China Business Briefing

Mark Reilly
General Manager
China - Pharma
10th December 2009

China GSKs #1 EM country

China sales 9 months YTD

343m (+23%)

China
16%

Other

CER growth

Todays focus =
Mainland China

Hong Kong
44m (+13%)

Mainland
299m (+24%)

China pharma market is large & growing fast

BRICMTMarkets
SalesMATSept2009
bn
18
16
14
12
10
8
6
4
2
0

6th largest pharma market

Largest & fastest growing
BRIC-MT market

+27%

Current Sales: >15bn +27%

+17% +13%
+2% +20%
+13%

Growth forecast through 2013:

CAGR ~20%
Forecasted to be 3rd largest
pharma market by 2013

Source: IMS; forecasted growth is for period from 2009 through 2013

Many factors are driving growth

Demographics
Second largest birth cohort in the world (16m)
Aging population
Urbanisation
Growing importance of rural access
Economic Development
Growing middle class
50% of healthcare and ~80% of Rx paid out-of-pocket
Major Health Issues
Increase in lifestyle disorders such as obesity, diabetes and cardiac diseases
Air pollution and smoking contributing to growth of cancer and respiratory
diseases
HIV, hepatitis and tuberculosis also recognised as major health issues
4

Healthcare reform impacts

Today
Branded generics
Originator product price
premium
Weak IP protection
Central government control
Local manufacturing
important
Clinical development
important
Complex drug approval
process

Future ~2020
R&D driven market, premium
price for innovation
Harmonisation of generic prices
Stronger IP protection
Greater decision making in the
provinces
Local manufacturing a
requirement for EDL products
Local R&D key driver for access
and acceleration
Chinese data important for drug
approvals

Evolution vs revolution:
current market exists for foreseeable future

Chinas Pharma market

Major hospital channel

KOL endorsement
Tier 2&3 hospital coverage
Department expansion

Expanded Tier 2&3

hospital coverage

Tier 1 Cities

Tier 2 Cities

Chinas Pharma market

Development of 3 segments
Segment 1
Major hospital channel

Segment 2
Primary care channel

KOL endorsement

Community hospital promotion

Tier 2&3 hospital coverage

Department expansion

Expanded Tier 2&3

hospital coverage

Tier 1 Cities

Distribution reach/push

Tier 2 Cities

Segment 3
Tier 3 Cities and Rural Nationwide
Distribution Reach
Essential Drug List
7

Brand Sales Value

Long product life cycles

Developed markets
product life cycle

China product life cycle

(e.g., pricing pressure offset
by volume growth)

Time
GSK illustrative analysis

Long product life cycles - example

800
700

Generics (21)
(amlodipine)

Millions, RMB

600
500
400

Norvasc

300
200
100
0
2000

2001

2002

2003

2004

2005

MAT Q2
Source: IMS national data

2006

2007

2008

2009

GSK Establishing a unique presence in China

Vaccines
#1 MNC

Major
Pharma
Brands

GSK

Consumer
Healthcare
Brands

Local
Manufacturing
& Partnerships

10

GSK currently ranked #12

in highly fragmented market
Market share MAT Sept 2009

Growth rate
MAT
Sept 2008

MAT
Sept 2009

AstraZeneca

29.1%

30.5%

Pfizer

29.8%

33.3%

Bayer

30.7%

22.7%

Sanofi-Aventis

34.1%

29.9%

JS. Yangzijiang FTY

21.7%

22.3%

Roche

12.6%

22.4%

Shandong QILU FTY

42.0%

28.9%

Ke Lun

55.8%

57.6%

JS.L.Y.G. Hengrui

28.0%

23.2%

HLJ Haerbin Pharm.

25.5%

22.4%

Novartis

18.5%

24.6%

GlaxoSmithKline

15.0%

27.3%

Novo Nordisk

30.7%

29.5%

M.S.D

27.6%

13.7%

Shandong Ruiyang

34.6%

32.9%

0.0%

0.5%

Source: IMS CHPA hospital audits 3Q09

1.0%

1.5%

2.0%

11

China - Four elements for success

1
Align the portfolio
with high growth
opportunities

Supplying
the right
China
portfolio

12

Drivers of growth
GSK EM strategy

China specifics

Innovative brands

Long life cycle post

patent expiry

Classic brands

Originator products and

differentiated generics
receive price premium

Vaccines

The most complete

pipeline in the industry
13

Diverse portfolio with many growth drivers

9 months YTD
Total sales 299m (+24%)
Others 4m (+71%)

Anti-virals 99m (+7%)

Oncology 2m (+154%)
CV 11m (+38%)
Avandia 14m (+25%)
CNS 20m (+19%)
Anti-bacterials 23m (+38%)

Vaccines 83m (+37%)

Respiratory 43m (+36%)

CER growth rates

14

Top products
9 months YTD sales
m

100
+37%

+8%

75
50

+15%

+50%

+25%

Seroxat

Fortum

Avandia

+46%

25

+36%

CER growth rates

Fraxiparine

Seretide

Heptodin
(Zeffix)

Vaccines

15

Near-term growth opportunities

Capitalise on leadership in hepatitis

Build on vaccines position and drive

market growth opportunity

Expand leadership in respiratory

Others

16

Large opportunity for growth in Hep B

Urban

Rural

~45m Hep B carriers

~50m Hep B carriers

Diagnosed
8.8 m

7.2 m
OAVs
Interferon
TCM
vitamin tonic

Treated
6.2 m

6.5 m

Oral Anti-Virals Rx
0.9 m

3.9 m

Heptodin (Zeffix)
1.4 m

TCM: Traditional Chinese medicines

DOT: duration of treatment

150 Days

0.3m

DOT 30 Days

Physician:
Enhance knowledge & skill
Patient:
Address affordability &
access
GSK:
Increase presence

Note: 1/3 of worldwide Hep B cases are in China

Source: GSK estimates based on market research

17

Hepatitis B strategy for continued growth

Invest to maintain competitiveness and share of voice in
urban hospitals
Expand distribution reach and access in rural areas
Improve patient awareness and diagnosis
Reinforce presence in Hep B market through
development & launch of tenofovir (Viread) recently
in-licensed from Gilead
Leverage vaccines for prevention
18

Vaccines in China:
An attractive and growing market
Market Overview
Wealth / Population

High

Low

Tier A
50 cities

2.8m newborns
42% of MNCs sales

Tier B
148 cities

6.9m newborns
49% of MNCs sales

Tier C
146 cities

6.4m newborns
9% of MNCs sales

Driven by product value

Pharma type promotion
Dominated by 8 MNCs
Driven by channel margins
CDC and regional distributors
play a very important role
Strong presence of the 32
local players
Primarily covered by EPI
vaccines

Demographics
~16m annual birth cohort
~128m females 10-25 years of age
~372m over 60 years of age
~10% able to afford private vaccines

EPI - mass vaccination programmes

19

Vaccines in China:
Estimate of total market potential
GSK estimates for total market
m
1,600

Public

1,400

Private

1,200
1,000
800

+43%

600
400

24

130

200

334

384

2007

2008

+20%
176
441

2009

2015

Key market growth drivers

Continuing growth of private market
Growing government interest in prevention
EPI expansion and improved coverage, e.g., introduction of Pa, MMR, and Hep A in 08
New vaccines
New segments (adolescent / adult / elderly segments) important for current and future portfolio
Broad geographic presence required

20

GSK #1 Vaccine MNC in China

GSKs Position & Strategy

GSK YTD sales

83m (+37%)

Diversified & balanced portfolio

100

Leadership among MNCs gained in 2009

80

#1 Independent vaccine company

60

Investing in people and awareness

building (healthcare workers and general
public)

40

Investing in local mfg and partnerships:

20

Flu vaccines

Paediatric vaccines

0
2006

2007

2008

YTD 2009

MMR & Varicella

Flu

Hepatitis

DTPa / Hib

CER growth rates

Neptunus

China specific R&D

Extensive pipeline
21

GSK has the most complete current and future

vaccine portfolio
Paediatrics
Infanrix
(DTPa)

Priorix
(MMR)

Adolescents

Havrix

Engerix-B

(Hep A)

(Hep B)

Varilrix
(chickenpox)

Synflorix
(Pneumococcal)

Hiberix

Fluarix

(Hib)

(Flu)

Poliorix

Infanrix-Hib

(IPV)

(DTPa-Hib)

Rotarix

Infanrix-IPV-Hib

Local Flu

(Rotavirus)

(DTPa-IPV-Hib)

(Flu)

Priorix-Tetra

Infanrix-IPV

(MMR + chickenpox)

(DTPa-IPV)

Priorix
(MMR)

Havrix

Engerix-B

(Hep A)

(Hep B)

Varilrix

Fluarix

(chickenpox)

Cervarix
(HPV)

Boostrix

(MMR)

Local Flu
(Flu)

(DTPa)

Local MMR

(Flu)

Twinrix
(Hep A+B)

Local MMR
(MMR)

Engerix

Havrix

(Hep B)

(Hep A)

Fluarix

Fluarix
Cervarix

(Flu)

(Flu)

(HPV)

Boostrix
(DTPa)

Local Flu

Local Flu

Twinrix

(Flu)

(Flu)

(Hep A+B)

Adult

Existing portfolio
Pipeline

Elderly
22

Respiratory a rising star in China Rx

Seretide sales value
m

Seretide is already a leading brand in R03

market with a CAGR of ~50%

30
25

Significant growth in respiratory market

expected

CAGR 50%

MDI launch still to come

COPD market is a major opportunity

20

Prevalence 8.2% among population over

40yrs, ~580m COPD patients
Less than 1m current patients on Seretide

15

In asthma, Seretides strong efficacy

should help drive growth

10
5

Ventolin MDI currently selling ~3M packs

per year

0
2004 2005 2006 2007 2008 2009

Big opportunity to grow with EDL policy

effectively covering rural population

23

Respiratory various offerings and pricing strategies

improve access and drive volume growth

Tier A

Tier B

Seretide
Diskus
Seretide
Diskus

Flixotide

Ventolin

Introduce Seretide MDI

Tier C

Ventolin and smaller pack sizes

24

Other near-term growth opportunities

Develop CNS market Leverage Seroxat and Lamictal*
Aggressively grow diabetes franchise Avandia family
Develop & launch oncology pipeline Tykerb*, Votrient**, Arzerra**
Build CV and Urology franchises Fraxiparine, Arixtra* and Avodart**
Upscale dermatology to capitalise on Stiefel portfolio (Valtrex*)
Relenza and flu franchise development
Maximise value of GSK classic brands resource re-launches
Opportunistic in-licensing originator
* 09 launches ** future launches

25

China - four elements for success

1
Align the portfolio
with high growth
opportunities

Create the right

balance of depth
and breadth

Supplying
the right
China
portfolio

2
Penetrating
the right
cities and
outlets

26

New segments / channels provide opportunity

for growth
Segment 1
Major hospital channel

Segment 2
Primary care channel

KOL endorsement

Community hospital promotion

Tier 2&3 hospital coverage

Department expansion

Expanded Tier 2&3

hospital coverage

Tier 1 Cities

Tier 2 Cities

Distribution reach/push

Key new growth

opportunity

Segment 3
Tier 3 Cities and Rural Nationwide
Distribution Reach
Essential Drug List
27

Sales force expansion continuing

1400

Sales reps in China

1200
1000
800
600
400
200
0
2007

2008

2009
28

China - four elements for success

1
Align the portfolio
with high growth
opportunities

Create the right

balance of depth
and breadth

Supplying
the right
China
portfolio

2
Penetrating
the right
cities and
outlets

3
Setting the
right pricing &
market access
strategies

Match local demand

with value
proposition and
relationship

29

China - four elements for success

1
Align the portfolio
with high growth
opportunities

Create the right

balance of depth
and breadth

Building the right

leadership team,
structure and
capabilities

Supplying
the right
China
portfolio

Getting the right

people, teamwork and
executing well

Penetrating
the right
cities and
outlets

Setting the
right pricing &
market access
strategies

Match local demand

with value
proposition and
relationship

30

Constraints of China talent market

The Cultural revolution
created a missing
generation of talent aged
45 to 55, so expatriates fill
most jobs at the top

Regional leadership
Young workers are
flooding the
marketplace, but
because education
quality varies greatly
among schools, many
of them have inferior
preparation or lack
language skills

Country leadership
Middle management
Entry level

China
Talent supply

Talent demand

Source: Winning the Race for Talent in Emerging Market; Harvard Business Review Nov 2008

31

GSK establishing a unique presence in China

Vaccines
#1 MNC

Major
Pharma
Brands

GSK

Consumer
Healthcare
Brands

Local
Manufacturing
& Partnerships

32

China Pharma Vision

Vaccines
#1 MNC

Major
Pharma
Brands

GSK

Consumer
Healthcare
Brands

Local
Manufacturing
& Partnerships

33

34