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TABLE OF CONTENTS
List of Figures ................................................................................................................................. 5 List of Tables .................................................................................................................................. 7 1. 2. 3. 4. The US Pharmaceutical Industry Introduction ....................................................................... 9 The US Pharmaceutical Market Size, 2005-2010 ................................................................. 10 Top 50 Pharmaceutical Drugs in the US............................................................................... 11 The US Regulations Pertaining to the Pharmaceutical Industry........................................... 16 General Overview ......................................................................................................... 16 Health Care Reform ...................................................................................................... 17 Patent............................................................................................................................. 18 5. 6. The US Pharmacy Distribution and Reimbursement System ............................................... 20 The US Pharmaceutical Market Segmentation ..................................................................... 21 6.1. By Generic and Branded Drugs, 2005-2010 ................................................................. 21 Generic Drugs Competitive Landscape, 2011 ........................................................ 22

6.1.1. 6.2.

By Prescribed and Over the Counter Drugs (OTC), 2005-2010 ................................... 23 Prescribed Drugs Market Segmentation, 2006-2010 .............................................. 24

6.2.1.

6.2.1.1. Top Therapeutic Classes in the US by Prescriptions Dispensed and Spending, 2006-2010..25 6.2.1.2. The US Retail Prescription Drug Sales Segmentation by Type of Sales Outlet, 2005-2010..27 6.2.1.3. 6.2.1.4. 6.2.2. 6.3. The US Prescription Drug Competitive Landscape, 2010 .............................. 28 Top US Pharmacies by Total Prescription Revenues, 2011 ............................ 30

OTC Drugs Market Segmentation, 2007-2010 ....................................................... 31

The US Biologics/Biopharmaceutical Market .............................................................. 33 The US Biologics/Biopharmaceutical Market Size By Value, 2006-2011............. 33 Top Selling Biologic Drugs, 2010 .......................................................................... 34 2

6.3.1. 6.3.2.

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6.3.3. 6.3.4. 6.4. 7.

Top US Biopharmaceutical Companies Market Share, 2011 ................................. 35 Biologic Drugs Future Projections, 2012-2016 ...................................................... 37

The US Specialty Drugs Market ................................................................................... 38

The US Pharmaceutical Industry Trends and Developments ............................................... 40 Rising Expenditure on Biopharmaceutical Research and Development ...................... 40 Expanding Generic Drug Market .................................................................................. 41 Rising Prescription Drug Prices .................................................................................... 43 Rise in Shortage of Drugs ............................................................................................. 44 Rising M&A Activities in the US Pharmaceutical Market ........................................... 45

8. 9. 10.

Exports and Imports of Pharmaceticals and Medicines in the US, 2005-2010 .................... 46 The US Pharmaceutical Industry Competitive Landscape, 2011 ......................................... 47 The US Pharmaceutical Industry Future Outlook and Projections, 2011-2015................ 49

10.1. Cause and Effect Relationship Between Industry Factors and the US Pharmaceutical Market Prospects ....................................................................................................................... 52 11. 11.1. Major Pharmaceutical Company Profiles ......................................................................... 53 Pfizer Inc. ...................................................................................................................... 53 Company Overview ...................................................................................................... 53 Business Strategies........................................................................................................ 55 Financial Performance .................................................................................................. 55 11.2. Merck & Co. ................................................................................................................. 57 Company Overview ...................................................................................................... 57 Business Strategies........................................................................................................ 57 Financial Performance .................................................................................................. 58 11.3. Novartis ......................................................................................................................... 61 Company Overview ...................................................................................................... 61 Business Strategies........................................................................................................ 62 3

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Financial Performance .................................................................................................. 63 11.4. AstraZeneca .................................................................................................................. 65 Company Overview ...................................................................................................... 65 Business Strategies........................................................................................................ 65 Financial Performance .................................................................................................. 66 11.5. GlaxoSmithKline .......................................................................................................... 69 Company Overview ...................................................................................................... 69 Business Strategies........................................................................................................ 69 Financial Performance .................................................................................................. 70 12. 12.1. 12.2. 12.3. 12.4. 12.5. 13. 13.1. 13.2. 13.3. Macro Economic and Industry Indicators: Current and Projections ................................. 73 Population, 2005-2015 .................................................................................................. 73 Inpatient Admissions & Outpatients Visits, 2005-2010 ............................................... 75 Number of People with Health Insurance ..................................................................... 77 Prescription Drug Price index, 2005-2015.................................................................... 78 Personal Disposable Income ......................................................................................... 79 Appendix ........................................................................................................................... 80 Market Definition.......................................................................................................... 80 Abbreviations ................................................................................................................ 80 Research Methodology ................................................................................................. 83 Data Collection Methods .............................................................................................. 84 Approach ....................................................................................................................... 84 Variables (Dependent and Independent) ....................................................................... 84 Multi Factor Based Sensitivity Model .......................................................................... 85 Final Conclusion ........................................................................................................... 88 13.4. Disclaimer ..................................................................................................................... 89

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LIST OF FIGURES
Figure 1: The US Pharmaceutical Market Size by Total Sales, in USD Billion, 2005-2010 ....... 11 Figure 2: The US Pharmacy Distribution and Reimbursement System ....................................... 20 Figure 3: The US Pharmaceutical Market Segmentation by Branded and Generic Drugs on the Basis of Revenue, in Percentage, 2005-2010................................................................................ 22 Figure 4: The US Pharmaceuticals Market Segmentation by Prescribed and OTC Drugs on the Basis of Revenue, in Percentage, 2005-2010................................................................................ 23 Figure 5: The US Prescription Drug Competitive Landscape by Number of Prescriptions Percentage, Million, 2010 ............................................................................................................. 29 Figure 6: The US Biopharmaceuticals Market Size by Value in USD Billion, 2006-2011 ......... 34 Figure 7: Market Share of the Major Biopharmaceutical Companies in the US on the Basis of Revenue, Percentage, 2011 ........................................................................................................... 36 Figure 8: Future Projections of US Biologic Drug Sales, USD Billion, 2012-2016 .................... 38 Figure 9: Top Specialty Categories by Percent Contribution to Net Specialty Costs, 2010 ........ 39 Figure 10: The US Expenditure on Biopharmaceutical Research and Development, in USD Billion, 2005-2010 ........................................................................................................................ 41 Figure 11: Average Drug Prices for All Prescription, Branded Drugs and Generic Drugs, USD, 2005-2010 ..................................................................................................................................... 44 Figure 12: Number of M&A Deals in the US Pharmaceutical Sector by Value, in Number, 2010 ....................................................................................................................................................... 45 Figure 14: The US Pharmaceutical Companies Market Share in Percentage, 2011 ................... 48 Figure 13: The US Pharmaceutical Industry Future Projections in Terms of Sales, in USD Billion, 2011-2015 ........................................................................................................................ 51 Figure 15: Pfizer Biopharmaceutical Sales in the US, in USD Billion, 2005-2011 ..................... 56 Figure 16: Merck Pharmaceutical Drugs Sales in the US, in USD Billion, 2009-2011 ............... 59 Figure 17: Novartis Drug Revenue in the US, in USD Billion, 2005-2011 ................................. 63 Figure 18: AstraZeneca Pharmaceutical Drug Sales, in USD Billion, 2005-2011 ....................... 67 Figure 19: GlaxoSmithKline Pharmaceutical Drug Sales in the US, in USD Billion, 2007-201170 5

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Figure 20: The US Population in Million, 2005-2015 .................................................................. 74 Figure 21: Inpatient Admissions in Community Hospitals in the US, in Million, 2005-2010 ..... 76 Figure 22: Outpatient Visits in Community Hospitals in the US, in Million, 2005-2010 ............ 76 Figure 23: Total Number of People in the US with Health Insurance, in Million, 2005-2010 .... 77 Figure 24: The US Prescription Drug Price Index, 2005-2015 .................................................... 78 Figure 25: Personal Disposable Income in the US, in USD Billion, 2005-2015 ......................... 79

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LIST OF TABLES
Table 1: Sales of the Top 50 Drugs in the US, in USD million, 2005-2010 ................................ 12 Table 2: Sales of the Top 50 Drugs in the US in Million Units, 2005-2010 ................................ 14 Table 3: Major Provisions/ Amendments in the ACA and their Impacts ..................................... 18 Table 4: The US Pharmaceuticals Market Segmentation by Branded and Generic Drugs on the Basis of Revenue, in USD Billion, 2005-2010 ............................................................................. 22 Table 5: The US Pharmaceuticals Market Segmentation by Prescribed and OTC Drugs on the Basis of Revenue, in USD Billion, 2005-2010 ............................................................................. 24 Table 6: Top 10 Prescribed Drugs in the US by Dispensed Prescriptions, in Million, 2006-2010 ....................................................................................................................................................... 24 Table 7: Top 10 Therapeutic Classes in the US by Dispensed Prescriptions, in Million, 20062010............................................................................................................................................... 26 Table 8: Top 10 Therapeutic Classes in the US by Spending, in USD Billion, 2006-2010 ......... 26 Table 9: The US Retail Prescription Drug Sales Segmentation in Volume by Number of Prescriptions in Type of Sales Outlet, Million, 2005-2010 .......................................................... 28 Table 10: The US Retail Prescription Drug Sales Segmentation by Type of Sales Outlet, USD Billion, 2005-2010 ........................................................................................................................ 28 Table 11: Top US Companies by Number of Prescriptions Dispensed, Million, 2010 .............. 29 Table 12: Top US Pharmacies by Estimated Total Prescription Revenues, USD Billion, 2011 .. 31 Table 13: OTC Drugs Segmentations by Medicine Category, USD Million, 2007-2010 ............ 32 Table 14: The US Sales of Top Selling Global Biologic Drugs, USD billion, 2010.................... 35 Table 15: Top US Companies by Sales of Biopharmaceutical Drugs, USD Billion, 2011......... 36 Table 16: Specialty Categories, Average Cost in USD and Relative Available Medications, 2010 ....................................................................................................................................................... 39 Table 17: Top Pharmaceutical Drugs Losing Patent Protection in 2011 and 2012 ...................... 42 Table 18: The US Pharmaceuticals and Medicines Exports, USD Million, 2005-2010............... 46 Table 19: The US Pharmaceuticals and Medicines Imports, USD Million, 2005-2010............... 46 Table 20: US Pharmaceutical Companies Sales USD Billion, 2011........................................... 48 7

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Table 21: The US Pharmaceutical Industry Future Projections in Terms of Sales by Prescribed and OTC drugs, and Branded and Generic Drugs, USD Billion, 2011-2015 ............................... 51 Table 22: Cause and Effect Relationship between Industry Factors and the US Pharmaceuticals Industry Prospects ......................................................................................................................... 52 Table 23: Pfizers Product Patent Expiration Year ....................................................................... 54 Table 24: Top Selling Pfizers Biopharmaceutical Products in the US in USD Million, and their Revenue Contribution in Percentage, 2011 .................................................................................. 56 Table 25: Mercks Top Pharmaceutical Drug Sales in US, USD Million, 2010-2011 ................. 59 Table 26: Novartis Revenue Segmentation by Pharmaceutical and Sandoz Division in the US, USD Billion, 2005 - 2011 ............................................................................................................. 64 Table 27: Novartis Top Pharmaceutical Drug Sales in the US, USD Million, 2011 .................. 64 Table 28: Astra Zenecas pharmaceutical drug sales in the US by product and Therapeutic category, in USD Million, 2011.................................................................................................... 67 Table 29: GlaxoSmithKlines Top Selling Pharmaceutical Drugs in the US, in USD Million, 2011............................................................................................................................................... 71 Table 30: Demographic Distribution of Population in US on the basis of Age, in Million, 20092012............................................................................................................................................... 74 Table 31: Correlation Matrix of the US Pharmaceutical Market ................................................. 85 Table 32: Regression Coefficients Output .................................................................................... 88

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1. THE US PHARMACEUTICAL INDUSTRY INTRODUCTION

The US pharmaceutical industry is the worlds largest pharmaceutical industry with market size of USD 318.5 billion in 2010. The pharmaceutical industry mainly consists of drugs and biologics which aid in preventing, diagnosing, improving, treating and curing diseases. Chemically derived drugs are manufactured as pills, tablets, vials, ointments, powders, capsules, suspensions and solutions, while biologics are offered in the form of therapeutic proteins, vaccines, tissues, blood and blood components, anti-sera and others. The US based pharmaceutical companies are some of the leading players in the world. Most of these companies have become multinational in order to reduce development costs, capitalize on the new market opportunities and position themselves better. Seven of the top fifteen biotechnology and pharmaceutical companies are situated in the US. All the top 20 global pharmaceutical companies have research facilities in the US. In 2010, the pharmaceutical companies in the US employed above 700,000 people in addition to around 2.5 million in the supporting industries. There were 1,452 biotech The US pharmaceutical industry is the firms in the US in 2010, employing 180,000 worlds largest pharmaceutical industry people. According the Bureau of Labor Statistics with market size of USD 318.5 billion in estimates of May 2010, there were about 416,000 2010 individuals in the pharmaceutical manufacturing and biotechnology research. Biologics and generics are the fastest growing segments of this industry. Biotechnology-derived drugs which were valued at USD 65.9 billion in 2011 are a growing constituent of the pharmaceutical industry and accounted for a quarter of all the new drugs in clinical trials developed or awaiting approval from FDA. The biotechnology industry commenced in the US in 1980 when the Supreme Court stated that genetically modified organisms could be patented. The OTC drugs market is fuelled by the pharmaceutical companies converting the status of drugs from prescription to OTC and marketing it under their own labels. Aging population, expensiveness of branded drugs and rising consumer propensity to self-medicate are the major causes driving this industry. The US has a supportive domestic environment which is conducive for the development and commercialization of pharmaceuticals. This industry is backed by a vigorous intellectual property system and a meticulous science-based regulatory system. The US has a global competitive advantage in the pharmaceutical industry owing to several factors including the absence of government drug price controls, US intellectual property policies, financing for 9

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biomedical research via the National Institutes of Health and the accessibility of venture capital and other reasons that promoted the development of the biotechnology business. In addition to spending heavily on research and development, companies are also increasingly spending on marketing their products. Over the period, the promotional and advertisement spending by pharmaceutical countries has grown significantly. Direct-to-consumer advertising is mainly used for the promotion of newer drugs. The spending on marketing is chiefly triggered by the high competition in this sector. To maintain the leading position, the companies tie up with doctors and engage in drug advertising through various forms of media. Sales representatives from pharmaceutical companies approach physicians based on their prescription patterns to get their drugs recommended. They try to allure physicians, showering them with gifts, product samples and food, even hiring them as consultants. This activity compromises the health of the patients and also aids in the rise of healthcare cost. Medical marketing can sometimes augment a doctors capability to spot the treatment for a chronic disease thus benefitting the patient. The pharmaceutical industry also resorts to lobbying with over thousands of lobbyists present in the US positioning this industry among the most spending industries on lobbying activities. In the past 10 years, around 300 new medicines have been approved. These drugs are revolutionizing the healthcare sector, transforming many chronic illnesses, including cancer into treatable circumstances, enhancing and improving the lives of patients, offering various options to patients with chronic diseases including schizophrenia and multiple sclerosis.

2. THE US PHARMACEUTICAL MARKET SIZE, 20052010


The US Pharmaceutical market is the largest pharmaceutical market in the world which has registered a marginal slowdown in the growth rate over the period. The slowing growth rate can be attributed to an increasing number of drugs losing its patent security and surrogated by generic equivalents. Additionally, the number of The sales of Pharmaceuticals in the US new drugs launches is keeping the pace with grew from USD 271.7 billion in 2005 to several specialty drugs or orphan drugs being USD 318.5 billion in 2010. produced which cater to a niche target audience. Safety issues have also led to inspections of products under development and those available in the market. Additionally, the economic slowdown and aftereffect of increased patient copayments has impacted the growth of the industry. In terms of sales value, the US pharmaceutical industry has recorded consistent growth at a 5 year CAGR of 3.2% over the period. The sales of Pharmaceuticals in the US grew from USD 271.7 billion in 2005 to USD 318.5 billion in 2010. 10

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Figure 1: The US Pharmaceutical Market Size by Total Sales, in USD Billion, 2005-2010
330.0 320.0 310.0 Sales (USD Billion) 300.4 300.0 290.0 280.0 271.7 270.0 260.0 250.0 240.0 2005
Source: AM Mindpower Solutions

318.5 312.4

297.1

293.2

2006

2007

2008

2009

2010

3. TOP 50 PHARMACEUTICAL DRUGS IN THE US

Nexium was the top selling drug in the US in 2010 by the total revenue, registering sales of USD 5.3 billion. The drug is manufactured by AstraZeneca Pharmaceuticals and offers relief from heartburn and treats other conditions involving excessive stomach acid. Nexium is the second highest selling drug by total units sold, clocking sales of 25.9 million units in 2010. Lipitor was the highest selling drug in the US till 2009, but was overtaken by Nexium in 2010. This drug is a product of Pfizer is used to treat high levels of cholesterol. Lipitors patent expired on November 30, 2011. Since then, Pfizer has been trying very hard to keep up its sales. Lipitor is the second highest selling drug in terms of the revenue showcasing sales of USD 5.3 billion, and is the highest selling drugs in terms of the total units sold, projecting sales of 37.5 million units. Lipitor is the best-selling prescription drug of all time and has earned Pfizer revenues of around USD 125 billion in over 14.5 years. Plavix is an anti-clot drug manufactured by Bristol-Myers Squibb Company. This drug is slated to lose patent protection by May 2012, thus under the threat of generic versions. Plavix is the 11

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third highest selling drug in the US in terms of revenue of USD 4.6 billion. Around 25 million units of this drug were sold in 2010, which is the third highest in the US. Advair Diskus by GlaxoSmithKline is the fourth highest selling pharmaceutical drug in US. The drug is a combination of fluticasone propionate and salmeterol xinafoate and is prescribed for the treatment of asthma and chronic obstructive pulmonary disease (COPD). Advair is available in the US in a disc shaped inhaled termed Diskus. This drug recorded 16.6 million unit sales worth USD 3.65 billion. Albeit, Advair lost its patent protection in 2010, no generic versions are imminent due to the impediments involved. OxyContin registered generated revenue of USD 3.6 billion by selling 6.9 million units in the US in 2010. Produced by the pharmaceutical company Purdue Pharma LP, this drug is an opioid analgesic used to treat chronic and severe pain. Singulair which contains the active ingredient montelukast, is a leukotriene receptor antagonist (LTRA) which is prescribed for treating asthma relieving symptoms of seasonal allergies. This drug was the fourth highest selling drug in the US in terms of the total units of drugs sold, showcasing 24.7 million unit sales in 2010. The revenue generated in 2010 in the US was USD 3.3 billon, which made it the seventh highest selling drug in that year. Manufactured by Merck & Co., Inc, this drug is slated to lose its patent protection in the US in 2012. Lexapro is an antidepressant manufactured by Forest Pharmaceuticals, Inc. This pharmaceutical drug witnessed sales of 23 million units in the US in 2010, generating revenue of USD 2.5 billion, making it the fifth highest sold drug in that year in terms of total units sold. Table 1: Sales of the Top 50 Drugs in the US, in USD million, 2005-2010
Rank 1 2 3 4 5 6 7 8 9 10 11 Drug Nexium Lipitor Plavix Advair Diskus OxyContin Abilify Singulair Seroquel Crestor Cymbalta Actos Current Manufacturer AstraZeneca Pharmaceuticals Pfizer Inc Bristol-Myers Squibb Company GlaxoSmithKline Purdue Pharma LP Bristol-Myers Squibb Company Merck & Co., Inc. AstraZeneca Pharmaceuticals AstraZeneca Pharmaceuticals Eli Lilly and Company Takeda Pharmaceuticals North America, Inc 2005 3,437 6,321 2,480 2,830 1,286 1,098 2,089 1,719 677 570 1,605 2006 4,060 6,578 2,232 3,106 683 1,417 2,461 2,075 1,058 1,084 1,926 2007 4,356 6,166 3,083 3,391 1,044 1,782 2,863 2,518 1,367 1,733 2,229 2008 4,794 5,880 3,796 3,572 2,503 2,372 2,898 2,909 1,677 2,170 2,448 2009 5,015 5,363 4,223 3,653 3,020 3,083 3,027 3,118 2,308 2,404 2,532 2010 5,276 5,273 4,675 3,655 3,555 3,514 3,325 3,222 2,923 2,639 2,632

12

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12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Lexapro Zyprexa Spiriva Lantus Aricept Lyrica Diovan Effexor XR Concerta Levaquin Celebrex Diovan HCT Januvia Suboxone NovoLog Viagra Atripla Tricor Provigil Zetia Geodon oral Vytorin Ambien CR Lunesta Lidoderm Lantus SoloSTAR Vyvanse Aciphex

Forest Pharmaceuticals, Inc Eli Lilly and Company Boehringer Ingelheim Pharmaceuticals, Inc Sanofi Eisai Corporation Pfizer Inc Novartis Corporation Wyeth Ortho-McNeil-Janssen Pharmaceuticals, Inc. Janssen Pharmaceuticals, Inc Pfizer Inc Novartis Corporation Merck & Co., Inc. Reckitt Benckiser Pharmaceuticals Inc. Novo Nordisk Inc. Pfizer Inc Gilead Sciences, Inc. Abbott Laboratories Cephalon, Inc. Schering-Plough Pfizer Inc Merck & Co., Inc. Sanofi Sepracor Inc. (renamed Sunovion Pharmaceuticals Inc) Endo Pharmaceuticals Sanofi Shire US Inc Eisai Corporation

1,850 1,577 338 775 652 N/A 811 2,219 866 1,348 1,242 724 N/A N/A N/A 772 N/A 789 497 904 424 715 N/A 264 471 N/A N/A 1,048

2,099 1,536 593 1,058 800 651 972 2,247 936 1,409 1,326 867 N/A 137 N/A 786 N/A 966 645 1,140 529 1,469 553 584 636 N/A N/A 1,113

2,304 1,579 868 1,303 983 1,000 1,117 2,464 1,031 1,433 1,416 1,052 472 282 N/A 825 617 1,107 745 1,405 665 1,939 876 713 808 N/A N/A 1,099

2,412 1,748 1,143 1,475 1,149 1,389 1,283 2,658 1,104 1,461 1,527 1,212 914 532 N/A 920 916 1,249 846 1,184 797 1,546 866 771 970 316 375 1,052

2,334 1,855 1,338 1,512 1,347 1,445 1,329 2,386 1,181 1,373 1,438 1,244 1,146 894 905 975 1,064 1,225 883 1,025 874 1,133 983 813 937 610 660 996

2,483 2,036 1,594 1,526 1,523 1,478 1,444 1,431 1,408 1,355 1,350 1,315 1,294 1,165 1,101 1,029 1,029 1,016 1,000 986 959 954 951 949 934 934 931 916

13

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40 41 42 43 44 45 46 47 48 49 50

Nasonex Lovenox Adderall XR ProAir HFA Truvada Niaspan Humalog Cialis Namenda Symbicort Flovent HFA

Schering-Plough Sanofi Shire US Inc Teva Pharmaceuticals Gilead Sciences, Inc. Abbott Laboratories Eli Lilly and Company Eli Lilly and Company Forest Pharmaceuticals, Inc AstraZeneca Pharmaceuticals GlaxoSmithKline

622 439 1,008 N/A 327 381 485 295 283 N/A 290

789 597 1,132 N/A 570 474 534 375 387 N/A 477

893 746 1,289 421 606 546 592 453 490 N/A 521

904 914 1,447 528 776 639 703 555 582 238 553

894 1,076 1,130 936 863 717 757 650 670 488 621

886 867 837 819 814 794 783 757 744 707 705

Source: Verispan, VONA (Vector One National)

Table 2: Sales of the Top 50 Drugs in the US in Million Units, 2005-2010


Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Drug Lipitor Nexium Plavix Singulair Lexapro Crestor Synthroid ProAir HFA Advair Diskus Cymbalta Diovan Ventolin HFA Diovan HCT Actos Seroquel Current Manufacturer Pfizer Inc AstraZeneca Pharmaceuticals Bristol-Myers Squibb Company Merck & Co., Inc. Forest Pharmaceuticals, Inc AstraZeneca Pharmaceuticals Abbott Laboratories Teva Pharmaceuticals GlaxoSmithKline Eli Lilly and Company Novartis Corporation GlaxoSmithKline Novartis Corporation Takeda Pharmaceuticals North America, Inc AstraZeneca Pharmaceuticals 2005 63.2 22.9 18.8 22.2 24.8 7.8 30.7 N/A 18.3 4.9 12.6 N/A 10.3 9.7 8.4 2006 62.3 25.9 16.2 24.6 26.1 11.4 27.2 N/A 18.2 8.5 14.2 N/A 11.5 11.3 9.6 2007 55.1 26.4 22.3 27.3 27.0 13.8 25.5 11.3 18.2 12.6 15.2 N/A 12.9 12.3 11.0 2008 49.0 26.9 25.1 25.8 26.3 15.1 23.1 13.9 17.8 14.4 15.7 N/A 13.2 12.5 11.5 2009 42.0 26.5 25.6 24.8 23.7 18.4 21.1 22.1 17.4 14.7 14.7 8.2 12.1 11.7 11.1 2010 37.5 25.9 25.0 24.7 23.0 20.9 20.3 18.6 16.6 14.6 14.4 13.5 11.5 11.2 10.3

14

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16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44

Levaquin Lantus Nasonex Viagra Lyrica Celebrex Concerta Spiriva Premarin tabs Effexor XR Tricor Zetia Vytorin OxyContin Abilify Loestrin 24 Fe Vyvanse Cialis Suboxone Aricept Benicar Januvia Lunesta Ambien CR Niaspan Xalatan Levoxyl Benicar HCT Flovent HFA

Janssen Pharmaceuticals, Inc Sanofi Schering-Plough Pfizer Inc Pfizer Inc Pfizer Inc Ortho-McNeil-Janssen Pharmaceuticals, Inc. Boehringer Ingelheim Pharmaceuticals, Inc Wyeth Wyeth Abbott Laboratories Schering-Plough Merck & Co., Inc. Purdue Pharma LP Bristol-Myers Squibb Company Warner Chilcott Shire US Inc Eli Lilly and Company Reckitt Benckiser Pharmaceuticals Inc. Eisai Corporation Daiichi Sankyo Merck & Co., Inc. Sepracor Inc. (renamed Sunovion Pharmaceuticals Inc) Sanofi Abbott Laboratories Pfizer Inc King Pharmaceuticals, Inc. Daiichi Sankyo GlaxoSmithKline

14.2 8.1 8.6 10.9 N/A 11.0 8.2 2.9 N/A 17.2 8.3 10.5 8.2 4.0 3.1 N/A N/A 3.8 N/A 4.3 4.8 N/A 3.0 N/A 4.2 6.9 12.8 3.9 2.9

13.9 9.5 10.2 10.6 5.6 11.1 7.9 4.7 N/A 17.1 9.6 12.3 15.8 1.4 3.7 N/A N/A 4.5 N/A 5.0 5.6 N/A 5.9 6.3 4.3 6.5 10.6 5.2 4.4

13.6 10.4 10.9 10.4 7.9 11.1 7.8 6.4 N/A 17.2 10.5 14.3 19.4 2.0 4.2 N/A N/A 5.2 1.9 5.8 6.2 2.7 6.3 8.8 4.5 6.6 N/A 5.9 4.4

12.9 10.3 10.5 10.1 9.8 10.8 7.9 7.1 N/A 16.9 11.0 11.0 14.6 5.7 5.2 N/A 3.1 5.7 3.4 6.2 6.8 4.9 5.6 7.2 5.1 6.3 N/A 6.2 4.4

10.7 9.6 9.5 9.6 9.1 9.6 7.7 7.4 8.8 13.7 9.9 8.7 9.6 6.2 6.4 4.0 5.0 6.3 5.3 6.5 7.0 5.7 5.4 6.9 5.4 5.7 N/A 6.1 4.7

9.3 9.0 8.8 8.8 8.7 8.6 7.9 7.7 7.7 7.6 7.6 7.4 7.2 6.9 6.8 6.7 6.6 6.6 6.5 6.3 6.1 5.9 5.7 5.7 5.6 5.5 5.5 5.2 5.0

15

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45 46 47 48 49 50

NuvaRing Lovaza Yaz NovoLog Combivent Namenda

Merck & Co., Inc. GlaxoSmithKline Bayer Healthcare Pharmaceuticals Novo Nordisk Inc. Boehringer Ingelheim Pharmaceuticals, Inc Forest Pharmaceuticals, Inc

N/A N/A N/A N/A 6.0 2.2

3.8 N/A N/A N/A 5.5 2.9

4.7 2.1 4.8 N/A 5.1 3.5

4.7 3.1 10.0 N/A 4.9 3.8

4.7 N/A 9.9 4.0 4.5 4.0

4.8 4.6 4.6 4.4 4.3 4.2

Source: Verispan, VONA

4. THE US REGULATIONS PERTAINING TO THE PHARMACEUTICAL INDUSTRY

GENERAL OVERVIEW Pharmaceutical companies are subject to the national, state and local laws and regulations of the country in which they operate. In the US, the Food and Drug Administration (FDA) has authority over the biopharmaceutical products and also manages the requirements covering the testing, safety, effectiveness, manufacturing, labeling, marketing, advertising and marketing post monitoring of these biopharmaceutical products. Additionally, these companies are also subject to the control of several other federal regulatory and enforcement departments and agencies including Department of Health and Human Services (HHS), the Federal Trade Commission (FTC) and the Department of Justice. Generally, Pharmaceutical companies are subject to direct and indirect price controls and to drug reimbursement programs with varying price control system depending on the country where the business is conducted. With rising political pressure and governmental budget constraints, these price control mechanisms are expected to remain in place, or possibly even tightened, which can adversely impact the pharmaceutical companies and their product pricing. With the health care reform legislation enacted in 2010 and the current focus on deficit reduction, there is a possibility of continued actions to control prices. As a result of this healthcare reform, a new entity, the Independent Payment Advisory Board (IPAB) has been set up, which has exceptional authority to execute broad actions to decrease future costs of the Medicare program. This can result in further requirement of prescription drug discounts or rebates, which could curb margins of the pharmaceutical companies. There is a risk of government bureaucrats continuing to find more ways to reduce or control prices. 16

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HEALTH CARE REFORM Patient Protection and Affordable Care Act, as revised by the Health Care and Education Reconciliation Act was signed into law on March 23, 2010. The provisions of this Affordable care act (ACA) will be effective in various dates over the period. Companies are bound to pay a non deductible annual fee to the government based on the companys share of branded prescription drugs sales to the The ACA is expected to result specified government programs (in effect from January 1, in the coverage of 32 million 2011 through 2018) uninsured people The ACA is expected to result in the coverage of 32 million uninsured people. Around half of this will occur through an expansion of the Medicaid program. In effect from 2014, people with incomes below 133% of the federal poverty level (FPL) will be qualified for Medicaid. Increasing insurance coverage and other expenses are anticipated to denote a fairly modest gain to overall pharmaceutical sales since the newly insured are primarily young and comparatively healthy. At the same time, the rebates, discounts, taxes and other costs related with the ACA are a considerable cost to the industry. Medicare Part D went into effect on January 1, 2006. Elderly and disabled beneficiaries are entitled access to the Medicare drug benefit via private plans approved by the federal government. The share of such beneficiaries with comprehensive drug coverage rose from 59% in 2005 to above 90% in 2010. Additionally, in 2010, 17.7 million individuals were enrolled in stand alone Prescription Drug Plans (PDPs), while 9.6 million individuals were enrolled in Medicare Advantage Plans or in other types of health plans with prescription drug coverage. Branded Pharmaceutical companies will pay 50% of the cost of branded drugs in the gap, while the government will pay 7% of the cost of the generic drugs in the coverage gap. Thus the enrollees would just have to pay 50% of the cost of branded drugs and 93% of the total cost of generic drugs, which will come down to 25% for other branded and generic drugs by 2020. Over the period, legal proposals have been institutionalized to allow drugs from foreign companies to be imported into the US and sold at prices regulated by the governments of the various foreign countries. Such imports will not only cause welldocumented safety concerns, but also will impact pharmaceutical prices in the US. An increasing focus on drug safety, restrictions on marketing and ongoing healthcare regulations govern every aspect of the drug value chain, from launching and commercializing a product, to its end use in patient care. Additionally, the US healthcare reform may primarily impact how a product reaches a patient, at what price and who pays for it. As per the provisions in the reform, 17

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pharmaceutical companies are required to offer discounts on branded prescription drugs for Medicare Part D participants, thus decreasing the margins on such drugs. Pharmaceutical companies need to comprehend the trade-offs to factor in necessary price cuts with ways to enhance profitability. Table 3: Major Provisions/ Amendments in the ACA and their Impacts
Provision Medicare Part D Amendment Discount of 50% on branded pharmaceutical drugs to beneficiaries. Enrollees will have to pay 93% of the cost for generic drugs and 50% of the cost for branded drugs. (Effective from January 2011) By 2020, only 25% of the cost of branded and generic drugs will be paid by the enrollees as the government share will increase over the period. Impact Lesser profit margins for the branded pharmaceutical manufacturers Beneficial for the consumers due to higher subsidies and rebates Increased government expenditure on healthcare and allocation to budget Expected increase in the number of individual accruing for the healthcare benefits programs thereby getting access to pharmaceutical drugs at reduced price

Medicaid

People with incomes below 133% of the federal poverty level (FPL) will be qualified for Medicaid (Effective from 2014) An increase in the minimum Medicaid rebate on prescription drugs from 15.1% to 23.1%, (effective from January 1, 2010) Extension of rebates to Medicaid managed care organizations (effective from March 23, 2010)

Source: AM Mindpower Solutions

PATENT A product, when filed for patent today receives patent issued for a period of 20 years from the application filing date, subject to possible adjustments for Patent Office delay. A US pharmaceutical patent covers a product, method of treatment using a product, or process of production of a product. The product may be eligible for an extension of the patent period depending upon the time the FDA has taken for the product approval. An extension of this kind may only be extended for the patent term of a maximum of 5 years, and may not extend the patent term for more than 14 years from regulatory approval. Just one patent may be extended for any product based on FDA delay. In reality, it is not uncommon for the five year maximum patent extension period to pass the patent application filing date for a product and the patent approval date. Thus, the chances for a product to enjoy the full 20 years of patent protection from the date of approval are rare. Perhaps, it is not uncommon for a product to have around 13-16 years of patent protection remaining from the date of approval, inclusive of all the extensions present at that time. 18

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Besides patent exclusivities, the FDA may provide data or market exclusivity for a new chemical entity or an orphan drug each of which run in parallel to any patent protection. Data exclusivity inhibits a prospective generic competitor from relying on clinical trial data which were generated by the sponsor when establishing the safety and efficacy of its competing product. Market exclusivity prohibits any marketing of the same drug for the same indication. Orphan drugs, meaning drugs for treating rare diseases, as designated by the FDA possess 7 year market exclusivity period. During the Orphan drug exclusivity period, a prospective competitor may not market the same drug for the same indication, even if the competitors application may not be based on the data from the sponsor. A new small-molecule active pharmaceutical ingredient will enjoy 5 years of data exclusivity wherein a competitor generally may apply to the FDA based on a sponsors clinical data. A new biologic active pharmaceutical ingredient possesses 12 years of market exclusivity. During that period, a prospective competitor may not market the same drug for same indication. The ACA has set a framework for biosimilars or follow-on biologics to be approved once the innovator biologics 12 year exclusivity and the probable six month pediatric extension has expired. The FDA may also request a sponsor to conduct pediatric studies, in exchange for being granted an additional 6-month period of market exclusivity. In case, the data gets accepted by the FDA, the sponsor makes a timely application for an approval for pediatric treatment, and the sponsor has either a patent-based or regulatory based exclusivity period for the product which can be extended.

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5. THE US PHARMACY DISTRIBUTION AND REIMBURSEMENT SYSTEM

Figure 2: The US Pharmacy Distribution and Reimbursement System

Source: Pembroke Consulting

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6. THE US PHARMACEUTICAL MARKET SEGMENTATION

6.1. BY GENERIC AND BRANDED DRUGS, 2005-2010

Branded drugs hold the major market share in the total pharmaceutical drugs sales in the US. In 2010, branded drugs accounted for 83.2% of the total drugs sold, but this market share decreased over the period from 87.5% in 2005. The sales of The market share of generic drugs has branded drugs grew from USD 237.6 billion in 2005 grown over the period and accounted for to USD 265.1 billion in 2010 at a CAGR of 2.2%. Generic drugs, which showcased a growth in the market share over the period from 12.5% share in 2005 to 16.8% in 2010 and posted sales of USD 53.4 billion, which has grown at a 5 year CAGR of 9.4% from sales worth of USD 34.08 billion in 2005. The reason for generic drugs eating up the market share of branded drugs can be attributed to the patent expiries of the branded drugs which have resulted in introduction of generic drug alternatives and substitutions, which are substantially cheaper than their branded counterparts. Additionally, the market share of generic drugs on the basis of the number of prescription dispensed has grown over the period and accounted for around 73.5% of the total prescriptions dispensed in 2010, while branded drugs held a market share of 26.5%.
around 73.5% of the total prescriptions dispensed in 2010.

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Figure 3: The US Pharmaceutical Market Segmentation by Branded and Generic Drugs on the Basis of Revenue, in Percentage, 2005-2010
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2005 2006 Generic Drugs
Source: AM Mindpower Solutions

12.5%

13.7%

13.4%

14.3%

14.6%

16.8%

87.5%

86.3%

86.6%

85.7%

85.4%

83.2%

2007

2008

2009

2010

Branded Drugs

Table 4: The US Pharmaceuticals Market Segmentation by Branded and Generic Drugs on the Basis of Revenue, in USD Billion, 2005-2010
Sales (USD Billion) Branded Drug Sales Generic Drug Sales
Source: AM Mindpower Solutions

2005 237.64 34.08

2006 253.06 40.09

2007 260.00 40.35

2008 254.76 42.36

2009 266.76 45.60

2010 265.12 53.36

6.1.1. GENERIC DRUGS COMPETITIVE LANDSCAPE, 2011

Teva Pharmaceuticals is the largest generic drug company in the US with generic drug sales of USD 4.0 billion in the US in 2011. The company held a generic drugs market share of 6.8%. Sandoz, part of Novartis was the second largest generic drug company with generic drug sales of USD 3.3 billion in the US in 2011 and holding market share of 5.7%. Sandoz operates in more than 130 countries with 30 production facilities worldwide. Sandoz also manufactures biosimilars.

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Mylan is the third largest company with generic drug sales of USD 2.6 billion in the US in 2011 and market share of 4.4%. The company has one of the largest product portfolios among all generic pharmaceutical companies operating in the US, consisting of around 340 products, out of which around 305 are in capsule or tablet form in a total of around 740 dosage strengths.

6.2. BY PRESCRIBED AND OVER THE COUNTER DRUGS (OTC), 2005-2010

Prescribed drugs commanded 83.6% share of the total pharmaceutical sales in the US in 2010which has grown from 83.2% in 2005. The sales of prescribed drugs has grown from USD 226.1 billion in 2005 to USD 266.4 billion in 2010 at a 5 year CAGR of 3.3%. OTC drugs on the other hand holds 16.4% of the total pharmaceutical drugs sales in the US. The total OTC drugs sales was registered at USD 52.1 billion in 2010 which has grown at a 5 year CAGR of 2.7% from sales of USD 45.6 billion in 2005.The higher sales of the prescribed drugs can be attributed to the stringent medical policies in the US. Figure 4: The US Pharmaceuticals Market Segmentation by Prescribed and OTC Drugs on the Basis of Revenue, in Percentage, 2005-2010
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2005 2006 OTC Drugs
Source: AM Mindpower Solutions

16.8%

17.0%

17.0%

16.1%

16.3%

16.4%

83.2%

83.0%

83.0%

83.9%

83.7%

83.6%

2007

2008

2009

2010

Prescribed drugs

23

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Table 5: The US Pharmaceuticals Market Segmentation by Prescribed and OTC Drugs on the Basis of Revenue, in USD Billion, 2005-2010
Sales (USD Billion) Prescribed Drug Sales OTC Drug Sales
Source: AM Mindpower Solutions

2005 226.1 45.6

2006 243.2 50.0

2007 249.2 51.2

2008 249.2 47.9

2009 261.3 51.1

2010 266.4 52.1

6.2.1. PRESCRIBED DRUGS MARKET SEGMENTATION, 2006-2010

All of the top 10 prescribed drugs in the US are generic drugs, including Vicodin and Zocor. Vicodin, a formulation of Hydrocodone combined with acetaminophen, is the most prescribed drug in the US. An analgesic, this drug registered 129.8 million prescriptions in 2010 which has grown over the period at a 4 year CAGR of 3.7%. In early 2011, the FDA asked the manufacturers of all the prescription drugs that contain acetaminophen to limit the amount of the drug to 325 milligrams per tablet or capsule requiring a Boxed Warning on all prescription acetaminophen products that underscores the possible risk for critical liver damage. Additionally, the FDA is requiring a Warning on labels of all prescription products containing acetaminophen that underscores the probability for allergic reactions. This might affect the prescription rate of Vicodin in the future. Several of the top 10 prescribed drugs in the US are associated with the treatment of cholesterol management and blood pressure. Zocor, a cholesterol-lowering statin drug, ranked at number two, registering 93.7 million dispensed prescriptions which have grown over the period at a 4 year CAGR of 61.1%. Lisinopril was ranked at number 3 with 86.8 million prescriptions, Norvasc and Hydrochlorothiazide were placed and number 5 and number 10 with 57.5 million and 47.2 million prescriptions respectively in 2010. The demand for such drugs is increasing with the rising propensity of obesity in the US population. Table 6: Top 10 Prescribed Drugs in the US by Dispensed Prescriptions, in Million, 20062010
Drug Hydrocodone (combined with acetaminophen) Generic Zocor (simvastatin) Description An Analgesic A cholesterol-lowering statin drug 2006 112.1 13.9 2007 118.9 47.3 2008 124.7 67.0 2009 129.3 83.1 2010 129.8 93.7

24

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Lisinopril (brand names include Prinivil and Zestril) Generic Synthroid (levothyroxine sodium) Generic Norvasc (amlodipine besylate) Generic Prilosec (omeprazole) Azithromycin (brand names include Z-Pak and Zithromax) Amoxicillin (various brand names) Generic Glucophage (metformin) Hydrochlorothiazide (various brand names)
Source: AM Mindpower

A blood pressure drug Synthetic thyroid hormone An angina/blood pressure drug An antacid drug An antibiotic An antibiotic A diabetes drug A water pill used to lower blood pressure

64.9 49.3 N/A 18.3 36.9 55.0 38.8 48.2

70.7 54.1 28.2 27.2 46.7 53.6 40.7 48.8

76.3 60.6 44.9 35.9 51.5 51.3 42.4 48.8

81.9 65.5 51.4 46.1 54.1 52.8 44.5 48.3

86.8 70.0 57.5 53.6 52.9 52.5 48.6 48.2

6.2.1.1.

TOP THERAPEUTIC CLASSES IN THE US BY PRESCRIPTIONS DISPENSED AND SPENDING, 2006-2010

Lipid regulators which mainly include the statin drugs, is the top therapeutic class in the US according the total number of prescriptions dispensed and ranked third in terms of total spending. These drugs are prescribed prominently for the prevention and treatment of cholesterol-related and several other issues. Pfizers Lipitor (atorvastatin) was the top selling branded statin in 2010. Around 225 million prescriptions were filed for lipid regulators and USD 17.6 billion was spent on this therapeutic class in 2010. Rising obesity rates and aggressive marketing campaigns by Lipid regulating drug manufacturers have upheld this industry. Antidepressants are the second highest prescribed therapeutic class witnessing 254 million prescriptions in 2010 and accounting for spending of USD 10.9 billion. According to a study published in Health Affairs journal in August 2011, rise in prescription of antidepressants to patients by primary care providers and others practicing outside the area of psychiatry without clinical psychiatric analysis is triggering the growth Oncology is the leading therapeutic in the market.
sector in terms of spending. In 2010, USD 23.1 billion was spent on this therapeutic sector.

Oncology is the leading therapeutic sector in terms of spending. In 2010, USD 23.1 billion was spent on this

25

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therapeutic sector, which has grown over the period from 14.4 billion in 2006 at a 4 year CAGR of 12.5%. The spending on this therapeutic class is expected to rise further with the rising number of cancer cases and the unavailability of a complete cure for cancer. Respiratory diseases are of the leading causes of death in the US. The lifestyle, environment and pollution have played a role in rise of respiratory illnesses in the US. Data from the Federal Centers for Disease Control and Prevention (CDC) highlights the rising number of deaths from Chronic Lower Respiratory Disease (CLRD). CLRD includes asthma, chronic bronchitis, emphysema, and other lower respiratory illnesses. Out of the diseases included in the data, Chronic Obstructive Pulmonary Disease (COPD) is responsible for more than 120,000 US deaths each year. CLRD is the third leading cause of death in the US. The spending on respiratory Agents have increased over the period from USD 13.9 billion in 2006 to USD 19.8 billion in 2010 at a 4 year CAGR of 9.2%, thus placing it as the second highest therapeutic class in terms of spending. Around 153 million prescriptions were dispensed for respiratory agents in 2010. Table 7: Top 10 Therapeutic Classes in the US by Dispensed Prescriptions, in Million, 2006-2010
Top Therapeutic class by Dispensed Prescriptions Lipid Regulators Antidepressants Narcotic Analgesics Beta Blocker (Plain & Combo) Ace inhibitors Anti-diabetes Respiratory Agents Anti-Ulcerants Diuretics Anti-Epileptics
Source: AM Mindpower

2006 209.8 230.5 221.3 155.9 153.6 148.3 140.5 128.6 137.6 95.2

2007 228.2 240.0 230.8 159.6 157.5 151.5 145.7 134.5 134.9 102.4

2008 236.6 240.3 239.2 159.8 161.0 154.2 146.6 139.4 132.8 108.6

2009 249.2 246.7 239.6 167.8 166.2 158.8 151.8 146.2 132.4 114.5

2010 254.9 254.0 243.7 192.1 169.3 164.7 152.9 146.6 130.8 122.3

Table 8: Top 10 Therapeutic Classes in the US by Spending, in USD Billion, 2006-2010


Top Therapeutic class by Spending Oncologics Respiratory Agents Lipid Regulators 2006 14.4 13.9 21.4 2007 18.8 14.4 18.5 2008 20.1 16.4 16.9 2009 22.7 18.7 17.4 2010 23.1 19.8 17.6

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Anti-diabetes Antipsychotics Anti-Ulcerants Antidepressants Autoimmune Diseases HIV Antivirals Angiotensin II


Source: AM Mindpower

10.6 10.9 13.7 12.9 6.7 5.1 5.2

11.7 12.9 14.2 11.4 7.9 6.5 5.9

11.9 14.1 13.8 11.4 8.9 6.8 7.1

14.8 14.5 14.3 11.3 10.2 8.5 8.4

17.1 15.7 11.7 10.9 10.8 8.9 8.5

6.2.1.2.

THE US RETAIL PRESCRIPTION DRUG SALES SEGMENTATION BY TYPE OF SALES OUTLET, 2005-2010

Traditional chains are the largest sales medium for prescription drugs sales accounting for 47.9% of the total sales. In 2010, 1.8 million prescription drugs worth USD 106.6 billion were sold via traditional chains, which have grown from 1.5 billion worth USD 90.7 billion in 2005 at a 5 year CAGR of 3.1%. Traditional chains accounted for 40% of the revenue generated from total prescription drugs sold, and 47.9% of the total prescriptions dispensed in 2010. Independent stores are the second largest sales outlet for pharmaceutical drugs, accounting for 19.8% of the total number of prescriptions dispensed and 16.8% of the total revenue generated from sales of prescribed drugs, in 2010. Around 729 million prescription drugs were dispensed via independent stores which generated USD 44.7 billion. Mass Merchant stores dispensed 433 million prescriptions in 2010 which has grown over the period at a 5 year CAGR of 3.8%. The revenue in 2010 generated through prescription drugs sales via mass merchant stores was USD 26.6 billion in 2010 which grew at a CAGR of 8.7% from USD 17.5 billion in 2005. Super markets are close behind mass merchant stores in terms of the revenue generated from sales of prescription drugs. Supermarkets witnessed prescription drugs sales worth USD 25.9 billion which has decreased from USD 26.9 billion in 2005 at a 5 year CAGR of -0.8%. Despite being the last segment in terms of number of prescriptions dispensed, Mail Order Stores generated sales worth USD 62.6 billion in 2010, thus being the second largest sales outlet in terms of sales value.

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The total number of dispensed prescription in the US have increased over 5 years at a CAGR of 2.3% to showcase 3.6 billion prescription worth USD 266.4 billion. Table 9: The US Retail Prescription Drug Sales Segmentation in Volume by Number of Prescriptions in Type of Sales Outlet, Million, 2005-2010
Sales outlet Traditional chain Independent Mass merchant Supermarkets Mail Order Number of prescriptions 2005 1,513 719 359 465 223 3,279 2006 1,599 738 375 476 232 3,419 2007 1,652 753 390 478 257 3,530 2008 1,677 739 400 481 262 3,559 2009 1,731 730 423 488 261 3,633 2010 1,760 729 433 490 264 3,676

Source: NACDS (National Association of Chain Drug Stores)

Table 10: The US Retail Prescription Drug Sales Segmentation by Type of Sales Outlet, USD Billion, 2005-2010
Sales outlet Traditional chain Independent Mass merchant Supermarkets Mail Order Retail Sales
Source: NACDS

2005 90.7 45.4 17.5 26.9 45.5 226.1

2006 96 46.7 21.6 28.1 50.9 243.2

2007 100.5 45.3 23.6 27.3 52.5 249.2

2008 101.2 43.3 24.2 25.2 55.4 249.2

2009 105.3 43.6 25.6 25.9 61.3 261.3

2010 106.6 44.7 26.6 25.9 62.6 266.4

6.2.1.3.

THE US PRESCRIPTION DRUG COMPETITIVE LANDSCAPE, 2010

Teva pharmaceuticals are the worlds leading generic drug manufacturer. The company has the largest number of prescriptions dispensed in the US in 2010 and is the leading generic drug developer. Ranked among the largest pharmaceutical companies in the world, the company also manufactures specialty drugs and has entered into joint venture to focus on OTC drugs. Teva 28

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Pharmaceuticals sold generic drugs worth USD 4 billion in 2011 which has decreased by 31.8% from the preceding year's generic sale of USD 5.8 billion. Teva Pharmaceuticals holds 17.4% of the market share in terms of the number of dispensed prescriptions. Mylan is among the top generic drug manufacturers in the US. One out of every eleven prescriptions dispensed in the US is a Mylan product. This company witnessed around 380 million prescriptions in the US in 2010 and held a market share of 103%. Novartis is a leading pharmaceutical company in the US. This company has a pharmaceutical and a Sandoz division (which manufactures generic drugs). The companys pharmaceutical products recorded around 265 million dispensed prescriptions in the US in 2010. Pfizer is the leading pharmaceutical company in the US. Blockbuster drugs such as Lipitor have helped the company earn and maintain this position. Around 242 million prescriptions of Pfizers products were dispensed in the US in 2010, making it the third largest company by total number of prescriptions dispensed. Figure 5: The US Prescription Drug Competitive Landscape by Number of Prescriptions Percentage, Million, 2010
Teva 17.4% Mylan

10.3% 52.1% 7.2%

Novartis

Pfizer

Watson 6.6% 6.4% Others

Source: Company Reports

Table 11: Top US Companies by Number of Prescriptions Dispensed, Million, 2010


Company Teva Pharmaceutical Industries Mylan Dispensed Prescription in 2010 (Million) 639.3 379.9

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Novartis Pfizer Watson Pharmaceuticals Others Total


Source: Company Reports

265.3 242.0 233.6 1,915.9 3,676.0

6.2.1.4.

TOP US PHARMACIES BY TOTAL PRESCRIPTION REVENUES, 2011

Walgreen is the largest drugstore chain in the US with 7761 drugstores and prescription drug sales of USD 46.7 billion in 2011. Walgreens filled around 718 million prescriptions in 2011, an increase of 23 million from fiscal 2010. As of FY2011 (Fiscal year ending august 31 2011), around 6.1 million customers visited the stores daily. In 2011, CVS Retail Pharmacy segment included 7,327 retail drugstores, out of which 7,271 operated a pharmacy, online retail pharmacy, 30 onsite pharmacy stores and retail health care clinics which are located in 41 states, Puerto Rico and the District of Columbia. The company operates in around 92 of the top 100 US drugstore markets. In 2011, the company owned around 6% of their 7,327 retail stores. The net selling space for retail drugstores rose to 71.5 million square feet by the year end. In 2011, CVS Pharmacy Services segment operated 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and 4 mail service pharmacies located in 22 states, the District of Columbia and Puerto Rico. CVS Retail Pharmacy and Pharmacy Services generated around USD 41.5 billion and USD 15.4 billion in the US in 2011 respectively. In 2011, Medco administered 757 million prescriptions generating revenue worth USD 24.6 billion. Medco Pharmacy, the companys mail-order filled 113 million prescriptions in that year. In 2011, Medco had around 22,100 full-time employees and around 1,100 part-time employees, totaling 23,200 employees globally. Wal-Mart stores were the fourth largest with estimated prescription revenues of USD 17.3 billion in the US in 2011 and market share of 6.2%.

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Table 12: Top US Pharmacies by Estimated Total Prescription Revenues, USD Billion, 2011
Estimated 2011 Prescription Revenues1 (billions) Share of 2011 Prescription Revenues

Company CVS Caremark Corporation Retail Pharmacy Pharmacy Services Walgreen Company Medco Inc. Health Solutions,

Primary Dispensing Format

41.50 15.48 46.70 24.61 17.34 17.22 13.58 7.11 3.49 3.05 2.92 36.63 47.86 277.48

15.0% 5.6% 16.8% 8.9% 6.2% 6.2% 4.9% 2.6% 1.3% 1.1% 1.1% 13.2% 17.2% 100.0%

Chain drugstore Mail-order pharmacy Chain drugstore Mail-order pharmacy Mass merchant with pharmacy Chain drugstore Mail-order pharmacy Supermarket with pharmacy Supermarket with pharmacy Mail-order pharmacy Mass merchant with pharmacy Various Independent drugstores N/A

Wal-Mart Stores, Inc.3 Rite Aid Corporation Express Scripts, Inc. The Kroger Company Safeway, Inc. UnitedHealth Target Corporation All other chains Independent Pharmacies Total
Source: AM Mindpower

6.2.2. OTC DRUGS MARKET SEGMENTATION, 2007-2010

Nutritional Supplements are the leading segments in the OTC drugs market accounting for 67.4% of the market and recorded sales of USD 35.1 billion in 2010 which has grown in the last 3 years at a CAGR of 3.2%. Aging population and rising health concern are some of the factors fuelling this market. In 2010, a new vitamin K2 ingredient was launched. Norway kappa developed the K2Vital Vitamin product which would be distributed in the US by Xsto Solutions. This entry is estimated to drive further the Nutritional Supplements market, especially the Vitamins segment. 31

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Cold and cough medicines are the second largest segment in the OTC market having 7.8% market share. The sales of cough and cold medicines has increased from USD 3.6 billion in 2007 to USD 4.05 billion in 2010 at a 3 year CAGR of 3.4%. Demands for these medicines are driven by the incidence and gravity of flu and cold seasons. The US residents suffer around 1 billion cold cases per annum. Around USD 2.6 billion worth painkillers were sold in 2010 which has historically declined at a 3 year negative CAGR of 1.0%. Though the OTC analgesic market registered a marginal decline over the period, prescribed analgesic market is growing.

Table 13: OTC Drugs Segmentations by Medicine Category, USD Million, 2007-2010
Segment Nutritional Supplements Cough and Cold Medicines Painkillers Digestive Medicines Skin Treatment Toothpaste Oral Antiseptics and Rinses First Aid Ophthalmic care Anti-Smoking Products All Others Total OTC Drugs Market
Source: AM Mindpower

2007 35,108 3,662 2,739 2,202 1,506 1,246 728 624 441 507 2,394 51,157

2008 31,159 4,083 2,769 2,218 1,581 1,251 744 645 459 493 2,515 47,917

2009 34,074 4,207 2,797 2,258 1,581 1,268 731 650 472 494 2,525 51,057

2010 35,112 4,054 2,654 2,381 1,655 1,288 722 675 500 485 2,557 52,083

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6.3. THE US BIOLOGICS/BIOPHARMACEUTICAL MARKET

6.3.1. THE US BIOLOGICS/BIOPHARMACEUTICAL MARKET SIZE BY VALUE, 2006-2011

Biologic drugs are gradually increasing their share over the period. These proteins based drugs, mainly produced using Recombinant DNA technology, and are used increasingly to treat numerous conditions. The Biopharmaceutical Market is booming in the US. Biological drugs are generally more expensive than the conventional drugs thus acting as key revenue earners for producers. The top categories of biologic drugs in terms of sales are monoclonal antibodies (mABS) and Hormones and Growth factors. Stem cell research is going forward at a rapid pace. The Obama administration has relaxed the restrictions on federal funding of stem cell research that were instituted by the foregoing administration. In 2009, the National Institutes of The total US biologic drugs market Health (NIH) laid down new guidelines for funding grew from USD 45.5 billion in 2006 which will increase the number of stem cell lines that to USD 65.9 billion in 2011 at a 5 qualify for research funds from a preceding 21 to as year CAGR of 7.7%. many as 700. Nonetheless, research of certain extremely controversial stem cells, for instance those developed through cloning, will not be funded with federal dollars. In spite of the significant advances in biopharmaceutical knowledge and technology, the biopharmaceutical companies continue to confront hardships in the form of long timeframes, high costs and massive risks in developing, and commercializing and launching a new product into the market. The number of drugs getting approved is relatively less, compared to the total number of drugs developed. Out of those approved drugs, few make it to the clinical trials, and even fewer are launched. Of those launched, only a small number of drugs generate revenues to recover their costs and they are also daunted by the shortening patent period. Once the market exclusivity and patent extension ceases, the market share of these innovator biologics are hastily eaten up by their generic counterparts. The total US biologic drugs market grew from USD 45.5 billion in 2006 to USD 65.9 billion in 2011 at a 5 year CAGR of 7.7%.

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Figure 6: The US Biopharmaceuticals Market Size by Value in USD Billion, 2006-2011


70.0 61.3 60.0 49.8 50.0 USD Billion 40.0 30.0 20.0 10.0 0.0 2006
Source: AM Mindpower

65.9 57.8 53.2 45.5

2007

2008

2009

2010

2011

6.3.2. TOP SELLING BIOLOGIC DRUGS, 2010

Avastin, Rituxan, Enbrel and Remicade among the worlds top selling biologics and each recorded sales above USD 3 billion in the US in 2010. Avastin (Bevacizumab) by Genentech/Roche was among the top selling drugs worldwide in 2010. This drug is prescribed for treating treat brain tumor and certain types of cancer of the colon, rectum, lungs and kidney. Avastin recorded sales of USD 4.0 billion in the US in 2010. Rituxan is also a major biologic marketed by Roche. Rituxan is a monoclonal antibody prescribed for the treatment of non-Hodgkins lymphoma (NHL) This drug registered sales of USD 3.8 billion in 2010. Enbrel (Etanercept) is a TNF (tumor necrosis factor) inhibitor used to treat rheumatoid arthritis, ankylosing spondylitis, and psoriasis. Enbrel generated sales of USD 3.3 billion in 2010. Remicade (Infliximab) is a monoclonal antibody against tumour necrosis factor alpha (TNF) used for the treatment of some autoimmune diseases, namely psoriasis, ulcerative colitis, ankylosing spondylitis, psoriatic arthritis, rheumatoid arthritis and Crohn's disease. This drug recorded sales of USD 3.1 billion in the US in 2010.

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Table 14: The US Sales of Top Selling Global Biologic Drugs, USD billion, 2010
Biologic Drug Avastin Rituxan Enbrel Remicade Humira Neulasta Epogen Herceptin Lucentis Aranesp Procrit
Source: Company Reports

Therapeutic Category Cancer Cancer Rheumatoid Arthritis Rheumatoid Arthritis Rheumatoid Arthritis Neutropenia Anemia Cancer Macular degeneration Anemia Anemia

Sales in the US (USD Billion) 4.0 3.8 3.3 3.1 2.8 2.7 2.5 2.0 1.8 1.1 1.1

6.3.3. TOP US BIOPHARMACEUTICAL COMPANIES MARKET SHARE, 2011

Bristol-Myers Squibb is the largest company in the US in terms of biopharmaceutical drugs sales. The company held a market share of 21% and recorded sales of USD 13.8 billion. The company focuses on developing drugs in the oncology therapeutic class. Roche is the second largest company with market share of 19.3% and sales of USD 12.7 billion. The company is expanding into selected therapeutic categories, namely oncology, neuroscience, metabolism, virology and immunology. Herceptin, MabThera/Rituxan and Lucentis were among the main drivers of Roches biopharmaceutical drug revenue from the US in 2011, while Avastin showed decline in that year. Amgen registered biopharmaceutical dug sales of sales of USD 11.7 billion in 2011. Neulasta/Neupogen, Enbrel, Epogen and Aranesp performed well in 2011, thus contributing significantly to the companys financial performance in that year. J&J recoded USD 5.5 billion sales of biologics in the US in 2011 and others contributed USD 22.4 billion sales to the total biologics sales of USD 65.9 billion in the US in 2011. 35

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Figure 7: Market Share of the Major Biopharmaceutical Companies in the US on the Basis of Revenue, Percentage, 2011

21.0%

Bristol-Myers squibb

34.0%

Roche

Amgen

19.3%

J&J

7.9% Others 17.8%


Source: Company reports and AM Mindpower Solutions

Table 15: Top US Companies by Sales of Biopharmaceutical Drugs, USD Billion, 2011
Company Bristol-Myers Squibb Roche Amgen Johnson & Johnson Others Total US Biopharmaceutical Sales
Source: Company Reports and AM Mindpower Solutions

2011 Sales (USD Billion) 13.8 12.7 11.7 5.2 22.4 65.9

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6.3.4. BIOLOGIC DRUGS FUTURE PROJECTIONS, 2012-2016

Biologic drugs are often large and structurally complex and unlike the chemical drugs, copying them to produce biosimilars is hard. Thus a copy of an original biologic can possibly be similar to the innovator, but it wont be equal.
Biological drugs are currently more costly but are estimated to become marginally cheaper over the period due to increasing production, market competition, increasing biosimilars and bio-betters.

Unlike the conventional drugs, biological drugs have high level of accuracy and can search out the diseased organs or cells that need to be treated.

Biologic drugs have been used to treat major illnesses such as Rheumatoid Arthritis, Multiple Sclerosis, Asthma, Cancers and others. This segment has high scope for further research and development of treatments for more complex illnesses effectively. Several companies are moving on to the biologic drugs segment due to the underlying potential. Biologic drugs generally have lesser side effects than the general prescription drugs, and are more effective. Biologic drugs hold high potential for future growth because of better long term outcomes with fewer costly side effects. Biological drugs are currently more costly but are estimated to become marginally cheaper over the period due to production in large quantities, rising market competition, increasing biosimilars and bio-betters and others. The US biologic drugs market is estimated to grow at a 5 year CAGR of 8.1% from 2011 to reach USD 97.4 billion by 2016.

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Figure 8: Future Projections of US Biologic Drug Sales, USD Billion, 2012-2016


120.0 100.0 Sales (USD Billion) 83.2 80.0 60.0 40.0 20.0 0.0 2012
Source: AM Mindpower Solutions

97.4 90.1 76.7 71.0

2013

2014

2015

2016

6.4. THE US SPECIALTY DRUGS MARKET

Specialty therapeutic categories have high potential for growth. The specialty medications are expensive, not generally available in retail setting, complex to administer, require proper monitoring and support, prior detailed health information about patient and distinctive monitoring parameters and have definite storage and handling requirements. Rheumatoid Arthritis, Multiple sclerosis and Oncology are the major specialty healthcare areas accounting for 65.2% of the total spending on specialty drugs. Oncology has an increasing therapeutic and commercial importance. Almost one out of five specialty drugs is a cancer medication. A considerable portion of pharmaceutical research is based on the study of cancer. Owing to the advancement of technology for sequencing the genomes, around 350 genes involved in the origin of cancer has been identified. The study of genes vital for the origin and development of cancer is far from complete. Researchers and Scientists all around the globe are involved in several projects and ventures to detect all of the mutations that cause cancer. The Cancer Genome Project is one such project where, researchers all over the globe are concentrating to identify the mutations causing the 50 most common types.

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Table 16: Specialty Categories, Average Cost in USD and Relative Available Medications, 2010
Therapy Class Anticoagulants Blood Cell Deficiency Cancer Growth Deficiency Hepatitis C Infertility Inflammatory Conditions Multiple Sclerosis Pulmonary Hypertension Respiratory Conditions
Source: CuraScript

Avg. Cost per prescription 1,086.40 2,030.20 2,718.30 2,823.40 1,389.00 771.9 1,896.80 2,718.80 3,590.90 2,740.30

Medications Lovenox, Arixtra, Fragmin Procrit, Aranesp, Neupogen Revlimid, Gleevec, Tarceva Genotropin, Nutropin, Norditropin Pegasys, Incivek, Victrelis Makena, Menopur Enbrel, Humira Copaxone, Avonex, Rebif Revatio, Tracleer, Letairis Prolastin-C, Cayston, TOBI

Figure 9: Top Specialty Categories by Percent Contribution to Net Specialty Costs, 2010
10.8% 2.1% 2.2% 2.3% 2.7% 3.9% 5.2% 27.2%

Rheumatoid Arthiritis Multiple sclerosis Cancer Growth Agents Anti-coagulants Pulmonary Arterial Hypertension Pulmonary

5.6%

Hemophilia Infertility 20.8% 17.2% Neutropenia Other

Source: Medco

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7. THE US PHARMACEUTICAL INDUSTRY TRENDS AND DEVELOPMENTS

RISING EXPENDITURE ON BIOPHARMACEUTICAL RESEARCH AND DEVELOPMENT The biopharmaceutical industry is one of the most research concentrated industries in the US. The expenditure on biopharmaceutical research and development has showcased a dependable growth over the period. The expenditure has grown from USD 51.8 billion in 2005 to USD 67.4 billion in 2010 at a CAGR of 5.4%. The US is Despite enormous spending on R&D, among the leading countries in conducting and new drug developments and approvals propagating biopharmaceutical research. The have decreased over the years. The cost country has the biggest scientific research base, of developing a new drug is estimated to be above USD 1.3 billion. promoted and nurtured by decades-long government funding for biomedical research which has been helpful in supporting the development of medical products. Despite such enormous spending, the number of new drug developments and approvals has decreased over the period. The expenditure on developing a new drug is estimated to be more than USD 1.3 billion. Only 23 new molecular entity applications were filed with the Center for Drug Evaluation and Research in 2010, which is one of the lowest in preceding 10 years. Additionally, the drug approvals have slowed down with an average of just 22 drugs approved from 2005 to 2010. Most of the companies had to rely on inorganic growth through M&As in order to create R&D cost synergy. Although this method worked well, expanding and diversifying the product portfolios of several companies, it hasnt improved their ability to innovate and develop new drugs.

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Figure 10: The US Expenditure on Biopharmaceutical Research and Development, in USD Billion, 2005-2010
80.0 70.0 60.0 51.8 50.0 40.0 30.0 20.0 10.0 0.0 2005 2006 2007 2008 2009 2010 56.1 63.7 65.9 67.4

63.2

Source: PhRMA (Pharmaceutical Research and Manufacturers of America)

EXPANDING GENERIC DRUG MARKET Over the period, generic drug segment is growing. This growth is due to the fact that many branded drugs are losing their patents over the period and the development of new drugs have slowed down. In the US, the cost of generic drugs manufactured by multiple competing companies is 70-80% lesser than the original branded In the US, the cost of generic drugs drug. Thus most people prefer generic drugs rather manufactured by multiple competing than its originally branded one. Generally, within just companies is 70-80% lesser than the 6 months of losing patent, generic drugs replace original branded drug. almost 80% of the prescription volume of the branded drug. The rising trend affecting the pharmaceutical companies is the introduction on new generics to substitute the blockbuster drugs as soon as the patent protection expires. While the market shift towards generic drugs placing pressure on the revenue margins of the companies in developed markets, it is a growth opportunity of the pharmerging nations. To capitalize on this opportunity, several top pharmaceutical countries has acquired or entered into alliances with the leading generic players in the developed and emerging markets.

Sales (USD Billion)

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Some major blockbuster drugs including Pfizers Lipitor, the greatest selling drug of all time, lost their patent protection in 2011 and others like Plavix, the second highest selling drug in the US is expected lose its patent protection in 2012. Pfizer and J&J both witnessed two of their products each, lose patent in 2011. Zyprexa from Eli Lilly, which showcased sales of 3.6 million units worth USD 2.03 billion in 2010, lost its patent protection in 2011. Actos, a drug from Takeda for type 2 diabetes is expected to lose its patent in 2012. In 2010, 11.2 million units of Actos were sold worth USD 2.6 billion. Enbrel from Amgen is a drug used to treat rheumatoid arthritis, ankylosing spondylitis, and psoriasis. This drug is expected to witness patent expiry in 201. Enbrel registered sales worth USD 546 million in 2010.

Table 17: Top Pharmaceutical Drugs Losing Patent Protection in 2011 and 2012
Patent Expiring in 2011 Lipitor Zyprexa Levaquin Concerta Protonix Patent Expiring in 2012 Plavix Seroquel Singulair Actos Enbrel
Source: Company Reports

Condition Cholesterol Antipsychotic Antibiotics ADHD/ADD Antacid Condition Anti-platelet Antipsychotic Asthma Type 2 diabetes Arthritis

Company Pfizer Eli Lily Johnson & Johnson Johnson & Johnson Pfizer Company Bristol-Myers Squibb/Sanofi AstraZeneca Merck Takeda Amgen

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RISING PRESCRIPTION DRUG PRICES Over the period, the average prices of all prescription drugs have increased steadily at a five year CAGR of 4.4% to USD 79.4 in 2010. This price rise has been generally triggered by the steep increase in the average price of branded drugs over the period, which had grown from USD 97.7 in 2005 USD 166.6 in 2010 at a CAGR of 11.3%. The prices of branded drugs generally increase as they near their patent expiration date in order to benefit more from them, before they become generic. The pressure of generic drugs has influenced the price rise of branded drugs over the years. The average prices of the generic drugs have also increased over the years from USD 29.2 in 2005 to USD 44.1 in 2010 at a CAGR of 8.6%. The expense incurred on prescription drugs by a US resident is considerably higher than expense incurred by residents of other developed nations. This has led to the pharmaceutical industry being stated as the most profitable of all businesses in the US. The price of the prescription drugs, especially as a part of Medicare has even turned into a political issue in the US. Despite, the manufacturing cost of a pharmaceutical drug being relatively lower, the cost of inventing a pharmaceutical drug is comparatively higher, and this higher price permits the US pharmaceutical industry to concoct substantially disproportionate share of pharmaceutical drugs. In order to save money, the US citizens are importing pharmaceutical drugs from other countries at a far cheaper rate than that is available in the US. The drugs are either brought at land borders, or mailed from other countries such as Thailand, India. According to the US customs estimates, approximately 10 million of the US citizens bought in medications at land borders and around 2 million packages of pharmaceuticals arrive by international mail. Earlier, the uninsured citizens used to purchase cheap medications from Canada, but now customers are resorting to online shopping to purchase cheap medications from India, UK and other nations, thus saving considerable amount of money, even up to 60-80% off from the US price. The Federal Food, Drug, and Cosmetic Act denies approval for citizens to import medications and drugs not approved for sale in the US by the FDA., or adulterated and misbranded drugs within the meaning of that act. Pharmaceutical companies state that higher prices are set for prescription drugs in order to fund their research, but over the period there has been criticism that only a diminutive percent of the companys expenditure goes into research and development while the bulk of the share is spent on the areas of marketing and administration.

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Figure 11: Average Drug Prices for All Prescription, Branded Drugs and Generic Drugs, USD, 2005-2010
180.0 160.0 140.0 120.0 USD 100.0 80.0 60.0 40.0 20.0 0.0 2005 2006 2007 Brand drugs 2008 2009 Generic Drugs 2010 29.2 30.2 32.6 35.2 39.3 44.1 63.9 67.0 68.8 71.7 75.7 79.4 112.2 97.7 138.0 121.3 151.1 166.6

All Prescriptions
Source: NACDS

RISE IN SHORTAGE OF DRUGS In 2011, growing number of critical drugs faced the issue of short supply. According to the FDA, there were around 178 number of drug shortages in 2010, which has nearly tripled from 61 in 2005. Drugs with most shortages involve drugs delivered to patients by sterile injection, including oncology drugs, antibiotics and electrolyte/nutrition drugs. According to FDA, the main reasons for drug shortages are due to issues at the manufacturing facility, delays in production and/or shipping and shortage of active pharmaceutical ingredients. Drug shortages are a serious cause of concern to the health care providers, their patients and the general healthcare community.

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RISING M&A ACTIVITIES IN THE US PHARMACEUTICAL MARKET Over the period, the frequency of drug consumption is increasing. The main factors triggering the growth in this industry are increase in the number of prescribed drugs, inflation, shift towards more expensive and advanced drugs, developments of new drugs, and others. The high number of prescriptions in combination with rising In 2010, the US Pharmaceutical sector pharmaceutical drug price contributed to an witnessed 114 deal transactions worth USD escalating healthcare cost. Most of the current 25.6 million. This trend of M&As in this sector is likely to continue in the future. flagship branded medicines is expected to lose their patent status, which will result in the creation of their generic versions and will impact this industry adversely unless new and innovative drugs come up. The rising sales of generic drugs provide a prospect for decreasing the treatment cost of a patient. Most of the major pharmaceutical manufacturers are faced with the issue of patent expiries which will lead to reduced revenues from major products as a result of the generic substitutes and alternatives. This issue has prompted these companies to seek refuge in expansions into other untapped pharmaceutical markets and also inorganic growth through mergers and acquisitions (M&A). In 2010, the US Pharmaceutical sector witnessed 114 deal transactions worth USD 25.6 million. This trend of companies attaining inorganic growth through M&As in this sector is likely to continue in the future. Over the period, several blockbuster drugs are going generic, and the necessity to fill their patent pipeline is triggering the pharmaceutical companies to grow inorganically through M&As and expand their product portfolios. Figure 12: Number of M&A Deals in the US Pharmaceutical Sector by Value, in Number, 2010
4 10 47 11 8 Undisclosed Deals Up to 20 Million USD 20 to 50 Million USD 50 to 100 Million USD 100 to 250 Million USD 13 250 to 500 Million USD Above 500 Million USD

21
Source: Thomson M&A Database, IMAP

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8. EXPORTS AND IMPORTS OF PHARMACETICALS AND MEDICINES IN THE US, 2005-2010

The imports of Pharmaceuticals and medicines have increased over the period of 5 years at a CAGR of 8.9% to USD 86.7 billion in 2010. Pharmaceutical Preparations accounted for 61.3% of the total imports, contributing USD 53.1 billion in 2010 which has grown from USD 30.9 billion in 2005 at a CAGR of 11.4%. Medical and botanical drugs and vitamins constituted 29.7% of the total pharmaceutical imports in 2010. This segment has recorded imports of USD 25.7 billion in 2010 which has grown at a 5 year CAGR of 3.3%. The exports of Pharmaceuticals and medicines grew at a CAGR of 9.9% to record exports of USD 46.7 billion in 2010 which has grown over the period from USD 29.1 billion in 2005. Pharmaceutical preparations accounted for 57.3% of the total pharmaceutical and medicine exports in the US. The pharmaceutical preparations exports increased to USD 26.7 billion in 2010 which has grown over the period at a CAGR of 9.8%. Medical and botanical drugs and vitamins accounted for 16% of the total exports, recording USD 7.4 billion in 2010. Table 18: The US Pharmaceuticals and Medicines Exports, USD Million, 2005-2010
NAICS Code 325411 325412 32541

Exports (USD Million) Medicinal and botanical drugs and vitamins Pharmaceutical preparations Pharmaceuticals and medicines

2005 7,020.0 16,746.0 29,104.5

2006 6,671.6 19,311.6 32,161.5

2007 7,493.4 20,511.6 36,663.6

2008 7,585.5 23,085.3 41,725.9

2009 6,978.0 25,850.1 45,982.7

2010 7,456.8 26,742.7 46,710.5

Source: USITC (United States International Trade Commission)

Table 19: The US Pharmaceuticals and Medicines Imports, USD Million, 2005-2010
NAICS Code 325411 325412 32541

Imports (USD Million) Medicinal and botanical drugs and vitamins Pharmaceutical preparations Pharmaceuticals and medicines

2005 21,875.6 30,959.3 56,612.8

2006 23,585.4 37,232.7 65,494.9

2007 24,345.4 42,778.3 72,639.9

2008 28,645.8 46,249.8 80,294.1

2009 27,482.2 48,736.9 82,388.1

2010 25,762.9 53,158.0 86,772.1

Source: USITC

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9. THE US PHARMACEUTICAL INDUSTRY COMPETITIVE LANDSCAPE, 2011

The US pharmaceutical industry witnessed revenues worth of USD 331.6 billion in 2011. Pfizer is the largest company with a market share of 7.1% and sales of USD 23.7 billion in 2011. Pfizers blockbuster drug, Lipitor played a major role in helping the company secure its number one position. With 5.2% market share in 2011, Merck is the second highest company in terms of pharmaceutical revenue generated from the US sales. The company registered sales of USD 17.1 billion in 2011. Singulair, Zetia, ProQuad M-M-R II and Varivax, and Januvia were the companys top selling drugs in that year. Bristol-Myers Squibb, the leading biopharmaceutical company is the third largest pharmaceutical company in the US which recorded sales of USD 13.8 billion in 2011 and held a market share of 4.2%. Bristol's top selling product is Plavix, a blood thinner that is sold with Sanofi. Roche is closely following behind with USD 13.7 billion sales in 2011. Roche is a leading biopharmaceutical company in the US, with the biopharmaceutical drug sales contributing more than 90% to the companys total pharmaceutical sales. AstraZeneca held 4.0% pharmaceutical market share in the US in 2011. Seroquel IR, Crestor and Nexium were the companys top selling drugs in the US in 2011. FluMist Quadrivalent, a Nasal Flu Vaccine has been approved for sale in the US in early 2012. Novartis registered USD 13.3 billion sales in 2011 and holds 4% of the total US pharmaceutical market. The Sandoz division of the company is among the leading generic drug manufacturers in the US. Diovan/Co-Diovan and Gleevec/Glivec were the companys top selling drug in the US in 2011.
Pfizer is the largest company with a market share of 7.1% and sales of USD 23.7 billion in 2011. Lipitor played a key role in helping the company secure its number one position.

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Figure 13: The US Pharmaceutical Companies Market Share in Percentage, 2011


7.1% 5.2% 4.2% 4.1% 48.0% 4.0% 4.0% 3.7% 3.7% 3.5% 3.5% 2.7% 2.9% 3.4%
Source: Company Reports

Pfizer Merck Bristol-Myers Squibb Roche AstraZeneca Novartis Johnson & Johnson Sanofi Amgen Eli Lilly GlaxoSmithKline Abbott Laboratories Teva Pharmaceuticals Others

Table 20: US Pharmaceutical Companies Sales USD Billion, 2011


Company Pfizer Merck Bristol-Myers Squibb Roche AstraZeneca Novartis Johnson & Johnson Sanofi Amgen Eli Lilly GlaxoSmithKline Abbott Laboratories Teva Pharmaceuticals Others
Source: Company Reports and AM Mindpower Solutions

2011 Sales (USD Billion) 23.7 17.1 13.8 13.7 13.4 13.3 12.4 12.3 11.7 11.5 11.3 9.5 8.8 159.1

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10.

THE US PHARMACEUTICAL INDUSTRY FUTURE OUTLOOK AND PROJECTIONS, 2011-2015

The US Pharmaceutical industry is among the largest pharmaceutical industries in the world and is likely to be the leader in the future, ceteris paribus. But over the period, the development of new and innovative blockbuster pharmaceutical drugs has been slowing down as the number of blockbuster drugs are losing patents over the period and are being threatened by relative generic drugs. The market share of generic drugs is increasing over the period. The future of US pharmaceutical industries is highly dependent on the number of new drugs being produced. The growth of the generic drugs can decrease the market size of the total sales of pharmaceutical drugs in the US. The US is home for some of the largest pharmaceutical companies in the world. Additionally, the country spends considerable money on R&D. The decrease in the R&D productivity is leading to the major companies opting for inorganic growth through mergers and acquisitions. These major companies are also focusing on international markets which have more potential. Expansion to foreign markets, especially the pharmerging countries will aid in finding scientific talents and new markets. Moreover, investment in new and The current available medicines targets advanced technologies will lead to innovation and just around 150 proteins out of over 2 will also drive this segment. million protein in the human body, Over the period, companies have been increasingly investing in personalized medicine and are expected to continue doing so. This will change the way new therapies are developed. Some drugs such as Gleevec (Novartis) and Herceptin (Roche-Genentech) have been quite successful. Rather than just focusing on developing blockbuster drugs, companies are also shifting towards personalized health and specialty drugs segment. There is a compelling opportunity for the pharmaceutical industry due to the growing understanding of the genetics, disease biology and molecular biology. Although, science is revolutionizing the deliverance of healthcare services, the current available medicines targets just around 150 proteins out of over 2 million protein in the human body, several of which may be implicated in a disease. The potential of this industry can be seen in the findings in new branches of research such as genomics and proteomics. As the researchers improve their understanding and knowledge about the diseases and the human body at the molecular level, their insights will lead them to devise new strategies for detecting, and treating diseases. This indicates that the current understanding of the disease process is still at the nascent stage.
several of which may be implicated in a disease.

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Prescribed drugs are expected grow at a CAGR of 4.9% in the next 5 years to record sales of USD 339.1 billion in 2015. The OTC drug segment is estimated to witness revenue worth of USD 64.5 billion at a 5 year CAGR of 4.4%. The market share of prescribed drugs is estimated to grow from 83.6% in 2010 to 84.0% by 2015. The growth of this segment can be attributed to the launch of more complicated drugs into the market. Sales of branded drugs are expected to generate USD 318.09 billion by 2015, by growing at a CAGR of 3.7%. The approval and launch of new drugs into the market will drive the growth of the prescribed drugs market. Branded drugs are estimated to poise a market share of 78.8% by 2015, a decrease of 4.4% from 2010. Generic drug sales are projected to grow at a 5 year CAGR of 9.9% to showcase sales of USD 85.2 billion by 2015. The market share of generic drugs in terms of sales value is anticipated to increase from 16.8% in 2010 to 21.2% in 2015. The growth in the branded drugs market will be impacted by the rising number of drugs losing patent protection, especially in cases of blockbuster drugs whose relative generic versions will attract large number of customers. Additionally, the Biologics Price Competition and Innovation Act, 2009 (BPCI Act) passed under the PPACA will allow more biosimilars to be produced once an approved innovator biologic product will have exclusivity and patent extension will be ceased. The US pharmaceutical industry is expected to grow over the period at a CAGR of 4.8% with projected sales of USD 403.5 billion in 2015. It is estimated that the research and development productivity will increase and will trigger the growth in the market. Additionally the companies will focus on developing pharmaceutical drugs for personalized healthcare. Pharmaceutical companies will continue to focus on building their core competencies and develop abilities to conduct health-economics studies and outcome research, and integrate relative effectiveness and efficiency as a key aspect in their commercialization process. Increased focus on the economic value of a treatment will act as a determinant to further research funding and commercialization. Additionally, companies are also expected to concentrate on externalization by partnering and collaborating with universities, scientific research consortiums, new pharmaceutical startups or functional service renderers for cost- competent, scalable and international businesses. This collaboration will result in innovation, productivity and worldwide expansion. Consolidations will continue to happen in this industry driven by an urge to grow inorganically and expand the product portfolio.

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Figure 14: The US Pharmaceutical Industry Future Projections in Terms of Sales, in USD Billion, 2011-2015
450.0 403.5 400.0 350.0 Sales (USD Billion) 300.0 250.0 200.0 150.0 100.0 50.0 0.0 2011
Source: AM Mindpower Solutions

331.6

346.9

364.4

382.9

2012

2013

2014

2015

Table 21: The US Pharmaceutical Industry Future Projections in Terms of Sales by Prescribed and OTC drugs, and Branded and Generic Drugs, USD Billion, 2011-2015
Drug Segmentation Prescribed and OTC Prescribed Drugs OTC Drugs % share of Prescribed drugs % share of OTC drugs Branded and Generic Branded Drugs Generic Drugs % share of Branded drugs % share of Generic drugs
Source: AM Mindpower Solutions

2011

2012

2013

2014

2015

277.5 54.2 83.7% 16.3%

290.4 56.5 83.7% 16.3%

305.5 58.9 83.8% 16.2%

321.3 61.6 83.9% 16.1%

339.1 64.5 84.0% 16.0%

273.42 58.22 82.4% 17.6%

282.58 64.32 81.5% 18.5%

294.42 69.96 80.8% 19.2%

304.59 78.32 79.5% 20.5%

318.09 85.42 78.8% 21.2%

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10.1. CAUSE AND EFFECT RELATIONSHIP BETWEEN INDUSTRY FACTORS AND THE US PHARMACEUTICAL MARKET PROSPECTS

Table 22: Cause and Effect Relationship between Industry Factors and the US Pharmaceuticals Industry Prospects
Industry Factors Increasing price of Branded drugs Market Impact Comments Cause: Rising prices of branded drugs which are on the verge of patent expiry to increase their return along with surging R&D expenditure is resulting in an overall increase in the average price of branded drugs Effect: Rising health care costs, Pressure from government on the pharmaceutical companies to curb cost Rising M&A activities and Consolidation Cause: Cost cutting pressure, high competition and decreased R&D productivity is leaving no choice to the players but to resort to inorganic growth through acquisitions. Positive Effect: Aids the entry into emerging markets, inorganic growth, and expansion of product portfolio. Negative Effect: Expected to add complexity to the organizational structure with decentralized flow of decisions. Advanced Technology and competitive edge in R&D and Manufacturing Cause: The US has highly developed chemical and technology industry and is the home to the largest scientific and research base with the presence of large number of scientists and abundant resource. Effect: Expected to witness an incline in the number of companies setting their R&D facilities in the US in order to share the economies of scale in terms of technology and research Cause: Efforts for expanding the insurance coverage, provision of discounts to specified insurance beneficiaries and retired individuals and efforts to control drug prices Positive Effect: Increased benefits for customers covered under the program with the access to reduced/discounted medicine leading to an increase in the demand for discounted drugs and medicine Negative Effect: Increased pressure on pharmaceutical companies as the profit margins will be hit along with the rising cost Shortage of Drugs Negative; Cause: Problems at the manufacturing facility, delays in production and/or shipping and shortage of active pharmaceutical ingredients are leading to a shortage of drugs especially of

Negative;

Positive; Negative;

Positive;

Government regulations and Support

Positive; Negative;

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oncology drugs, antibiotics and electrolyte/nutrition drugs, Effect: Expected to poise a major cause of concern to the health care providers, their patients and the general healthcare community; illegal price gouging and imports of drugs from other countries Expansion into Emerging Markets Cause: Competition for more market coverage and Tap the opportunities in emerging market Effect: Expected to expand consumer base with cheap labour resources leading to higher growth opportunities for the pharmaceutical companies Rising Chronic Diseases Cause: Inclined Lifestyle towards junk food, increasing pollution and adulteration in the food along with increasing and aging population will lead to the rise in chronic disease in the near future Effect: Expected to increase the number of new drugs being produced in order to curb the impact of these disease with increased consumer base
Source: AM Mindpower Note: Shaded region represents the degree of impact on the market

Positive;

Positive;

11.

MAJOR PHARMACEUTICAL COMPANY PROFILES

11.1. PFIZER INC.

COMPANY OVERVIEW Incorporated in 1942, Pfizer is the largest research -based pharmaceutical company in the world, and in the US. The company's diverse portfolio includes human and animal biologics and small molecule medicines and vaccines, nutritional products and several globally renowned healthcare products. The company operates in 2 segments: Biopharmaceutical: Includes primary care, specialty care, established products, emerging markets and oncology customerfocused units which offers products that avert and treat cardiovascular and metabolic diseases, central nervous system disorders, arthritis and pain, infectious and respiratory diseases and others. The key products in this segment include Lipitor, Zoloft, Viagra, Zyvox, and others. 53

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Diversified: It includes: Animal health products that avert and treat diseases in livestock and companion animals. Some products under this segment include Draxxin, Excede, Naxcel/Excenel, RespiSure/Stellamune, Dectomax, Rimadyl Consumer Healthcare products that include OTC healthcare products such as pain management therapies, cough/cold/allergy remedies, dietary supplements, hemorrhoidal care and other personal care items; Nutrition products such as infant and toddler formula products; and Capsugel, which represents our hard capsules business

Table 23: Pfizers Product Patent Expiration Year


Pfizer Drug Aricept Lipitor BeneFIX Xalatan Geodon Viagra Detrol Celebrex Prempro Z Zyvox Lyrica Chantix Sutent
Source: Company Reports

US. Basic Product Patent Expiration Year 2010 2011 2011 2011 2012 2012 2012 2014 2015 2015 2018 2020 2021

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BUSINESS STRATEGIES Growth Through Mergers and Acquisitions

Pfizer focuses on achieving growth and portfolio diversity through acquisitions. The company acquired Wyeth, a pharmaceutical company, for approximately USD 68 billion on October 15, 2009. On October 2010, the Company announced acquisition of 92.5% share of King Pharmaceuticals, Inc., a diversified specialty pharmaceutical discovery and clinical development company, for USD 3.6 billion in cash. Retain Sales of Blockbuster Drugs whose Patents have Expired

Pfizer is working hard on retaining the sales of blockbuster drugs which have lost their patent protection and are now under the threat of generic drugs. Lipitor, the highest selling drug of Pfizer lost its patent protection on November 30, 2010. The company is offering discounts and incentives to patients, physicians, insurers and companies for prescribing their drugs. Pfizer looks to retain a good portion of sales through these campaigns. The company has spent millions of dollars in marketing and promoting Lipitor. Achieve Operational Efficiency

In early 2011, the company stated that it will continue to evaluate their global research and development function and will accelerate their current strategies to develop innovation and overall productivity. The company will shift its focus to mainly 5 superior priority areas, namely immunology and inflammation, oncology, cardiovascular and metabolic diseases, neuroscience and pain and vaccines. Bedsides, reducing the disease sectors, the company will aim to realign its research and development track.

FINANCIAL PERFORMANCE Pfizer has shown a fluctuated growth over the period. The company witnessed sales of USD 23.7 billion in 2011 which has grown from USD 23.5 billion in 2005 at a CAGR of 0.2%. The company recorded decline of 12.1%, 12.7% and 8.7% in 2007, 2008 and 2011 respectively. The 2011 revenue decrease was due to the loss of exclusivity for some drugs such as Aricept, Lipitor, Effexor XR, Protonix, Zosyn Vfend and Xalatan in the US in 2010 and 2011. Lipitor is still the highest selling drug for Pfizer in the US in 2011. It registered sales of USD 5.0 billion accounting for 21.1% of the companys total biopharmaceutical sales in the US in that year. However, the patent loss of this drug in late 2011 is expected to decrease its revenue in the future. Prevnar/Prevnar 13 is a vaccine used to protect kids and infants from the disease caused by bacterium Streptococcus pneumoniae (pneumococcus). Prevnar is the second highest selling 55

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Pfizer drug in the US recording sales of USD 1.9 billion, contributing 8.15% to the total Pfizer biopharmaceutical sales in the US. Figure 15: Pfizer Biopharmaceutical Sales in the US, in USD Billion, 2005-2011
30.0 26.0 25.0 Sales (USD Billion) 20.0 15.0 10.0 5.0 0.0 2005
Source: Company Reports

23.5

24.5 21.5 18.8 20.0

23.7

2006

2007

2008

2009

2010

2011

Table 24: Top Selling Pfizers Biopharmaceutical Products in the US in USD Million, and their Revenue Contribution in Percentage, 2011
% Share of the Total US Biopharmaceutical Sales 21.1% 8.1% 6.7% 6.4% 4.2% 3.9% 3.6% 2.7% 2.3% 2.0%

Top Selling Pfizer Biopharmaceutical Products in the US Lipitor Prevnar / Prevenar 13 Celebrex Lyrica Viagra Premarin Family Geodon / Zeldox Zyvox Detrol / Detrol LA Pristiq
Source: Company Reports

2011 5,003 1,928 1,597 1,514 1,003 915 859 640 557 474

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11.2. MERCK & CO.

COMPANY OVERVIEW Merck is one of the leading pharmaceutical companies worldwide and in the US. As of December 31, 2010, the Company employed 37,600 people in the US including Puerto Rico. The company renders health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products and markets both directly and through its joint ventures. Mercks operations are primarily administered on a products-basis and constitute four operating segments, namely Pharmaceutical, Animal Health, Consumer Care and Alliances segments, and one reportable segment, which is the Pharmaceutical segment. The Pharmaceutical segment is constituted of human health pharmaceutical and vaccine products promoted directly or through its joint ventures. Human health pharmaceutical products are comprised of therapeutic and preventive agents, mainly sold by prescription, for treating human disorders. Merck sells these human healthcare pharmaceutical products mainly to drug wholesalers and retailers, medical facilities such as hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Vaccine products include preventive pediatric, adolescent and adult vaccines which are mainly administered at physician workplace. The Company sells these human health vaccines generally to physicians, wholesalers, physician distributors and government entities. Merck also operates in the animal healthcare segment to discover, develop, manufacture and market animal health products, including vaccines, which is sold to veterinarians, distributors and animal producers. Additionally, the Company operates in the consumer care segment to develop, manufacture and market over-the-counter, foot care and sun care products, which are sold through wholesale and retail drug, food chain and mass merchandiser outlets in the US.

BUSINESS STRATEGIES Focus on Increased Research and Development Expenditure

Merck spent USD 11 billion on R&D in 2010, which has grown considerably from USD 5.8 billion in 2009 and USD 4.8 billion in 2008. The company employs around 15,500 people for the R&D activities. The company is committed to research over an extensive range of therapeutic areas in favor of new products. Merck strives to reduce the annual R&D cost by more than USD 600 million, while continuing investment in key programs. The company aims to launch BRIDION (US), ELONVA (US), Suvorexant (US) and V503 for HPV (Human papillomavirus) in 2012. 57

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Focus on Tapping the Biosimilars market

The company is concentrated on tapping the biosimilars market. In 2010, the FDA attained the authority to approve biosimilars as a part of the Patient Protection and Affordable Care Act signed on that year. The company is aiming to achieve the first mover advantage in this segment. Merck Bioventures is developing a portfolio of biosimilar candidates. The current portfolio of the company in pipeline includes biosimilar versions of Enbrel (MK-8953), Rituxan (MK-8808), Neupogen (MK-4214), Neulasta (MK-6302). Over 200 people have been employed by the company to develop the Merck BioVentures (MBV) pipeline. Enbrel is one of the top selling biosimilars in the US but is expected to lose its patent protection in 2012. The biosimilar version of Enbrel would be an early linchpin for expanding Mercks biosimilars business. Expansion to Emerging Markets

Merck is aiming to expand its business to other emerging markets, especially Japan. The company launched 6 new products in Japan in 2010-11, which has registered growth over the period. The company is planning to launch additional products in Japan in the coming years. Merck is the fastest growing company in Japan and is among the leading pharmaceutical drug companies operating in Japan. Merck is also concentrating on building its business in China and Brazil. The sale of Merck in china is growing faster than their local companies.

FINANCIAL PERFORMANCE Merck has showcased volatile growth over the period. The company showcased sales of USD 17.1 billion in 2011 which has declined from USD 17.8 billion in 2009 at a 2 year negative CAGR of 1.8%. The company witnessed 2.2% revenue growth in 2010 from 2009, which had registered negative growth of -5.7%. The rise in sales was triggered by chiefly due to increase in sales from the addition of legacy Schering-Plough and MSP Partnership products in 2010. Januvia, Janumet, Singulair and Isentress performed well in the US in 2010 but the increase was counteracted by the lower sales of Cozaar, Hyzaar, Fosamax and Fosamax Plus D, Gardasil and RotaTeq, as well as by lower revenue from the Companys relationship with AstraZeneca LP (AZLP). Four pharmaceutical products of the company, namely Singulair, Zetia, M-M-R II and Varivax, ProQuad, and Januvia crossed USD 1 billion sales in the US in 2011. Singulair was the top selling drug of Merck in the US in 2010. This drug registered sales of USD 3.5 billion in 2010 which has grown by 9.8% from 2010. Singulair contributed 20.7% to the total Merck sales in the US in 2011. Januvia, a Type 2 Diabetes Medication, recorded sales of USD 1.8 billion in 2011 to become the second highest selling drug for Merck in US in that period. This drug contributed 10.7% to the total company sales in the US. Zetia became third largest drug with the sales of 58

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USD 1.2 billion in 2011. Zetia, a cholesterol lowering drug, contributed 7.1% to the companys total sales in the US in 2011. Figure 16: Merck Pharmaceutical Drugs Sales in the US, in USD Billion, 2009-2011
18.0 17.8 17.6 Sales (USD Billion) 17.4 17.2 17.0 16.8 16.6 16.4 16.2 2009
Source: Company Reports

17.8

17.1

16.7

2010

2011

Table 25: Mercks Top Pharmaceutical Drug Sales in US, USD Million, 2010-2011
Drugs categorized by therapeutic segment Cardiovascular Zetia Vytorin Integrilin Diabetes & Obesity Januvia Janumet Diversified Brands Cozaar / Hyzaar Zocor Propecia 107 32 134 400 42 148 1,824 712 1,563 576 1,223 888 208 1,227 1,077 245 2011 2010

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Remeron Proscar Infectious Disease Isentress PegIntron Cancidas Primaxin Invanz Avelox Noxafil Crixivan / Stocrin Rebetol Victrelis Neurosciences & Ophthalmology Maxalt Cosopt / Trusopt Oncology Temodar Emend Intron A Respiratory & Immunology Singulair Nasonex Clarinex Asmanex Proventil Dulera Vaccines Gardasil ProQuad, M-M-R II and Varivax RotaTeq

6 5

7 6

681 71 44 87 205 288 61 5 1 98

554 98 61 123 180 296 51 8 1 N/A

451 16

378 20

396 239 97

403 230 114

3,536 604 197 185 145 94

3,219 639 203 195 202 8

880 1,108 522

722 1,305 439

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Pneumovax Zostavax Women's Health & Endocrine Fosamax NuvaRing Follistim AQ Implanon Other Pharmaceuticals Total Pharmaceutical
Source: Company Reports

350 320

296 243

45 369 163 126 593 17,117

93 342 167 86 781 16,748

11.3. NOVARTIS

COMPANY OVERVIEW Novartis was formed in 1996 from the merger of Ciba-Geigy and Sandoz Laboratories. This company is a leading Swiss-based pharmaceutical company, ranked number two globally and number 3 in the US pharmaceutical sales. Norvatis produces drugs such as Clozaril, Gleevec/Glivec, Diovan, Voltaren, Femara, Lamisil, Ritalin, Neoral / Sandimmun and others. The company is currently restructuring cost due to the decreasing revenue from Diovan, a hypertension drug on the verge of its patent expiry, along with the expected competition from the generic version. Additionally, Rasilez was failing in clinical trials, thus led to the cutoff of around 2000 positions in the US, particularly in the sales segment. These cut offs were preceded by around 2000 cut positions in Switzerland and the US in 2011, around 1400 cut positions in the US in 2010, and several site closures in prior years. The company has over 120,000 associates in 140 countries, out of which, 22% are located in the US. The Key areas of Novartis include: Pharmaceuticals: Branded drugs Alcon: a global player which develops ophthalmological products Sandoz: Develops generic medicines and Biosimilars Consumer Health: self medication and animal treatment products Vaccines and Diagnostics 61

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The companys pharmaceutical division concentrates on five major therapeutic areas, namely Cardiovascular and Metabolism, Oncology (including Hematology), Neuroscience and Ophthalmics, Respiratory and Integrated Hospital Care. The present portfolio includes above 60 major products. In 2010 the company received 13 key approvals and made 16 regulatory submissions in the US, Europe and Japan. Above 130 projects are present in various stages of the companys pipeline. The Sandoz division offers Generic drugs, including Biosimilars.

BUSINESS STRATEGIES Focused Growth through Acquisitions

Novartis acquired 85% in Zhejiang Tianyuan Bio-Pharmaceutical Co. Ltd, a Chinese vaccines company for USD 194 million in March 2011. This acquisition is expected to expand the companys operations in China and to facilitate the presentation of Novartis vaccines into China. In January 2011, the company announced its agreement to acquire Genoptix, a specialized laboratory employing around 500 people providing personalized diagnostic services to community-based hematologists and oncologists, which was completed in March 2011 for USD 458 million. The rationale for this acquisition is to gain revenue synergies by expanding the Molecular diagnostic unit product portfolio with the integration of Genoptix laboratory service offerings Expansion into Emerging Markets

The company is performing well in the emerging markets with increased sales in the BRIC region. The company recorded +20% CC (constant currencies) growth in the top six emerging markets, namely Brazil, Russia, China, India, Korea and Turkey, ahead of the market. The Asian market grew 10% in 2011. In Latin America, net sales of Sandoz in 2011 increased by 12% from the previous year, while the market grew by 11%. Focus on Increasing Product Portfolio in Oncology

The company aims to expand its product offerings in the Oncology area. Novartis witnessed the approval of its two major products, namely Afinitor and Votubia in the oncology sector in 2011. Afinitor acts as an immunosuppressant to prevent rejection of organ transplants for the treatment of advanced kidney cancer, while Votubia is a medication used for the treatment of children and adults with SEGA (Subependymal giant cell astrocytoma) associated with TSC (Tuberous sclerosis complex).

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Novartis further expects the approvals of Afinitor - ER HER2 Adv BC, Afinitor - TSC-AML, INC424 MF (EU), Exjade NTDT5, SOM230 Cushings and Glivec 3year Adjuvant GIST under the oncology sector in 2012.

FINANCIAL PERFORMANCE Novartis registered total pharmaceutical sales of USD 13.3 billion in 2011 which has grown over the period from USD 9.4 billion in 2005 at a CAGR of 6.0%. The companys pharmaceutical recorded sales of USD 10.0 billion in 2011, contributing 75.1% to the total, while the Sandoz division contributed the rest 24.9%, registering sales of USD 3.3 billion in the US. Two of the companys drug registered sales above USD 1 billion. Diovan/Co-Diovan (Valsartan) is an angiotensin II receptor antagonist indicated for treating high blood pressure (hypertension), congestive heart failure (CHF), or post-myocardial infarction (MI). Diovan is expected to go off patent in 2012. This drug recorded sales of USD 2.3 billion in the US in 2011, accounting for 23.4% of the company total US sales in that period. Gleevec/Glivec was the second top selling drug of Novartis in the US in 2011. Gleevec (Imatinib) is a drug used to treat cancers such as chronic myelogenous leukemia (CML) and gastrointestinal stromal tumors (GISTs) and some other rare diseases. This drug showcased sales of 1.4 billion in the US in 2011, contributing 14.6% to the companys relative total sales. Figure 17: Novartis Drug Revenue in the US, in USD Billion, 2005-2011
14.0 12.0 Sales (USD Billion) 10.0 8.0 6.0 4.0 2.0 0.0 2005
Source: Company Reports

12.7 11.0 9.4 11.4 10.7 10.4

13.3

2006

2007

2008

2009

2010

2011

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Table 26: Novartis Revenue Segmentation by Pharmaceutical and Sandoz Division in the US, USD Billion, 2005 - 2011
Segments Pharmaceutical sales Sandoz Total Pharmaceutical Sales
Source: Company Reports

2005 8.1 1.3 9.4

2006 9.5 1.5 11.0

2007 8.7 1.9 10.7

2008 8.6 1.8 10.4

2009 9.5 1.8 11.4

2010 10.0 2.6 12.7

2011 10.0 3.3 13.3

Table 27: Novartis Top Pharmaceutical Drug Sales in the US, USD Million, 2011
Drug Diovan/Co-Diovan Gleevec/Glivec Zometa Sandostatin Exforge Exelon/Exelon Patch Femara Neoral/Sandimmun Exjade Voltaren (excl OTC) Tasigna Comtan/Stalevo Reclast/Aclasta Tekturna/Rasilez Ritalin/Focalin Myfortic Gilenya Xolair Rest of portfolio Total Division sales
Source: Company Reports

Treatment Area Hypertension Chronic myeloid leukemia Cancer complications Acromegaly Hypertension Alzheimers disease Breast cancer Transplantation Iron chelator Inflammation/pain Chronic myeloid leukemia Parkinsons disease Osteoporosis Hypertension Attention Deficit/ Hyperactive Disorder Transplantation Relapsing Multiple Asthma

US Sales in 2011 2,333 1,459 642 574 325 375 219 71 259 4 255 214 386 216 398 200 383 15 1,645 9,973

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11.4. ASTRAZENECA

COMPANY OVERVIEW AstraZeneca is a leading pharmaceutical company which deals in the discovery, development and commercialization of pharmaceutical drugs for six major healthcare areas, namely cardiovascular, Gastrointestinal, Oncology, Neuroscience, Infection and Respiratory & Inflammation. The company is active in over 100 countries along with rising presence in the emerging markets such as China, Brazil, Russia and Mexico. The company has fourteen principal R&D centers in eight countries.

BUSINESS STRATEGIES Grow the Market Share of Key Brands which Retain Exclusivity

AstraZeneca is aiming to increase the market share of some if its top selling drugs including Symbicort, Seroquel XR and Crestor. Two of these drugs have already established presence in the US Market and are featured among the top 50 prescription drugs in the US. These three drugs were among the companys stop selling drugs in the US in 2011. Crestor showcased good growth in the US, Emerging Europe, Japan and China. This drug registered a double digit growth in France and Spain in 2011. Seroquel XR is the fastest growing branded atypical in value worldwide. The company plans to launch this drug in several emerging markets in 2012. Symbicort is gaining market share in the US despite the competition and has also registered fast growth in Russia, China and Japan. Focus on Successfully Commercializing the Recent Launches

The company is aiming to successfully commercialize some of its recent launches, including ONGLYZA (jointly developed and marketed by AstraZeneca and Bristol-Myers Squibb), BRILINTA, Vimovo, NKTR-118, TC-5214, Zinforo (ceftaroline), Caprelsa (vandetanib), Dapagliflozin (jointly developed and marketed by AstraZeneca and Bristol-Myers Squibb), CAZ AVI and Fostamatini. Onglyza, a prescription type 2 diabetes medicine for adults, has been approved in around 68 countries (US, Canada, China, Mexico, India, Brazil, Australia, Russia and all EU) and has been launched in less than 45 countries. Further launches of this drug in the other countries will be witnessed in 2012. Vimovo is a treatment method for people suffering from osteoarthritis. This drug has been approved in the US and EU. Brilinta is a blood thinner indicated for prevention of thrombotic events in patients with acute coronary syndrome. This drug has high potential due to 65

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the demand of such medication globally. Brilinta has been approved in 64 markets, commercially launched in 37 markets and is currently under review in less than 30 markets. Expansion into Emerging Markets

Astra Zeneca is expanding its business by operating in emerging markets. In 2011, the company registered USD 2.2 billion sales in Asia Pacific, USD 2.1 billion in CEEMEA and USD 1.5 billion in Latin America. The BRIC-MT market and several smaller and mid-sized emerging markets have contributed considerably to Astra Zenecas growth

FINANCIAL PERFORMANCE AstraZeneca is the third largest pharmaceutical company in the US. The companys sales have grown over the period from USD 10.8 billion in 2005 to USD 13.4 billion in 2011 at a CAGR of 3.7%. Six of their products witnessed sales above USD 500 million in the year 2011, out of which, three crossed USD 1 billion. Seroquel IR, an atypical antipsychotic medication indicated for the treatment of bipolar depression and bipolar mania, was the companys top selling drug in the US in that year, registering sales of USD 3.3 billion, accounting for 24.9% of the total Astra Zeneca US sales. Crestor, crossing USD 3.0 billion in 2011 was the second highest selling drug for the company in the US. Crestor (Rosuvastatin Calcium) is a part of the drug class of statins used to treat high cholesterol and related conditions. This drug accounted for 17.9% of the companys total US sales. Nexium with sales of USD 2.3 billion in 2011 was the third most selling drug which crossed USD 1 billion sales mark in the US. This drug has been featured, among the top selling drugs over the period and is expected to lose its patent protection in 2015.

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Figure 18: AstraZeneca Pharmaceutical Drug Sales, in USD Billion, 2005-2011


16.0 14.0 Sales (USD Billion) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2005
Source: Company Reports

14.8 13.4 12.4 10.8 13.5 13.7 13.4

2006

2007

2008

2009

2010

2011

Table 28: Astra Zenecas pharmaceutical drug sales in the US by product and Therapeutic category, in USD Million, 2011
Therapeutic Class/Pharmaceuticals Drugs Gastrointestinal: Nexium Losec/Prilosec Others Cardiovascular: Crestor Atacand Seloken/Toprol-XL Plendil Tenormin Zestril OnglyzaTM Brilinta/Brilique Respiratory: Revenue, 2011 (USD Million) 2,536 2,397 38 101 3,856 3,074 182 404 8 11 10 156 11

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Symbicort Pulmicort Rhinocort Others Total Respiratory Oncology: Arimidex Zoladex Casodex Iressa Others Total Oncology Neuroscience: Seroquel IR Seroquel XR Local Anaesthetics Zomig Diprivan Vimovo Others Total Neuroscience Infection & Other: Synagis Merrem FluMist Others Total Infection & Other Aptium Oncology Astra Tech Total
Source: Company Reports

846 279 74 8 1,207

42 39 -6 2 276 353

3,344 779 10 158 12 21 1 4,325

570 41 160 77 848 224 77 13,426

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11.5. GLAXOSMITHKLINE

COMPANY OVERVIEW GlaxoSmithKlines products are classified under nine main therapeutic areas, namely, Respiratory, Anti-virals, Central nervous system (CNS), Cardiovascular and urogenital, Metabolic, Oncology and emesis, Anti-bacterials, Vaccines and Dermatologicals. Headquartered in UK, this company operates in more than 100 nations and has research centers located at USA, UK, Belgium and China. The company employs 96,500 people in more than 100 countries. About 13,000 people work in the research teams striving to innovate and develop new medicines. In 2009, GSK acquired Stiefel Laboratories, a major dermatological company.

BUSINESS STRATEGIES Focus on Growing a Diversified Global Business

The company concentrates on expanding and diversifying its products portfolio and making it more balanced. The sales generated by the company from western markets have been decreasing over the period, thus reducing the companys sales reliability in the western markets. The company anticipates growth in the future by focusing on core competitiveness and increasing investment in growth areas such as Emerging Markets, Japan, vaccines, dermatology and Consumer Healthcare. The company is shifting its focus from white pills in western markets to emerging markets, especially Japan and healthcare segments. Deliver More Products of Value

The company aims to increase its R&D productivity by increasing its product pipeline. The New products presented in 2007 (excluding flu pandemic vaccines) formed 36% of the companys total global sales and 7% of the pharmaceutical sales in 2010. Around 6 products of the GSK were approved in the US and EU (European Union) in 2010. The company has one of the most diverse product portfolios spanning around 30 late-stage assets. To achieve this productivity, the company has embraced a multi-faceted approach and has increased the level of externalization in research while concentrating on promising disease and healthcare areas. Strategizing on Simplifying the Operating Model

The company focuses on achieving operational efficiency and decrease costs. As a part the companys global structuring program, GSK has reduced GBP 1.7 billion of the cost in 2008 and 69

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are aiming to achieve their target of GBP 2.2 billion annual savings by 2010. The savings are generated from R&D, marketing, manufacturing infrastructure, sales in developed nations and are reinvested in vaccines, consumer healthcare and promising markets. The company achieves operational efficiency by changing and simplifying its operating model, streamlining the processes, reduce the working capital and others.

FINANCIAL PERFORMANCE GlaxoSmithKline has recorded decline in sales over the period. The companys turnover from pharmaceutical sales in the US decreased from USD 18.5 billion in 2007 to USD 11.3 billion in 2011 at a CAGR of -11.6%. Seretide/Advair was the highest selling GSK drug in the US in 2011 with sales of USD 3.9 billion, contributing 35.2% to the total sales. This drug is used for the treatment of Asthma and COPD, and has lost its patent protection in 2010. Lovaza (omega-3-acid ethyl esters) was the second best selling GSK drug in the US. This drug is prescribed for the treatment of patients with very high triglycerides. Lovaza recorded USD 913 million sales in 2011. Flixotide/Flovent which is used for treatment of asthma and allergic rhinitis, recorded USD 720 million sales in 2011. Figure 19: GlaxoSmithKline Pharmaceutical Drug Sales in the US, in USD Billion, 20072011
20.00 18.00 16.00 Sales (USD Billion) 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2007
Source: Company Reports

18.55 16.45 14.32 11.85 11.33

2008

2009

2010

2011

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Table 29: GlaxoSmithKlines Top Selling Pharmaceutical Drugs in the US, in USD Million, 2011
Therapeutic segment and drug Respiratory Avamys/Veramyst Flixonase/Flonase Flixotide/Flovent Seretide/Advair Serevent Ventolin AntiN/Avirals Relenza Valtrex Zeffix Central nervous system Imigran/Imitrex Lamictal Requip Treximet Wellbutrin Cardiovascular and urogenital Arixtra Avodart Coreg Lovaza Vesicare Metabolic Avandia products Anti-bacterials Oncology and emesis Arzerra Turnover in USD million, 2011 5,315 100 11 720 3,985 100 385 240 3 116 18 763 132 446 68 92 26 2518 237 533 248 913 203 145 146 87 438 50

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Hycamtin Promacta Tyverb/Tykerb Votrient Vaccines Boostrix Cervarix Fluarix, FluLaval Hepatitis Infanrix, Pediarix Rotarix Dermatologicals Bactroban Duac Soriatane Zovirax Other Total
Source: Company Reports

10 52 103 90 1,310 174 13 213 472 262 177 462 82 96 119 18 48 11,326

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12.

MACRO ECONOMIC AND INDUSTRY INDICATORS: CURRENT AND PROJECTIONS

12.1. POPULATION, 2005-2015

Individuals aged 0-14 constituted 20.0% of the total population in the US in 2011. The population of 61.8 million in 2011 grew at a 2 year CAGR of 0.70% from 61.8 million in 2009. The birthrate in the US had slowed down significantly in late 2008 and 2009 due to the impact of the economic recession, which discouraged many US residents from having children and forcing many to postpone their future family plans. The Population aged 15-64 encompasses the major population proportion in the US accounting for 66.8% of the total US population in 2011 which has declined from 67.1% in 2009 and is estimated to lose its share further in the future due to the aging population. There were about 209.3 million people in the US in 2011 in the age group of 15-64 years which has grown at a 2 year CAGR of 0.73%. The US population is aging swiftly. The proportion of the total person aged 65 years and above is expected to be 13.6% in 2012 which will grow from 12.8% population share in 2009. The population of people aged above 65 grew to 41.3 billion in 2012 from 39.3 billion in 2009 at a CAGR of 2.52%. All the while, the life expectancy of the elder person is also increasing over the period. The surging aging population is bound to place stress on the economy. The total US population has grown from 296.1 million in 2005 to 313.2 million in 2011 at a CAGR of 0.9% and is estimated to grow further at a 4 year CAGR of 1.0% to register population of 325.4 million by 2015.

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Figure 20: The US Population in Million, 2005-2015


330.0 325.0 320.0 315.0 Million 310.0 305.0 300.0 295.0 290.0 285.0 280.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 298.9 296.1 301.9 307.4 304.7 313.2 310.3 319.3 316.2 322.3 325.4

Source: IMF (International Monetary Fund)

Table 30: Demographic Distribution of Population in US on the basis of Age, in Million, 2009-2012
Population In million Population aged 0-14 Population aged 15-64 Population aged 65 and above 2009 In Percentage In million 2010 In Percentage In million 2011 In Percentage In million 2012 In Percentage

61.8

20.1%

62.1

20.0%

62.6

20.0%

63.2

20.0%

206.2

67.1%

207.9

67.0%

209.3

66.8%

210.0

66.4%

39.3

12.8%

40.3

13.0%

41.3

13.2%

43.0

13.6%

Source: YouSigma, AM Mindpower

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12.2. INPATIENT ADMISSIONS & OUTPATIENTS VISITS, 20052010

The number of hospital admissions in the US has been on the rise over the period. The rise is mainly attributed to the growing population and aging population. Additionally, the environment, lifestyle, diseases, growing health consciousness, rising personal disposable income have contributed to the rising patient admissions in the hospitals. Over the period, the number of total number of inpatient admissions in the community hospitals in US has grown at a marginal 5 year CAGR of 0.8% to showcase 36.7 million admissions in 2010 from 35.2 million admissions in 2005. The growth in inpatients admissions were chiefly triggered by the rising aging populations, thus resulting in increased demand for hospital care. The rise of 1.2% in 2009 can be attributed to the outbreak of swine flu which led to 59 million US residents being affected by the H1N1 virus, hospitalization of 265,000 and death of 12,000 individuals as of mid-March 2010. The number of outpatient visits has been on the rise in the US. Surging proportion of aging population, rising population over the period have contributed to the rise in growing outpatient visits in the US. Additionally, the swine flu outbreak in 2009 led to 4.5% growth outpatient visits in 2009. The growth of reported cases of some selected diseases such as Coccidioidomycosis, Cryptosporidiosis, Lyme disease and others have also contributed to the growth of outpatient visits in the US. The total outpatient visits in the US have grown from 673.7 million in 2005 to 760.3 million in 2010 at a CAGR of 2.4%. The hospital admissions and visits indicate the rising demand for pharmaceutical drugs and medicines. The inpatient admissions generally witness patient admissions with chronic diseased which require more attention, expensive medications for longer period of time and personalized therapies. The rise of these segments highlights the underlying growth potential for pharmaceuticals.

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Figure 21: Inpatient Admissions in Community Hospitals in the US, in Million, 2005-2010
37.0 36.7 36.5 Admissions(Million) 36.2 36.0 35.8 35.5 35.2 35.0 35.4 35.3

34.5 2005 2006 2007 2008 2009 2010

Source: American Hospital Association (AHA)

Figure 22: Outpatient Visits in Community Hospitals in the US, in Million, 2005-2010
780.0 760.3 760.0 742.0 Visits (Million) 740.0 720.0 700.0 680.0 660.0 640.0 620.0 2005 2006 2007 2008 2009 2010 673.7 690.4 693.5 710.0

Source: American Hospital Association (AHA)

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12.3. NUMBER OF PEOPLE WITH HEALTH INSURANCE

The number of insured people in the US has grown over the period at a fluctuating rate. A chief portion of the total number of insured people is under the employee based coverage. The total number of insured people decreased in 2009 due to the economic recession. The total number of insured people in the US has grown from 250.8 million in 2005 to 256.2 million at a CAGR of 0.4%. The total number of uninsured people in the US grew from 43.0 million in 2005 to 49.9 million in 2010 at a CAGR of 3.0%. The number of people covered under health insurance is expected to grow with regard to the PPACA. But pharmaceutical companies are also faced with lesser margin prospects due to the provision of discounts and rebates to the Medicare part Beneficiaries. These companies also have to bear taxes and other costs associated with the ACA.

Figure 23: Total Number of People in the US with Health Insurance, in Million, 2005-2010
258.0 257.0 256.0 Insured (Million) 255.0 254.0 253.0 252.0 251.0 250.0 249.0 248.0 247.0 2005
Source: US Census Bureau

256.7 256.2 255.0 255.3

251.6 250.8

2006

2007

2008

2009

2010

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12.4. PRESCRIPTION DRUG PRICE INDEX, 2005-2015

The Prescription Price Index (PPI) in the US has been calculated through two stages. In the first stage, basic indexes for product segments are computed by averaging the price changes of individual items. These items symbolize both themselves and other items of the product category cosmos. The mean of the number of products in each of the 47 basic indexes for prescription drug therapeutic class is 13. In the second stage, these basic indexes are combined with apt weights into a string of consecutively broader cumulative indexes. For example, the psychotherapeutics index is an aggregate of three basic indexes, namely minor tranquilizers, major tranquilizers, and antidepressants. In the above figure, the year 2005 has been taken as the base index. The PPI is expected to increase over the period due to the rising cost of pharmaceutical drugs.

Figure 24: The US Prescription Drug Price Index, 2005-2015


160.0 140.0 120.0 100.0 100.0 80.0 60.0 40.0 20.0 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 104.3 108.4 112.1 116.8 121.1 125.5 129.5 133.8 138.3

Index

105.8

Source: Bureau of Labor Statistics (BLS), AM Mindpower

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12.5. PERSONAL DISPOSABLE INCOME

The Personal disposable income in the US has increased over the period from USD 9.2 trillion in 2005 to USD 11.1 trillion in 2010 at a CAGR of 3.8%, and is expected to grow further at a 5 year CAGR of 5.0% to reach USD 14.2 trillion by 2015. The rise in the personal disposable income indicates people spending more on healthcare, rising investment in the form of health insurance, rise in out of pocket spending, increased purchase options for different medicines and treatment.

Figure 25: Personal Disposable Income in the US, in USD Billion, 2005-2015
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 0.0 2000.0 4000.0 6000.0 14,239.2 13,531.4 12,885.7 12,294.1 11,701.2 11,179.7 10,788.8 11,024.5 10,423.6 9,915.7 9,277.3 8000.0 10000.0 USD Billion 12000.0 14000.0 16000.0

Source: Bureau of Economic Analysis (BEA)

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13.

APPENDIX

13.1. MARKET DEFINITION

Pharmerging nations Emerging Pharmaceutical Markets, namely Russia, South Korea, India, Turkey, Mexico, Brazil and China Biosimilars / Biogenerics / follow on biologics - Drugs similar to an innovative biologic drug, incorporating an active substance which has lost patent protection, approved via a simplified registration procedure and sold under a common name. Biologics/ Biopharmaceuticals - Medicinal product such as a vaccine, blood or blood component, allergenic, somatic cell, gene therapy, tissue, recombinant therapeutic protein, or living cells which are used as therapeutics to treat diseases. They are produced via biologic processes, rather than being chemically synthesized OTC Drugs - Medicines sold directly to a customer without any prescription from a healthcare specialist. Branded Drugs - Medication sold by a pharmaceutical company by a trademark-protected name which can be produced and sold only by the company holding the patent for the drug Prescribed Drug - A licensed medicine regulated by legislation requiring a medical prescription from a doctor, physician or professional individual of appropriate stature before obtaining it. Generic Drug Drugs relative to any branded drugs, marketed under its chemical name without advertising

13.2. ABBREVIATIONS

AATB - American Association of Tissue Banks ACA - Affordable Care Act ADHD - Attention deficit hyperactivity disorder AHA - American Hospital Association 80

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AZLP - AstraZeneca LP BEA - Bureau of Economic Analysis BLS - Bureau of Labor Statistics BPCI - Biologics Price Competition and Innovation Act BRIC-MT - Brazil, Russia, India, China, Mexico, and Turkey CAGR - Compound Annual Growth Rate CC - Constant Currencies CDC - Centers for Disease Control and Prevention CEEMEA - Central and Eastern Europe, Middle East, and Africa (including Turkey) CLRD - Chronic Lower Respiratory Disease CML - Chronic Myelogenous Leukemia CNS - Central Nervous System COPD - Chronic Obstructive Pulmonary Disease CRDM - Cardiac Rhythm Disease Management CRRT - Continuous Renal Replacement Therapy DNA - Deoxyribonucleic acid EU European Union EU European Union FDA - Food and Drug Administration FPL - Federal Poverty Level FTC - Federal Trade Commission GBP - Great British Pound GIST - Gastrointestinal Stromal Tumors GSK - GlaxoSmithKline HHS - Department of Health and Human Services HPV - Human papillomavirus 81

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IMF - International Monetary Fund IPAB - Independent Payment Advisory Board J&J - Johnson & Johnson LTRA - Leukotriene receptor antagonist M&A - Mergers and Acquisitions mABS - monoclonal antibodies MF - Myelofibrosis MK Merck (Mercks pharmaceutical compound prefix) NAICS - North American Industry Classification System NHIS - National Health Interview Survey NHL - non-Hodgkins lymphoma NIH - National Institutes of Health NTDT - Non transfusion-dependent Thalassemia OPTN - Organ Procurement and Transplantation Network OTC - Over the Counter PDI Personal Disposable Income PDP - Prescription Drug Plans PPACA - Patient Protection and Affordable Care Act PPI - Prescription Price Index R&D - Research and development SEGA - Subependymal giant cell astrocytoma SRTR - Scientific Registry of Transplant Recipients TNF - Tumor necrosis factor TNF - Tumor necrosis factor-alpha TOBI - Tobramycin Inhalation Solution, USP TSC - Tuberous sclerosis complex 82

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TSC-AML - Tuberous sclerosis complex angiomyolipoma UK - United Kingdom UNOS - United Network for Organ Sharing US - United States USD - United States Dollar USITC US International Trade Commission VONA - Vector One National

13.3. RESEARCH METHODOLOGY

Several statistical methods such Covariance, Correlation, Regression and Coefficient of Determination (R square) analysis have been used to assess the industry performance and analyze the future outlook of the industry. Correlation analysis is a measure of degree of association between two set of quantitative data. Correlation coefficient describes the direction and strength (both positive and negative) of association between the dependent variable and independent variables and overcome the shortcomings of covariance analysis. Regression analysis helps to calculate the value of one variable from known or assumed values of other variables related to it. The report has independently studied the cause and effect relationship between dependent and independent variables and has formulated the regression coefficient explaining the estimated change in the response variable due to a unit change in the corresponding explanatory variable, conditional on the other explanatory variables remaining constant. R Square is the coefficient of determination that represents the proportion of total variation in the dependent variable that is accounted for by the variation in the factors. In simple terms, it explains the validity of the independent variables and reflects the degree of influence independent variables have on the dependent variables. The report has analyzed several socio-economic, demographic, political, and regulatory market factors which directly or indirectly affect the industry performance by indicating their degree of impact in the cause and effect relationship between them. The reason for selected these macroeconomic and industry factors has also been explained. 83

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DATA COLLECTION METHODS In terms of data collection, we have used both primary and secondary data sources. Secondary Data Sources: Secondary data sources includes the analysis of existing macro economic and demographic factors, obtained from national statistics of the US and from magazines, journals and online articles including Verispan, VONA (Vector One National), Pembroke Consulting, NACDS (National Association of Chain Drug Stores), CuraScript, Medco, PhRMA , USITC , IMF (International Monetary Fund), YouSigma, American Hospital Association (AHA), US Census Bureau, Bureau of Labor Statistics (BLS) and Bureau of Economic Analysis (BEA). The secondary data sources are used to form the initial perception and contention on several forces playing their role in determining the future growth in the industry. Primary Data Sources: Structured interviews are conducted through telecom with several industry veterans including major decision makers of companies operating in the sector, representatives of several associations and research institute such as Centers for Disease Control and Prevention and PhRMA. These interviews help the research team to authenticate the data collected from secondary data sources and to reject or accept the hypothesis regarding the future projections.

APPROACH Our research team follows a Top-down approach for the future projections in which they first study the effect of economic factors and then industry factors on the sector. This approach indicates the several independent macro-economic and industry variables and their degree of relationship with the sector. The cause and effect relationship between these macro-economic and industry factors and their degree of impact has been discussed and analyzed in the Pharmaceutical future outlook.

VARIABLES (DEPENDENT AND INDEPENDENT) Reasons for the selection of these independent variables in bullets: Personal disposable income showcases the propensity of the consumers to spend. This has a direct bearing on the Pharmaceutical market in the US as consumers with higher disposable income will have more money to afford health insurance or pay for medicines. Total number of insured and uninsured individuals in the US is another factor which determines the propensity of the people to spend on medicines and drugs. 84

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Outpatient visits and Inpatient admissions show the demand for pharmaceutical drugs and medicines. Expenditure on Pharmaceutical Research and Development portrays the efforts towards developing new and innovative medicines for various therapeutic classes.

The report applies Correlation and Regression analysis methods to forecast the future of the industry. The capabilities of SPSS and predictive analytics software have been leveraged to determine the relevant indicators used for forecasting this industry. In the present case, the US Pharmaceutical market revenue in USD million has been taken as a the dependent variable and other variables such as personal disposable income, number of insured people, number of uninsured people, outpatient visits, inpatient admissions in community hospitals and expenditure on pharmaceutical R&D; affecting the industry have been taken as independent variables.

MULTI FACTOR BASED SENSITIVITY MODEL The model first identifies the correlation (whether linear or non-linear) between the dependent and independent variables. After calculating the degree and strength of relationship between the variables, the regression model is used to calculate the sensitivity of each factor on the dependent variable. Finally, the expected value and sensitivity of the independent variable is used to determine the future value of dependent variable.

Table 31: Correlation Matrix of the US Pharmaceutical Market


Personal Disposable Income (USD Million) .990**

No. of Insured People (Million) No. of Insured People (Million) Pearson Correlation Sig. (2tailed) N No. of Pearson 11 .791** 1

No. of Uninsured People (Million) .791**

Inpatients Admissions (Million) .953**

Outpatients Visits (Million) .954**

Expenditure on Pharmaceutical R&D (USD Million) .962**

Pharmaceutical industry market size (USD Million) .783

.004

.000

.000

.000

.000

.066

11 1

11 .855**

11 .917**

11 .929**

11 .887**

6 .883*

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Uninsured People (Million)

Correlation Sig. (2tailed) N .004 .001 .000 .000 .000 .020

11 .990**

11 .855**

11 1

11 .975**

11 .978**

11 .976**

6 .886*

Personal Disposable Income (USD Million)

Pearson Correlation Sig. (2tailed) N

.000

.001

.000

.000

.000

.019

11 .953**

11 .917**

11 .975**

11 1

11 .998**

11 .948**

6 .848*

Inpatients Admissions in Community Hospitals (Million)

Pearson Correlation Sig. (2tailed) N

.000

.000

.000

.000

.000

.033

11 .954**

11 .929**

11 .978**

11 .998**

11 1

11 .961**

6 .916*

Outpatients Visits (Million)

Pearson Correlation Sig. (2tailed) N

.000

.000

.000

.000

.000

.010

11 .962**

11 .887**

11 .976**

11 .948**

11 .961**

11 1

6 .939**

Expenditure on Pharmaceutical R&D (USD Million)

Pearson Correlation Sig. (2tailed) N

.000

.000

.000

.000

.000

.005

11 .783

11 .883*

11 .886*

11 .848*

11 .916*

11 .939**

6 1

Pharmaceutical Industry market size (USD Million)

Pearson Correlation Sig. (2tailed) N

.066

.020

.019

.033

.010

.005

Notes: * Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed).

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From the correlation table, we can conclude that: Number of insured people shows a positive correlation with the US pharmaceutical market representing a correlation value of 0.783 Number of uninsured people represents a correlation of 0.883 with the US pharmaceutical market. The personal disposable income portrays a significant correlation of 0.886 with the US pharmaceutical market. Inpatients Admissions in Community Hospitals showcases correlation of 0.848 with the US pharmaceutical market. Outpatients Visits represent a strong correlation of 0.916 with the US pharmaceutical market. The strength of association between Expenditure on Pharmaceutical Research and Development and US Pharmaceutical market revenue is high, representing 0.939 correlation value

The research has then proceeded to use the multiple linear regression approach with dependent variable (The US pharmaceutical market revenue in value) and explanatory variables (Number of Insured People, Number of Uninsured People, Personal disposable income, Inpatients Admissions in Community Hospitals, Outpatients Visits and Expenditure on Pharmaceutical Research and Development) to quantify the nature of relationships between the dependent and independent variables. Regression Matrix A multiple regression model has been used through SPSS statistical tool which analyzes the multiple correlation coefficients, R, its square, and an adjusted version of this coefficient as summary measures of model fit. Further, R-Square is used to explain the validity of the independent variables. R Square is also known as the coefficient of determination represents the proportion of total variation in the dependent variable explained by the variation in the independent factors. Applying multiple regression analysis to a set of data leads to regression coefficients, one for each explanatory variable. These coefficients give an estimated change in the response variable associated with a unit change in the corresponding explanatory variable, conditional on the other explanatory variables remaining constant.

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Table 32: Regression Coefficients Output


Model Unstandardized Coefficients B Std. Error .000 .000 .000 .000 .000 .000 -1.848 -.439 .966 .260 1.872 Standardized Coefficients Beta

(Constant) No. of Insured People (Million) No. of Uninsured People (Million) Personal disposable income (USD Million) Inpatients Admissions in Community Hospitals (Million) Expenditure on Pharmaceutical Development (USD Million) Research and

2744012.281 -12273.918 -2584.924 .022 7219.887 5.039

a. Dependent Variable: Pharmaceutical Drug Sales (USD Billion) b. Excluded Variable: Outpatients Visits (Million)

FINAL CONCLUSION There is also a mix of qualitative factors such as government regulations, Patent Protections and consumer preference which has a bearing on the pharmaceutical market which have been taken into consideration to arrive at the best possible outcomes. The final conclusion regarding the expected value of dependent variable is determined by using weighted average of the output of subjective judgment, primary research and SPSS output opinions. The weights are assigned on the basis of effectiveness and accuracy of each output according to the degree of confidence interval assigned to them. The weighted average method enables us to filter out the possible noise in each computation method and help us to derive the best possible future projections.

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13.4. DISCLAIMER

The research reports provided by AM Mindpower Solutions are for the personal information of the authorized recipient and is not for public distribution and should not be reproduced or redistributed without prior permission. You are permitted to print or download extracts from this material for your personal use only. None of this material may be used for any commercial or public use. The information provided in the research documents is from publicly available data and other sources, which are reliable. Efforts are made to try and ensure accuracy of data. With respect to documents available, neither the company nor any of its employees makes any warranty, express or implied, including the warranties of merchantability and fitness for a particular purpose, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use will not infringe privately owned rights. The report also includes analysis and views expressed by our research team. The research reports are purely for information purposes. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Investors should not solely rely on the information contained in the research documents and must make investment decisions based on their own investment objectives, risk profile and financial position. The recipients of this material should take their own professional advice before acting on this information. AM Mindpower Solutions will not accept returns of reports once dispatched due to the confidentiality of information provided in our reports. In case, a report qualify for return, we will issue a credit, minus shipping charges, of equal value to the original purchase price, toward a future purchaseno refunds. The decision about whether the product return can be accepted or not is solely at our discretion. Any dispute will be subject to laws of India and exclusive jurisdiction of Indian Courts.

No part of this manual or any material appearing may be reproduced, stored in or transmitted on any other Web site without written permission of AM Mindpower Solutions and any payments of a specified fee. Requests to republish any material may be sent to us.

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