Only 1 in 10,000 molecules discovered actually makes it to market. The generics pick only the high revenue products for copying. Thus, generics face zero risk.
Development Time It takes 10 to 15 years to develop a single medicine. Approximately 2 to 3 years to develop a chemically identical biologically equivalent generic copy.
Development Cost The average cost to develop a new medicine is 1.3 billion. The average cost to develop a generic copy is 1 million.

• 100 billion worth of brand name prescription
  drugs will lose patent protection by 2005.

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Faster Pharma

• Faster developing
• 1. biotechnology
• 2. genome pharma
• 3. information technology -(microchips control
  release that can be swallowed or implanted)
• Faster commercialization of new product.
• 1. period of expiration of new brand is shorter

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EUROPE
SLOVENIA
SERBIA MONTENEGRO
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GLOBALIZATION Pharma Sales in Europe
After May 2004 pharmaceuticals markets in EU will
expand to 25-member states. It will be 450
million people market. The inclusion of the CEE
pharmaceutical industry will boost the growth of
the European cheapergeneric market.
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Slovenia
Country indicator
Slovenia, Data Profile Slovenia, Data Profile Slovenia, Data Profile Slovenia, Data Profile Slovenia, Data Profile   Serbia and Montenegro , Data Profile Serbia and Montenegro , Data Profile Serbia and Montenegro , Data Profile Serbia and Montenegro , Data Profile
1997 2000 2000 2001 1997 2000 2001
People People People People People   People People People People
Population, total 2.0 mill 2.0 mill 2.0 mill 2.0 mill   Population, total 10.6 mill 10.6 mill 10.6 msERBIA ill
Population growth (annual ) -0.3 0.1 0.1 0.1   Population growth (annual ) 0.3 0.1 0.1
Environment Environment Environment Environment Environment   Environment Environment Environment Environment
Surface area (sq. km) 20,250. 20,250. 20,250. 20,250.   Surface area (sq. km) .. 102.0 thousand 102.0 thousand
Forest area (sq. km) .. 11,070. .. ..   Forest area (sq. km) .. 28,870.0 ..
Economy Economy Economy Economy Economy   Economy Economy Economy Economy
GDP (current ) 18.2 billion 18.1 billion 18.8 billion 18.8 billion   GDP (current ) 16.3 billion 8.4 billion 10.9 billion
GDP growth (annual ) 4.6 4.6 3.0 3.0   GDP growth (annual ) 10.1 5.0 5.0
Inflation, GDP deflator (annual ) 8.8 5.7 9.9 9.9   Inflation, GDP deflator (annual ) 29.2 76.8 89.0
Exports of goods and services ( of GDP) 57.4 59.1 .. ..   Exports of goods and services ( of GDP) .. 31.6 24.9
Imports of goods and services ( of GDP) 58.3 62.7 .. ..   Imports of goods and services ( of GDP) .. 50.4 44.6
Trade in goods as a share of GDP () 97.4 103.9 .. ..   Trade in goods as a share of GDP () 46.0 64.2 ..
Source World Development Indicators database, April 2002 Source World Development Indicators database, April 2002 Source World Development Indicators database, April 2002 Source World Development Indicators database, April 2002 Source World Development Indicators database, April 2002   Source World Development Indicators database, April 2002 Source World Development Indicators database, April 2002 Source World Development Indicators database, April 2002 Source World Development Indicators database, April 2002
 
Serbia Montenegro
Both countries have population 65 years and over
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History
Former Yugoslavia
At the beginning they were domestic competitors

• Krka
• 1954- Krka was founded with just nine employees
  in Yugoslav republic Slovenia.
• 1965-1974 -construction of the new plant for
  processing raw materials
• 1975-1984 approval granted by the American Food
  and Drugs Administration (FDA) for the production
  of antibiotics. Operations commence at the Dawa
  pharmaceuticals factory in Kenya
• 1985-1994 construction of the Novoterm insulation
  materials factory. expansion of the marketing
  network abroad establishment of companies and
  representative offices. Co-operation with leading
  pharmaceutical companies in the world
• 1995-1999 ranking among the top pharmaceutical
  companies in central and eastern Europe, and
  penetration into the west European markets.
• 2001 - Opening of the production and distribution
  centre in Warsaw.
• 2002 - construction of the modern pharmaceutical
  plant (Notol) for producing drugs in solid dosage
  form, in Novo Mesto, Slovenia.

• Hemofarm
• 1960 June 1,- Hemofarm was established with only
  thirty employees in Yugoslav republic Serbia.
• 1964-1970-period of stagnation.
• 1973 in mid August, constructing a new factory.
  A year later the first significant export was
  recorded.
• 1980- A young Technology Engineer Miodrag Babic
  came to the head of the company and gathered a
  team of inventive experts.
• 1991-first enterprise abroad founded. It was in
  Frankfurt.
• 1993-A joint venture with the Company Fresenius,
  Factory is called Hemomed.
• 1994-established factory Hemomont in Montenegro.
• 1995- the first Yugoslav-Chinese mixed enterprise
  was signed between Hemofarm and the local
  pharmaceutical company Jinan Yongning
  Pharmaceutical and the Belgrade company MAG
• 1996-The enterprise was founded as a joint
  venture of Hemofarm and Cajavec from Banja Luka.
• 2000-, infusion solutions in China with Yongning
  Pharmaceutical.
• 2002- Zorkapharma becomes sub diaries of Hemofarm
  group.
• 2003- In SAD opened a office representative of
  Hemofarm

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Competitive Fact Sheet
Hemofarm Krka
Mission/ Vision Hemofarm is committed to improving health and the quality of life. High-quality product range, rounded-out drug pallet, respect among customers and suppliers in the country and abroad are ongoing objectives and preconditions for further developmental expansion of the Hemofarm Group. The Group is therefore entering the 21st century with ambitions to further specialize in its activities, to extend the presence abroad and develop into a multinational company. (1) Living the healthy life. Our basic task is to enable people to lead a healthy, good quality life. We are continually consolidating our position as one of the leading pharmaceutical companies on the markets of central and eastern Europe, and are also expanding to the markets of the European Union. We intend to realize our vision as a renowned and penetrating generic pharmaceutical company which will most rapidly develop its range of top quality, readily available pharmaceutical products, while enabling a broad spectrum of people worldwide to regain and maintain their health. (2)
Strategy The strategy of the Group is directed towards a powerful penetration to foreign markets. Apart from classical export, Hemofarm realizes different types of co-operation and invests in establishing local productions in other countries. Constant development and sale growth of generic product under our brand name. Maintaining close constant with the costumer. Investing in development and marketing and economizing the business process.
Activities Hemofarm core activity is drug production on 90,000 m2 of manufacturing area as well as trade of products. Continued focus on the development and sales of Krkas generic pharmaceutical products Extension of the production-distribution network abroad especially Russian Federation.
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Hemofarm Krka
HEMOFARM KRKA
2002 Sales (mil) E 135,8 E 370, 9
1-Year Sales Growth 10.30 11
Domestic Sales () 73.80 23
Foreign Sales () 26.20 77
2002 Employees 2800 4332
1-Year Employee Growth 15 7
University degree 20 26.60
Marketing 115.6 10.55
RD - 89.33 7.9
Drug registration 111.44 5.6
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PRODUCTION IN THE COUNTRY
Totally 11 plants in country
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Domestic market sales
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Krka domestic market sales
Slovenia is currently reforming it pricing policy
into a formal reference pricing system, weighted
towards imported cheaper generic.
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Krka presence in abroad
KRKA- KOZMETIKA DOOEL Macedonia
OOO KRKA- RUS Russian Federation
KRKA- FARMA DOOEL Macedonia
OOO KRKA FARMA Ruian Federation
KRKA FARMA Croatia
KRKA Ch Cesh Republic
KRKA Polska Poland
KRKA Novo Mesto Slovenia
KRKA PHARMA Dublin Ireland
KRKA Aussenhandels GmbH Germany
KRKA PHARMA Dublin Ireland
HELVETIUS S.R.L Italy
KRKA Magyarorzag Kft. Hungary
KRKA Serbia and Montenegro
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Export structure according to markets
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Hemofarm presence in abroad
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Export structure according to markets
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Sector Trend Diversification
Hemofarm Krka
1. Global sales d d d
2. Consolidation d d d d
3. On line pharmacy d d d
4. Wholesale d d d d d d d
5. Expansion abroad d d d d d d d
Krka-Is in a better position in EU market,
because Slovenia has become a member of EU in
05/2004.
Hemofarm-Is in a better position in Russian
market, because Serbia has special trade
agreement with Russian Federation.
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Technology Based Intelligence

• Hemofarm
• Sales Information System
• Radio-TV

• Krka
• Sales Information System

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SWOT Analysis
Hemofarm KRKA Hemofarm KRKA
Home market strong position Last 3 year strong penetration as domestic manufacturer on foreign markets. Diversification of product Focus on generic International experience Brand name at former YU countries International presence and profits Low penetration in EU, NA Lack of international experience Not global brand name Country in transition period Weak home market policy Not global brand name
New markets (EU, North America, China, Asia, Africa). Acquisition with global pharmaceutical leader E-commerce New markets (EU) Acquisition with global pharmaceutical leader E-commerce Internationalization costs Not present in large communities Special Trade agreement with Russian Federation is going to expire in 2005 . Getting stronger competition at home market. Becoming a member of EU is going to lose free trade rights at former ex-Yu markets.
S Strengths W Weaknesses
O Opportunities T Threats
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Future Market Focus
Countries Hemofarm Krka
EU d d d d
Russia d d d d d
China d d d
North America d d d
Ukraine d d d
Algeria d d
Syria d d
Serbia d d d d d
Slovenia d d d d
Bosnia and Herzegovina d d d d d d
They are interested in almost same markets.
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Future

Krka as generic company is preparing for the
expansion to EU markets. But, before placing own
product on the EU market it must have a marketing
authorization. Slovenia must complete
harmonization of regulatory practices relating to
product approval, complicated pricing,
reimbursement policy. During the transition time
national legislation will be valid in Slovenia
but not in the rest of EU. To insure own
competitive advantages in order to capitalize
fully revenue opportunities Krka has to
re-position strategies. On the EU market will be
already Estonia and Lithuania and rest of the new
10 CEE countries which pharmaceutical
manufactures are producing generics too. But, it
shouldnt forget ex-Yu market where it has strong
brand name.

• Hemofarm is preparing for FDA certificate after
  which is getting chance to penetrate to the North
  America pharmaceutical markets.
• How successful it is going to be?
• It depends on a marketing policy.
• It has to increase own competitive advantage to
  be prepared for strong, efficient marketing
  sharks.
• Developed countries markets have increased
  on-line costumers-on-line sale should be
  established
• But it shouldnt forget to build stronger
  position at ex-Yu markets.
• Special Trade agreement with Russian federation
  is expiring very soon (2005). - What will happen
  with Hemofarms biggest export market?

FUTURE HAS STARTED
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Sources

• 1) www.Hemofarm.co.yu
• 2) www.Krka.si
• 3) www.imhealth.com
• 4) www.resaerchandmarket.com
• 5) www.buisnis.doc.gov
• 6) www.dcc2.bumc.bu.edu
• 7) www.ims-global.com
• 8) www.aesgp.be
• 9.) www.pharmatiech.com
• 10.) www.m-t.pl