The Challenge from India

1
The Challenge from India
Dr. Brian W Tempest Chief Mentor Executive Vice
Chairman of the Board Ranbaxy Laboratories
Limited, Delhi, India Mumbai September 2006
2
Disclaimer
Except for the historical information contained
herein, statements in this presentation and the
subsequent discussions, which include words or
phrases such as will, aim, will likely
result, would, believe, may, expect,
will continue, anticipate, estimate,
intend, plan, contemplate, seek to,
future, objective, goal, likely,
project, should, potential, will pursue
and similar expressions or variations of such
expressions may constitute "forward-looking
statements". These forward-looking statements
involve a number of risks, uncertainties and
other factors that could cause actual results to
differ materially from those suggested by the
forward-looking statements. These risks and
uncertainties include, but are not limited to our
ability to successfully implement our strategy,
our growth and expansion plans, obtain regulatory
approvals, our provisioning policies,
technological changes, investment and business
income, cash flow projections, our exposure to
market risks as well as other risks. Ranbaxy does
not undertake any obligation to update
forward-looking statements to reflect events or
circumstances after the date thereof.
3
Asias Share of the World GDP (at PPP in )

• Year 1870 1913
  1950 1973 2001
• China 17 9
  5 5 12
• India 12 8
  4 3 5
• Japan 2 3
  3 8 7
• Rest of Asia 7 5 7
  9 13
• Total Asia 38 25
  19 25 37
• Source WEF
• - was 59 in 1820 with India 16,
  China 33

4
Stock Market Performance in Asia in 2005

• 1. India 84
• 2. Pakistan 75
• 3. Korea 54
• 4. Philippines 39
• 5. China 34

• Source Rimes in GBP

5
Davos 2006
Source FT
6
The Productivity Advantage
India a usa Pharma view
USA
1 chemist 1
chemist
Better education x 1.3
70 hours/week 50 hours/week
Longer working time x 1.3
800 monthly
12,000 monthly
Lower cost x 20
Sources IPHMR Conferences, New Delhi August 2004
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The Ageing Advantage

• Europe - retirees grow faster than
  workers
• - fertility rates
  lower, only 600k new Germans in 2005
• Japan - by 2050 36 gt 65 years from
  19 in 2005
• USA - over 50s 88m will grow to
  118m (2020)
• - obesity will cap
  life expectancy
• China - one child families
• - get older before
  becoming wealthy
• - labour costs will
  rise owing to labour shortage
• - South Guangdong
  province is short of 2m workers
• India - will remain very young
• - 50 lt25years, 65
  lt35 years
• - source of the
  extra needed global workforce
• - in 2025 100m gt 65 years (to
  Chinas 200m)

8
India and China Working Population (age
15-64mn)
People who could potentially be economically
active Source UN
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The Economic Growth Advantage

• Growth
• - GDP World growth marginally less in 06 than 05
  (4.3)
• - USA expansion at a slower growth than 05
  (3.6)
• - Euro zone, expected to perform better than
  USA
• - Japan, sustain current growth
• - China, slightly slower growth to prevent hard
  landing
• - India, increasing growth rate being talked up
  to 9/10
• - NRIs have overtaken the World
  Bank as the source of Indias foreign debt
• Chindia, 40 population, 8 economy
• Sentiment
• - India, largest foreign affairs caucus in US
  Congress (180)
• - Nuclear deal
• - China, 74,000 demonstrations reported in
  2005 in China
• - State secrecy laws, IP rights

10
Exports to GDP India vs. China since Start of
Reforms
Source WTO, Morgan Stanley Research
11
The Billionaires Advantage

• The world has 793 billionaires
• USA has 371 almost half
• India - 23 billionaires, UK has 24
• China - 8 billionaires
• Net worth of 40 richest Indians - 106 b
• 40 richest Chinese - 26b
• 2006 belongs to some of the emerging markets,
  and
• no country more than India
• Source Forbes

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The RD Investment Advantage

• 
  
• Most attractive RD Investment locations
• 1. China
• 2. USA
• 3. India
• 4. Japan
• 5. UK
• Source UNCTAD 2005

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The RD Investment Advantage -reasons why India

• Qualified Scientists Engineers
• Global India players with Alliances
• English speaking
• TRIPs compliant first patent March 2006
• IIT, IIM other scientific institutions
• Source UNCTAD 2005

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The Knowledge Advantage

• 4th largest reservoir of Scientific Manpower (2nd
  largest English speaking)
• 3m graduates pa, 115k MSc Chemistry, 215k Eng
  (222k USA)
• Physics the most popular subject
• Knowledge super power in the making
• Lead by a Nuclear Scientist as President remote
  sensing satellite technology, 1/6 countries
• PCT application ranked 3rd K, Ch, Ind, Si, RSA
• Diaspora network (25m across 120 countries)
• US Europe will not dominate Science, Maths, IT

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Science Education in EU
This means that when pupils are in a science
laboratory their experience is unsafe,
unsatisfactory or uninspiring for 65 of the
time. In addition, 13 of science classes are
not taught in a laboratory at all Source
Royal Society of Chemistry, Policy Bulletin
Spring 2006 UK A Level entries Closed
UK University 2000
2005 change Chemistry
Departments Physics 32,059
28,119 -12 Dundee Kings
Chemistry 40,856 38,851 -5
Surrey Exeter Maths
67,036 52,897 -21 Lancaster
Queen Mary Computing 19,099 7,242
-62 under review-Sussex Source Daily Mail
11 August 2006
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The Knowledge Advantage
Engineers/Science graduates p.a India 0.7m,
China 0.5m, EU 0.5m, USA 0.4m, Japan 0.3m
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The Information Advantage

• 34 News TV channels. Oldest 13 years old (NDTV)
• 5000 newspapers, circulation 17m. 12 with 1m
  copies each
• 200m daily readers. 21m new daily readers
  2003/2005, 14
• with 50 rural and 50 urban readership
• Principal internet languages to become English,
  Chinese and Hindi
• STD Kiosks converted to Internet Cafes. India to
  become
• the largest Internet market in 5-10 years
• 5th member of the 100m mobiles club
• Indians are hungry for information

Source World Business 26.2.2006, Larry Page
(Google) zeitgeist conference may 2006

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The Potential for Improvement Advantage

• Manufacturing growth
• - Chinese manufacturing 12
• - India manufacturing 6.5
• Scope for improvement of Government Policies
• Revitalization of agriculture
• - beyond milk (1st globally), wheat
  (2nd), rice (2rd)
• More privatization public sector not so buoyant
• Further encouragement of RD for Pharmaceuticals
• Expand further the prosperous middle class of
  300m

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The Medical Tourism Advantage

• High quality healthcare, international standards
• Patients from developed developing countries
• Growing privatization of hospitals, paperless
  hospitals
• Analysis of serum samples from EU hospitals in
  India already
• Low Costs
• 
  Thailand India
• - Open heart
  14250 4400
• - Hysterectomy
  2012 571
• - Knee surgery
  7000 4500
• Better access through Indian immigration
  airports likely

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The MA Future Advantage
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The FDI Advantage

• b
• 1997/8 3.6
• 1998/9 2.5
• 1999/0 2.2
• 2000/1 4.0
• 2001/2 6.1
• 2002/3 5.0
• 2003/4 4.3
• 2004/5 5.6
• 2005/6 6.0
• Source Outlook business June 2006
• - 2006/7 on target for 10b
• - But still only 15 of China

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Investment by top 15 Indian Domestic
Pharmaceutical Companies

• 
  m
• 2000
  110
• 2001
  160
• 2002
  200
• 2003
  250
• 2004
  400
• 2005
  450
• - Leading to even more Pharma RD facilities and
  factories
• Source Citigroup

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Investment by foreign Pharma companies
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Investment by Microsoft in India

• Microsoft Global Development Centre (GDCI)
• Microsoft Global Services (MGSI)
• Microsoft Global Technical Support Centre (GTSC)
• Microsoft Systems Research (MSRI)
• Microsoft India Development Centre (MIDC)

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India

• A Global Strategic Asset for developed
• World Market businesses

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The Global Generic Market growing everywhere

• b 2004
  2009
• USA 15
  27
• W Europe 9
  14
• Japan 3
  4
• Rest of America 6
  9
• ROW 25
  40
• Total 58
  94
• Source Frost Sullivan
• India could soon dominate the entire
  production chain for generics
• IMS prediction No 4 Scrip April 5 2006
  

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The Pharma Advantage
Competitive Advantage Aggressive Home Market
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The Pharma Advantage
Competitive Advantage - Cost of Manufacture
Active Pharmaceuticals Facility, Mohali
Dosage Forms Facility, Paonta Sahib
Highest number of FDA approved plants outside
the US

• No. of FDA approved plants
• 1990 1
• 1995 10
• 44
• 2004 105
• Source Crisil / IPA

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The Pharma Advantage
Competitive Advantage - Cost of Innovation
RD I
RD II
2005
2004
2001
185
2000
1999
170
146
86
49
24
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Ranbaxys Patent Filings
RD III
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The Pharma Advantage APIs
USA DMF filings by India
Share of USA DMF filings

• 
  
• India
  China
• 2004 27 9
• 2005 37 10
• Q106 44 15
• Q206 41 16
• Source US FDA / J P Morgan
• 6th August 2006

• 
  
• 1990
  1
• 1995 4
• 2000 36
  
• 2004 187
• 2005 262
• Source Crisil / US FDA / J P Morgan

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The Pharma Advantage - ANDAs

• Annual USA ANDA Filings
• Ranbaxy 29
• Sun 22
• Orchid 18
• Lupin 14
• DRL 13
• Cadilla 12
• Source Pharmabiz 8th Sept 2005
• - One in every four ANDAs filed
  by Indian Companies in top
• USA FDA filers
• Source KPMG
• - 29 ANDAs p.a ranks in top 3 USA
  FDA filers
• - Indian Generic Companies on a
  Filing Spree - BOA
• - No Chinese generic company has yet
  filed a USA FDA
• ANDA

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Leading Generic Companies
Annual Sales (US Millions)
Source CLSA, 6 August 2006
Source Company /Financial reports
presentations
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A race to Prosperity

• With Law (India) Order (China)
• Buddhism
• Joint Bids for oil assets
• Silk road re-opened Sikkim to Tibet
• (Nathula Pass)
• Calcutta port is only 1120k from Lhasa

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Potential Downsides to the Indian Scenario
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Potential downside Asian Flu
50 of world chickens bred in Asia
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Potential downside Oil prices

• A war against Iran could drive oil gt 200 a
  barrel - Times 22nd June 2006
• Oil is 33 of Indian Energy Sources IMA, India
  June 2006
• BRIC countries consume 20 oil

Source Outlook business June 2006
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Potential Downside - Pollution
USA 4 population with 20 emissions China
Same level as USA in 2005. In 2025 will be
double India, China, USA Refuse any mandatory
CO2 emission caps India is 6th greatest energy
consumer Ganges River is the Worlds most
polluted river source World Commission on
water
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Potential downside InfrastructureA common view
- Infrastructure will need 155b over the next
five years
Source Manmohan Singh
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Potential downside Counterfeit products from
India -but not a global issue

• 
  
• 
  

• 
  
• Origin of fake products
• seized in EU in 2004
• Rank
• China
• Thailand
• Hong Kong
• Turkey
• USA
• Source FT

• 
  
• Countries where fake
• pharma products seized in
• 2005
• Rank
• Russia
• China
• South Korea
• Peru
• Columbia
• Source PSI

• 
  
• 
  

• 
  
• 
  

• 
  
• 
  

• 
  
• 
  

• 
  
• 
  

192,000 died from Counterfeit drugs in China in
2001 Source IMS 27th Feb2006
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Summary

• 
  
• Asia economic strength is returning to
  levels seen in the past
• Many advantages for India particularly RD
• India as a global strategic asset
• Some downsides - infrastructure
• The current feeling in India a turning point
  has been
• reached and an inflexion point has been
  passed
• China India represent the future of Asia and
  quite possibly
• the future for the global economy Steve Roach,
  Morgan Stanley

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We have all grown up learning the story of the
unfinished voyage of Christopher Columbus setting
sail to reach India, he discovered America. I
now invite the people of America to complete the
Voyage of that great explorer Manmohan
Singh Prime Minister of India July 2005
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Thank You