United States Pharmaceuticals and Healthcare Report Q2 2012

BMI View: Economics and politics are increasingly exerting an influence on the US pharmaceutical
market. This is in stark contrast to the late 1990s and early 2000s, when the business environment was
relatively insulated from external factors and drugmakers consistently recorded double-digit growth. The
government is currently looking to reduce expenditure and excessive healthcare spending and the sector
is being targeted for cuts. We do not, however, expect any fundamental changes to the public-funded
industry landscape for at least a year.

Headline Expenditure Projections
?? Pharmaceuticals: US$331.3bn in 2011 to US$335.1bn in 2012; +1.1% growth in local currency
terms. Our forecast is unchanged from Q112.

?? Healthcare: US$2,443bn in 2011 to US$2,564bn in 2011; +4.9% growth in local currency
terms. Our forecast is unchanged from Q112.

?? Medical devices: US$133bn in 2010 to US$139bn in 2011; +4.4% growth in local currency
terms. Our forecast is unchanged from Q112.
Business Environment Rating: The US Pharmaceutical Risk/Reward Rating (RRR) for Q212 is 79.1 out
of 100, which is unchanged from the previous quarter. The only significant downside is low single-digit
market growth. However this is offset by an extremely large absolute pharmaceutical market size and
many other factors, primarily the free pricing regime.

Key Trends & Developments
?? In February 2012, it emerged the US Affordable Care Act (ACA) saved 3.6mn enrollees aged
over 65, including some disabled people, a total of US$2.1bn in spending, as part of the
Medicare programme in 2011. The Department of Health and Human Services (HHS) said
savings for Medicare enrollees would average US$4,200 per person through to 2021 thanks to
new legislation. In 2011, Medicare offered a 7% discount on covered generic drugs for people
who crossed an annual limit under the Medicare prescription drug plan, while more than 2.8mn
people received US$32.1mn in savings on generics.

?? In February 2012, the US Centres for Medicare and Medicaid Services (CMS) proposed a new
rule that would enable the country to save US$17.7bn over five years on prescription drugs
bought through the state and federal Medicaid programme. The new regulation is for the
implementation of sections 2501, 2503, and 3301 of the Affordable Care Act relating to
prescription drug supply through Medicaid. The rule is designed to ensure higher transparency in
pricing and to guarantee taxpayers and states do not overpay for prescription drugs.

?? In December 2011, Indian pharmaceutical company Ranbaxy Laboratories was expected to
pay US$500mn to resolve possible civil and criminal liabilities, following an investigation by
the US Department of Justice. The potential penalties are attributed to compliance problems
discovered by the US Food and Drug Administration (FDA) at Ranbaxy's manufacturing
facilities. The firm has also signed a consent decree with the FDA to restart sales of drugs
produced at its facilities in Poanta Sahib and Dewas, which account for around 25% of its
US$1.9bn annual sales.

?? In November 2011, the world's bestselling prescription drug, Pfizer's Lipitor (atorvastatin), lost
patent protection in the US. It is BMI’s view US sales of Lipitor will drop by less than expected
following patent expiry. This is due to the many franchise preservation strategies employed
by Pfizer, namely direct-to-consumer distribution, lower pricing, negotiation with intermediaries,
aggressive competitive positioning, development of fixed-dose combinations and enhancement
of the medicine's brand. We accordingly expect other multinational companies to employ some
or all of these tactics following the end of intellectual property (IP) protection for their leading
medicines.

BMI Economic View: We have upgraded our US real GDP growth forecast for 2012 to 2.0% from 1.6%,
owing primarily to stronger-than-expected economic activity in Q411, which has inflated the base effect.
Our overall outlook for the US economy, however, has not changed: private consumption growth will
remain subdued, government deficit reduction will weigh on economic activity, and the European debt
crisis poses downside risks to the export sector.


BMI Political View: Our core view for the 2012 US federal election is that President Barack Obama will
win a second term in office, while the Republican Party will retain the House of Representatives and win
enough seats to at least evenly divide the Senate. Mitt Romney is most likely to win the Republican Party
nomination, but until the electoral campaign gets going in earnest in Q312, it is difficult assess the degree
to which policy would shift should the Republicans take the White House