Switzerland Pharmaceuticals and Healthcare Report Q1 2013

BMI View: While the patent cliff and the consequent availability of generic drugs, as well as price cuts ongeneric medicines and their increasing affordability, will work towards increasing the consumption ofgeneric medicines in Switzerland, BMI believes the government needs to do more to alter patients' attitudestowards these drugs as this is the main growth deterrent.

Headline Expenditure Projections

Pharmaceuticals: CHF6.77bn (US$7.63bn) in 2011 to CHF6.58bn (US$7.00bn) in 2012; -2.8% declinein local currency terms and -8.3% in US dollar terms.

Healthcare: CHF65.30bn (US$73.8bn) in 2011 to CHF67.56bn (US$71.87bn) in 2012; +3.5% growth inlocal currency terms and -2.6% in US dollar terms.

Medical devices: CHF4.77bn (US$5.38bn) in 2011 to CHF4.76bn (US$5.06bn) in 2012; -0.3% growthin local currency terms and -5.9% in US dollar terms.

Risk/Reward Ratings: In BMI's Q113 risk/reward ratings (RRRs) for Western Europe, Switzerland hasmaintained its position as the top market in the Western Europe matrix, above the UK and France.Switzerland's score for the quarter stands at 70.9, well above the regional average of 65.8. However, BMIanticipates that Switzerland may slip down the world rankings in the medium to long term as large, highgrowthemerging markets such as Brazil and China become more alluring to multinational drugmakers.

Key trends and developments in the sector:

Roche's 9M12 group sales reached CHF33.7bn (US$35.9bn), a 7% year-on-year (y-o-y) increase in localcurrency terms (0% in US dollars and +4% at constant exchange rate), from CHF31.5bn (US$35.8bn) in9M11.

Noavrtis' Q312 group sales reached US$13.8bn, a 7.0% decrease in US dollar terms and a 2% decreasein constant currency terms (cc) from US$14.8bn in Q311. The decline in group sales was contributed bythe decline in sales from all business units: pharmaceuticals, the Alcon and Sandoz subsidiaries, theconsumer health segment, and vaccines and diagnostics.

BMI Economic View: Having languished in deflationary territory for nearly a year, the Swiss consumerprice index appears to be turning a corner. Some let-up in the eurozone debt crisis following a bold policyresponse from the European Central Bank, coupled with ultra low policy rates and a potential increase indomestic food prices, would support a return to inflation in 2013. We warn, however, that risks remain tothe downside, with potential for a renewed flare up in the eurozone or a hard landing in China, in turnspurring foreign demand for the franc and pushing up the real effective exchange rate.

BMI Political View: With fiscal austerity biting hard in much of Europe, calls to clamp down on tax exileshave grown louder. This presents the Swiss government with an increasingly uncomfortable dilemma as itattempts to balance the demands of the country's biggest cash cow and the mounting pressure from foreigngovernments seeking to boost revenue collection. Given the growing list of governments seeking to clampdown on tax avoiders, the Swiss government is likely to push ahead quickly to sign bilateral deals now inorder to avoid more punitive agreements further down the road, which could compromise the confidentialityof bank accounts held in the country.