World

Pharmaceutical Groups
Market Analysis – 2011-2016 Trends –
Corporate Strategies

Report code: 1XCHE02

Analyst: Aurélien Duthoit

Publication date: March 2012

Global Markets And Competition

 Table of Contents
0. Conclusions 4
1. Market fundamentals 15
1.1 Market fundamentals 16
1.2. The industry 17
2. Market environment and prospects 24
2.1. Market overview 25
2.2. Demand 30
2.3. Supply 38
2.4. International trade 42
3. Corporate strategies and competition 46
3.1. Competitive forces 47
3.2. Structure of competition 57
3.3. Corporate strategies 66
4. Case Studies 73
4.1. Focus on Teva 74
4.2. Focus on Sanofi 75
4.3. Focus on BMS 76
4.4. Focus on AstraZeneca 77
5. Company profiles 78
5.1. Pfizer 79
5.2. Novartis 89
5.3. Sanofi 99
5.4. Roche 109
5.5. GSK 119
5.6. AstraZeneca 129
5.7. Eli Lilly 139
5.8. Merck & Co 149
5.9. Bristol-Myers Squibb 159
5.10. Teva 167
6. Statistical appendix 177
7. Sources 188
8. Annexes 191

World Pharmaceutical Groups - March 2012 3

 The global drug market will expand by 2017…
Global pharmaceutical sales
unit: billion dollars

1,300

1,243

1,200 1,180

1,118
1,100
1,058

1,001
1,000

955

919

900
876

800
2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F

Source: Xerfi Global forecasts. Primary source: IMS Health

World Pharmaceutical Groups - March 2012 6

2.1. Market overview PESTEL analysis

The economic environment is crucial

Share of government spending in total healthcare spending in selected countries

PATIENTS
GOVERNMENTS
are keener to save money in a context of high unemployment
seek to save on healthcare spending. Pharmaceuticals’ share
resulting in poor consumer confidence. This encourages
of total spending ranges from 10% -20% in major markets,
patients, wherever possible, to…
providing a strong incentive to…

IMPOSE PRICE REDUCTIONS USE SELF-MEDICATION

IMPOSE GENERICS GIVE UP TREATMENT

THE MARKET
HAS ENTERED
A DEFLATIONARY
CUT REIMBURSEMENTS SPIRAL SHIFT TO GENERICS

INCREASE TAXES MOVE TO THE BLACK MARKET

Source: Xerfi Global with WHO, OECD and CIA

World Pharmaceutical Groups - March 2012 27

2.2. Demand World population

World population still growing…more slowly

World population prospects
unit: billion inhabitants and compound annual growth rate over 20-year periods
12

+0.6%
The global population will have
reached 7.6 billion by the end of the 10

decade, according to the United

+0.9% 8.87
9.31

8.32
Nations. While showing signs of
slowing down, demographic
8 +1.3% 7.66

6.90
prospects remain positive and will
contribute to increasing the global +1.8% 6.12
6
demand for medicines. However, 5.31

some major markets such as Japan +1.9% 4.45

and some European countries are 4 3.70
likely to see their populations shrink, 3.04
2.53
partially offsetting growth in
countries such as Brazil and India. 2

0
1950 1960 1970 1980 1990 2000 2010 2020(F) 2030(F) 2040(F) 2050(F)

Source: Xerfi Global with United Nations

World Pharmaceutical Groups - March 2012 30

2.2. Demand Healthcare spending

A huge gap between rich and poor countries is slowly closing

Major healthcare markets
how to read: this chart shows the growth of healthcare spending between 2000 and 2009 (vertical axis) and the average spending per capita (2009, horizontal axis). Bubbles are proportional to population.

25%
2000-2009 annual growth Strong growth overall (> GDP growth over the period)
rate of healthcare spending
Significant growth slowdown in key markets (USA, Japan)
Contrasted emerging countries
20% Huge gap slowly closing: India’s spending is 1/100 of that of the UK. China: 1/20. Brazil: 1/5

Western European and other developed countries

15%

10%

US exception

5%

Healthcare spending per capita in

thousand dollars
0%
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
Source: Xerfi Global with World Health Organisation and United Nations.

World Pharmaceutical Groups - March 2012 33

2.2. Demand Healthcare spending coverage

Debt crisis threatens healthcare funding by governments

Share of government spending in total healthcare spending in selected countries
unit: share of government spending in total healthcare spending; public debt expressed as % of GDP

90% Share of government Debt: 211%

spending in total
healthcare spending
80%

70%

60%

Public funding of

?
50%
healthcare challenged by
growing debt pressure
40%

30% Rising debt and public spending on healthcare resulting

in intense political tensions

20%

Fast growing economies with average

10% debt levels: possible improvement of
health services Public debt to GDP ratio

0%
0% 20% 40% 60% 80% 100% 120% 140%
Source: Xerfi Global with WHO, OECD and CIA

World Pharmaceutical Groups - March 2012 36

2.4. International trade Global exports

Pharmaceuticals have outpaced export growth overall

Global exports of pharmaceuticals
unit: current billion euros

350
334.46

301.87
300

Annual 271.67
growth rate:
250.37
250 +9.9%
Overall trade: 229.52
+5.8%
200.44
200
180.41

156.97 160.06

150
130.40

100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Xerfi Global calculations. Primary source: Intracen.

World Pharmaceutical Groups - March 2012 42

2.4. International trade Global exports

... and Europe is the industry’s export powerhouse

Global pharmaceutical trade flows
unit: share of 2010 exports in %

2.0%
6.6%
10.8% 2.6% CIS
EU-27 41% 2.4%
ASIA
JAPAN
NAFTA 2.3%
MIDDLE
EAST
1.5%
5.3%
1.9% AFRICA
1.2%

LATIN
AMERICA

Source: Xerfi Global calculations. Primary source: Intracen.

World Pharmaceutical Groups - March 2012 44

3.1. Competitive forces Driving forces of the industry

Profits under threat from regulation and generics

Competitive forces in the pharmaceutical industry

Governments
New entrants
and regulators
+
+++

Suppliers Customers
+ ++
Rivalry ++

Substitutes
How to read this chart:
+++ The darker the shading, the
stronger the force

World Pharmaceutical Groups - March 2012 47

3.2. Structure of competition Sales trends

Industry leaders have delivered strong growth rates

Combined sales of the analysed companies 2006-2010 sales growth of the analysed companies
unit: billion euros unit: %

300
291.13 1 - Merck 103.2%
Compound annual growth rate: +8%
2 - Teva 91.7%
280
3 - Novartis 47.2%

4 - Eli Lilly 47.1%

260 255.50
5 - BMS 40.5%

6 - Pfizer 40.2%
240 235.53
7 - AstraZeneca 25.7%
228.04
8 - GSK 22.2%
220 213.93
9 - Roche 12.9%

10 - Sanofi 7.1%
200
2006 2007 2008 2009 2010 0% 20% 40% 60% 80% 100% 120%

Source: Xerfi Global calculations. Primary source: company annual reports. Source: Xerfi Global calculations. Primary source: company annual reports.

The combined sales of the ten companies analysed in this report grew by an average 8% each year between 2006 and 2010, a
better performance than the industry as whole over the same period. Merck (USA) and Teva (Israel) reported the strongest
growth rates. Sales figures for the period have to be analysed carefully since they mostly reflect intense merger and
acquisition activity in a context patent-protection attrition among big pharma groups.

World Pharmaceutical Groups - March 2012 58

3.3. Corporate strategies Restructuring

Restructuring programmes encouraged by falling profits

Reasons for pharmaceutical industry restructuring programmes

MANDATORY PRICE CUTS AND REBATES IN

MATURE MARKETS RESEARCH AND
SALES DEVELOPMENT
PATENT EXPIRATION WORLDWIDE

RISING GENERIC ADOPTION AND AVAILABILITY

RESTRUCTURING
PLANS TARGETS
MANUFACTURING
MOSTLY THREE
ACTIVITIES

LONGER PRODUCT DEVELOPMENT PERIODS

COSTS
LOWER R&D PRODUCTIVITY
SALES AND MARKETING
ONE-OFF MERGER-RELATED EXPENSES

Source: Xerfi Global

World Pharmaceutical Groups - March 2012 68

4.2. Focus on Sanofi Sanofi’s R&D strategy

Sanofi relies more and more on external R&D to offset falling productivity
Sanofi’s strategy to improve the productivity of its R&D
Sanofi’s 2008 sales by type of products
Much like its competitors, Sanofi was faced with a structural decline of
its research and development productivity, with rising spending which
THE ISSUE did not translate into more drugs coming to the market. As a Genericized drugs
consequence, a rising part of Sanofi’s portfolio was exposed to generic 27.4%
competition (the equivalent of 27% of its revenues in 2008)

Restoring R&D productivity with a more flexible and focused R&D

THE OBJECTIVE organisation as well as an increasing reliance on external projects
Sanofi’s R&D spending
4.70 4.58 4.58
4.60 4.54
4.50 4.43 4.40
4.40
4.30
4.20

Sanofi has considerably transformed its research and development 4.10

4.00
activities since 2009 thanks to five main measures: 2006 2007 2008 2009 2010

- A new organisation of research with an entrepreneurial approach ; Flat R&D spending in times of rising sales
- Cuts in in-house R&D staff; (+7.1% between 2006 and 2010)
- A growing focus on high value biologics, which are harder to copy;
Sanofi’s R&D staff
- A greater emphasis placed on partnerships and alliances;
- Acquisitions to complement the group’s pipeline.
THE STRATEGY 19,132 16,132
-11.2%

December 2009 December 2010

Reflecting the group’s new approach to R&D, spending was down 4% in
2010 while internal R&D staff was cut by 11.2%. In the medium run, the Sanofi’s new molecular entities in development
group expects substantial savings from its growing reliance on external
research. Despite its lower R&D spending, the group had in February 2011
significantly more new drugs in development than before the 49 55 60
restructuring of its research and development strategy.
Feb 2009 Feb 2010 Feb 2011
Source: Xerfi Global with company information

World Pharmaceutical Groups - March 2012 75