1 1

Drug Discovery & Development

for the World Market from India: How Real

GV PrasadVice Chairman & CEO,

Dr. Reddy’s Laboratories1 NOV 2007

2

Indian Pharma Industry: Poised for Transformation

3

348472

669802

2002-03 2003-04 2004-05 2005-06

CA

PE

X (

US

$ M

n)

Source: Capex of Top 15 companies; Annual reports, Analyst reports

177144

9080

4165

2000 2001 2002 2003 2004 2005

80% 68% 57% 49%

20% 32%43% 51%

2001 2003 2005 2006*

CAPEX BY INDIAN COMPANIES SHARE OF THE GLOBAL GENERICS PIE

ANDA FILINGS FROM INDIA DMF FILINGS FROM INDIA

Source: Annual reports, Analyst reports Source: USFDA website

2.92.42.0

6.0%

5.5%

5.1%

2003-04 2004-05 2005-06

Source: International revenues of 13 Indian companies; Annual

reports, Analyst/Industry reports

Indian Pharma Industry BackdropIndian Pharma to dominate Global generic industry

4

Indian Pharma Industry BackdropHome Market also Poised for Transformation!!

Growth in disposable incomes &

the number of middle-class

households

Expansion of medical

infrastructure

Greater penetration of health

insurance

Rising prevalence of chronic

diseases

Adoption of product patents

Aggressive market penetration

Debut of organized retail chains

3.4 3.96.1

20

4.6

2000 2002 2004 2006 2015

RETAIL PHARMACEUTICAL MARKET IN INDIA

US $ billion

Source: India Pharma 2015, McKinsey & Co

5

Innovation: Opportunity for India

6

Innovation Capacity Unmet Needs

7

Innovation Capacity Unmet NeedsWhy Is It Important?

4%

Though the R&D spend is increasing, success is decreasing

1980 1985 1990 1995 2000 ‘02 ‘03

8

1980 1985 1990 1995 2000 ‘02 ‘03

Innovation Capacity Unmet NeedsWhy Is It Important?

$138$318

$802

$1,200

1975 1987 2001 2006Source: PhRMA Pharmaceutical Industry Profiles 2007

Average Cost to Develop One Drug (US$Mn)

... As Does Average Cost Per Drug ...

4%

Though the R&D spend is increasing, success is decreasing

9

1980 1985 1990 1995 2000 ‘02 ‘03

Innovation Capacity Unmet NeedsWhy Is It Important?

$138$318

$802

$1,200

1975 1987 2001 2006Source: PhRMA Pharmaceutical Industry Profiles 2007

Average Cost to Develop One Drug (US$Mn)

... As Does Average Cost Per Drug ...

4%

Though the R&D spend is increasing, success is decreasing

... With Only 3 of 10 Drugs Recovering Investment...

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Innovation Capacity Unmet NeedsIndia’s Cost Structure… Key Advantage

Lower Filing Cost

Process Innovation

Manpower Cost Advantage

Capital efficiency

Western companies able to obtain a step down of 30-40% in cost by a mere site transfer to India

Companies in India able to reduce the upfront capital cost of setting up a project by 25-50%

Outsourced services to India significantly reduces the cost and time of clinical trials

India’s huge resource of skilled scientists, available at a fraction of the cost in developed countries

Scientists of Indian origin retuning provide a strong talent pool

Cost Leadership

(in High Risk Game)

Source: IBEF, E&Y Analysis

11

Improving R&D productivity, a high priority for innovator pharma

companies

Exploring opportunities for expanding pipeline while addressing

costs as well

Testing the waters: Outsourcing of non-core activities on an experimental basis

Expanding partnerships: Drug discovery experimental programs in various

countries

Indian companies are setting up internal drug discovery programs

as well as exploring partnerships with large & medium innovator

companies

Global Pharma’s Challenge…Creating Opportunities for Indian Pharmacos

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Innovation in India: Current Status

13

Current status of Discovery & Development in India

Dr. Reddy’s

Glenmark

Ranbaxy

Cadila

Torrent

Sun Pharma

Biocon

Wockhardt

Nicholas Piramal

Internal Programs

Aurigene, Advinus,

GVK Lifesciences

Dr. Reddy’s, Discman,

Nicholas, Jubilant,

Shasun, Divis, Suven

GVK Bio, Vimta,

Lambda, Lotus,

Accutest

Siro Clinpharm, iGate

Clinical Research,

Asian Clinical

Quintiles, ClinTec

Services Model

Drug Discovery

AstraZeneca

Altana

Clinical trials & data management

Pfizer

Eli Lilly

Novartis

GSK

MNC Outposts

GSK – Ranbaxy

Eli Lilly – Jubilant, Suven

Zydus – BI, Onconova,

Dr. Reddy’s – Rheoscience, Argenta, ClinTec

Aurigene – Merck/ Serono, Forest Labs, Rheoscience

Merck & Co. – Advinus Therapeutics

AstraZeneca – Torrent

Wyeth – GVK

Nicholas – Morvus, Connexios, Biosynth

Syngene - Innate

Partnerships

Source: Company news, industry reports

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Headlines Today

More than three-quarters of the Top 50 pharma companies

conduct clinical development in India(1)

Outsourced manufacturing activity in India at $100 million(2)

Outsourced clinical trial activity in India at $75 million in 2005(3)

40 – 50 NCEs under development by Indian pharma companies

(1,2) Motilal Oswal Report(3) Frost & Sullivan

When will the first indigenously developed drug be launched from

India?

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NCE Pipeline of Indian CompaniesWhat would be the timeframe when innovative product from India will hit the market

Company Pre-Clinical Phase I Phase II Phase III TOTAL

Dr. Reddy’s 2 1 2 1 6

Glenmark 4 - 2 - 6

Ranbaxy 8 1 1 - 10

Cadila n/a 3 1 - 4

Torrent 5 1 - - 6

Wockhardt 4 1 1 - 6

Sun Pharma 3 1 - - 4

Nicholas Piramal 2 - 3 - 5

Biocon 3 - 2 - 5

Total 31 8 12 1 52

Source: Analyst reports, company presentations

At least 3-4 years away from launch

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NCE Programs focused on Metabolic Disorders

Company Therapeutic Focus

Dr. Reddy’s Metabolic Disorders, Cardiovascular

Glenmark Metabolic Disorders, Respiratory, Pain Management

Ranbaxy Metabolic Disorders, Inflammation/Respiratory, Anti-Infectives, Urology

Cadila Metabolic Disorders, Inflammation

Torrent Metabolic Disorders, Cardiovascular

Wockhardt Sepsis & Anti-Infectives

Sun Pharma Asthma/COPD, CNS, Allergy

Nicholas Piramal Metabolic Disorders, Inflammation, Anti-Infectives, Oncology

Biocon Metabolic Disorders, Inflammation, Cardiovascular, Oncology

Source: Analyst reports

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Building a sustainable Innovation-led business : Key Challenges

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Key Challenges

Target Selection :

• Precedent targets vs Unprecedented targets

• Translatability of in vivo disease models to humans

• Length and Cost of meaningful human proof of concept studies

•Increasingly crowded research makes selection of clinically differentiated products difficult

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Key Challenges

• Challenges operating out of India

• Not yet part of the innovation eco system of venture capital, academic research & biotech

• Lack of talent in critical functions

• Access to thought leadership

• Funding

• P&L driven valuation

• Lack of “patient” capital

• Regulatory Frameworks for timely approvals

• Regulatory frameworks/expertise not in place

• Pace of approvals not satisfactory

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Closing Thoughts…

“We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered that, the

larger they have been.” -- George W. Merck

Indian Pharmaceutical Industry has the potential to…

1. Bring Affordability and Accessibility of Drugs to the Masses

2. Increase Global Pharma Industry’s Innovation Capacity to Meet Unmet

Needs

3. But needs to get the basics right