A Winner in the Dynamic Generics Market
A Winner in the Dynamic Generics Market Sandoz Day Andreas Rummelt CEO Sandoz September 3, 2008
These materials contain certain forward-looking statements relating to the Group's business, which can be identified by the use of forward-looking terminology such as "outlook", "expected", "will", "potential", "pipeline", or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products, or potential future sales or earnings of the Novartis Group or any of its divisions or business units; or by discussions of strategy, plans, expectations or intentions. Such forward-looking statements reflect the current views of the Company regarding future events, and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for existing products in any market, or that such products will achieve any particular revenue levels. Nor can there be any guarantee that the Novartis Group, or any of its divisions or business units, will achieve any particular financial results. In particular, management's expectations could be affected by, among other things, uncertainties involved in the development of new pharmaceutical products; unexpected clinical trial results, including additional analysis of existing clinical data or unexpected new clinical data; unexpected regulatory actions or delays or government regulation generally; the Group's ability to obtain or maintain patent or other proprietary intellectual property protection, including the uncertainties involved in the US litigation process; competition in general; government, industry, and general public pricing and other political pressures; and other risks and factors referred to in Novartis AG’s current Form 20-F on file with the US Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. Novartis is providing the information in these materials as of this date and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise. 2 | Sandoz Day | Andreas Rummelt | September 3, 2008
1
Our program 13:30
A Winner in the Global Generics Market
A. Rummelt
14:15
Growing in the Difficult-to-Make Segment
G. Schaefer
14:30
Unmatched Leadership in Anti-Infectives
E. Meijnders
14:45
Expanding the Lead in Biosimilars
H. Teissl
15:00
Short Break
15:15
Leading Position in the US Market
B. Hampl
15:30
Germany: Winning in a Transforming Market
H. Fabry
15:45
Setting the Pace in Emerging Generics Markets
R. Saynor
16:00
Summary and Q&A Session
A. Rummelt / All
17:00
End of Meeting / Apero
3 | Sandoz Day | Andreas Rummelt | September 3, 2008
Agenda Sandoz – focused on global leadership in generics Generics – a dynamic business with high growth perspective Sandoz – well-positioned to win
2
Sandoz focused on leadership in generics A global leader in fast-growing and dynamic generics market Long-standing presence unified in 2003 under the Sandoz brand Sandoz Achieved #2 position with 2005 acquisitions of Hexal, Eon Labs
Gaining momentum through growth and operational excellence Be first to market for key launches Exploit opportunities in emerging generics markets Growth Continue success in difficult-to-make products Drive biosimilar sales Anticipate and adapt to individual market needs Operational Constantly improve cost competitiveness Differentiation excellence
5 | Sandoz Day | Andreas Rummelt | September 3, 2008
H1 2008 reflects opportunities and challenges Sandoz first half 2008 results
USD m Net sales
Growth vs. H1 2007 in USD in LC
3 854
+13%
Operating income
591
+5%
Adjusted operating income1
753
+2%
Return on net sales
15.3%
-1.1 ppt
Adjusted return on net sales1
19.5%
-2.2 ppt
Number of associates
23 784
+2%
1 Adjusted
+2%
for exceptional items as well as ongoing intangible amortization in current and prior periods
6 | Sandoz Day | Andreas Rummelt | September 3, 2008
3
Profits outpaced rapid sales growth Net sales, in USD m CAGR1 +33%
7,169 5,959 4,694 3,045
2004
2005
2006
2007
Operating income, in USD m CAGR1 +58%
1,039 736 263
2004
342
2005
2006
2007
•1 CAGR – Compound Annual Growth Rate
7 | Sandoz Day | Andreas Rummelt | September 3, 2008
Global presence covering 90% of world population Subsidiaries Representative office
8 | Sandoz Day | Andreas Rummelt | September 3, 2008
4
Rapid growth in emerging generics markets Established generics
Emerging generics
UK Netherlands Germany
France Italy Belgium
H1 2008 net sales1
Slovenia Hungary Czech Rep. Australia
+5%
63%
37%
Russia Poland Romania China Japan India
+28%
US
1
Brazil Mexico Argentina Turkey S. Africa Egypt
Sales share in USD as of H1 2008, sales growth in H1 2008 vs. H1 2007, in % USD
9 | Sandoz Day | Andreas Rummelt | September 3, 2008
Sandoz #1 ranking in Central and Eastern Europe CEE1 2007 gross sales and growth in % (in local currencies vs. previous year) 20
Sandoz
7
Krka
5
Zentiva
1
Gedeon Richter
9
Berlin-Chemie2
2
Teva3 Pliva Polpharma
-2 4
1
Russia, Poland, Romania, Czech Rep., Slovakia, Croatia, Slovenia, Hungary, Bulgaria, Lithuania, Latvia, Estonia, Ukraine, Kazakhstan Including Menarini business; 3 Excluding Copaxone, Azilect Source: PADDS, RMBC, PHARMIS, CEGEDIM
2
10 | Sandoz Day | Andreas Rummelt | September 3, 2008
5
Building a strong platform for future growth Retail Generics 87%1
Comprehensive portfolio of generic medicines Four main brands >950 compounds2 available in >5,000 forms High share of difficult-to-make products, >27% of net sales
AntiInfectives 10%1
Antibiotics as “enabling platform” World leader in antibiotic manufacturing Expertise in fermentation and chemical synthesis APIs3 and finished dosage forms
Biopharmaceuticals 3%1
A future growth platform Pioneering role in biosimilars4 Recombinant microbiological manufacturing
•1 Share of total Sandoz net sales; 2 Single active pharmaceutical ingredients and combinations •3 Active pharmaceutical ingredient; 4 Follow-on versions of biotech drugs
11 | Sandoz Day | Andreas Rummelt | September 3, 2008
Comprehensive portfolio for many medical needs Broad coverage of therapeutic areas
Systemic anti-infectives Cardiovascular system Central nervous system
Muscle and skeletal system Hormone therapy Respiratory system
Gastrointestinal system
Classic products enhanced …
… by pioneering biosimilars
12 | Sandoz Day | Andreas Rummelt | September 3, 2008
6
Agenda Sandoz – focused on global leadership in generics Generics – a dynamic business with high growth perspective Sandoz – well-positioned to win
Sustained growth outlook for generics Growing population
World’s population to expand by 1/3 within 40 years
Aging population
Elderly segment to expand 3 times faster than world’s population Healthcare expenditures rise significantly with age
Unhealthy lifestyles
Causing increased prevalence of chronic diseases
Medical advances
Improve therapeutic options, but also increasing costs Generics freeing up funds for truly innovative breakthroughs
Emerging markets
Generics crucial to improve access to healthcare Healthcare spending growing faster than GDP
14 | Sandoz Day | Andreas Rummelt | September 3, 2008
7
Healthcare trends support generics utilization Example
Selected healthcare market trends
Payors increasingly utilizing tenders
Providers consolidating and professionalizing drug purchasing
Government influence on pricing and generic substitution
Pharmacies and distributors consolidating
Many markets
and increasing substitution power
15 | Sandoz Day | Andreas Rummelt | September 3, 2008
Growth potential from higher generics usage 2007 generic penetration of retail markets1 (% of volume) 100 Growth potential
90 80
77
73
72
Growth potential
70 60 50 39
40
32
30 20
19
17
Italy
Japan
10 0 USA
Germany
UK
Established
France
Spain
Emerging
1
Includes only products that have lost exclusivity Source: Sandoz Central Market Database based on IMS; for retail only, volume measured in packages, Japan based on estimates
16 | Sandoz Day | Andreas Rummelt | September 3, 2008
8
Patent expiries feed generics pipeline Worldwide sales of expiring1 products, in USD bn 52 6 42 35 4
11
44
44 41
20
22
16
Biotech products
24
22
25
Conventional products
2013
2014
2015
Biopharmaceuticals will play an increasing role in the future
46 31
31
2010
2011
2012
1
Based on year of US patent expiry, nominal patent expiries not corrected for supplementary patents or litigation probability Source: Evaluate, Sandoz
17 | Sandoz Day | Andreas Rummelt | September 3, 2008
Generics market offers worldwide growth potential Retail generics industry market estimates1, in USD bn CAGR2 % 2008-13 9
135
Worldwide
48
Rest of World
12
18 5
Rest of Americas Japan
10 9
26
Eastern Europe
12
16
Western Europe
4
17
22
US
5
2008
2013
87 27
11 3 14 14
1 After rebates, internal estimates based on IMS at ex-manufacturer prices; 2 Compound annual growth rate, in local currencies Source: Internal estimates based on historic IMS Health data and own projections
18 | Sandoz Day | Andreas Rummelt | September 3, 2008
9
Pace of consolidation continuing 0 1 sales 2 3 41, in 5 USD 6 7 bn 8 9 0 1 2 31, in 4 USD 5 6 bn 7 8 2007 9 10 11 2005 generics sales generics
4.7
Barr/ Pliva
Teva2
4.6
Teva
10.2
7.2
Ivax
2.3
Mylan
Merck
2.2
Ratiopharm
Ratiopharm
2.0
Actavis3
2.2
Stada
2.0
Watson
10 11
1.6
4.0 2.5
Stada
1.3
Ranbaxy
1.6
Ranbaxy
1.2
Watson
1.4
Barr
1.1
Dr. Reddy’s
1.1
Mylan
1.0
Cipla
1.0
1
Including Active Pharmaceutical Ingredients sales, excluding brand business, animal health and other 2 Pro forma, including Barr/Pliva; 3 Guidance for 2007 Source: Annual and quarterly reports, press releases; excluding Hospira and Apotex due to lack of data
19 | Sandoz Day | Andreas Rummelt | September 3, 2008
Volume gains, new launches to offset pricing Average generics industry net market development1 +10% +8%
2006
-7%
+9%
Price
Volume
Price erosion is a given
Launches
2007
Volume gains and new launches to drive growth, overcoming price erosion
1 Based
on an analysis of top 30 markets over 2005 to 2007 Source: Internal estimates based on historic IMS Health data and own projections
20 | Sandoz Day | Andreas Rummelt | September 3, 2008
10
Diverse markets demand flexible approach Key dispensing influencer Individual Physician pharmacy
Buying groups
Brand
Main product type1
Product brand
INN+
Company brand
Pure INN
Distribution, price
Doctor Pharmacy Key sales force sales force accounts 1
Taking Losec® as an example: Omep (brand), Omeprazole Sandoz (INN+) and omeprazole (INN)
21 | Sandoz Day | Andreas Rummelt | September 3, 2008
Key success factors in generics
New launches
Differentiation
First-to-market with key new products
Portfolio going beyond standard generics Increasing share of products with some degree of exclusivity
Geographic presence
Broad and deep, covering established and emerging markets Proven skills to adapt rapidly to changing environment
Operational excellence
Constant focus on high quality at lowest costs
22 | Sandoz Day | Andreas Rummelt | September 3, 2008
11
Agenda Sandoz – focused on global leadership in generics Generics – a dynamic business with high growth perspective Sandoz – well-positioned to win
Sandoz delivered >150 new launches in H1 2008 First half 2008 new product launches1 22
Germany
11
Italy
Examples for key launches in 2008: Cetirizine (US)
10
Canada
Clopidogrel (Germany)
8
Hungary
Risperidone (Germany, France)
US
7
Olanzapine
Australia
7
Lansoprazole
(Germany)
Turkey
6
(France)
Amplodipine (Italy, Japan)
Atorvastatin
Romania
6
Czech Republic
6
Switzerland
6
(Turkey)
Omeprazole (Italy)
Ramipril (Italy)
1
Launch definition based on new molecules, in US based on ANDAs (Abbreviated New Drug Application)
24 | Sandoz Day | Andreas Rummelt | September 3, 2008
12
Continuing high filing activity worldwide North America
CIS and SEE1
European Union
578
2,113 1,788 315 44
65
2006 2007
HRM2
2006 2007
2006 2007
South America
Africa / Middle East
Asia / Pacific
351 142
211
162
208
122
2006 2007
2006 2007
96 2006 2007
85 2006 2007
1 Commonwealth 2
of Independent States and South Eastern Europe Highly regulated markets (Switzerland, Australia, Turkey, South Africa)
25 | Sandoz Day | Andreas Rummelt | September 3, 2008
Difficult-to-make generics: Unmatched capabilities Selected examples 2005
Fentanyl patch
2006
Omnitrope®
First generic alternative in Germany and Europe Utilizing reservoir and matrix drug delivery technologies First biosimilar in Europe and the US Pioneering role through precedent-setting approvals
Metoprolol Succinate MUTS1 First and only extended release generic using multi-unit tablet system Added advantage of tablet dividability and additional strengths
2007
Leuprone® implant First and only generic leuprorelin implant Ready-to-use syringe: direct implantation2, reducing necessary API amount by half
Cefdinir First generic to the US market, only 12 months to complete development In-house active ingredient production of a non-infringing form
Binocrit® / Epoetin alfa Hexal® First European approval of a complex biosimilar Most successful epoetin launch in Germany during 2007 1 Multi-Unit
Tablet System; 2 No suspension needed
26 | Sandoz Day | Andreas Rummelt | September 3, 2008
13
Positioned for early market entry opportunities Strong and competitive presence in the US • 108 ANDAs pending at FDA • 50% of US ANDA filings contain Paragraph IV certification • 15 believed to have “first-to-file” status • >30 active patent challenge cases
Aggressive market entries worldwide – with right risk/reward profile • 30-60 “at-risk” launches worldwide1 every year, e.g.
1 Number
-
Clopidogrel
- Gemcitabine
- Fentanyl
-
Omeprazole
- Atorvastatin
- Alendronate
-
Metoprolol Succinate
- Cefdinir
- Olanzapin
-
Amlodipine
- Nebivolol
- Pantoprazole
of compounds times number of countries
27 | Sandoz Day | Andreas Rummelt | September 3, 2008
Broad and deep geographical presence Sandoz ranking in USD 79 bn global generics market1
Top 1-3
47%
Top 4-10
18%
Growing presence
33%
Not present 2007 1
Estimated generics market size 2007, Source: Internal estimates based on IMS Health
28 | Sandoz Day | Andreas Rummelt | September 3, 2008
14
Underpinned by a global state-of-the-art network Canada:
Holzkirchen (DE):
Germany:
Rudolstadt (DE):
Injectables, ophthalmics
Patches, implants, orals
Oral solids, patches, implants, etc.
Inhalers, ophthalmics
Development Production
Boucherville (CA):
Poland:
Injectables, ophthalmics
Oral solids
US:
Kundl (AT):
Oral solids
Orals, biosimilars, injectables, APIs
Wilson (US):
Japan:
Oral solids
Oral solids
Brazil:
China:
Oral solids, hormones
Oral solids
Buenos Aires (AR):
Ljubljana (SI):
Oncology (injectables, oral solids)
Orals, injectables, biosimilars, APIs, etc.
Argentina:
India:
Oncology
Oral solids, APIs
Austria:
Slovenia:
Turkey:
Kolshet (IN):
Oral solids, APIs, injectables
Oral solids, APIs, injectables
Oral solids, APIs
Oral solids, APIs
•CA – Canada, US – United States, AR – Argentina, DE – Germany, AT – Austria, SI – Slovenia, IN – India
29 | Sandoz Day | Andreas Rummelt | September 3, 2008
Video
30 | Sandoz Day | Andreas Rummelt | September 3, 2008
15
High quality growth in Sandoz Retail Generics Change 2007 vs. 2006 Volume1
Sales
Purchasing2
COGS
Site costs3
+24% +21%
+20% +16% +14%
1
Standard units of oral solids (mainly tablets and capsules) Period costs: Purchased goods in production (active pharmaceutical ingredients, finished dosage forms, packaging material, etc.) Period costs: Labor, depreciation and other site costs Note: All growth rates in USD 2 3
31 | Sandoz Day | Andreas Rummelt | September 3, 2008
Improved flexibility: Increased product availability Sandoz Retail Generics product availability, in % >130 countries >950 compounds >5,000 formulations >20,000 SKUs >42 billion oral solids1
100
99
98
Jan
Apr
Jul
2006 1
Oct
Jan
Apr
Jul
Oct
2007
Tablets and capsules
32 | Sandoz Day | Andreas Rummelt | September 3, 2008
16
Significant synergies within Novartis portfolio Leveraging capacities and capabilities
Annual impact
Sandoz biotech development for Pharma and V and D
Up to USD 170 m1
Sandoz fermentation for Pharma and Animal Health
Up to USD 125 m2
Cross-divisional production
USD 230 m2
Sandoz product development for Animal Health
“Triple digit” USD m3
Maximizing Novartis product lifecycles Early entries and authorized generics
USD 270 m2
Examples: Lamisil® (Germany, 2005), Lotrel® (US, 2007)
Exploiting economies of scale and market access Centralized Group-wide functions Shared operating platforms in smaller emerging markets
Significant
Joint operations in markets requiring local manufacturing 1
Avoided outsourcing costs; 2 Internal sales; 3 Third party sales
33 | Sandoz Day | Andreas Rummelt | September 3, 2008
Focused and experienced leadership team Today’s speakers
Gerhard Schaefer Head Global Product Development
Ernst Meijnders Head Anti-Infectives and API Business Unit
Hannes Teissl Andreas Rummelt
Head Biopharmaceuticals
CEO Sandoz Member Executive Committee of Novartis
Bernhard Hampl CEO Sandoz US
Helmut Fabry CEO Sandoz Germany
Richard Saynor Head Commercial Operations APAC/LATAM/CA/TR
27 years of generics development experience Former Head of Development at Hexal
26 years of chemical industry experience General manager for 12 years
18 years with Sandoz 3 years as general manager Sandoz Germany
24 years of experience in generics Former CEO of Eon Labs for 10 years
22 years of consumer goods experience General manager for 15 years
16 years of experience in generics General manager for 8 years
34 | Sandoz Day | Andreas Rummelt | September 3, 2008
17
These materials contain certain forward-looking statements relating to the Group's business, which can be identified by the use of forward-looking terminology such as "outlook", "expected", "will", "potential", "pipeline", or similar expressions, or by express or implied discussions regarding potential new products, potential new indications for existing products, or regarding potential future revenues from any such products, or potential future sales or earnings of the Novartis Group or any of its divisions or business units; or by discussions of strategy, plans, expectations or intentions. Such forward-looking statements reflect the current views of the Company regarding future events, and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. There can be no guarantee that any new products will be approved for sale in any market, or that any new indications will be approved for existing products in any market, or that such products will achieve any particular revenue levels. Nor can there be any guarantee that the Novartis Group, or any of its divisions or business units, will achieve any particular financial results. In particular, management's expectations could be affected by, among other things, uncertainties involved in the development of new pharmaceutical products; unexpected clinical trial results, including additional analysis of existing clinical data or unexpected new clinical data; unexpected regulatory actions or delays or government regulation generally; the Group's ability to obtain or maintain patent or other proprietary intellectual property protection, including the uncertainties involved in the US litigation process; competition in general; government, industry, and general public pricing and other political pressures; and other risks and factors referred to in Novartis AG’s current Form 20-F on file with the US Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. Novartis is providing the information in these materials as of this date and does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise. 2 | Sandoz Day | Andreas Rummelt | September 3, 2008
1
Our program 13:30
A Winner in the Global Generics Market
A. Rummelt
14:15
Growing in the Difficult-to-Make Segment
G. Schaefer
14:30
Unmatched Leadership in Anti-Infectives
E. Meijnders
14:45
Expanding the Lead in Biosimilars
H. Teissl
15:00
Short Break
15:15
Leading Position in the US Market
B. Hampl
15:30
Germany: Winning in a Transforming Market
H. Fabry
15:45
Setting the Pace in Emerging Generics Markets
R. Saynor
16:00
Summary and Q&A Session
A. Rummelt / All
17:00
End of Meeting / Apero
3 | Sandoz Day | Andreas Rummelt | September 3, 2008
Agenda Sandoz – focused on global leadership in generics Generics – a dynamic business with high growth perspective Sandoz – well-positioned to win
2
Sandoz focused on leadership in generics A global leader in fast-growing and dynamic generics market Long-standing presence unified in 2003 under the Sandoz brand Sandoz Achieved #2 position with 2005 acquisitions of Hexal, Eon Labs
Gaining momentum through growth and operational excellence Be first to market for key launches Exploit opportunities in emerging generics markets Growth Continue success in difficult-to-make products Drive biosimilar sales Anticipate and adapt to individual market needs Operational Constantly improve cost competitiveness Differentiation excellence
5 | Sandoz Day | Andreas Rummelt | September 3, 2008
H1 2008 reflects opportunities and challenges Sandoz first half 2008 results
USD m Net sales
Growth vs. H1 2007 in USD in LC
3 854
+13%
Operating income
591
+5%
Adjusted operating income1
753
+2%
Return on net sales
15.3%
-1.1 ppt
Adjusted return on net sales1
19.5%
-2.2 ppt
Number of associates
23 784
+2%
1 Adjusted
+2%
for exceptional items as well as ongoing intangible amortization in current and prior periods
6 | Sandoz Day | Andreas Rummelt | September 3, 2008
3
Profits outpaced rapid sales growth Net sales, in USD m CAGR1 +33%
7,169 5,959 4,694 3,045
2004
2005
2006
2007
Operating income, in USD m CAGR1 +58%
1,039 736 263
2004
342
2005
2006
2007
•1 CAGR – Compound Annual Growth Rate
7 | Sandoz Day | Andreas Rummelt | September 3, 2008
Global presence covering 90% of world population Subsidiaries Representative office
8 | Sandoz Day | Andreas Rummelt | September 3, 2008
4
Rapid growth in emerging generics markets Established generics
Emerging generics
UK Netherlands Germany
France Italy Belgium
H1 2008 net sales1
Slovenia Hungary Czech Rep. Australia
+5%
63%
37%
Russia Poland Romania China Japan India
+28%
US
1
Brazil Mexico Argentina Turkey S. Africa Egypt
Sales share in USD as of H1 2008, sales growth in H1 2008 vs. H1 2007, in % USD
9 | Sandoz Day | Andreas Rummelt | September 3, 2008
Sandoz #1 ranking in Central and Eastern Europe CEE1 2007 gross sales and growth in % (in local currencies vs. previous year) 20
Sandoz
7
Krka
5
Zentiva
1
Gedeon Richter
9
Berlin-Chemie2
2
Teva3 Pliva Polpharma
-2 4
1
Russia, Poland, Romania, Czech Rep., Slovakia, Croatia, Slovenia, Hungary, Bulgaria, Lithuania, Latvia, Estonia, Ukraine, Kazakhstan Including Menarini business; 3 Excluding Copaxone, Azilect Source: PADDS, RMBC, PHARMIS, CEGEDIM
2
10 | Sandoz Day | Andreas Rummelt | September 3, 2008
5
Building a strong platform for future growth Retail Generics 87%1
Comprehensive portfolio of generic medicines Four main brands >950 compounds2 available in >5,000 forms High share of difficult-to-make products, >27% of net sales
AntiInfectives 10%1
Antibiotics as “enabling platform” World leader in antibiotic manufacturing Expertise in fermentation and chemical synthesis APIs3 and finished dosage forms
Biopharmaceuticals 3%1
A future growth platform Pioneering role in biosimilars4 Recombinant microbiological manufacturing
•1 Share of total Sandoz net sales; 2 Single active pharmaceutical ingredients and combinations •3 Active pharmaceutical ingredient; 4 Follow-on versions of biotech drugs
11 | Sandoz Day | Andreas Rummelt | September 3, 2008
Comprehensive portfolio for many medical needs Broad coverage of therapeutic areas
Systemic anti-infectives Cardiovascular system Central nervous system
Muscle and skeletal system Hormone therapy Respiratory system
Gastrointestinal system
Classic products enhanced …
… by pioneering biosimilars
12 | Sandoz Day | Andreas Rummelt | September 3, 2008
6
Agenda Sandoz – focused on global leadership in generics Generics – a dynamic business with high growth perspective Sandoz – well-positioned to win
Sustained growth outlook for generics Growing population
World’s population to expand by 1/3 within 40 years
Aging population
Elderly segment to expand 3 times faster than world’s population Healthcare expenditures rise significantly with age
Unhealthy lifestyles
Causing increased prevalence of chronic diseases
Medical advances
Improve therapeutic options, but also increasing costs Generics freeing up funds for truly innovative breakthroughs
Emerging markets
Generics crucial to improve access to healthcare Healthcare spending growing faster than GDP
14 | Sandoz Day | Andreas Rummelt | September 3, 2008
7
Healthcare trends support generics utilization Example
Selected healthcare market trends
Payors increasingly utilizing tenders
Providers consolidating and professionalizing drug purchasing
Government influence on pricing and generic substitution
Pharmacies and distributors consolidating
Many markets
and increasing substitution power
15 | Sandoz Day | Andreas Rummelt | September 3, 2008
Growth potential from higher generics usage 2007 generic penetration of retail markets1 (% of volume) 100 Growth potential
90 80
77
73
72
Growth potential
70 60 50 39
40
32
30 20
19
17
Italy
Japan
10 0 USA
Germany
UK
Established
France
Spain
Emerging
1
Includes only products that have lost exclusivity Source: Sandoz Central Market Database based on IMS; for retail only, volume measured in packages, Japan based on estimates
16 | Sandoz Day | Andreas Rummelt | September 3, 2008
8
Patent expiries feed generics pipeline Worldwide sales of expiring1 products, in USD bn 52 6 42 35 4
11
44
44 41
20
22
16
Biotech products
24
22
25
Conventional products
2013
2014
2015
Biopharmaceuticals will play an increasing role in the future
46 31
31
2010
2011
2012
1
Based on year of US patent expiry, nominal patent expiries not corrected for supplementary patents or litigation probability Source: Evaluate, Sandoz
17 | Sandoz Day | Andreas Rummelt | September 3, 2008
Generics market offers worldwide growth potential Retail generics industry market estimates1, in USD bn CAGR2 % 2008-13 9
135
Worldwide
48
Rest of World
12
18 5
Rest of Americas Japan
10 9
26
Eastern Europe
12
16
Western Europe
4
17
22
US
5
2008
2013
87 27
11 3 14 14
1 After rebates, internal estimates based on IMS at ex-manufacturer prices; 2 Compound annual growth rate, in local currencies Source: Internal estimates based on historic IMS Health data and own projections
18 | Sandoz Day | Andreas Rummelt | September 3, 2008
9
Pace of consolidation continuing 0 1 sales 2 3 41, in 5 USD 6 7 bn 8 9 0 1 2 31, in 4 USD 5 6 bn 7 8 2007 9 10 11 2005 generics sales generics
4.7
Barr/ Pliva
Teva2
4.6
Teva
10.2
7.2
Ivax
2.3
Mylan
Merck
2.2
Ratiopharm
Ratiopharm
2.0
Actavis3
2.2
Stada
2.0
Watson
10 11
1.6
4.0 2.5
Stada
1.3
Ranbaxy
1.6
Ranbaxy
1.2
Watson
1.4
Barr
1.1
Dr. Reddy’s
1.1
Mylan
1.0
Cipla
1.0
1
Including Active Pharmaceutical Ingredients sales, excluding brand business, animal health and other 2 Pro forma, including Barr/Pliva; 3 Guidance for 2007 Source: Annual and quarterly reports, press releases; excluding Hospira and Apotex due to lack of data
19 | Sandoz Day | Andreas Rummelt | September 3, 2008
Volume gains, new launches to offset pricing Average generics industry net market development1 +10% +8%
2006
-7%
+9%
Price
Volume
Price erosion is a given
Launches
2007
Volume gains and new launches to drive growth, overcoming price erosion
1 Based
on an analysis of top 30 markets over 2005 to 2007 Source: Internal estimates based on historic IMS Health data and own projections
20 | Sandoz Day | Andreas Rummelt | September 3, 2008
10
Diverse markets demand flexible approach Key dispensing influencer Individual Physician pharmacy
Buying groups
Brand
Main product type1
Product brand
INN+
Company brand
Pure INN
Distribution, price
Doctor Pharmacy Key sales force sales force accounts 1
Taking Losec® as an example: Omep (brand), Omeprazole Sandoz (INN+) and omeprazole (INN)
21 | Sandoz Day | Andreas Rummelt | September 3, 2008
Key success factors in generics
New launches
Differentiation
First-to-market with key new products
Portfolio going beyond standard generics Increasing share of products with some degree of exclusivity
Geographic presence
Broad and deep, covering established and emerging markets Proven skills to adapt rapidly to changing environment
Operational excellence
Constant focus on high quality at lowest costs
22 | Sandoz Day | Andreas Rummelt | September 3, 2008
11
Agenda Sandoz – focused on global leadership in generics Generics – a dynamic business with high growth perspective Sandoz – well-positioned to win
Sandoz delivered >150 new launches in H1 2008 First half 2008 new product launches1 22
Germany
11
Italy
Examples for key launches in 2008: Cetirizine (US)
10
Canada
Clopidogrel (Germany)
8
Hungary
Risperidone (Germany, France)
US
7
Olanzapine
Australia
7
Lansoprazole
(Germany)
Turkey
6
(France)
Amplodipine (Italy, Japan)
Atorvastatin
Romania
6
Czech Republic
6
Switzerland
6
(Turkey)
Omeprazole (Italy)
Ramipril (Italy)
1
Launch definition based on new molecules, in US based on ANDAs (Abbreviated New Drug Application)
24 | Sandoz Day | Andreas Rummelt | September 3, 2008
12
Continuing high filing activity worldwide North America
CIS and SEE1
European Union
578
2,113 1,788 315 44
65
2006 2007
HRM2
2006 2007
2006 2007
South America
Africa / Middle East
Asia / Pacific
351 142
211
162
208
122
2006 2007
2006 2007
96 2006 2007
85 2006 2007
1 Commonwealth 2
of Independent States and South Eastern Europe Highly regulated markets (Switzerland, Australia, Turkey, South Africa)
25 | Sandoz Day | Andreas Rummelt | September 3, 2008
Difficult-to-make generics: Unmatched capabilities Selected examples 2005
Fentanyl patch
2006
Omnitrope®
First generic alternative in Germany and Europe Utilizing reservoir and matrix drug delivery technologies First biosimilar in Europe and the US Pioneering role through precedent-setting approvals
Metoprolol Succinate MUTS1 First and only extended release generic using multi-unit tablet system Added advantage of tablet dividability and additional strengths
2007
Leuprone® implant First and only generic leuprorelin implant Ready-to-use syringe: direct implantation2, reducing necessary API amount by half
Cefdinir First generic to the US market, only 12 months to complete development In-house active ingredient production of a non-infringing form
Binocrit® / Epoetin alfa Hexal® First European approval of a complex biosimilar Most successful epoetin launch in Germany during 2007 1 Multi-Unit
Tablet System; 2 No suspension needed
26 | Sandoz Day | Andreas Rummelt | September 3, 2008
13
Positioned for early market entry opportunities Strong and competitive presence in the US • 108 ANDAs pending at FDA • 50% of US ANDA filings contain Paragraph IV certification • 15 believed to have “first-to-file” status • >30 active patent challenge cases
Aggressive market entries worldwide – with right risk/reward profile • 30-60 “at-risk” launches worldwide1 every year, e.g.
1 Number
-
Clopidogrel
- Gemcitabine
- Fentanyl
-
Omeprazole
- Atorvastatin
- Alendronate
-
Metoprolol Succinate
- Cefdinir
- Olanzapin
-
Amlodipine
- Nebivolol
- Pantoprazole
of compounds times number of countries
27 | Sandoz Day | Andreas Rummelt | September 3, 2008
Broad and deep geographical presence Sandoz ranking in USD 79 bn global generics market1
Top 1-3
47%
Top 4-10
18%
Growing presence
33%
Not present 2007 1
Estimated generics market size 2007, Source: Internal estimates based on IMS Health
28 | Sandoz Day | Andreas Rummelt | September 3, 2008
14
Underpinned by a global state-of-the-art network Canada:
Holzkirchen (DE):
Germany:
Rudolstadt (DE):
Injectables, ophthalmics
Patches, implants, orals
Oral solids, patches, implants, etc.
Inhalers, ophthalmics
Development Production
Boucherville (CA):
Poland:
Injectables, ophthalmics
Oral solids
US:
Kundl (AT):
Oral solids
Orals, biosimilars, injectables, APIs
Wilson (US):
Japan:
Oral solids
Oral solids
Brazil:
China:
Oral solids, hormones
Oral solids
Buenos Aires (AR):
Ljubljana (SI):
Oncology (injectables, oral solids)
Orals, injectables, biosimilars, APIs, etc.
Argentina:
India:
Oncology
Oral solids, APIs
Austria:
Slovenia:
Turkey:
Kolshet (IN):
Oral solids, APIs, injectables
Oral solids, APIs, injectables
Oral solids, APIs
Oral solids, APIs
•CA – Canada, US – United States, AR – Argentina, DE – Germany, AT – Austria, SI – Slovenia, IN – India
29 | Sandoz Day | Andreas Rummelt | September 3, 2008
Video
30 | Sandoz Day | Andreas Rummelt | September 3, 2008
15
High quality growth in Sandoz Retail Generics Change 2007 vs. 2006 Volume1
Sales
Purchasing2
COGS
Site costs3
+24% +21%
+20% +16% +14%
1
Standard units of oral solids (mainly tablets and capsules) Period costs: Purchased goods in production (active pharmaceutical ingredients, finished dosage forms, packaging material, etc.) Period costs: Labor, depreciation and other site costs Note: All growth rates in USD 2 3
31 | Sandoz Day | Andreas Rummelt | September 3, 2008
Improved flexibility: Increased product availability Sandoz Retail Generics product availability, in % >130 countries >950 compounds >5,000 formulations >20,000 SKUs >42 billion oral solids1
100
99
98
Jan
Apr
Jul
2006 1
Oct
Jan
Apr
Jul
Oct
2007
Tablets and capsules
32 | Sandoz Day | Andreas Rummelt | September 3, 2008
16
Significant synergies within Novartis portfolio Leveraging capacities and capabilities
Annual impact
Sandoz biotech development for Pharma and V and D
Up to USD 170 m1
Sandoz fermentation for Pharma and Animal Health
Up to USD 125 m2
Cross-divisional production
USD 230 m2
Sandoz product development for Animal Health
“Triple digit” USD m3
Maximizing Novartis product lifecycles Early entries and authorized generics
USD 270 m2
Examples: Lamisil® (Germany, 2005), Lotrel® (US, 2007)
Exploiting economies of scale and market access Centralized Group-wide functions Shared operating platforms in smaller emerging markets
Significant
Joint operations in markets requiring local manufacturing 1
Avoided outsourcing costs; 2 Internal sales; 3 Third party sales
33 | Sandoz Day | Andreas Rummelt | September 3, 2008
Focused and experienced leadership team Today’s speakers
Gerhard Schaefer Head Global Product Development
Ernst Meijnders Head Anti-Infectives and API Business Unit
Hannes Teissl Andreas Rummelt
Head Biopharmaceuticals
CEO Sandoz Member Executive Committee of Novartis
Bernhard Hampl CEO Sandoz US
Helmut Fabry CEO Sandoz Germany
Richard Saynor Head Commercial Operations APAC/LATAM/CA/TR
27 years of generics development experience Former Head of Development at Hexal
26 years of chemical industry experience General manager for 12 years
18 years with Sandoz 3 years as general manager Sandoz Germany
24 years of experience in generics Former CEO of Eon Labs for 10 years
22 years of consumer goods experience General manager for 15 years
16 years of experience in generics General manager for 8 years
34 | Sandoz Day | Andreas Rummelt | September 3, 2008
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