Industry trends in Pharma

Trends in the sector influencing investment decision

Johan Vanhoyland, Sector Head General Industries & Pharmaceuticals

February 5th 2015

Vlerick Alumni – Meet the Industry

• General Industries & Pharma within ING Commercial Banking

• Pharmaceutical Sectors & Sub-Sectors

• Some macro-economics impacting the Pharma-industry

• Trends in the Pharma-industry

• Key factors influencing an investment decision

• Concluding remark

Agenda

9/24/11 2

General Industries & Pharma within ING Commercial Banking

Corporate

FInance

Event FInance

Lending

Services

Financial

MarketsTransaction

Services

ClientClient

Assistant

RSMAccount

Manager

Relationship

Manager

Senior

Banker

International

Branch

Network &

Local Account

ManagementExecutive

Involved

Research

• Corporate clients team

centralized in Brussels.

Sector approach, 6

sectors :

• General Industries & Pharma within ING Commercial Banking

• Pharmaceutical Sectors & Sub-Sectors

• Some macro-economics impacting the Pharma-industry

• Trends in the Pharma-industry

• Key factors influencing an investment decision

• Concluding remark

Agenda

9/24/11 4

Source: Eestimations & company reprots

Pharmaceutical sectors and subsectors

Pharmaceutical Sector

DevicesProducts

Pharma

Industry

BioPharma

Industry

BioTech

Industry

MedTech

Industry

Drugs for Humans

OTC-Drugs

Drugs for Animals

In-vitro Diagnostic

Red-sector

Green-sector

Blue-sector

White-sector

• General Industries & Pharma within ING Commercial Banking

• Pharmaceutical Sectors & Sub-Sectors

• Some macro-economics impacting the Pharma-industry

• Trends in the Pharma-industry

• Key factors influencing an investment decision

• Concluding remark

Agenda

9/24/11 6

Some macro economics impacting the Pharma-industry

Comments

• Although the health economy shares a tight connection to the overall economy, its cycle is not always

synchronized with the larger economic picture.

• The health economy generally lags behind broader economic fluctuations.

• A recession will decrease health spending up to five years after it ends, with the biggest impact three to

four years post-recession.

Some macro economics impacting the Pharma-industry

Comments

• The global population will

constantly rise. The pharma

companies will be able to

benefit from that situation in

the future.

• The aging population will

become more and more

dominant. Because old people

are mainly affected by heart

diseases, cancers, respiratory

diseases and Alzheimer (see

examples in Annex), firms

producing that kind of

medicines will more benefit

from that situation than others

pharmaceutical companies.

• General Industries & Pharma within ING Commercial Banking

• Pharmaceutical Sectors & Sub-Sectors

• Some macro-economics impacting the Pharma-industry

• Trends in the Pharma-industry

• Key factors influencing an investment decision

• Concluding remark

Agenda

9/24/11 9

Trends in the Pharma-industry

• Highest level in M&A activity in five years

• Pharma companies focus on core activities with high

added value and divest non-core activities

• Revenues eroding due to patent expiry and entrance of generic

competition in the market

• Reimbursement policies of governments forcing Pharma companies

to cut costs

• Regulatory environment for new medicines has become more

stringent

• Shift to biologic based drugs

• General Industries & Pharma within ING Commercial Banking

• Pharmaceutical Sectors & Sub-Sectors

• Some macro-economics impacting the Pharma-industry

• Trends in the Pharma-industry

• Key factors influencing an investment decision

• Concluding remark

Agenda

9/24/11 11

Key factors influencing an investment decision

• In the Pharma industry, the development of drugs consists of 6 steps.

• The time for the launching of a new drug on the market can vary from 10 to

30 years, depending on the length of each step.

Source: Pfizer, 2013

Key factors influencing an investment decision

• An investor entails a later clinical stage as it has a shorter time-to-market and

a higher success rate.

FOCUS

Phase I Phase II Phase III

Time ~ 18 months ~ 18 months

2.5 to 4 years

(Sometimes

up to 7 years)

Budget

8.1% of the

total

development

cost

12.8% of the

total

development

cost

36.7% of the

total

development

cost

Importance of

the phase

Security

(Safeness)

Evaluation

“proof of

concept”

Efficacity

Chance of

survival~ 60% ~ 50% ~ 50-90%

Key factors influencing an investment decision

• Expected growth in market share and sales of pharmaceutical product categories:

2013 2020

Key factors influencing an investment decision

Business Angels

Venture Capitalist

Bank Loans

Initial Public Offerings

• Financing cycle of the enterprise

• In general, most of thetime, financing ofstartups (or projects forthat matter) starts by“Family, Friends andFools”, followed byBusiness Angel andVenture Capitalist.

• One of the latest tofinance startups arebanks, due to the riskbehavior of the startup.

• Due to this behavior,banks will only start tofinance projects uponnotice of certainty.(such as proof ofconcept, foreseeablesales, etc.). The samecan be said for theclinical phases. Onlyprojects in a laterphase could be ofinterest to banks.

Start-Up Initial Growth Strong Growth

Source: BA of Biotech, VUB

Key factors influencing an investment decision

Key factors influencing an investment decision

Scale Revenu

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Business Profile Product and Therapeutic Diversity

Geographic Diversity

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Patents and Pipeline Patent exposures

Pipeline quality

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Leverage and Cash Coverage Debt/EBITDA

(Cash Flow from Operations) / Debt

Cash Coverage of Debt

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Financial Policy Quality of management

• General Industries & Pharma within ING Commercial Banking

• Pharmaceutical Sectors & Sub-Sectors

• Some macro-economics impacting the Pharma-industry

• Trends in the Pharma-industry

• Key factors influencing an investment decision

• Concluding remark

Agenda

9/24/11 18

Concluding remark

“Pharma-industry is evolving from research driven and

focussed on improving the quality of life to maximizing

shareholder’s value.”

Thanks for your attention

Johan Vanhoyland

johan.vanhoyland@ing.be +32 2 547 84 77

ING Commercial Banking – Corporate Clients