Long-Term Financing of Life Sciences Sector in Emerging Markets February 2012
Global Health Care Trends Population growth and aging populations 2/3 the population of human beings that ever crossed the age of 60 is alive today and by 2015 population > 65 will be more than 20% of the total population in the developing world Changing disease profiles from infectious to chronic diseases Need for new technologies and treatments Pressure to reduce health care costs Less investment in public health services, increased PPPs and growing health insurance Increased self-medication fueled by OTC switches branding to become more important Uptake of generic drugs following patent expiry will become swifter Evolving regulatory regimes and reimbursement systems Need to improve efficiency of innovation It takes US$900mm-$1.4 billion and 15 years to bring a new drug to market in U.S. R&D and manufacturing outsourcing to low cost bases in the emerging market will accelerate because of human capital, cost structure, and an evolving regulatory framework Access to medical equipment and technology is crucial for effective prevention and treatment of major diseases; emerging markets, led by India and China, will drive demand for medical equipment and devices 2
Emerging Markets Highlights Emerging Markets to drive industry growth Rising purchasing power and incomes strongly correlated to increasing expenditure on health care Double digit 5-yr CAGRs increases in pharmaceutical sales expected for Brazil, Russia, India, and China Consolidation in the emerging markets expected Under met needs & high burden of disease A greater prevalence of chronic diseases in emerging markets and increased demand for treatment Developing countries account for over 90% of the global burden of disease and 85% of deaths 300-500 million cases of malaria are reported each year and 38 million people have HIV/AIDS3 million people die per year from vaccine treatable diseases Common Issues: counterfeit drugs & corruption Estimated global counterfeit drug sales in 2010: US$75 billion, an increase of more than 90% from 2005 Estimated 200,000 people die every year from malaria because of poorly produced and delivered drugs (WHO) Up to 25% of the public procurement spending is lost due to corrupt practices (WHO) 3
Russia and CIS: Some Common Themes Market growth driven by: large populations, increasing purchasing power, low consumption, phasing out of traditional drugs, government extended medicine coverage (but with price regulation) Import substitution story supported by government (in some countries): required localization of manufacturing is driving extensive capex investments Generic prescribing driving generics growth; weak patent enforcement Distribution and retail: consolidation to achieve scale and address pressure on margins from Gov t regulations Inadequate hospital infrastructure calling for Gov t investments creating opportunities for medical equipment suppliers Russia highlights Market size: pharma: $20.1 bn; medical devices: $5.95 bn in 2011 (15% CAGR expected to 2015) 10 strong domestic pharma manufacturers emerging Astra Zeneca, Novartis, Novo Nordisk, KRKA and others announced new / expansion of manufacturing facilities Pharmacy chains: 65-70% of retail market by 2015 4
IFC s Regional Strategy in Life Sciences Sub-Sectors What we are looking for Strategic Focus Finished Products: Prescription Over-the-counter - Sales force, pipeline, unique technology, quality, country/regional leader - Marketing, distribution channels, brands Core Core Injectibles/infusions vaccines - High tech, quality, supply channels Selective Distribution and Pharmacies Other: medical equipment & devices supplies, inputs personal care/cosmetics - Local and regional with scale, geographical reach, minimum exposure to government reimbursement - Innovative, quality, brand, distribution network - Large scale, export, high quality - Scale, brand, quality, distribution Core Selective 5
IFC is a Member of the World Bank Group IBRD IDA International Development Association IFC International Finance Corporation Est. 1945 Est. 1960 Est. 1956 Est. 1988 To promote institutional, legal and regulatory reform To promote institutional, legal and regulatory reform To promote private sector development To reduce political investment risk Governments of member countries with per capita income between $1,025 and $6,055. Governments of poorest countries with per capita income of less than $1,025 Private companies in member countries Foreign investors in member countries - Technical assistance - Loans - Policy Advice - Technical assistance - Interest Free Loans - Policy Advice - Equity/Quasi-Equity - Long-term Loans - Risk Management - Advisory Services - Political Risk Insurance Shared Mission: To Promote Economic Development and Reduce Poverty 6
Financial Products From Equity to Debt Equity Corporate and JV Typically 5-15% shareholding (not to exceed 20% of total equity) Long-term investor, typically 6-8 year holding period Not just financial investor, adding to shareholder value Usually no seat on board Infraventures (early equity investments) Mezzanine / Quasi Equity Subordinated loans Income participating loans Convertibles Other hybrid instruments Senior Debt & Equivalents Senior Debt (corporate finance, project finance) Fixed/floating rates, US$, Euro and local currencies available Commercial rates, repayment tailored to project/company needs Long maturities: 8-20 years, appropriate grace periods Range of security packages suited to project/country Mobilization of funds from other lenders and investors, through cofinancings, syndications, underwritings and guarantees 8
Investment Possibilities Across Health Services and Life Sciences PAYERS SERVICE/ FINANCIAL INTERMEDIARIES PROVIDERS PURCHASERS (SUPPLIERS) INNOVATORS AND MANUFACTURERS Governments Individuals Corporates HMOs Insurance Technology Services CROs health care Logistics Providers Hospitals/ Clinics Outpatient Physicians Pharmacies Laboratories and Diagnostics Distributors Wholesalers Intermediates and APIs Finished formulations Vaccines Devices Diagnostics health care supplies IFC works closely with a wide range of parties to provide financing solutions across the health industry. 9
IFC Health Care and Life Sciences at a Glance IFC in Health Care & Life Sciences: 78 projects in 28 countries Strong track record: in 2005-2011 invested US$845.9 million in Health Care and US$233.8 million in Life Sciences Well-diversified portfolio: at June 30, 2011 outstanding portfolio balance was US$722.7 million 25 20 15 10 5 0 Portfolio Projects, by Region LAC Africa EMENA Asia Health Life Sciences 10
IFC Additionality: Beyond Financing Knowledge of EM: Sharing IFC s knowledge and experience in EM with global players Sector knowledge and expertise: Specific strategic and technical guidance given to investee companies, utilizing global expertise and IFC s industry specialist s knowledge Promotion of quality and affordability agenda through Action Plans and covenants in loan agreements, examples include GMP standard-setting, capacity utilization (to achieve lowest cost possible), hiring of competent technical personnel Provision of strategic advice related to USFDA/EU certifications or M&A strategy Where required supplement with Advisory Services programs to strengthen quality of production Sharing sector network: IFC s portfolio network is available to all investee companies, e.g. for sourcing APIs Knowledge sharing events: IFC sponsors events, such as biannual health care conferences in Washington, D.C. as well as regional and country-specific forums Example: Advisory Services: Alkaloid (Macedonia) became the first company in the Balkans to obtain EU GMP approval creating important export opportunities for a small market manufacturer Example: Cleaner Production: IFC reviewed Granules (India) operations to provide guidance on cleaner production and subsequently provided a loan through the Cleaner Production Lending Facility Example: Network links: Our Colombian client could access supplies of ibuprofen and paracetamol from our Indian portfolio client 11
IFC in Healthcare: Cleaner Production Pharma Specific Issues Electricity consumption Water consumption Solvent recycling Specific Opportunities/Solutions Install efficient HVAC equipment with advanced controls Renewable energy options Condensate recovery and recycling system Green Buildings Indoor environment (HVAC) Lighting demands Plug loads Water use consumption May have incinerators on site Install efficient HVAC equipment with advanced controls Have demand controlled lighting systems Specify efficient appliances where possible Incinerator heat recovery 12
New Spaces in Life Sciences Supplier Finance Distributor Finance Risk-Sharing/ Credit Facilities Trade Finance Pharma Medical Equipment Consumables Medical Equipment Health SMEs Climate Change Medical Equipment Pharma Consumables Reach smaller producers in emerging markets Bring machinery and technology to emerging markets Encourage banks to cover new sectors Encourage trade flows 13
Representative Transactions with Financial Intermediaries Funded Facilities Investment Funds IFC Guarantees US$25m Senior Debt Turkey US$25m Senior Debt Brazil US$4 million India Health in Africa (HiA) Fund US$20m Equity (a) Africa Region Global Trade Finance Program (GTFP) Health US$12.2m For medicines, medical/laboratory equipment, other medical goods Baxter / Boston Scientific / Eli Lilly / Novartis / Toshiba US$71.4m Senior Debt Romania Fund II US$10m Equity China (a) Represents IFC s investment in the Health in Africa Fund 14
Representative Transactions in Life Sciences Debt Debt Debt and Equity Equity and Quasi-Equity Investment and Advisory Fosun Pharma Hikal Bharat Biotech Hikma US$40.6m Debt China US$3.5m Debt Ukraine US$33.7m Debt and Equity India US$4.5m Equity India US$26.8m Debt and Equity Jordan Weigao US$20m Debt China US$15m Equity and Debt US$1m Cleaner Production Loan India Tecnoquimicas US$45m Debt and Equity Colombia Pliva US$35m Quasi-equity Croatia Alkaloid US$9m Quasi-Equity Macedonia Abolmed Dishman Bosnalijek Orchid Bio-Extracts EPZ US$8m Debt Russia US$15m Debt India US$14m Debt and Equity Bosnia-Herzegovina US$30m Quasi-equity India US$7m Debt and Equity Kenya 15
IFC Contacts Washington, DC: Sabina Cosic, Chief Investment Officer scosic@ifc.org +1 202 458 0305 Sergey Kozhukhov, Senior Investment Officer skozhukhov@ifc.org +1 202 473 7468 Moscow: Andrew Yakovlev, Investment Officer ayakovlev@ifc.org +7 495 411 7555 Almaty: Saule Imanova, Associate Investment Officer simanova@ifc.org +7 727 298 0580 16