Perspectives on Loss of Exclusivity Management

Discussion with Eli Lilly | January 31, 2017Deloitte Consulting LLP

Our Understanding of Loss of Exclusivity (LOE) Management at Lilly

Some of Lilly’s major products have lost exclusivity in recent years, providing an opportunity to learn from prior experiences

Brand-specific LOE management will likely be a focus as eight products totaling $5.7B in 2015 sales prepare for LOE in 2017

◦ What worked well? What did not work well?

◦ How consistent was the LOE process managed across brands?

◦ How can the process be improved for the future?

◦ How effective are Lilly’s LOE tools relative to competition?

21 Nov

26 May14 Oct19 Feb

1 Nov 21 Nov

12 Feb 8 Dec

2017 2018

Oct 2011

Dec 2013

Mar 2014

Source: Evaluate Pharma

The opportunity cost of not managing LOE effectively is high

$7.1M $0.6M$0.3M $0.6M $1.0M $1.7M

0

2000

4000

6000

8000

20

60

100

140

2015(A)

2016(F)

2017(F)

2018(F)

2019(F)

2020(F)

2021(F)

2022(F)

$34.5M$17.6M$8.2M$5.6M$4.6M$3.5M

0

10000

20000

30000

40000

50

250

450

650

850

2015(A)

2016(F)

2017(F)

2018(F)

2019(F)

2020(F)

2021(F)

2022(F)

14 Oct

21 Nov

1 Nov

21 Nov

26 May

19 Feb

$300

M-$

1B>

$1B

<$3

00M

WW

Rev

enu

e in

2

01

5

Upcoming US LOEs in 2017

ILLU

STR

ATI

VE

Revenue, 2015-22(In $ Million)

Additional Revenue with 10% less sales erosion (In $ Millions)

Source: Evaluate Pharma, Monitor Deloitte Analysis

$0.0M

$22.3M$118.5M$35.7M$14.5M $… $6.0M

0

50000

100000

150000

300

800

1,300

1,800

2,300

2015(A)

2016(F)

2017(F)

2018(F)

2019(F)

2020(F)

2021(F)

2022(F)

Additional Revenue with 10% less sales erosion (In $ Millions)

Additional Revenue with 10% less sales erosion (In $ Millions)

Traditionally actual/forecasted revenue Forecasted revenue with 10% less sales erosionKey:

Potential Strategies / Tactics

Preventing cumulative sales erosion by just 10% would equate to $292M in additional revenue through 2022, with a present value of $272M

Co-Pay Cards

Adherence

Contracting

HCP Awareness

PatientAwareness

Direct to Patient

Fulfillment

Competitors have historically deployed a variety of strategies as part of LOE management

Strategy Description Industry Examples

• Shift focus from core marketing and sales activities to a new set of activities intended to drive patient acquisition and retention

• Maximize sales through the LOE period

• Create an OTC version of the branded product to maintain and/or grow volume post-LOE

• Offer a generic alternative of the branded product

• Variations of this strategy include Branded generic, Authorized generic and Licensed generic

• Divest the product, in whole or in part (e.g., commercial rights in specific markets) to a strategic buyer

• Maximize value of existing asset while enabling investment into new products

• Continue manufacturing of the product but suspend all marketing and sales investment

• Timing impacted by product and market dynamics, such as the number of generics entering the market

• Considered a last resort option

Historical norm leading up to the early 2000’s1

Preserve brand equity and patient loyalty

Create an OTC formulation

Launch a generic

1

2

3

Divest branded product

4

Sunset the brand5

1 Pharmaceutical Executive

We recommend that Lilly consider a range of LOE strategies anchored in the Ten Types of Innovation™ frameworkTen Types of Innovation™

Efforts often over-emphasize experimenting with the offering itself…

…while we focus on exploring the entire business

system

Companies with strong innovation track records manage their innovation efforts as parts of a highly interrelated whole – they look beyond product innovation to develop an integrated program.

The Ten Types of InnovationTM framework provides a structured approach for developing new programs.

Configure assets differently to deliver value

Experience-centric Innovation

Reinvent or recombine capabilities to deliver

value

Engage patients differently to deliver

value

Business Model-centric Innovation

Platform-centric

Innovation

There is an opportunity for Lilly to think beyond the core tactics that have been embraced by the industry till date to exploring more disruptive moves

Key LOE Considerations

LOE environment drives key choices on how to engage the market

Partnership to share value (eg. Contracting)

Co-pay Cards

30 pills for $30

Sell throughthe current

system

By-pass the current system

Create a new system

MARKET ENGAGEMENT STRATEGIES SAMPLE TACTICS

1

2

3

Post-LOE Environment

Physicians

Government

Partnership strategies and creating new systems can avoid organizational risk and policy issues in the long term

Pharma Co.

Pharma Co.

Pharma Co.

LOE Management – An integrated set of choices

Portfolio

Organization

What is the firm’s organizational commitment to this product, post-LOE?

What are the downstream organizational implications based on the LOE strategy?

What are the organizational levers to reduce product costs post-LOE?

External Environment and Triggers

What are the uncertainties that exist?

What are the product specific and macro level dynamics that can impact the LOE event?

What are the potential trigger events / scenarios?

Portfolio

What is the overall strategy for the therapeutic area and how does this product fit within it?

How does the TA strategy fit into the company’s portfolio strategy?

What are potential opportunities to impact the portfolio (pipeline, license, partnership / out-license, divestiture, etc)?

Product

Does the product have strong brand equity / loyalty?

What is the expected LOE competitiveenvironment?

What is the post-LOE growth potential for the product?

When preparing for LOE, it is critical to think about the interplay and inter-dependence between Product, Portfolio and Organizational strategic choices

Key LOE Considerations: Planning When to ActNo matter the strategy chosen, plans and tactics should span both the pre- and post-LOE timeframes to maximize effectiveness

Month -24 Month -18 Month -12 Month -6 Month +6 Month +12

Pre-LOE Peri-LOE Post-LOE

Develop Strategies

Execute Pre-LOE Strategies Execute LOE Strategies

Manage/ Sunset Asset

• Understand current state and future projections

• Analyze market dynamics

• Apply the Brand Affinity Checklist to determine attractive strategic options

• Tailor strategies and tactics to address brand and market dynamics

• Execute a single strategy or a combination

• Preserve/maximize brand equity

• Expand to include OTC

• Launch a generic

• Externalize Product

Loss of Exclusivity

• Monitor generic competitive environment

• Track strategy performance

• Evaluate sunsetting

Maximize product sales via pre-LOE activities

Slow sales erosion through peri-LOE activities

The peri-LOE period, 6 months before and 6 months after LOE, is the primary time to launch the selected LOE strategy in the market

Key LOE Considerations: When to launch an Authorized Generic?

12 2

1 1 13

43

5

35

21 1 1 1

21

42

4

1 12 2

1 1 1 1

0

5

10

15

20

25

30

35

40

-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 9 10 11 12 13 14 15 18 19 21 22

# o

f AG

Lau

nche

s

Month to/from LOE

Number of AG Launches Pre-and Post-LOE (2001 – 2016)

AG launch timing has varied across products since 2001, but within 1 month of LOE is the most common timing observed

• More than 40% of authorized generics have launched within 1 month of LOE

• Pfizer and Novartis have launched the most AGs with 18 and 11, respectively

− 5 of the AGs by each company were launched within 1 month of LOE

• Most launches in the 12-24 pre-LOE months include unique circumstances. For example, Mitigare was approved by the FDA in 2014, after already launching a generic. The generic was maintained to account for sudden price increase

Sources: Evaluate Pharma; FDA Authorized Generic Database

Key LOE Considerations: Authorized Generic Launch Decision FlowA simple decision tree – and key considerations at each node – can help to guide the decision regarding whether and when to introduce an authorized generic

Key LOE Considerations: Sales Force and Business Model PlaysFocusing on the following areas will support the development of LOE strategies for upcoming brands facing LOE

Explore innovative methods to engage with patients and preserve brand loyalty:

Sales Force Management Business Model Plays

Mobile application with savings card access, refill reminders, and customer care

Video messaging emphasizing that not all medications, including generics, are the same

Text-based mobile application to receive discount cards

Leverage sales force relationships, coverage, and incentives to protect sales and prepare for LOE transition:

Shifting compensation

targets over time

Adjusting territory alignments as LOE

nears

Engaging opinion leaders and keeping them apprised of

product strategy

How can Deloitte help?

How Can Deloitte Help?Deloitte can potentially support Lilly in developing LOE strategies in multiple ways

LOE Innovation Workshop and War Game1

• Walk in your competitors shoes to help think differently to deeply understand their motivations and strategies around LOE e.g. AG launch timing, promotions, etc.

• Use the Ten Types of Innovation™ Framework to craft LOE strategies and tactics (including disruptive moves)

• Engage internal stakeholders in a collaborative environment to share ideas to form a collective POV

• Brainstorm and prioritize on your most important needs and/or challenges that should be addressed immediately

• Strengthen existing LOE plans through insights generated from the session

Support through LOE Center of Excellence2

• Review existing LOE plans at Lilly• Develop supplementary core and innovative

strategies and tactics to strengthen the plans • Run pilots/experiments in the field based on the

tactics• Conduct real-time analytics to adjust tactics• Re-test and experiment, as needed, and scale-

up strategies and tactics• Monitor and track revenue / share preserved vs.

the base case • Continuously learn and improve from the pilot

Case Study: Deloitte supported a leading cardiovascular brand to pilot pioneering LOE strategies that changed the game and successfully preserved brand value

Results

• Worked collaboratively with a diverse group of client stakeholders to design, evaluate, and test a new pricing and promotional model whichgained strong internal leadership approval and support

• Successfully aligned a diverse group of the client stakeholders and mitigated key concerns/risks

• The program design was selected as a winner for the client’s internal innovation challenge

• The first pilot was successfully initiated and the client is on-track to deliver the remaining pilot and plan for launch

A leading pharmaceutical client was seeking expertise to develop innovative growth strategies to drive incremental revenue for the client’s broad portfolio of post-LOE assets

Issue

Designed an innovative pricing

strategy and defined key

program elements

Constructed a business case highlighting

financial impact with key

sensitivities and risks

Developed pilots to test programs in the market and

to support the execution of each

Pilot ProgramBlueprint

LOE Management and Go-to-Market

Levers

Key Activities

Sample Outputs

Appendix

Case Studies: Value-extending LOE Strategies

Source: “Loss of Exclusivity: Strategies to Maximize Product Value”, Deloitte, Nov 2016

Pfizer and AstraZeneca successfully slowed generics erosion and maintained brand equity through their LOE strategies and tactics

Sources: Evaluate Pharma; Medscape; Orange Book; AstraZeneca Press Release

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